The Issue Whether the Petitioner, Christopher Rayborn, is entitled to participate in the Florida Retirement System (FRS).
Findings Of Fact The Petitioner, Christopher Rayborn, is by training and experience a nurse. He was first hired by Jackson Memorial Hospital (also identified in this record as Jackson Memorial Hospital Public Health Trust) in 1988. At that time Petitioner was employed into a regularly established, full-time position of nurse and was enrolled in the FRS. In 1991 the Petitioner terminated his employment at Jackson Memorial Hospital (Jackson). It is undisputed that Petitioner was entitled to participation in the FRS for the period of employment at Jackson from 1988-1991. In 1994 the Petitioner was again recruited to work at Jackson. Recruiters for Jackson attempted to fill the many vacancies in the nursing staff with permanent full-time employees. Such permanent full-time employees were eligible for benefits including retirement through the FRS. Also available were positions designated as "temporary relief/pool nurse." The "pool" nurses did not receive benefits. They did, however, receive a higher rate of pay. Regardless of the position, new employees were given forms, including the FRS participation form, to complete for Jackson. This Petitioner completed the FRS form and attended the workshop for all new Jackson employees. Had the Petitioner accepted a full-time permanent nurse position, he would have received all benefits then available to Jackson permanent employees including participation in the FRS. The Petitioner would have been subject to disciplinary rules for permanent employees and would have been required to work the shifts and hours designated by the employer. Instead, the Petitioner opted to receive a higher hourly rate of pay. By so doing, the Petitioner selected a position that was designated as a temporary relief/pool nurse that did not provide benefits. The Petitioner did not accrue paid leave and did not receive other benefits available to full-time employees. Any participation contributed for the Petitioner in the FRS for the period 1991 through 1998 was done in error. As a temporary employee he was not authorized to participate. In 1996 the Petitioner's job description was changed to "on call/pool nurse." Again, this position did not provide benefits and provided the Petitioner with a higher rate of pay than the full-time permanent nurse positions paid. As an on call/pool nurse the Petitioner worked 40 hour weeks but did not have to accept any work assignment or schedule which he did not want to work. He was entitled to decline shifts or schedules according to his personal interests. Jackson was required to continue the on call/pool nurse system due to the tremendous shortage in nurses. Had sufficient numbers accepted full-time permanent nurse positions, the use of on call/pool nurses would not have been necessary. In 1998 the Petitioner accepted a full-time permanent nurse position with Jackson. When moved into the full-time position, the Petitioner accepted a lower rate of pay and was entitled to benefits. He was not offered participation in the FRS at that time, however, because effective January 1, 1996, Jackson no longer participated in the FRS. Given the nurse staffing needs of Jackson, the use of on call/pool nurses continued uninterrupted for the period 1991 through 1998. None of the on call/pool nurses receiving the higher rate of pay were eligible for benefits from Jackson.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of Retirement enter a Final Order denying the Petitioner's request for participation in the FRS for the period subsequent to 1991. DONE AND ENTERED this 27th day of October, 2000, in Tallahassee, Leon County, Florida. J. D. Parrish Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of October, 2000. COPIES FURNISHED: Roberta Fulton Fox, Esquire Law Offices of Roberta Fox, P.A. Grove Plaza, Seventh Floor 2900 Southwest 28th Terrace Miami, Florida 33133 Thomas E. Wright, Esquire Division of Retirement Cedars Executive Center, Building C 2639 North Monroe Street Tallahassee, Florida 32399-1560 Ron Poppell, Interim Director Division of Retirement Cedars Executive Center, Building C 2639 North Monroe Street Tallahassee, Florida 32399-1560 Emily Moore, Chief Legal Counsel Division of Retirement Cedars Executive Center, Building C 2639 North Monroe Street Tallahassee, Florida 32399-1560 Bruce Hoffmann, General Counsel Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue The issue in this case is whether Petitioner should take license disciplinary action against Respondent based upon matters set forth in an Administrative Complaint filed on October 22, 1986 which alleges she violated Section 464.018(l)(f), Florida Satutes.
Findings Of Fact Respondent is currently licensed as a registered nurse in the State of Florida, with license number 68722-2. She was also licensed as a registered nurse, with the same license number on February 28, 1986. On February 28, 1986 Respondent was employed as a registered nurse at G. Pierce Wood Memorial Hospital in Arcadia, Florida. As one of her duties, she was assigned to transport a patient from Punta Gorda a Medical Center to G. Pierce Wood Memorial Hospital, a drive of between thirty and forty minutes. When Respondent was assigned to transport the patient from Punta Gorda Medical Center, she was informed by Elaine Snider, secretary at G. Pierce Wood Memorial Hospital, that the patient required oxygen therapy during the drive to G. Pierce Wood Memorial Hospital. In transporting the patient, Respondent failed to provide any oxygen therapy to the patient, although she knew that this patient required oxygen therapy. Respondent testified that her supervisor, Ruby Woodbine, ordered her to use a particular van, which she had never used before, to transport this patient. The van was not equipped to provide oxygen therapy. While on the way to Punta Gorda, Respondent discovered the van was not equipped to provide oxygen therapy. However, since the request to pick up the patient was "urgent," she determined it was more important to proceed to Punta Gorda and get the patient than to turn around and return to G. Pierce Wood for a properly equipped van. Respondent's actions resulted in the patient being transported for thirty or forty minutes without oxygen, contrary to the order of the patient's attending physician. Ruby Woodbine did not "order" Respondent to take the van without oxygen. In fact, Elaine Snider had contacted the transportation department at G. Pierce Wood Memorial Hospital and arranged for the van, but had failed to specify that the van must have oxygen. Snider then informed Respondent of the van she was to take, and Respondent failed to check that van before leaving to be sure it was properly equipped. Woodbine simply agreed with Respondent that she should use the van Snider had identified. By failing to check the van for necessary equipment and by proceeding to transport the patient without oxygen therapy contrary to physician's orders, Respondent did not conform to minimal standards of acceptable nursing practice. She should have obtained a properly equipped van, arranged for portable oxygen, or refused to accept the patient until arrangements could be made for oxygen. The discontinuation of oxygen is not a proper nursing function when the patient's physician has ordered oxygen therapy. This finding is based upon the consideration of all evidence received and particularly the testimony of Deborah Frank, who was accepted as an expert in the practice of nursing, including nursing practice standards.
Recommendation Based upon the foregoing, it is recommended that Petitioner enter a Final Order imposing a reprimand upon Respondent. DONE AND ENTERED this 6th day of April, 1987 in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of April, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-4736 Rulings on Petitioner's Proposed Findings of Fact: 1,2 Adopted in Finding of Fact 1. 3,4 Adopted in Finding of Fact 2. 5 Adopted in Findings of Fact 3, 6. 6 Adopted in Findings of Fact 4, 5, 7. 7 Adopted in Findings of Fact 4, 6. 8 Adopted in Finding of Fact 4. 9 Adopted in Finding of Fact 8. COPIES FURNISHED: Gary Beatty, Esquire Department of Professional Regulation 130 North Monroe Street Tallahassee, Fl 32399-0750 Sandra Ann Bacon 611 Sharon Circle Port Charlotte, Fl 33952 Judie Ritter Executive Director Department of Professional Regulation Board of Nursing Room 504, 111 East Coastline Dr. Jacksonville, Fl 32201 Van Poole Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Fl 32399-0750 Joseph A. Sole, Esquire General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Fl 32399-0750
The Issue The issue presented is whether Respondent is guilty of the allegations contained in the Administrative Complaint filed against her and, if so, what disciplinary action should be taken against her, if any.
Findings Of Fact Respondent is a licensed respiratory care practitioner, having been issued license number TT 0006767 by the State of Florida. The National Board for Respiratory Care (hereinafter "NBRC") is a voluntary certification board for respiratory therapists and pulmonary technologists. The NBRC administers examinations including the Certified Respiratory Therapy Technician (hereinafter "CRTT") Examination. The CRTT is an entry-level examination for respiratory care practitioners. Obtaining a passing score on that examination and receiving a CRTT certificate is a requirement for licensure in many states. On July 19, 1992, Respondent took the CRTT examination. She obtained a passing score and received a CRTT certificate from the NBRC in July, 1992. Based upon Respondent's obtaining her CRTT certificate, Respondent was licensed as a respiratory therapist in the State of New Jersey. Subsequent to the July 19, 1992, CRTT examination, the NBRC received information that persons sitting for that examination possessed a copy of the examination in advance of the test date along with a purported "answer key." Based upon an investigation and on statistical analyses performed on the examination answers of every candidate sitting for that examination, the NBRC determined that Respondent was one of the individuals who had received a copy of the examination in advance of the test date. On November 24, 1992, the NBRC wrote to Respondent advising her of its investigation and determination. The letter specifically advised Respondent that the NBRC had invalidated the results of her CRTT examination and had so informed the State of New Jersey. That letter specifically instructed Respondent to return her CRTT certificate immediately and that the NBRC no longer recognized her as a Certified Respiratory Therapy Technician. The letter further notified Respondent that the NBRC's Judicial and Ethics Committee would be conducting a parallel investigation. The letter was sent to Respondent by certified mail, and she received it on December 8, 1992. On June 26, 1993, the Judicial and Ethics Committee of the NBRC held a hearing regarding the action to be taken against Respondent. By letter dated October 14, 1993, that Committee advised Respondent, by certified mail, that she was suspended from admission to all NBRC credentialing examinations for an indefinite period of time and that that decision would be reconsidered only if she returned her CRTT certificate as had been repeatedly requested of her by the NBRC. That letter further advised her that if requested by the State of New Jersey, the NBRC would re-test her for licensure purposes only but that under no circumstances would she be re-tested for national certification unless she returned her CRTT certificate to which she was not entitled and the Committee reconsidered her case. Respondent refused to return her invalidated certificate to the NBRC. She continues to refuse to return her invalid certificate, thereby precluding herself from any opportunity to retake the CRTT examination for national certification purposes. On July 28, 1993, the New Jersey State Board of Respiratory Care filed an administrative complaint against Respondent and others, seeking revocation of Respondent's New Jersey license to practice respiratory care for her failure to successfully complete the NBRC examination due to the invalidation of her examination results by the NBRC. By Order Granting Partial Summary Judgment entered December 22, 1993, the New Jersey State Board of Respiratory Care determined that Respondent lacked valid test scores from the NBRC, a prerequisite to licensure in the State of New Jersey. In a Supplemental Order entered on February 1, 1994, the New Jersey State Board of Respiratory Care determined that although Respondent's license to practice respiratory care in New Jersey was revoked, Respondent would be permitted to sit for the CRTT examination to be administered in July 1994, in order to meet licensure requirements in New Jersey. Pursuant to New Jersey's request, the NBRC scheduled Respondent to retake the July 1994 CRTT examination. Respondent failed to appear. Respondent has never retaken that examination. On February 24, 1993, Respondent submitted to the Florida Board of Medicine a licensure application seeking licensure by endorsement. In her licensure application, Respondent represented that she was certified as a respiratory care practitioner by the NBRC and that she was certified on July 19, 1992. As part of her application, Respondent submitted a copy of her CRTT certificate. She did not disclose that her CRTT certificate had been invalidated. Question numbered 5 of that application asked Respondent if she had ever been notified to appear before any licensing authority for a hearing on a complaint of any nature. Respondent answered that she had not. Although Respondent had been notified in September or October 1992 that the State of New Jersey was proceeding against her license, she did not disclose that fact on her licensure application. Respondent's answers to the questions contained in her February 1993 Florida licensure application were made under oath and bear her notarized signature, attesting that her answers are true, correct, and complete. On July 26, 1993, Respondent was licensed by the State of Florida as a respiratory care practitioner based, in part, on her invalidated CRTT certificate. Honesty is an important trait for a practicing respiratory care practitioner, and dishonesty in the practice of respiratory care is potentially dangerous to patients. Respondent was previously licensed by the State of Florida as a respiratory therapist, non-critical care status. That license was revoked on February 6, 1990, due to Respondent's submission of fraudulent information in her application for licensure. Specifically, when Respondent applied for that license, she did not possess either a high school diploma or a graduate equivalency diploma, a requirement for licensure. Respondent, therefore, submitted a copy of her husband's graduate equivalency diploma, which she had xeroxed and altered to reflect her name instead.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered finding Respondent guilty of the allegations contained in the Administrative Complaint filed against her and revoking her respiratory care practitioner license number TT 0006767. DONE and ENTERED this 30th day of January, 1996, at Tallahassee, Leon County, Florida. LINDA M. RIGOT, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of January, 1996. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 94-5183 Petitioner's proposed findings of fact numbered 2-21 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting a conclusion of law. Respondent's proposed findings of fact numbered 3-5, 7, 9-11, and 13 have been adopted either verbatim or in substance in this Recommended Order. Respondent's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting a recitation of the charges against her. Respondent's proposed findings of fact numbered 2 and 15 have been rejected as being irrelevant to the issues herein. Respondent's proposed findings of fact numbered 6 and 8 have been rejected as being subordinate to the issues herein. Respondent's proposed findings of fact numbered 12 and 14 have been rejected as not being supported by the weight of the credible, competent evidence in this cause. COPIES FURNISHED: Dr. Marm Harris Executive Director Board of Medicine Agency for Health Care Administration 1940 North Monroe Street Tallahassee, Florida 32399-0792 Hugh R. Brown, Esquire Agency for Health Care Administration 1940 North Monroe Street Tallahassee, Florida 32399-0792 Herbert B. Dell, P.A. 4801 South University Drive Fort Lauderdale, Florida 33328
The Issue Whether any or all of the following Certificate of Need ("CON") applications for projects in southeastern Duval County, health services planning Subdistrict 4-3, should be approved by the Agency for Health Care Administration: St. Luke's Hospital Association d/b/a St. Luke's Hospital's CON Application No. 9483 to construct at the Mayo Clinic Jacksonville campus on San Pablo Road a new 214-bed replacement hospital to take the place of St. Luke's Hospital; St. Vincent's Medical Center, Inc.'s CON Application No. 9484P for the establishment of a new 135-bed acute care hospital to be located at the site of the existing St. Luke's Hospital; and Southern Baptist Hospital of Florida, Inc.'s CON Application No. 9482 to establish a new 92-bed satellite acute care hospital at the intersection of Old St. Augustine Road and Interstate 95 just north of St. Johns County by transferring 92 beds from Baptist Medical Center in downtown Jacksonville?
Findings Of Fact The Mayo Foundation and its Facilities The Foundation The Mayo Foundation ("Mayo" or the "Mayo Clinic") is considered to be one of the world's preeminent providers of health care services. Although its clinical practice is entirely in this country, Mayo's service area is international; from around the globe it draws patients impressed by the high regard in which its health care services are held. Here at home, Mayo's reputation is not lost on the American populace. Among the nation's many outstanding providers of health care services to the medically complex patient, certainly one of the most recognized, if not the most recognized, is the prestigious "Mayo Clinic." Founded in Rochester, Minnesota toward the end of the 19th Century, with hospital affiliations added eventually in a number of Midwestern states, the Mayo Clinic is the first multi- specialty medical group practice in the United States. Its mission is to provide the highest quality health care by medical professionals practicing all of the known specialties and sub- specialties of medicine in a clinical, unified, multi-campus setting that incorporates medical education and research. Reflective of its status as a physician-led organization, and as important and as essential as they are to the Mayo mission, medical education and research are secondary to Mayo's clinical practice. In the mid to late 1980's, the Mayo Clinic expanded its multi-campus setting to the nation's sunbelt. Mayo Clinic Jacksonville was founded by Mayo in Florida in 1986; the following year, Mayo Clinic Scottsdale was founded in Arizona. Today, Mayo successfully delivers health care services of the highest quality at its two facilities in Florida and Arizona as well as at its principal location in Rochester. Much of its success is due to its approach to health care. An Integrated Approach As a natural outgrowth of its multi-specialty group practice and consistent with its mission, Mayo's model of health care is an integrated team approach. Under the approach, specialists and sub-specialists from a variety of medical disciplines interact for the benefit of the patient. When a patient enters the Mayo system as an outpatient, for example, the patient is assigned a primary physician who serves as "a captain of the ship," so to speak. "[T]hat captain of the ship is responsible for the initial outpatient assessment, establishing what consultations are needed through the course of the patient's visit." (Tr. 80). The primary complaint physician, after initial evaluation "will order consultations with whatever specialists and sub-specialists are perceived as needed in the care of that patient's case." (Tr. 80). In the case of Mayo Clinic Jacksonville, the team will attempt to get the patient through the system in a maximum of five days. Whether outpatient or inpatient, the patient is accompanied by a single medical record through all phases of care by all physicians who participate in the patient's care: primary, treating or consulting. Utilizing consolidated protocols and practice standards, the "integrated" and "team" aspects of the approach enhance Mayo's capability for delivering to the patient comprehensive, coordinated medical care. The Mayo model of care founded on the integrated approach affords greater continuity of care than traditional models. It is especially effective with the patient who has complex medical conditions requiring the services of more than one physician specialist. The reverse of a university setting where "physician focus . . . is primarily on research; second, education; and then, lastly, patient care[,]" (tr. 78), patient care is the primary mission of the Mayo Clinic. Like the providers of care in a university setting, however, Mayo is organized to conduct clinical care, medical education and medical research at the same time. Education and research, therefore, although both secondary to patient care under the Mayo model, remain essential elements of the Mayo mission. There is another aspect of the Mayo model of care that enhances the quality of the health care it provides. Mayo refers to it as an "alignment of interests." Alignment of Interests Mayo has achieved an alignment of its interests, as expressed in its mission statement, with those of its physicians and the facilities at which they practice. There are approximately 2,000 Mayo employed physicians; 1,400 or so are at Mayo Clinic Rochester. The remaining 600 or so are split fairly evenly between Mayo Clinic Jacksonville and Mayo Clinic Scottsdale. They practice all medical specialties and sub-specialties on a fixed salary with direct employment by Mayo. Just as in the case of their employer, Mayo physicians seek principally to provide patient care services consistent with the Mayo mission. Like their employer, too, Mayo physicians aspire to the provision of patient services in an environment that includes teaching and research. Virtually all two thousand Mayo physicians participate in medical education activities and research. Mayo also owns the hospitals that are utilized by the multi-specialty group practices in its various locales. Mayo's control of the scope and direction of the multi- specialty group practice is crucial to the success of the Mayo model. Direct employment of physicians is fundamental to achieving the goals of the Mayo Clinic. So is Mayo ownership and control of the hospitals at which the multi-specialty group practice takes place. For purposes of patient and physician schedules alike, Mayo must be able to control the allocation of hospital resources, such as the availability of beds, operating rooms, and ancillary/support services. Many Mayo patients, for example, travel significant distances to receive services at a Mayo campus. Mayo's control over hospital resources is central to meeting its goal of providing hospital-based services, including surgery or admission, in as short a time frame as possible for the benefit of the patient and the patient's family, and to otherwise best achieve the benefits of integrated, comprehensive care. Closed Staff Facilities The governance of both physicians and facilities used in the Mayo model works best in a "closed-staff" environment, meaning that only Mayo physicians admit patients to, and otherwise practice at, the hospital. Mayo's preference to operate its affiliate hospitals in a "closed staff" environment is based on a number of factors. Mayo physicians practice in a uniform fashion, agreeing as to what the standard of care should be, and following the same protocols and other practice standards. (Non-Mayo physicians in a hospital setting do not practice with the same uniformity, employing approaches to medical care and standards used in that care that may vary.) Variances in practice styles affect how nursing and other hospital support staff conduct their daily responsibilities with regards to both physician and patient interactions. When Mayo physicians practice medicine under uniform protocols and standards and the remainder of the hospital's medical staff practice medicine in their various and different individual ways, confusion among staff is a common result. The difficulties met by nurses, for example, in knowing precisely what to do from one patient to the next is avoided in a Mayo closed staff setting. In a service where quality and safety concerns are paramount, it is important to Mayo to reduce the variation of practice among physicians and staff alike. In an open-staff setting, the ability of the hospital's governing body to control variation, to enforce standards, and to drive standards to the highest level of excellence is much more difficult than in a closed-staff integrated group practice setting. Mayo cannot forge with non-Mayo physicians the alignment of interests it has with Mayo-employed physicians. An open staff setting, moreover, requires that Mayo's administration deal with the struggles of control and politics that are not uncommon in open-staff hospitals. In an open-staff setting, Mayo's ability to control the scope and direction of its integrated group practice, including the ability to timely schedule admissions and surgeries, is subject to interference because of the need to address the needs of non-Mayo physicians. Free of meeting non-Mayo physician needs, the integrated group practice has the opportunity to achieve the high quality of care of the medically complex patient for which it is designed. Mayo Clinic facilities in Rochester and Mayo Clinic Scottsdale are closed staff facilities. Mayo Clinic Jacksonville, for reasons explained below, is not. It is the only "open-staff" facility among Mayo's clinical facilities. Mayo Clinical Facilities and Medical Education/Research Programs In 1987, shortly after the expansion of Mayo operations to Jacksonville through the establishment of Mayo Clinic Jacksonville the year before, St. Luke's was acquired by Mayo. The purpose of the acquisition was to provide the inpatient component for Mayo's Jacksonville operations. Also in 1987, Mayo expanded its operations to the Phoenix-Scottsdale area of Maricopa County, Arizona through the establishment of Mayo Clinic Scottsdale. Similar to the arrangement in Jacksonville, Mayo Clinic Scottsdale has an affiliate hospital nearby. The affiliate is in Phoenix. In keeping with the Mayo-preferred approach, the Phoenix affiliate uses a closed staff. Mayo activities in the three locations require more than 37,000 employees. Mayo personnel comprise several hundred scientists, over 500 clinical and research associates and fellows, over 33,000 administrative and allied health personnel, and over 1,500 medical residents in addition to the more than 2,000 physicians. On a system-wide basis, Mayo has $3.3 billion in annual operating expenditures. Approximately $300 million annually is dedicated to medical research expenses, and approximately $130 million annually is dedicated to medical education expenses. Mayo's medical education activities include the Mayo Medical School for medical students, and the Mayo Graduate School of Medicine, which offers graduate medical education in more than 100 specialties and sub-specialties. Further, the Mayo Graduate School offers Ph.D. programs in several different medical-related areas. Medical research within the Mayo system includes bench research, that is, research primarily in a laboratory. In keeping with the primacy of patient care under the Mayo model, Mayo's medical research also includes clinical research involving direct interaction with patients. Mayo Clinic Jacksonville Located approximately 10 miles east of St. Luke's, Mayo Clinic Jacksonville sits on 400 acres of land that was donated to Mayo. The campus is on San Pablo Road about one-half mile from the road's intersection with J. Turner Butler Boulevard, another half-mile or so to the west of the Intracoastal Waterway flowing between the mainland and the barrier island that is Jacksonville Beach. The campus contains numerous facilities that support clinical, medical education, and medical research activities. Also located on the campus are two hotels for the convenience of patients, their families, and their friends. Mayo Clinic Jacksonville vigorously participates in Mayo's medical education activities, with approximately 155 residents and 65 fellows from the Mayo Graduate School of Medicine, covering numerous specialties, on-site. At the time the St. Luke's application was filed, Mayo Clinic Jacksonville participated in 12 accredited graduate medical education programs and was in the process of adding two more. Mayo Clinic Jacksonville is actively involved in a wide range of both clinical research and bench research programs. All specialties and sub-specialties found within the Mayo system as a whole are represented on the medical staff of over 300 physicians. With the exceptions of some anesthesiologists, family practitioners and transplant physicians who are located at St. Luke's, Mayo Clinic Jacksonville physicians are based at the Mayo Clinic Jacksonville campus. Approximately 50% of Mayo Clinic Jacksonville's outpatients reside in Agency District 4, which includes Baker, Nassau, Duval, Clay, St. John's, Flagler, and Volusia Counties. Approximately 25% of its outpatients come from the remainder of the State of Florida, 22% from the remainder of the United States, and 3% from foreign countries. When Mayo Clinic Jacksonville was established, the campus obtained Florida Development of Regional Impact ("DRI") approval. That DRI approval, effective until 2020, includes approval for a 900-bed hospital to be located on the campus. Mayo's Acquisition of St. Luke's It has long been Mayo's intention to consolidate its hospital operations on the campus of Mayo Clinic Jacksonville. The intention, in fact, had been fully formed at the time Mayo Clinic Jacksonville was established in 1986. Nonetheless, Mayo Clinic Jacksonville did not pursue initially the development of hospital services on campus for two reasons. The first was a regulatory obstacle; CON regulation requires establishment of need for the construction and operation of a hospital in Florida. The second was a logistical opportunity; Mayo was presented with the chance to purchase St. Luke's Hospital at its facility on Belfort Road to which St. Luke's had relocated from the Northside of Jacksonville west of the St. John's River only a few years before. Mayo took advantage of the opportunity with the acquisition of St. Luke's Hospital in 1987. Prior to its affiliation with Mayo, St. Luke's was a local community provider. More than two-thirds of its patients originated from Jacksonville and Duval County. Few patients originated from beyond northeast Florida. Its only tertiary service was adult open-heart surgery. In recognition of its importance as a community provider, the seller of St. Luke's conditioned Mayo's acquisition on the requirement that an open staff be maintained for five years after purchase. St. Luke's acquiesced. St. Luke's Hospital, therefore, promised to be "open-staffed" at least until 1992. With the end in 1992 of the open-staff requirement imposed at sale, concern over community access continued. To address the concern, Mayo committed to continue to keep the staff open at St. Luke's as long as it remained operationally feasible to do so. In keeping with that commitment, today St. Luke's has approximately 700 non-Mayo physicians or community physicians on staff in addition to 300 or so Mayo physicians. The Parties AHCA The Agency for Health Care Administration is the state agency with the authority to review applications for certificates of need and issue certificates of need in Florida. Section 408.034(1), Florida Statutes. St. Luke's Hospital Association St. Luke's Hospital Association, d/b/a St. Luke's Hospital ("St. Luke's") is a private, not-for-profit corporation that operates a general acute care hospital located in AHCA Health Care Planning District 4. Of its 289 beds, 10 are Level II Neonatal Intensive Care ("NICU") beds added to the facility in February 2001. A controlling interest in St. Luke's has been held by Mayo since the 1987 acquisition. Immediately off Interstate 95 near its intersection with J. Turner Butler Boulevard in Duval County, St. Luke's campus is on Belfort Road in southeast Jacksonville. The area, bounded as it is to the west and the north by the St. John's River, is referred to locally as "Southside." Originally founded in 1873 by three women concerned about health care for the destitute in the Jacksonville area, St. Luke's Hospital is the oldest hospital in Florida. Over the years, St. Luke's Hospital has changed locations several times. It moved to its current location in 1983. Since Mayo's acquisition of a controlling interest in St. Luke's, the primary role of St. Luke's in the Mayo organization has been to provide the inpatient component for Mayo Clinic Jacksonville's clinical practice, including the provision of tertiary and quaternary services. With all of Mayo Clinic Jacksonville's inpatient practice at St. Luke's Hospital, all Mayo Clinic teaching components that are related to inpatient care also take place at St. Luke's, as does inpatient-related research activities. St. Vincent's St. Vincent's is a not-for-profit corporation that owns and operates St. Vincent's Hospital and St. Catherine Laboure Manor, a 240-bed long-term care facility. Unlike all the other hospitals operated by parties in this proceeding, St Vincent's Medical Center is not located in Subdistrict 4-3. It is located in Subdistrict 4-2, on the west side of the St. John's River and across the river from "Southside." Vincent's has a three-part mission. The first is to serve the community by providing quality patient care services with special emphasis on care to the poor and vulnerable. Second, St. Vincent's believes in a holistic approach to health care in which the spiritual needs of the patient are just as important as the physical and emotional ones. Third, St. Vincent's mission includes an obligation to advocate and speak on behalf of the poor. St. Vincent's Medical Center is a 528-bed hospital located on Riverside Avenue in Jacksonville. It has a significant obstetrical practice. Among the tertiary services it provides are Level II neonatal intensive care services. It also provides adult open heart surgery and interventional cardiology services. Its staff is closed for diagnostic and interventional catheterizations. St. Vincent's Hospital was established by the Daughters of Charity, a Catholic religious organization, in 1916; its mission then as now to care for the poor. St. Vincent's moved to its current location in 1927. Today, St. Vincent's is associated with Ascension Health, the largest Catholic health care system in the United States and the largest not-for-profit health care system in the United States. Ascension Health has over fifty hospitals in twelve states and a dozen nursing homes. It provides St. Vincent's with various support services such as capital financing, insurance and risk management services, group purchasing and management of the pension program for all employees. Consistent with its mission, St. Vincent's provides a significant amount of care to the uninsured and underinsured. St. Vincent's operates a large family practice residency program staffed by 60 family practice residents and 10-12 faculty members. The family residency program sees about 30,000 patients per year, and approximately 65% of them are either Medicaid or Medicaid-eligible individuals. The family residency program results in approximately 750 inpatient admissions per year to St. Vincent's. In addition to the family residency program, St. Vincent's operates a number of outreach programs, including services to migrant farm workers that work in St. John's and Flagler Counties. These individuals have no means of transportation, are moved from farm to farm by buses, and without St. Vincent's, would have limited access to health care. St. Vincent's has two mobile vans that visit the migrant farm workers. Essentially physician offices on wheels, the vans, the size of large Winnebagos, include a laboratory draw station and radiology unit. Any person who seeks medical care at the vans is provided with medical care. The vans also visit sites accessible to the urban poor. If a patient seen by a physician in one of these vans needs hospitalization, arrangements are made to admit the patient to St. Vincent's. None of the other hospitals in the Jacksonville area have a mobile outreach program similar to St. Vincent's. At the time of hearing, St. Vincent's has been selected to receive an award from the American Hospital Association in recognition of the work of its mobile health ministry. St. Vincent's also operates a parish nurse program in over 50 different churches, the majority of which are low-income and non-Catholic. This program assigns a nurse to a church. When a member of the church is unable to obtain care for a health problem, the nurse arranges for the person's care. Baptist Southern Baptist Hospital of Florida, Inc., d/b/a Baptist Medical Center ("Baptist") is a not-for-profit corporation. It is part of the Baptist Health System, a major healthcare system serving Northeast Florida. Baptist Health System is comprised of three licensed acute care hospitals including Baptist Medical Center ("BMC"), Baptist Medical Center Beaches in Jacksonville Beach ("Baptist Beaches") and Baptist Medical Center Nassau, located in Fernandina Beach. At the time Baptist filed its application, BMC was licensed for 591 beds at its downtown Jacksonville campus. Of these, 455 are acute care beds, 33 are Level II NICU beds, 15 are Level III NICU beds, 63 are adult psychiatric beds, 19 are child/adolescent psychiatric beds and 6 are adult substance abuse beds. Through its three hospitals, Baptist Health System offers a full range of services for medical/surgical patients (including intensive care, open-heart surgery and stem cell transplantation), obstetrical and newborn services (including NICU Level II and III) and psychiatric services. Baptist Medical Center is located in downtown Jacksonville at 800 Prudential Drive. It has an excellent reputation in the community as a provider of high-quality health care services. Founded in 1955, it is committed to providing accessible, affordable health care of high quality to the Jacksonville community. Today, it is a Medicaid disproportionate share provider, second only to Shands Jacksonville in terms of providing Medicaid services to the local community. It operates the largest not-for-profit home health agency in the area. Not currently affiliated with any religious order, the mission of Baptist remains grounded in its faith-based heritage. The distinct nature of its organization within the Jacksonville community is based on four factors. It is faith-based; it is mission-driven to serve the local community rather than owners or shareholders; it is community-focused serving Jacksonville and the five surrounding counties; and finally, it is locally governed. Wolfson Children's Hospital ("Wolfson") operates under Baptist's license. It is a regional tertiary hospital serving northeast Florida and southeast Georgia. It provides all tertiary services for children except for burns. Wolfson provides major pediatric oncology and cardiovascular services. Wolfson is affiliated with Nemours Children's Clinic, located on the other side of I-95 from Baptist Medical Center. The two are connected by a walkover. Nemours is funded in large part by a trust from the DuPont family. It offers 65 specialists and sub-specialists in pediatric medicine surgery. Wolfson houses major educational services for pediatric practitioners. Every nurse trained in Jacksonville receives his or her pediatric training at Wolfson. All the Mayo Clinic Jacksonville family practitioners in pediatrics, as well as University of Florida family program in pediatrics, train at Wolfson. Further confirming Wolfson's role as a regional children's hospital, a new Ronald McDonald House with room for 20 patient families is now under construction in close proximity to the hospital. Baptist's mission is to continue a healing ministry to the community. It is more than just caring for people when they are ill. Baptist emphasizes the promotion of health through preventive measures. It operates a primary care network of more than 60 physicians at 15 sites to serve the community. It also has a mental health network that provides mental health counselors and psychologists throughout the City of Jacksonville. Baptist partners with a multi-service center for at- risk youth in which it helps to see that over 400 children are fed every night. Baptist also partners with a homeless shelter in Jacksonville to provide medical services. Memorial Memorial is a tertiary level care provider of hospital services. It offers a full array of acute care including open heart surgery, interventional cardiology, and Level II Neonatal Intensive Care ("NICU"). Memorial's licensed bed complement consists of 343 acute care beds and 10 Level II NICU beds. Located on University Boulevard in "Southside" Jacksonville, in the same quadrant of the city as St. Luke's Hospital, Memorial is slightly more than 2 miles northwest of St. Luke's. During the 12-month period of July 2000 to June 2001 (the time frame for the January 2002 Hospital Bed Need Projections applicable to the relevant batching cycle), Memorial had an occupancy of 70% for its 343 acute care beds. For the same time period, the occupancy rate for its Level II NICU beds was 55.86%. In order to ensure patient comfort, privacy and satisfaction, Memorial typically will not place two patients in its two-bed semi-private rooms. The practice diminishes the use of the hospital's functional acute care bed capacity. To increase functional capacity, Memorial is in the process of creating a new 32-bed unit consisting entirely of private rooms. The new 32-bed unit is but one aspect of an ongoing multi-phase, two-year expansion project at Memorial at a cost of $67 million. Critical care beds will be increased from 21 to 30. Forty-one semi-private rooms will be converted to private rooms. Memorial's emergency department will be expanded from 20 to 35 bays. The number of operating rooms ("ORs") will be increased from 18 to 20. The cardiac catheterization labs will be increased from 2 to 4. A new special imaging room will be added. The telemetry capability of the hospital will be increased from 117 units to 149 units. There will be substantial addition of new technology and equipment; the addition of a third open heart operating room; the addition of a 2-story 235 space parking garage; and replacement and improvement of roofing, air handling and mechanical systems. These projects will significantly enhance operational efficiencies and acute care functionality and capacity at Memorial. Memorial is under a contract with the Department of Corrections whereby 28 acute care beds are reserved for the care of prisoners. These beds are not available to the general population. The contract expires in April 2003. No evidence was presented as to whether the contract would be renewed or not. For now, the life of the contract presents only the possibility that the 28 beds will become available in the spring of 2003 for the general populace. Memorial recently commissioned the Sullivan Group to evaluate the necessity of adding acute care beds at its facility through the CON application process. The Sullivan Group found that Memorial's current occupancy of 70% did not justify the filing of a CON application for additional beds. It recommended that Memorial continue to expand and improve the hospital. The Sullivan Group also recognized that if its occupancy levels continued their present rate of increase, Memorial would be able to add acute care beds in the near future without CON review. Under a statutory provision, addition of a certain number of beds exempt from CON review is triggered by achievement of an 80% annual occupancy rate. If Memorial experiences such an occupancy rate, it will be able to add 35 beds under the exemption. As part of its ongoing projects, Memorial constructed new square footage for a short stay area. The area was also constructed to accommodate a 3-floor wing of 30-35 beds per floor. The strategy of expanding a facility's licensed bed capacity via the statutory exemption is consistent with the Agency's encouragement of the use of the exemption in preference to CON review. District 4 and Subdistrict 3 District 4, one of eleven "health service planning" districts defined by the Legislature for the State of Florida, is composed of Baker, Nassau, Duval, Clay, St. Johns, Flagler, and Volusia Counties. Section 408.032(5), Florida Statutes. The district is split into five subdistricts by Agency rule. The first three, Subdistricts 4-1, 4-2 and 4-3 contain parts of Duval County as well as at least one other county. Of the hospitals that are parties to this proceeding, only St. Vincent's is not in Subdistrict 4-3. It is located in Subdistrict 4-2, composed of Baker and Clay Counties and certain zip codes in Duval County referred to in Rule 59C- 2.100(3)(a)d.2., Florida Administrative Code, as "southwestern" Duval County. The St. John's River separates Subdistrict 4-2 from Subdistrict 4-3. This proceeding is concerned mainly with Subdistrict 4- 3 in that all three of the proposed projects are to be located in Subdistrict 4-3. Subdistrict 4-3 consists of St. Johns County and "the southeastern portion of Duval County lying within ZIP codes 32207, 32211, 32216, 32217, 32223, 32224, 32225, 32228, 32233, 32246, 32250, 32256, 32257, 32258, 32266, and 32277." Rule 59C-2.100(3)(a)d.2., Florida Administrative Code. There are no major geographic access issues in District With the exception of Baptist Beaches, the hospitals are all in the center core of the county. The roadways and infrastructure in Duval County are well situated for access to existing hospitals. Nonetheless, in Subdistrict 4-3, access to certain services will be enhanced for residents of southern Duval County by the approval of Baptist's application. There is no complaint of financial access issues in this case. Consistent with no financial access problem, Baptist and St. Luke's have not conditioned approval of their applications on the provision of care to a percentage of Medicaid and charity patients. The acute care occupancy rate for all District 4 hospitals was 58.69% for the twelve-month period from July 1, 2000, through June 30, 2001. In Subdistrict 4-3, the rate was 67.57% for the same period. For the last six months of the period, January 1 through June 30, 2000, the acute care occupancy rate of Subdistrict 4-3 was 71.49%, much higher that projected occupancy rate for District 4 of 60.46% and for the State of 55.49%. For medical-surgical beds, a subset of acute care beds, for the first six months of 2001, the occupancy rate for Subdistrict 4-3 was over 73%. These rates reflect a trend nationwide for the last few years of increased occupancy rates and in the Jacksonville area "some hefty increases in patient volumes and user rates over the last few years." (Tr. 2160). Richard Baehr, health planning expert for Memorial, predicts that this trend will naturally subside to the point that "use rates will be fairly stable going forward and utilization, as a result will continue to grow with population." (Tr. 2161). Using these occupancy rates and subtracting the beds not occupied plus beds added in the district and subdistrict between July and December 2001, from a weighted average of licensed acute care beds from July 1, 2000, to June 30, 2001, there were 1,718 acute care beds unused in District 4 and 477 unused in Subdistrict 4-3. Subdistrict 4-3 is expected to experience a 1.8% annual compound growth through rate 2006. At this rate, the aggregate growth rate through 2006 equals 11%. In 2000, there were 175,546 acute care hospital admissions in District 4 with a population of 1,625,780. The use rate, therefore, was 107.98 per 1,000 population. The average length of stay for District 4 hospitals based on acute care admissions is 4.6 days. District 4 hospitals experienced an average daily acute care census of 2,206 patients with an acute care bed capacity according to a December 31, 2001, inventory of 4,068. Assuming an 11% population growth, District 4 will experience an incremental population increase of 162,642 persons in 2006 and 190,142 persons in 2007 above the 2000 population. District 4 hospitals are projected to experience a projected incremental increase of 220 patients in 2006 and 258 patients in 2007. This increase assumes that the district use rate remains constant at 107.68 (a rate adjusted to a 365-day year since the year 2000 was a leap year) and the average length of stay is held constant at 4.6. Based on the population analysis, above (and in consideration of the 34 psychiatric bed at St. Vincent's approved for conversion to acute care beds), the District 4 acute care bed occupancy will be 59.2% in 2006 and 60.1% in 2007. In 2000, District 4 hospitals experienced an additional 45.9 average daily census from patients outside the District. Assuming a constant 45.9 immigration rate through 2007, the District-wide occupancy rate is projected to be 60.3% in 2006 (leaving a surplus of 1,629 beds) and 61.2% in 2007 (a surplus of 1,592 beds). District 4 hospitals, therefore, can accommodate future growth based on current licensed and available beds in the absence of the proposed projects. Even if all three projects at issue in this proceeding are approved, however, there would only be a 5% increase in the number of beds in Subdistrict 4-3 at the same time there is expected to be a population increase of 11%. By the time these projects come on line, if approved, there will likely be adequate demand to support all of the hospitals in Subdistrict 4-3. Still, the five Subdistrict 4-3 hospitals (Memorial, Baptist, Baptist Beaches, St. Luke's, and Flagler) are also well positioned to accommodate future growth based on current licensed beds in the absence of the proposed projects unless seasonality is considered. On the other hand, during the winter season, from time- to-time, it can be difficult to obtain a bed at any of these hospitals. Recent approvals may help. Baptist has recently been approved to add 30 acute care beds, Baptist Beaches eight, St. Luke's four and Flagler 31. Based on 50,300 admissions from a population of 537,182 in 2000, Subdistrict 4-3 realized a use rate of 93.38 per 1,000 population. Utilizing the same analysis as presented above with respect to District 4, Subdistrict 4-3 is projected to achieve an incremental increase in average daily census of 72.6 in 2006 and 85.8 in 2007. When this incremental increase is applied to the current Subdistrict 4-3 acute care complement of 1,398 beds, Subdistrict 3 hospitals will experience a 51.4% occupancy rate (leaving 679 surplus beds) in 2006 and a 52.3% occupancy rate (666 surplus beds) in 2007. In 2000, patients from outside the service area accessing District 4 hospitals accounted for an additional 229.6 patient days of Subdistrict 4-3. Holding in-migration constant, Subdistrict 4-3 is expected to have an occupancy rate of 67% in 2006 and 68% in 2007. These rates would be higher, however, if in-migration grows. Approval of the three applications at issue will not result in any change in the district-wide acute care bed inventory. Since none of the applications at issue in this case would result in an increase in the acute care bed inventory of the district, AHCA took the position that numeric need for the acute care beds was not an issue in any of the applications. Memorial disputes the Agency's position on this point at least with regard to St. Vincent's. Unlike the St. Luke's and Baptist's applications (both of which increase neither the bed inventory of the district nor of Subdistrict 4-3), St. Vincent's application will increase the bed inventory of Subdistrict 4-3. If St. Vincent's application is granted the bed inventory of Subdistrict 4-3 will be increased by 70, the 70 beds St. Vincent's hopes to transfer from its facility in Subdistrict 4-2 to the new St. Luke's. The issue is important. If AHCA is correct, St. Vincent's need not demonstrate "not normal" circumstances to support its application; if numeric need is an issue with regard to St. Vincent's then it is required to demonstrate such circumstances because numeric need for the subdistrict is zero. Events Related to the Stipulation in the Comparative Review Cases Case No. 02-0447CON ("Memorial's Case") was initiated by Memorial in its status as an existing provider of acute care hospital services. Its purpose is to challenge AHCA's approval of St. Vincent's partial application. It does not take issue with the approvals of the St. Luke's and Baptist's applications. Unlike Case No. 02-0447CON, the other three cases in this consolidated proceeding were filed by applicants: Baptist, St. Vincent's or St. Luke's. The three cases initiated by the applicants each seek comparative review of the applications. For example, in Case No. 02-0971CON, St. Luke's requests the relief that both St. Vincent's and its applications be granted in lieu of Baptist's. The three cases filed by the applicants, Case Nos. 02- 0882CON, 02-0943CON, and 02-0971CON, (the "Comparative Review Cases") were consolidated with Memorial's case, but Case No. 02- 0882, having been originally assigned to an administrative law judge other than the undersigned, was not consolidated with the rest of the cases until May 3, 2002. On April 22, 2002, Memorial filed a petition to intervene in each of the Comparative Review Cases. On May 3, 2002, the petition was granted subject to Memorial's presentation of proof of standing at final hearing. The Stipulation in the Comparative Review Cases Prior to Memorial's intervention in the Comparative Review Cases, all of the parties to those cases entered a pre- hearing stipulation (the "Stipulation in the Comparative Review Cases.") With the exception of the issues contained in Memorial's Case, the Stipulation in the Comparative Review Cases was ruled binding on Memorial and to have extinguished all issues it settles except for those raised in Memorial's case. The stipulation follows: The parties [AHCA, St. Luke's, St. Vincent's and Baptist] agree that each application, as a matter of fact and law, satisfies the following statutory and rule criteria: Each application was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. CON application 9483 is a replacement application. c. Section 408.035(3), (4), (5), (6)(except for availability of health personnel and management personnel), (8), (10) (including architectural design, movable equipment, and fixed equipment), (11). Section 408.035(12) is not at issue. Rule 59C-1.038(6)(a) and (b), Florida Administrative Code. f. Rule 59C-1.030(2)(a)-(d). (Case Nos. 02-0882CON, 02-0943CON, and 02-0971CON, Joint Pre- hearing Stipulation, 1st Attachment.) Although Memorial did not join in this stipulation, the stipulation preceded Memorial's intervention in the three cases in which the stipulation was entered. In consideration of Memorial taking the cases in which the stipulation was entered as it found them at the time of intervention, the stipulation was ruled to be binding on all parties to the four consolidated cases, including Memorial, although its effect in the consolidated cases was limited because the petition in Memorial's Case was not subject to the stipulation. The issues raised by Memorial's Case that the stipulation extinguished in the Comparative Review Cases, therefore, survived in the consolidated cases by virtue of the petition in Memorial's case. The remainder of the issues (those not raised by Memorial's Case) that were subject to the stipulation were extinguished by the stipulation for purposes of the consolidated cases. Joint Pre-hearing Stipulation A pre-hearing stipulation entered by all parties, including Memorial, contains the following: St. Vincent's application 9484P was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. St. Vincent's and Memorial each have a history of providing high quality of care for inpatient hospital services and have the continued capability of providing high quality of care. Accordingly, the quality of care provided by these parties is not at issue in this proceeding. Additionally, the parties agree that St. Vincent's would be able to provide quality care at St. Luke's Hospital if its application 9484P is approved. St. Vincent's CON application 9484P satisfies the criterion contained in Section 408.035(3), Florida Statutes. The parties agree that St. Vincent's has available management personnel and funds for capital and operating expenditures and therefore satisfies those specific portions of Section 408.035(6), Florida Statutes. The letter contained in CON application number 9484 from Charles J. Barnett, Senior Vice President for Ascension Health to John J. Maher, Chief Executive Officer of St. Vincent's, can be admitted for the truth of the matters asserted without further proof. Also, the letter dated October 12, 2001 for James M. Corrigan, Senior Vice President and Chief Financial Officer of St. Vincent's, to Jeffrey N. Gregg can be admitted for the truth of the matters asserted without further proof. The parties agree that St. Vincent's has a history of providing health care services to Medicaid patients and the medically indigent (Section 408.035(11), Florida Statutes). However, Memorial does not agree that St. Vincent's can meet the levels of charity care proposed in CON Application No. 9484P. Section 408.035(12) is not at issue. (Joint Pre-hearing Stipulation.) Growth at St. Luke's, Mayo's Options The transplant programs at St. Luke's have far exceeded original expectations for the number of patients to be treated. For example, the CON application for the liver program projected 15, 30, and 45 transplants over the first three years of operation. The first liver transplant at St. Luke's occurred in February 1998, and within the first twelve months 75 transplants had taken place at St. Luke's. Last year, 176 liver transplants were performed at St. Luke's making it the fourth largest liver transplant program in the country. Volumes in the kidney, pancreas and lung transplant programs have also greatly exceeded expectations. The increase in volume has generated more competition between community and Mayo physicians for St. Luke's hospital resources and has increased the friction between these two distinct segments of the St. Luke's medical staff. One example of the logistical and political problems that exist at St. Luke's because of the two segments of physicians that practice there is allocation of operating rooms. Somewhere between 65% and 70% of the patient days at St. Luke's are generated by Mayo physicians. Community doctors generate the remainder of patient days (30 to 35%). In settlement of the competition for operating room ("OR") time, ORs at St. Luke's are divided into those dedicated to Mayo Clinic physicians (currently 14 in number) and those dedicated to community doctors (currently 4 in number). When compared to percentages of patient days, the divide in ORs favors Mayo Clinic physicians. Approximately 78% of the ORs are dedicated to Mayo physicians; only 22% to community physicians. A determination of equity in the OR divide is more involved, however, because of the level of acuity of Mayo patients and the level of service provided by Mayo physicians when compared to community doctors. Nonetheless, conflict between community and Mayo physicians over the availability of ORs persists. It is likely to grow worse as inpatient utilization and surgical volume at St. Luke's increases. For the last six years, inpatient utilization at St. Luke's has grown 10% per annum. In addition to this sustained growth, with the increase in the number of transplant programs, St. Luke's is also experiencing a notable increase in the acuity of its patients. Admissions to St. Luke's are affected by seasonality. The first three or four months of the year are the busiest. During that time of year, St. Luke's has experienced occupancies in excess of 100% in its critical care units. As a result of occupancy pressures at St. Luke's there are Mayo patients that are seen at the Mayo Clinic who are not being admitted in a timely fashion. Mayo physicians have had to either delay those admissions or send the patients home or to another facility for treatment. St. Luke's is taking stop-gap steps to limit further growth at St. Luke's because of the growth in patient census. It has recently amended its medical staff bylaws to eliminate courtesy staff privileges. More significantly, St. Luke's is in the process of capping the size of its medical staff, and not allowing any new physicians (Mayo or community) to join the medical staff until such time as another physician leaves the staff. The plan to cap the size of its medical staff in response to that growth has resulted in heightened tensions between the Mayo physicians and the community physicians over their competition for space and resources at St. Luke's. Mayo has examined a number of options for a permanent solution to the problems created by growth. One option considered was expanding the size of St. Luke's so that it can accommodate not only more inpatients but also more space for the teaching and research components of Mayo's mission. Problems with this option include concurrency restrictions associated with further expansion on the St. Luke's site and basic hospital infrastructure limitations related to a facility originally designed and built as a community hospital and not the quaternary or research facility now required. Expansion is not practical. Even if it were practical, expansion does not accomplish consolidation of Mayo's inpatient and outpatient services needed for the Mayo Model to work at an optimal level. Faced with ever-increasing capacity constraints at St. Luke's, the option Mayo has chosen the one proposed by its application: the 214-bed replacement hospital on the Mayo Clinic Jacksonville campus. The approach is supported by St. Vincent's companion application in which it proposes to establish a 135-bed hospital at the Belfort Road location. Under these two applications, most of the Mayo physicians would move their inpatient practices to the replacement hospital while community physicians would continue to admit patients to the hospital on the present St. Luke's site. If these applications are not approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians. Elimination of the "community" side of St. Luke's hospital is less than ideal from the Agency's point of view as explained by Jeffery N. Gregg, Chief of AHCA's Bureau of Health Facility Regulation: [The Agency is] aware of the traditional position of St. Luke's Hospital in Jacksonville. It's a very old provider. It's . . . widely recognized as an important part of the community. It has a long tradition and . . . it inspires a considerable degree of . . . affection and loyalty among people who live in Jacksonville. . . . [O]ne of the things that . . . we like about this proposal is that it preserves a spot for an ongoing role for the institution of St. Luke's. If Mayo were to close the staff at the current St. Luke's, what greater Jacksonville has traditionally known as St. Luke's would disappear, in that, . . . it would become the Mayo hospital; the community component would go away. It would have to relocate to other places, and . . ., that would not be an ideal solution . . . . (Tr. 1398, 1399). Closing the staff at St. Luke's would have another aspect besides elimination of the "community" side of the hospital that would be less than ideal. It would not solve the inefficiencies that arise from Mayo physicians having to split time between two different campuses. Consultation among Mayo physicians and comprehensiveness of care in a single setting is facilitated by physician proximity to each other and to shared information systems. Ten miles from the Mayo Clinic Jacksonville campus, the location of St. Luke's presents difficulties for Mayo Clinic physicians and the inpatient care and research components of Mayo's mission. The great majority of the offices of Mayo Clinic physicians are at the Mayo Clinic Jacksonville campus. Mayo physicians see outpatients at their offices but must leave for St. Luke's to treat inpatients. The split between the site of inpatient practice and Mayo Clinic Jacksonville is not merely inconvenient but inefficient. When required to see an inpatient, the typical Mayo Clinic physician must leave the Clinic office, walk to the parking lot, drive the ten miles between the two campuses, re-park, and walk to the hospital. The trek easily takes 20 minutes one way and, depending on traffic, can take as much as half an hour. The thoroughfare that runs between St. Luke's and Mayo Clinic Jacksonville is J. Turner Butler Boulevard. Traffic congestion on the corridor is severe. Approval of St. Luke's application for a replacement facility at the Mayo Clinic Jacksonville campus will eliminate these efficiencies. It will give Mayo Clinic physicians quicker access to inpatients. Conversely, it will give inpatients treated by Mayo Clinic Jacksonville physicians in all their specialties and sub-specialties more efficient treatment from the physicians. While St. Luke's is a modern, well-maintained facility, it was designed as a community hospital and not as a teaching or research institution. The physical plant limits the teaching component of Mayo's mission. For example, while the patient rooms at St. Luke's are sufficient for providing patient care, they are not large enough to properly accommodate teaching rounds by Mayo residency training teams. There is another option for Mayo with regard to St. Luke's: build a replacement facility on the campus of Mayo Clinic Jacksonville and sell St. Luke's to St. Vincent's. Proposed Acquisition of St. Luke's by St. Vincent's St. Vincent's and Mayo have entered into an agreement for the sale of St. Luke's by Mayo and its acquisition by St. Vincent's. The proceeds from St. Vincent's purchase of St. Luke's will provide the majority of the funding for the building of the replacement hospital. The balance of the construction costs for the replacement hospital will come from philanthropic donations that Mayo has largely already secured. A new St. Luke's will also be the result: St. Luke's operated by St. Vincent's rather than by Mayo. The agreement, contingent upon final approval of the St. Vincent's and Mayo CON applications at issue in this proceeding, contemplates two closings. At the Phase I closing, St. Vincent's will purchase the land and the St. Luke's buildings from the Mayo Foundation for $102 million. At the time of the Phase I closing, St. Vincent's will lease back to Mayo the buildings on St. Luke's campus. The leaseback will enable Mayo to continue to operate at St. Luke's while the replacement hospital is under construction. In addition to the $102 million payment, St. Vincent's will reimburse Mayo for capital improvements to be made at St. Luke's Hospital during the term of the lease up to total of $48 million. During the lease period, Mayo will construct the replacement facility on the campus of Mayo Clinic Jacksonville. Upon completion of the construction, a Phase 2 closing will take place. In the fashion of a turnkey operation, St. Vincent's will become the license holder and operator of St. Luke's Hospital at the Phase 2 closing and Mayo will commence hospital operation at the replacement facility. The Phase 2 closing should not cause any interruption to the delivery of services at St. Luke's to the patients of community physicians. Nor should there be any time during any transition from Mayo's operation of St. Luke's to St. Vincent's when St. Luke's is forced to close because of the Phase 2 closing. The agreement between Mayo and St. Vincent's includes a provision for a contingent payment from St. Vincent's to Mayo in 2012 if the net patient revenues of St. Luke's exceed a certain amount in 2011. The contingent payment is not properly considered a project cost required to be listed on Schedule 1 of St. Vincent's CON application. It is speculative as to whether on not a 2011 payment will be required. (Under St. Vincent's forecast, the 2011 net patient revenue projection is below the payment threshold.) If a payment were required, moreover, it would be an operational expense incurred in 2012 rather than a Schedule 1 project cost incurred over the period of construction. Such a payment would not constitute a cost incurred in order to make the hospital operational or a cost to place an asset into service, the kind of cost listed on Schedule 1. Prior to entering into the agreement, St. Vincent's hired Solomon Smith Barney ("Solomon"), one of the world's largest investment banks, to review its terms and help determine an offering price by St. Vincent's. Under the agreement, St. Vincent's is purchasing the entire St. Luke's campus. This includes two medical buildings as well as St. Luke's Hospital. Mayo, moreover, is currently undertaking major construction projects at St. Luke's, including a $7 million expansion of the Emergency Department and a $15 million three-story addition and renovation project. Both are scheduled for completion prior to the Phase 2 closing. As part of its analysis, Solomon visited St. Luke's, looked at comparable transactions and current market values, and attended the negotiating sessions between Mayo and St. Luke's. Afterward, Solomon issued an opinion letter that the purchase price was fair. St. Vincent's entered into the agreement with Mayo because it saw the opportunity to extend its mission into Southside Jacksonville and to enhance the ability of both organizations to fulfill their respective missions. Approval of St. Vincent's application will improve access to care by the poor. While Mayo treats uninsured and underinsured at St. Luke's, its mission and focus are not directed toward service to the poor. St. Vincent's mission and focus, on the other hand, is its charity care policies and programs. They will be implemented at St. Luke's. Implementation of those policies and programs at the new St. Luke's to be operated by St. Vincent's will allow expansion of the geographical area served by St. Vincent's outreach programs. While many of the area's poor are located on the north side of Jacksonville, there are pockets of uninsured and underinsured throughout Duval County. Migrant farms in north St. John's County now served by St. Vincent's two mobile vans are closer to St. Luke's than St. Vincent's. Approval of St. Vincent's application will allow those migrant workers in need of hospitalization to be transported to and treated at St. Luke's rather than the more distant St. Vincent's. Community doctors practicing at St. Luke's support both Mayo's plans for a replacement hospital and St. Vincent's application for a new hospital at St. Luke's. Approval of the applications will open additional space at St. Luke's for the community doctors and allow more of that group to practice at St. Luke's. Approval of the St. Luke's and St. Vincent's applications will significantly further both Mayo's and St. Vincent's distinct missions. Approval of the St. Luke's application will allow Mayo to achieve its long-awaited goal of a Mayo Clinic Jacksonville hospital on the Mayo campus with a closed staff and otherwise specifically designed to accomplish the Mayo mission. Approval of St. Vincent's will ensure the continuation of a full-service community hospital at St. Luke's that is committed to and skilled at serving all patient populations including the poor consistent with the mission of St. Vincent's. It will return St. Luke's to its historical community roots and increase its accessibility to Medicaid patients and other underserved populations. The Proposed Projects St. Luke's The Agency has never previously reviewed or approved an application to establish a replacement hospital where the replaced facility continues to operate as a hospital. Nonetheless, prior to Memorial's intervention into the three cases in which it intervened, the parties stipulated that St. Luke's application is for a replacement hospital. It is clear, moreover, that the hospital St. Luke's seeks to construct on Mayo Clinic Jacksonville's campus is to replace the hospital at St. Luke's for the use of Mayo physicians. The Agency takes the position that the hospital proposed by St. Luke's is a replacement hospital. The St. Luke's replacement hospital will be a state- of-the-art tertiary/quaternary hospital located on the Mayo Clinic Jacksonville campus in eastern Duval County specifically designed to accommodate Mayo Clinic Jacksonville's mission. The total cost of the replacement hospital will be $207 million financed through philanthropic contributions and the sale of the St. Luke's Belfort Road campus. With the exception of obstetrics and Level II NICU, the services presently at St. Luke's will be transferred to the replacement hospital. The outpatient transplant services will also be transferred to the Mayo Clinic Jacksonville campus in order to support the relocated inpatient transplant programs. If the CON application for the replacement hospital and for St. Vincent's to establish a new hospital at Belfort Road are approved and become final with all appeals exhausted, St. Luke's will sell the Belfort Road property, plant, and equipment to St. Vincent's. St. Vincent's will then lease the Belfort Road campus to St. Luke's while the replacement hospital is constructed. When the replacement hospital is completed, in simultaneous actions, the license will be issued for the St. Luke's Replacement Hospital to begin operations at the Mayo Clinic Jacksonville campus. At no time will hospital operations at St. Luke's on Belfort Road cease. St. Luke's and St. Vincent's have constructed the agreement so that services provided to community patients by community physicians at Belfort Road should not be interrupted. The 214 beds proposed for the replacement hospital will be adequate to support the demand for Mayo Clinic Jacksonville services at least for the first few years of operation. The design of the replacement hospital and the lack of any site constraints at the Mayo Clinic Jacksonville campus will easily allow for expansion of the replacement hospital if the need arises. If approved, the replacement hospital will be fully constructed by late 2005. St. Vincent's St. Vincent's seeks authorization to establish a 135- bed hospital at the site of the existing St. Luke's Hospital. The hospital will continue to be known as St. Luke's Hospital. As described earlier, St. Vincent's will become the licensee and operator of St. Luke's at the precise moment in time that Mayo receives its license and begins operations at the replacement hospital, an event expected to occur sometime in 2006 or 2007. The 135-bed hospital proposed by St. Vincent's would be a community hospital. All of the transplant programs now provided at St. Luke's by Mayo would be transferred to the replacement hospital being built at the Mayo Clinic site. In addition to those quaternary programs, the existing adult open heart program at St. Luke's would also be moved to the replacement hospital. Mayo does not plan to offer obstetrical services at the replacement hospital. The obstetricians and the majority of the associated nursing and other support staff for obstetrics and Level II NICU services would remain at the Belfort Road location after the Phase 2 closing. (Whether the Level II NICU program will continue is dependent, however, on the outcome of a separate CON application by St. Vincent's challenged by Memorial in DOAH Case No. 02-0457CON.) St. Luke's is currently licensed for 289 beds. If its application is granted, the transfer of 214 beds will leave 65 acute care and 10 NICU beds behind. In addition to the 65 beds to be de-licensed by Mayo, St. Vincent's proposes to transfer 70 additional beds from St. Vincent's to the "new" St. Luke's Hospital to make up the 135-bed hospital. St. Vincent's is well utilized. The transfer of the 70 beds is therefore, criticized by Memorial as "unwise." (Tr. 2166). St. Vincent's, however, has devised a number of strategies to accommodate the transfer. First, St. Vincent's has recently received approval to convert 34 psychiatric beds to acute care beds, and is in the process of implementing the project. Second, St. Vincent's now uses 35 licensed beds as a pre-ambulatory and post-ambulatory surgical holding area. It is in the process of making those licensed beds available for inpatients. Third, St. Vincent's is building 20 additional examination and holding rooms in its emergency department, and is also building a 20-bed pre-holding and post-holding area for cardiac catheterization patients. These projects will free up licensed beds for inpatients at St. Vincent's. Fourth, St. Vincent's is in the process of implementing a case management program that is focusing on reducing lengths of stay. It is estimated that this program will reduce the average stay by half a day. Such a reduction will make 35 beds available. Fifth, on average, St. Vincent's currently sees 30 patients per day that come from the zip codes that surround St. Luke's. After the Phase 2 closing, St. Vincent's plans to encourage its specialty physicians to care for those patients at St. Luke's and anticipates redirecting 75% of those patients, or 22 patients per day, from St. Vincent's to St. Luke's. This redirection will further increase the number of beds available at St. Vincent's. Should St. Vincent's experience high occupancies following the Phase 2 closing despite implementation of these strategies, St. Vincent's will have the space for additional beds left by the 70 transferred beds. St. Vincent's could add up to 45 beds pursuant to a statutory exemption from CON review provided it meets the statutory threshold for triggering the exemption of annual occupancy at 80% or more. This last approach is not exempt from criticism: "[T]o take beds out of service and get to 80% [occupancy rate so as to trigger the statutory exemption] and say, therefore, I need to get beds back, that seems to be in a sense a certain gaming of the system." (Tr. 2166). St. Vincent's plans to implement the other strategies first, however. Taking advantage of the statutory exemption is a fall-back position should all else fail not a method to take advantage of the system in the first place. In any event, St. Vincent's application does not contemplate any construction by St. Vincent's at St. Luke's in order to implement its proposal. The application contemplates a seamless turnkey transition in which St. Vincent's simply takes over operations at St. Luke's at the Phase 2 closing. Baptist's Baptist proposes to construct a new 92-bed satellite hospital at the intersection of Old St. Augustine Road and I-95 in southern Duval County, just north of the St. Johns County line at a total project cost of $84.4 million. Baptist will transfer 92 acute care beds from its downtown campus to the satellite hospital. The transfer will result in the addition of no new beds to Baptist's license and no new beds to the acute care bed inventory of Subdistrict 4-3. The goal of the project is two-fold: to provide easily accessible, affordable health care to a rapidly growing population in southern Duval and northern St. Johns' Counties and to "decompress" Baptist Medical Center's existing campus in order to allow for modernization and to make it more efficient. The proposed satellite hospital will provide general medical/surgical and obstetrical services. It will offer an active and convenient emergency room and serve patients regardless of ability to pay. The new hospital will be family- focused, with large private rooms where a patient's family can be involved with patient care. Baptist's proposed hospital will pay special attention to the environment, both external and internal, with an emphasis on a healing library available to patients and their families. The 92-bed facility will be comprised of 72 med/surg beds, 8 ICU beds and 12 labor/delivery/recovery beds ("LDR beds") for obstetrical services. The facility will be an attractive five-story building. Although housing only 92 beds, it will have the presence of a larger hospital. Baptist has a contract to purchase a 32-acre parcel of land for the new facility. The purchase is contingent on final approval of its CON application in this case. The proposed site is part of a 900-acre DRI development called Grand Park of Jacksonville. This site has already met all regulatory approvals to build a new hospital, including zoning, land use studies, and DRI requirements. Unprecedented The net effect of approval of St. Luke's, St. Vincent's and Baptist's applications is for three different hospitals to come on line in Sub-district 4-3 at a cost of more than $400 million dollars. Approval of three hospital CON applications in one sub-district at once, as Memorial points out, is unprecedented. The associated costs, moreover, are considerable. On the other hand, a characterization of this proceeding as involving three "new" hospitals is not entirely accurate. While implementation of an approved St. Luke's application will require Mayo to build a "new" hospital, it will be a replacement hospital. Implementation of the approval will simply move an existing volume of business to a new physical plant. St. Vincent's hoped-for situation is, in part, the opposite. The transfer of 70 beds at St. Vincent's to join 65 beds and an existing facility will not entail the building of a new physical plant. Nor will it necessarily entail the capture of a significant number of new patients. The aim is to retain at St. Luke's the volume of its pure community cases and treat at the new St. Luke's facility up to 75% of the patients now treated at St. Vincent's that originate in St. Luke's primary service area. While the hospital will be "new," the facility will not; it will be a facility that has existed for more than 20 years and that continues to be put to its highest and best use. Nor will there be anything new about the treatment of community patients since for those who chose to use it there will not be a break in service at the facility during the shift of its control from St. Luke's to St. Vincent's. Baptist's project is not simply a new hospital either. It will be a satellite of an existing facility from which all its beds will be transferred. It will require a new physical plant, but it will operate under the same license to accommodate patients in the district, some of whom, it might have served at the main campus, had the satellite not been built, in the beds now intended for transfer. The usual aim of the CON law, to prevent the unnecessary duplication of services within a health care planning district will not be defeated by approvals any of the applications. The inventory of beds in District 4 will not increase through approval of the two CONs proposed by St. Luke's and St. Vincent's. Approval of the two, moreover, will allow Mayo to focus on the quaternary health care services, and medical education and research in which it specializes while St. Vincent's will be able to carry on the traditional community hospital care services that have long been provided at St. Luke's. Nor will Baptist be duplicating services since it is doing no more than transferring services within the subdistrict to a satellite sited more advantageously than the original site of the transferred beds. Certainly, there are factors present in the applications that are drawbacks, at least at first blush. With regard to the application for the replacement hospital filed by St. Luke's, there are no Medicaid or charity conditions. Historically, St. Luke's has only provided 1.57% of its patient days to Medicaid patients and has failed to meet indigent care conditions in the past. For fiscal year 2000, St. Luke's only provided slightly less than 9/10th of 1% of gross revenues to charity care patients. Part of the problem is that St. Luke's is located in an area with a population that is relatively affluent with the potential for few Medicaid and indigent patients since St. Luke's does not employ the outreach practices of St. Vincent's. Nonetheless, the Agency agrees with Memorial that the "weak point of the [St.Luke's/]Mayo application is indigent care." (Tr. 1437). Indigent care, however, is not an aspect of health care that Mayo has ever aspired to generally. Its mission is not to treat economically disadvantaged patients in favor of other patients or to treat certain percentages of indigent patients. Its mission is to offer health care services and medical treatment not ordinarily available at most local providers in an environment of research and medical education. As Mr. Walters explained at hearing with respect to Mayo's contribution to health care of the economically disadvantaged: Mayo can provide advances in science in our research initiatives. So as we deal with neuro-degenerative diseases and Alzheimer's, as we deal with finding the cures of cancer, these are advances in science that we believe are going to benefit all people, regardless of their ability to pay. (Tr. 241). Furthermore, St. Vincent's purchase of St. Luke's, with St. Vincent's dedication to serving the poor and history as a disproportionate share provider of Medicaid services offers the potential for the record of service to the indigent at the new St. Luke's to improve over St. Luke's historical record. The potential is enhanced by St. Vincent's practices of reaching out to the poor and the underserved. However one views the lack of indigent care conditions in St. Luke's application, there are certain drawbacks of the three applications. Baptist, for example, projects relatively low occupancy rates of only 37.8% and 48.37% in year 2005 and 2006, respectively. Obstetrics and Level II NICU services will not be provided at the replacement facility. For the Level II NICU services to continue to be provided at the new St. Luke's, if St. Luke's application and St. Vincent's application in this proceeding are granted, a separate CON will have to be approved for St. Vincent's at St. Luke's facility. That CON is subject to a separate proceeding under DOAH Case No. 02-0457CON. Approval of the St. Vincent's application, moreover, will have an impact on Memorial, an existing provider. Before addressing the drawbacks as well as the need for each of the proposals, there is one aspect of the case that must be clearly understood: the linkage between St. Luke's application and St. Vincent's. Linkage With regard to St. Luke's and St. Vincent's application, the issues regarding each must be viewed in the context of the interdependency of the two applications. If St. Luke's is denied, St. Vincent's project, whether approved or not, will not be able to proceed. There can be no sale to St. Vincent's of St. Luke's if the Mayo physicians do not have the facility on the Mayo campus. Likewise, if St. Vincent's application is denied, the effect on St. Luke's, whether its CON is approved or not, is that its project will not go forward. The St. Luke's project depends on the sale of St. Luke's to St. Vincent's for financing the construction of Mayo's replacement hospital. Without the funds from the sale of St. Luke's, the replacement hospital will not be built under the terms of St. Luke's CON application. The two projects are linked and interdependent; neither one can proceed without the way having been cleared for the other. The unusual aspect of the linkage of the St. Luke's and St. Vincent's applications is of central consideration in this case. That aside, as in any CON proceeding, the drawbacks to approval must be weighed and balanced against factors that favor approval within those statutory and rule criteria applicable in CON proceedings to allow a determination as to "need." Need for the Mayo Replacement Hospital Since the affiliation between St. Luke's and Mayo Clinic Jacksonville, St. Luke's, through a number of CON approvals, has added several adult tertiary services - bone marrow transplant, liver transplant, kidney transplant, pancreas transplant, heart transplant, and lung transplant. St. Luke's has also added community service obstetrics. The addition of obstetrics led to further service intensification through CON approval for another tertiary service at St. Luke's - a Level II NICU. The addition of these hospital services coupled with Mayo Clinic Jacksonville's capabilities and patient draw makes St. Luke's a tertiary/quaternary facility. Approximately 65% of the patients admitted to St. Luke's by Mayo physicians come from Duval County and elsewhere in District 4. Eighteen percent of the patients admitted by Mayo physicians come from the remainder of the State of Florida, and 17% come from elsewhere in the United States or from foreign countries. St. Luke's also serves as a teaching hospital in support of Mayo Clinical Jacksonville's medical education activities and by providing the inpatient training for the residency programs. St. Luke's achieved formal recognition as a teaching hospital in 1995, when it was accepted into the Counsel of Teaching Hospitals of the Association of American Medical Colleges. Some Mayo physicians are based at the St. Luke's campus. Those physicians are anesthesiologists, some family practice physicians, and the physicians involved in the solid organ transplant programs. St. Luke's is a modern facility in excellent shape. It has been accepted into the Council of Teaching Hospitals of the Association of American Medical Colleges. Although no evidence was adduced of physical plant requirements for such acceptance, the physical plant limitations of St. Luke's certainly did not impede its acceptance. St. Luke's is in the process, moreover, of seeking designation by the state as a teaching facility. As of the time of hearing that designation had not yet been achieved. Despite the quality of the facility, its recognition as an educational facility and the attempt by St. Luke's to achieve a "state" teaching hospital designation, the simple fact remains: St. Luke's was designed to be a basic community hospital. It remains adequate to support traditional community- focused non-Mayo programs. It has been adequate to support the transplant programs and the Mayo teaching mission and will continue to be so if Mayo closes the staff to Mayo physicians. It was not designed, however, with sufficient space, facilities, and other physical infrastructure to support the presence of both the contingent at its present size of community physicians and the Mayo physicians' rapidly growing clinical practice plus the vigorous medical education and research programs required of a Mayo hospital. St. Luke's is already experiencing capacity problems, with pressure on both its acute care beds and supporting acute care infrastructure produced by an average compound growth rate of 10% per annum over the past five years. St. Luke's will be at full capacity by the time the replacement hospital becomes operational if one uses a conservative growth rate of 5% per year. As Health Planner Mark Richardson put it at the hearing using the conservative 5% rate, "[t]he bottom line is that through the year 2006 and 2007, the expectation is that St. Luke's Hospital will not have enough beds to meet its needs." (Tr. 465). Mayo Clinic Jacksonville cannot maintain the status quo putting St. Luke's at a crossroad. The capacity problems must be addressed. One alternative to a replacement hospital would be closure of the medical staff at St. Luke's. It is not a desirable remedy. It would result in a significant adverse impact to the community physicians and their patients who have supported St. Luke's since its affiliation with Mayo in 1987. It ignores, moreover, St. Luke's original design as a community hospital. While it may be adequate for service as Mayo's clinical component to its Jacksonville base, it was not designed to meet the needs of the tertiary/quaternary facility it has become, nor as a hospital designed to support Mayo's vigorous medical teaching and research. Closure of the medical staff at St. Luke's will inhibit realization of the optimal service delivery approach favored by the Mayo Clinic integrated group practice model and used by Mayo Clinic Jacksonville physicians. Thus, closure of the staff at St. Luke's would have the dual effect that would serve neither the needs of community physicians now at St. Luke's nor Mayo physicians as well as they would be served by the approval of CON 9483. A substantial re-build of St. Luke's is not a practical means to keep the Mayo and community practices together at the hospital or even as a means to provide adequate facilities if the staff at the hospital were closed to Mayo physicians. Physical site restraints and significant local permitting obstacles such as planning and zoning regulations place substantial limitations on significant addition or renovation. Renovation falls short of the realization of the numerous efficiencies and other benefits that will accrue from consolidation of hospital operations on the Mayo Clinic Jacksonville campus. Even if other obstacles were to be overcome, renovation would be inordinately expensive. On balance, "rebuild" dollars would be better spent by preserving St. Luke's as a community hospital operated by St. Vincent's and by addressing Mayo Clinic Jacksonville's needs in the most optimal manner by construction of the Replacement Hospital. The solution proposed by CON application 9483 provides a number of benefits. It resolves the bed and support space limitations at St. Luke's Belfort Road campus. It will provide improvement in the coordination of care achieved by consolidation of all clinical and administrative operations on the Mayo Clinic Jacksonville campus and establishment of a physical plant specifically designed to accommodate Mayo Clinic Jacksonville's mission and growth. Operational efficiencies will be enhanced. At the same time, the transfer of beds proposed by St. Vincent's avoids the abandonment of St. Luke's Belfort Road facility and significant capital invested there if St. Vincent's proposed project is approved with the added benefit of approval of providing an innovative financing mechanism for the replacement hospital. Current staff at St. Luke's is adequate for the staffing of the replacement hospital. If staffing vacancies occur, nonetheless, Mayo should do better than the industry as a whole in filling those vacancies. District 4 Health Plan Preferences St. Luke's gains credit under some of the District 4 Health Plan Preferences. It will meet identified needs by providing services that meet commonly accepted quality standards in the most economical manner in terms of capital and operating expenditures. St. Luke's has access to an adequate supply of appropriate manpower. The replacement hospital with the continued operation of St. Luke's by St. Vincent's will provide a full array of acute care services. St. Luke's has a patient transfer agreement with Duval County Health Department's Primary Care Program. And the transfer of beds to the replacement hospital is necessary to maintain an improved quality of care and is more cost efficient than renovation and an expansion of the existing St. Luke's facility. Mayo: No Longer a Participant in Medicare, Part B A Change in Mayo's Medicare Policy At the time of hearing, Mayo Clinic Jacksonville participated fully in Medicare. It accepted from Medicare patients assignment of all their Medicare claims including those for services provided by Mayo Clinic Jacksonville physicians to them at St. Luke's and for all clinic services provided them on the Mayo Clinic Jacksonville campus. On June 21, 2002 (the day after the conclusion on June 20 of the final hearing), Mayo Clinic Jacksonville announced in its weekly newsletter provided to Mayo Clinic and St. Luke's Hospital staffs an "[u]pcoming change in Medicare billing." (See Exhibit 1 to Memorial's Motion to Reopen the Record Based Upon Newly Discovered Evidence and to Schedule an Evidentiary Hearing.) The announced upcoming change was the decision of the Mayo Clinic Jacksonville's Board of Governors that the Clinic would not participate in Medicare Part B effective January 1, 2003, a change in Mayo's Medicare Policy (the "Medicare Policy Change.") The Medicare Policy Change was the result of at least two factors. First, payment rates for physician services under Medicare Part B have been reduced by the Health Care Financing Administration. Further reductions are expected. Mayo suffers financial losses in the care of Medicare patients as it is. Mayo regards Medicare reimbursement to be inadequate and fears deeper financial losses. Non-participation in Medicare Part B allows Mayo to bill more for physician and clinic services and the possibility of not only staving off financial loss in the treatment of Medicare patients but achieving financial gain. Second, Medicare business, as percentage of all Mayo business, is increasing. In a letter dated July 3, 2002, the Medicare Policy Change and its effects on the Medicare patient were explained by Denis A. Cortese, M.D., Chair of the Board of Governors: Dear Medicare Patient: I'm writing to give you advance notice of an important billing change that will effect all our Medicare patients next year. As you know, Mayo Clinic in Jacksonville accepts payment from Medicare directly on your behalf for Medicare Part B services at the clinic and St. Luke's Hospital. Effective Jan. 1, 2003, Mayo Jacksonville will switch to another Medicare-approved billing system and fee structure. This change means that Medicare will send payments directly to you, and you will be responsible for paying Mayo. You will also pay more out of pocket for our services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. * * * We value your confidence in us, and we realize these billing changes will require adjustments on both out parts. Mayo Clinic is a not-for-profit organization, and our ability to continue to provide quality patient care, education and research rests on prudent financial management. This year, Medicare cut payments to doctors by 5.4 percent, the steepest across-the-board cut in the program's history. Additional cuts totaling 14.2 percent are planned from 2003 through 2005. Continuing to accept such inadequate reimbursement is not responsible business practice and would seriously jeopardize our ability to sustain Mayo- quality services. It's important to note that: Medicare will send payment directly to you. It will be your responsibility to pay Mayo. You may be asked to pay some out- of-pocket expenses at the time of service. Mayo will continue to submit claims to Medicare for you. However, you will have to submit a claim form and necessary paperwork to any supplemental policies you have. * * * (Exhibit 10, attached to Memorial Ex. 54, Deposition of Mary Hoffman). In its September 2002 Practice Team Newsletter, St. Luke's reiterated the news about the Medicare Policy Change: . . . Effective Jan. 1, 2003, we will switch to a different billing system and fee structure, meaning we will no longer "accept assignment." This means that Medicare will send payments directly to patients who will be responsible for paying Mayo. Patients will also pay more out of pocket for these services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. Also excluded from the change in billing procedure are anesthesia, pathology and radiology services provided by Mayo physicians at St. Luke's Hospital for community patients and Emergency Department services for both community and Mayo patients. (Exhibit 14, attached to Memorial Ex. 54, Deposition of Mary Hoffman). On August 2, 2002, Memorial moved to reopen the record in the case and to schedule an evidentiary hearing. The motion was based on the assertion that the Medicare Policy Change poses the potential of reducing the volume at St. Luke's and "significantly impacts the ability of St. Luke's, and in particular, community physicians, to treat patients covered by the Medicare program." Memorial's Motion to Reopen the Record, etc., filed at DOAH Aug. 2, 2002, p. 3. The motion further asserted that "[t]his change could have a profound impact on St. Luke's argument that it needs to relocate its operations to its proposed replacement hospital . . . Memorial should be permitted discovery to ascertain the impact of St. Luke's and Mayo Clinic's decision not to accept assignment for Medicare patients." Id., at 4. The motion was granted. Memorial was permitted to conduct discovery and an evidentiary hearing took place on September 27, 27 and October 8, 2002. Part A; Part B In general, Medicare Part A payments are provided to hospitals for hospital services including skilled nursing care. Payments are made for some additional services, for example, in the case of the disabled, there are payments for some disability services. Medicare Part B payments are for services provided by physicians to the patient, whether as an inpatient in a hospital setting or an outpatient. Medicare Part B payments are also for all services, physician and otherwise, rendered by clinics (such as Mayo Clinic Jacksonville.) Medicare Part B payments also cover the portion of outpatient hospital services attributable to the hospital. For simplicity's sake and for purposes of understanding the issues in this case it makes sense to think of Medicare Part B payments as covering physician and clinic services and Medicare Part A payments as those covering hospital services other than the portion of those services attributable to a physician. As Richard Baehr, Memorial's health planning witness, testified, "And for . . . outpatient services, if . . . in a hospital, there is a facility component which is actually covered by Part B, but it's a hospital service, so there is no[] change as a result of what's going on here." (Tr. 2940). There is a technical component and a professional component to Medicare payments. The technical component covers expenses associated with the technicians, the equipment, the facility and the overhead. The professional component covers none of these. It covers the fees associated with the professional services of the physician. If a service is performed on the campus at Mayo Clinic Jacksonville, because Medicare Part B covers all services of a clinic, both technical and professional, then Mayo bills Medicare Part B for the entire procedure including both components, technical and professional. "It's called a global fee." (Memorial Ex. 54, p. 40). If a Mayo physician is involved in a service performed at St. Luke's then the billing is split. Mayo bills Medicare Part B for the professional services of the physician only. It does not bill for any of the technical services associated with the facility. To use an example, if an MRI is conducted on campus at Mayo Clinic Jacksonville for a Medicare patient, then Mayo bills Medicare Part B for the global fee covering both the technical components attributable to the facility and the professional components attributable to the interpreting imaging specialist. If the same MRI is conducted at St. Luke's, then Mayo bills Medicare Part B for the interpreting physician's fees but not for the technical component. The technical component is covered by Medicare Part A for the MRI conducted at St. Luke's. Impact to Medicare Patients at St. Luke's There is a definite impact of the Medicare Policy Change to St. Luke's patients of Mayo physicians. As Dr. Cortese informed Medicare patients, for Mayo physician services provided at St. Luke's "there will be now a different rate of payment and a different method of payment." (Tr. 2940). That impact did not exist before the change. Prior to adoption of the change, St. Luke's under assignment of the patient's right to the Medicare payment would have billed Medicare and any co-insurer directly for the Mayo physician's services at the payment rate acceptable to Medicare for the service. The patient would never see a bill. Once the patient assigned Medicare benefits to the participating physician, there would be no impact to the patient, either in terms of having to file additional paperwork with Medicare or in terms of having to pay out-of-pocket expenses. After the effective date of Mayo's decision to no longer participate in Medicare Part B, there is a two-fold impact to the Mayo physician's patient at St. Luke's. First, there is a paperwork burden. The patient must seek Medicare reimbursement for the non-participating physician's fees by filing the necessary forms with Medicare. Second, there is an expense burden. The patient will be left with an additional out-of- pocket expense not covered by Medicare or co-insurance. Medicare reimburses 80% of a Medicare Allowed Amount to the claimant (the patient or, in the case of an assignment, the assignee who files the claim for Medicare reimbursement). In the case of assignment, the assignee can also bill the remaining 20% of the Allowed Amount for participants from the patient's co- insurer. The assignee is capable of being paid 100% of the Medicare Allowed Amount for participating physicians. This arrangement satisfies entirely the Medicare patient's responsibility for the charge. The patient with co-insurance need file no paperwork with Medicare and suffers no out-of-pocket expense. For the patient of non-participating physicians, the double impact will occur. The Medicare Allowed Amount for non- participating physicians is set at 95% of the Medicare Allowed Amount for participating physicians. In the absence of an assignment, a non-participating physician can send a Medicare patient a bill up to 15% higher than the Allowed Amount for a service by non-participating physicians. For a non-participating physician who chooses to maximize the allowable billing for a Medicare patient, then, the bill sent to the patient is higher than the total amount that would have been claimed from Medicare and any co-insurer under assignment by a participating physician. To illustrate the financial impact if Mayo's Medicare Policy Change to a Medicare patient of a non-participating physician, Memorial's Health Planner, Richard Baehr gave an example of a physician service for which $100 is set by Medicare as the Allowed Amount for a participating physician: In the past [prior to Mayo's decision to not participate], [Medicare] would have paid 80 percent of that [$80], and 20 percent would have been [covered] by co-insurance [$20, for a total of $100, the Allowed Amount for participating physicians]. * * * [After the Medicare patient receives health services from a participating Mayo physician,] [t]he Mayo Clinic physicians accept assignment. They are participating [in Medicare Part B]. And what happens is the patient has a service and basically goes home. Everything is billed by the physician, both for the $80 [to be paid by Medicare under Medicare Part B] and [for] the $20, [the physician] bill[s] the insurance company. As a result of this change [Mayo's decision to no longer participate], instead of $100 being the amount that Mayo could charge for the physician component, it is now $109 roughly. [To be precise, it is $109.25, $95 (95% of the Medicare Allowed Amount of $100 for participating physicians) plus $14.25 (115% of the Allowed Amount of $95 for non- participating physicians.)] But Medicare now recognizes only $95 as the [Allowed] [A]mount because [Mayo] is nonparticipating. * * * So the difference between $95 and $109[.25] is now patient responsibility. Before [the decision not to participate, patient responsibility] . . . would have been zero. Now it is $14[.25]. So you can multiply . . . if the bill is $2000, then [the patient's responsibility] is 20 times that $14[.25, i.e., $284]. (Tr. 2945, 2946). Non-participating physicians have the option of choosing to accept assignment for any particular patient. If assignment is accepted, the non-participating fee schedule or Allowed Amount (95% of the participating fee schedule or Allowed Amount) is still applicable to the non-participating physician's services. In the case of an assignment, however, the non- participating physician cannot bill the patient for anything beyond the 20% of the amount Medicare pays even if the charge is the maximum. The patient does not have the additional out-of- pocket expense incurred from the billing of a non-participating physician who does not accept assignment. Drawing on Mr. Baehr's example, for a non- participating physician who accepts assignment, the charge may be $109.25. The Medicare payment will be $76 (80% of $95, the Allowed Amount for a non-participating physician) and the patient or the co-insurer will only have to pay the physician $19 (20% of $95). The remainder of the $109.25 charge ($14.25) cannot be billed to the patient because the non-participating physician (or clinic) has chosen to accept assignment of the patient's Medicare claim. Affected Patients at St. Luke's At St. Luke's, Mayo's Medicare Policy Change will affect mainly those patients admitted by Mayo physicians. The impact to patients admitted by community physicians will be slight. After the effective date of the change, a patient admitted by a community physician and treated exclusively by community physicians will not be affected. A patient admitted by a community physician and treated by a Mayo physician rendering services in four specialties of medicine (radiology, pathology, anesthesia or emergency) will not be affected. Mayo will accept non- participating assignment for its physicians with regard to those patients. It chose to accept assignment for non-participating physicians in these four areas with the hope of minimizing the effect of the Medicare Policy Change on patients admitted by community physicians. The only community physician admitted patients who will be affected by the Medicare Policy Change are those that involve a consultation by Mayo physicians in specialties other than the four for which non-participating assignment is accepted. The impact was explained by Mayo Clinic Jacksonville's Chief Financial Officer: [Mayo has] looked into the number of occurrences where a request is made for a Mayo physician to consult on the community patient. Our statistics show that this is a relatively . . . small number of requests. . . . [T]hose occurrences approximate 110 times for all patients, with Medicare patients being approximately half of that. So on an annual basis we're talking about 50, 60 patients [who are Medicare beneficiaries]. And we have various options available to continue to evaluate so that we can fully support the community practice. * * * One of those options is for us to take assignment on those handful of consults. If we do that, there will no financial impact or balance billing occurring for those Medicare patients. If upon our further evaluation we determine that we want to bill those as a nonparticipating physician and balance bill, we have looked at our fees for consultations, . . . level five is the highest level that we can bill for consultation. For the Medicare program that fee approximates $200. So for those 50 to 60 [community physician admitted] patients, . . . they would incur an additional out-of- pocket expense of approximately 20 to $30. (Memorial Ex. 54, p. 46, 47). The decision had not yet been made as to whether to accept assignment in the case of these patients. Whatever the decision, this segment of Medicare patients will experience the paperwork burden of filing with Medicare. The Medicare Policy Change will impose the paperwork and financial burdens on patients admitted to St. Luke's by Mayo physicians for the physician components of those services. The Medicare Policy Change is likely to have some impact on the volume of Medicare business at St. Luke's because the added paperwork and financial burdens will likely discourage some number of the Medicare patients admitted by Mayo physicians (however small that number may be) from using St. Luke's. Memorial presented a sensitivity analysis showing the effect on patient day volume at St. Luke's using two assumptions deemed by its health care planner to be realistic reductions in Medicare volume as a result of the Medicare Policy Change: 10% and 20%. There were three bases for the selection of 10% and 20%: first, analysis in a Mayo Task Force report; second, a reference to expected impact made by Mayo Clinic Jacksonville's Chief Financial Officer in deposition testimony; and third, "the nature of the state, the nature of the population affected and the unique nature of this change . . . ." (Tr. 3001). 1. The Task Force Analysis. Mayo conducted a "Net Revenue Sensitivity Analysis" for 2001 showing dollar increases or decreases with Medicare volume reductions of 1%, 2.5%, 5%, and 10%. The analysis appears twice in the Mayo Clinic Jacksonville Medicare Participation Task Force Report and Recommendations, May 2002. (See I. A. p. 9 and D. p. 4 of Exhibit 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman). The Task Force Report also showed that the impact on revenue would be neutral at a 4% reduction in Medicare volume. It would lead to an increase of $3.7 million in net revenue to the clinic and the hospital with a 10% loss of Medicare volume if there was 100% replacement of the lost volume with patients with commercial or managed care health insurance. Because of the use of 10% by Mayo in the report, Memorial's health planner adopted 10% as the minimum volume reduction. There is no evidence, however, that Mayo projected that there would be a 10% reduction (or any other reduction) in Medicare volume in the wake of the Medicare Policy Change. Mr. Baehr, himself, recognized as much. With the caveat, that "hospital management doesn't always provide the worst-case scenarios to hospital boards," (tr. 3037), Mr. Baehr agreed that he didn't think the "unique purpose [of the analysis] was to identify a specific point estimate of what was likely to be the negative impact . . . on number of Medicare patients." (Tr. 3036). The Task Force reveals only the effect on net revenues if certain reduction up to and including 10% were to occur. To the contrary of projecting an estimate of a 10% loss of Medicare patients, in fact, the Task Force Report concluded that dropping Medicare assignment should not significantly reduce the demands for complex tertiary care and may not reduce the use of primary and secondary care. The task force was concerned about minimizing negative media responses to the Medicare Policy Change and patient perceptions that might arise to media reports and the change, itself. It concluded, however, at p. 4 of the Executive Summary in Part B, "Marketing Report-Focus Groups", after conducting and analyzing focus group responses: If the situation is explained well to patients, dropping Medicare assignment is unlikely to have a dramatic impact on Medicare patient volumes at Mayo Clinic Jacksonville. In fact, after patients saw an example of the financial impact that the change would have on them, very few, if any, of the patients in the focus groups would leave Mayo Clinic Jacksonville. Rather than shopping around when they require expensive procedures, some patients might consider seeing another physician if they had a cold or for other primary care needs, but most would not even consider doing that. Several of the patients mentioned that they chose to live in Jacksonville because Mayo Clinic is located there. It will take more than this change to cause them to seek care elsewhere. (Ex. 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman.) While the Task Force's expectations of de minimis impact may be wishful thinking or the product of not providing worst-case scenarios to the Mayo Board of Governors as alluded to by Mr. Baehr, it is not in Mayo's interests to misjudge the impact to Medicare volumes. Levels of volumes are required to sustain many of the tertiary and quaternary procedures provided by Mayo, the procedures that have driven the demand at St. Luke's that supports Mayo's case for need for the replacement hospital in the first place. As the Task Force recommended, it was essential prior to the Medicare Policy Change that Mayo "[f]eel comfortable that dropping Medicare assignment will not significantly reduce Medicare patients' demands for complex, tertiary care . . . ." (Id., at p. 6 of B.) The Task Force analysis does not support Mr. Baehr's selection of 10% or any higher percentage as a reasonable reduction in volume. To the extent that the Task Force attempted to project a volume reduction it concluded that there was not likely to be significant reduction. The use of 10% in the sensitivity analysis showed only what the financial impact of such a reduction would be; it did not project that such a reduction would occur. 2. The Testimony of MCJ's CFO Ms. Mary Hoffman is the Chair for the Department of Financial Services at Mayo Clinic Jacksonville, the clinic's Chief Financial Officer. Financial activities at both the clinic and at St. Luke's are within the scope of her duties. Before assuming the position she had occupied a similar position at Mayo Clinic Scottsdale for 10 years. She served as the point person for the Task Force that reviewed Mayo's Medicare policies and made recommendations that led to the Medicare Policy Change. When asked why the Task Force Sensitivity Analysis used a range of 1% to 10% reduction in Medicare volume, Ms. Hoffman answered, "Our assessment is the majority of the Medicare patients will continue to seek care at Mayo Clinic Jacksonville." (Memorial Ex. 54, p. 126). Ms. Hoffman did not testify as to what constituted a "majority" in terms of a percentage. Ms. Hoffman went on to explain that "if" (id.,) there were Medicare patients that "may" (id.,)consider not coming it would be those with primary care needs. Those with specialty care and ultimately hospitalization, she opined, were likely to seek services at St. Luke's. Mayo, moreover, she asserted, did not believe that there would be a significant reduction in volume and if there were any reduction it would ultimately be filled by growth in non-Medicare volume. There is nothing in Ms. Hoffman's testimony to suggest that she thought there would be a minimum reduction in Medicare volume of 10% or that any analysis by a qualified expert had been undertaken to project such a percentage reduction. Her testimony cannot serve as a basis for the conclusion that there would be a reduction of 10% or higher. The Nature of Things The third basis for Memorial's health planner's selection of a 10 to 20% reduction is "the nature of the state, the nature of the population affected and the unique nature of this change." Florida is a state with a significant population of Medicare beneficiaries. The Duval County Medicare population is not affluent generally. Mayo's Medicare Policy Change is unique, "nobody else in the state has done this." (Tr. 3001.) As Mr. Baehr testified, "[t]his is a situation where you're going from A to B. The impact is unknown. How significantly the reaction will be by Medicare patients, by community doctors, that's an unknown. All right. I can't specifically tell you that I think the number will be X. What I can say is because of the nature of the change, and the nature of the population affected, and the fact that demographically this is not a generally affluent Medicare community, the potential impact is more severe here than it might be in some other community where the population, the Medicare population was more affluent, where a smaller percentage of the patient population was served in the local community. (Tr. 3001, 3002). There is no expectation in Memorial's analysis that there will be any refill of Medicare patients lost as the result of the Medicare Policy Change. In the time frames shown in the application, any Medicare patients lost could be refilled by additional demand. Need for St. Vincent's Proposal Occupancy St. Vincent's projected that it would have an 84% occupancy for the first year of its operation at St. Luke's. The projection was overstated because of error in the analysis, however. It employed a base population of 511,089 in 2000 to project population growth when it should have used 537,182 as the base population for the year 2000. There is a second error in the St. Vincent methodology for projecting first year occupancy. It included psychiatric and substance abuse cases among the number of patients originating in Subdistrict 4-3 that use St. Vincent's in Subdistrict 4-2 for hospital services. The new St. Luke's will not provide psychiatric and substance abuse services. St. Vincent's was also criticized by Memorial for inflating the number of normal newborn admissions by double counting the mother and the baby as separate cases. Ms. Sharon Gordon-Girven adjusted for the errors and the criticism in testimony. In so doing, she discovered that zip codes for St. Johns County had been inadvertently excluded from the St. Vincent's analysis. Adjusting for the errors, the exclusion and the criticism reduces the average daily census for the hospital proposed by St. Vincent's from 114 to 108. An average daily census of 108 in a 135-bed hospital constitutes an 80% occupancy rate. St. Luke's is conveniently located near the intersection of two major highways in Jacksonville. Its emergency department is a busy one. At the time of hearing, an ER expansion project was underway to increase the size and number of the bays so the hospital could accommodate more patients. It is reasonable to assume the one-half of the ER volume currently associated with Mayo physicians would remain at St. Luke's because it will remain the closest facility for many patients. Currently, a significant number of patients leave Subdistrict 4-3 to go to St. Vincent's in Subdistrict 4-2. They utilize St. Vincent's primarily because of a referral to a specialty physician practicing at St. Vincent's. After the Phase 2 closing, St. Vincent's will encourage these specialty physicians to join the medical staff of St. Luke's and to see and care for patients who reside in Subdistrict 4-3 at St. Vincent's at St. Luke's. It is reasonable to assume that St. Vincent's will be able to direct 75% of these patients to St. Luke's after the Phase 2 closing. There is an adequate basis for Ms. Gordon-Girven's opinion that there is a need based on projected occupancies to retain a community hospital at St. Luke's Belfort Road campus. Staffing The parties stipulated that the staffing projections contained in St. Vincent's application were reasonable with two exceptions: the reasonableness of the projected salaries for nurses and St. Vincent's ability to recruit staff for the new hospital. The salary projections for nurses in St. Vincent's application were based on the midpoint of St. Vincent's pay grade for nurses at the time the application was prepared plus an estimated inflation factor of 3% per year. The midpoint represents the middle of the pay grade, not the average salary. The average salary is typically lower that the midpoint, and new staff are not hired near the midpoint salary unless they have considerable experience. St. Vincent's salary projections are reasonable. There is a shortage of skilled nurses and allied professionals in District 4. St. Vincent's has been successful in combating the shortage. St. Vincent's vacancy rate for nurses is lower that the state and national average. The lower rate is due, in part, to St. Vincent's effort to recruit and retain nurses. St. Vincent's has four nursing recruiters. It has recruited nurses from overseas, including four nursing schools in the Philippines, and has the ability to recruit from other hospitals in Ascension Health's national network. In addition, it sponsors a number of internship programs for other allied health professionals, including pharmacy interns, radiology technologist, a nuclear medicine program, and an ultrasound school. St. Vincent's is also involved in a number of educational initiatives, including relationships with high schools and local community colleges. Finally, St. Vincent's emphasizes a strong connection between employees and their immediate supervisors to create a nurturing environment for new staff. At the time of hearing, St. Vincent's had a zero- vacancy rate for pharmacists and respiratory therapists and only a single opening for a physical therapist, a position not difficult to fill. St. Vincent's established that it would be able to staff St. Luke's after the Phase 2 closing. First, Mayo will have more staff at St. Luke's that it will need for operation of the replacement hospital. After Mayo staffs the replacement hospital, there will be additional Mayo staff available to work for St. Vincent's at St. Luke's. While the replacement hospital will no doubt be an appealing place to work for many of the current St. Luke's staff, it is reasonable to assume that some staff currently at St. Luke's will prefer to remain at St. Luke's under St. Vincent's. Second, some existing staff at St. Vincent's now will be available for recruitment for any additional staff that St. Vincent's needs for St. Vincent's at St. Luke's. Third, both Mayo and St. Vincent's will be able to achieve efficiencies if both projects are approved. Mayo will achieve efficiencies through the location of all staff on one campus. St. Vincent will be able to achieve staff efficiencies because some supervisory roles can be filled by one individual overseeing staff at both St. Luke's and St. Vincent's. Fourth, St. Vincent's has a history of successful recruitment and retention of staff even through the recent nursing shortage; there is nothing to suggest that its efforts in the past will not continue to succeed. Finally, none of the applicants are proposing the addition of any new beds to the District. Statutory and Rule Criteria Section 408.035(1) - District Health Plan Section 408.035(1) addresses the need for the project being proposed in relation to the applicable district health plan (the Plan). The Plan contains five generic preferences and seven preferences specific to acute care services. The first generic preference is for applicants who demonstrate they will meet identified needs by providing services which meet commonly accepted quality standards in a most economical manner in terms of capital and operating expenditures. St. Vincent's ability to provide quality care at St. Luke's was stipulated to by the parties. That St. Luke's Hospital is already licensed, functional, and in excellent condition for a community hospital will permit St. Vincent's to initiate operations at that facility with efficiency. In addition, there are various operational efficiencies that will be realized by a two-hospital system with the hospitals in proximity to each other. Senior staff, educational programs, PRN staff and other operational systems can be shared by both hospitals. The Plan's second generic preference is for applicants who demonstrate that they can alleviate a current or potential geographic access problem. The closure of St. Luke's staff will not create a geographic access problem. Nonetheless, if these applications are not approved, the closure of St. Luke's medical staff to Mayo-only physicians would severely limit St. Luke's Hospital as a community resource and reduce choice for access of physicians and patients to hospital facilities. St. Luke's excellent location enhances access to hospital services. The third preference is for applicants who demonstrate that the proposed service has access to an adequate supply of appropriate health manpower. St. Vincent's will be able to obtain the necessary manpower for its project. The fourth preference is for applicants who demonstrate that new or expanded bed capacity will not have a significant negative impact on other health care facilities. For the reasons stated below regarding consistency with Section 408.035(2), approval of the Mayo and St. Vincent's applications will adversely affect Memorial although the weight of that impact is slight. The fifth preference, which is for applicants who commit to maximizing service to rural county residents, is not applicable. As noted above, the Plan also has seven preferences specific to applications for acute care beds. The first of these is for applicants who propose to convert licensed unused beds or use existing space rather than new construction. St. Vincent's application clearly meets this preference. While St. Vincent's is proposing to establish a new hospital, the application does not propose any new construction, but rather the use of the existing St. Luke's facility. Beds are also being "left behind" by Mayo and "transferred" from St. Vincent's. The second preference is for applicants who demonstrate that they provide a full array of acute care of services, including medical-surgical, intensive care, pediatric and obstetrical services within the market for which they are applying. St. Vincent's application proposes a full array of services; therefore, its application meets this preference. The third preference is for existing facilities where the number of beds to be awarded is 50 beds or less. The applicant's proposal meets this preference because it is not proposing the addition of any new beds to the district. The fourth preference is for applicants proposing to acquire or consolidate facilities where it can be demonstrated that services will be improved and costs to the public will be reduced. Costs to the public will not be reduced but services will be improved over what they would be without approval. The fifth preference is for applicants who submit in their CON application copies of their current written transfer agreements with the county health department primary care program. St. Vincent's did not submit written transfer agreements. Still, St. Vincent's routinely works with the county health unit to provide access to care, including prenatal care, obstetrical services, primary care and children's care, along with prevention, education and health promotion. For example, St. Vincent's works with the Duval County Health Department to identify where its mobile vans should go to provide its mobile health services to the urban poor. In addition, St. Vincent's hires physicians arranged through various county departments of health for its family practice residency program. The sixth preference is for applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. The transfer of the beds from St. Vincent's will maintain a substantial part of the care now provided by community physicians at St. Luke's. St. Vincent's application meets this preference. The seventh preference is for applicants that demonstrate that the transfer of beds is more cost efficient than the renovation and expansion of an existing facility. St. Vincent's application meets this preference because it proposes the transfer of beds from St. Vincent's without any need to expand or renovate the existing St. Luke's Hospital campus. The Plan's last preference is for an applicant that proposes to locate transferred beds in an area that would improve access to Medicaid and indigent patients. In its application, St. Vincent's has committed to significantly expand the volume of Medicaid and indigent care provided at St. Luke's. Although the population in the primary service area of St. Luke's is an affluent one, given its mission, history and outreach programs to Medicaid and charity care patients, approval of St. Vincent's application will increase access for Medicaid patients, indigent patients and underserved populations. Section 408.035(2) - Availability, Accessibility, and Extent of Utilization of Existing Facilities The dual character of St. Luke's as a national and regional referral center for Mayo Clinic Jacksonville and as a community hospital to serve the local population cannot continue indefinitely. Unless the Mayo and St. Vincent's applications are approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians and the community physicians and their patients will be forced out of that facility. If this is allowed to occur, the accessibility of St. Luke's to the local community will be significantly diminished. Section 408.035(3) - Quality of Care By stipulation of the parties, it was agreed that St. Vincent's has a demonstrated history of providing quality of care and the ability to do so at St. Luke's. Sections 408.035(4) & (5) - Need for Special Services; Needs of Education and Research Institutions The parties stipulated that Mayo's application satisfies the statutory criteria contained in Sections 408.035(4) and (5). St. Vincent's application does not itself propose special services that are not available in adjoining areas. As to Section 408.035(5), St. Vincent's provides continuing medical and professional training, and otherwise meets the criteria contained in that statute. Section 408.035(6) - Availability of Resources In the Prehearing Stipulation, the parties agreed that St. Vincent's has sufficient management personnel, and funds for capital and operating expenditures to accomplish the proposed project. At final hearing, the parties further stipulated to the reasonableness of the full-time employees ("FTEs") projected in the application. While the parties did not stipulate to the salary projections, based on the greater weight of the evidence the salary projections are reasonable. Although evidence was presented as to the current nursing shortage, St. Vincent's demonstrated that it has the ability to recruit the necessary staff for its proposed facility. Section 408.035(7) - Enhancing Access Approval of St. Vincent's application will enhance access to health care for all residents of District 4. St. Vincent's is committed to serving all residents, including but not limited to Medicaid patients, Medicare patients, and charity care patients. The community doctors are also committed to St. Luke's 135-year tradition of providing care that is accessible to all members of the Jacksonville Community. If St. Vincent's application is denied, the accessibility of St. Luke's for these groups will be reduced because Mayo will be forced to close the medical staff of the facility to community doctors, and the "community" portion of St. Luke's dual character will be lost. Approval of the application, on the other hand, will ensure that Florida's oldest hospital founded out of concern for care of the poor remains open, committed to its original mission. Subdistrict 4-3 has experienced and is projected to continue to experience significant population growth. Approval of St. Vincent's application will enhance access for this growing population. Section 408.035(8) - Financial Feasibility The parties stipulated that St. Vincent's has the available funds for capital and operating expenditures. The applicant demonstrated the immediate financial feasibility of the project. St. Vincent's demonstrated the long term financial feasibility by the greater weight of the evidence. The projected payor mix was reasonably estimated based upon the patients in the primary service area (excluding those services that will not be provided at St. Luke's). St. Vincent's volume projections are reasonable. Likewise, its projections of revenues and expenses are also reasonable and conservative. The applicant has reasonably projected a profit beginning with the first year of operation. The evidence demonstrated long term financial feasibility. Section 408.035(9) - Fostering Competition The impacts of competition will not have any negative effect on quality of care or cost effectiveness of any existing provider including Memorial. Even if all three applications at issue in this proceeding are approved, Memorial will continue to prosper. There was no evidence to suggest that approval would cause Memorial to close, or affect its ability to operate efficiently. On the other hand, if Mayo closes the medical staff of St. Luke's Hospital, Jacksonville would lose a community hospital that offers competition to Memorial and the other providers in the subdistrict and district. St. Vincent's accepts a wide range of payors, including both managed care providers and traditional indemnity. For this reason, approval will not only preserve but increase choice for both physicians and patients. Section 408.035(10) - Costs and Methods of Construction Memorial characterizes the expenditures for the acquisition of St. Luke's and the construction of the Mayo hospital as separate costs and an exorbitant amount. However, the same dollars used to buy one hospital are also used to build the other. This can also be viewed as a creative use of limited resources. Memorial's financial witness contended that code upgrade costs of up to $80-Million should have been included as part of St. Vincent's projected project costs. However, since code upgrades are not required, (see "Construction Code Issue" Section, below,) those costs will not be incurred and therefore were properly excluded by St. Vincent's. St. Vincent's does not propose any construction or renovations being made to St. Luke's. Therefore, the criteria contained in Section 408.035(10) are satisfied. Section 408.035(11) - Provision of Indigent Care The parties stipulated that St. Vincent's has a demonstrated history of providing health care services to Medicaid patients and the medically indigent. Therefore, there is no question about its commitment to providing services to the poor and disadvantaged. The proposed commitment to charity patients contained in the application (7.37% of patient days to self-pay, 6.68% to Medicaid patients) is reasonable. It is based on the assumption that St. Vincent's at St. Luke's would realize the average payor mix of all hospitals in Subdistrict 4-3. It would not have been appropriate for St. Vincent's to assume that its payor mix would realize the payor mix of any one hospital in Subdistrict 4-3. For example, St. Luke's has provided 2.26% of its patient days to self pay (including charity/indigent patients) and 1.57% of its patient days to Medicaid patients, relatively low percentages. St. Vincent's with its superior history of care to the medically indigent is likely to provide much higher percentages. Given the variability among hospitals in the subdistrict, it was reasonable for St. Vincent's to propose commitments based on the average payor mix of all hospitals in the district. Rule Criteria There are two rule criteria that relate to this application. They are Rule 59C-1.038, acute care bed priority considerations, and Rule 59C-1.030, additional review criteria. Under the Rule 59C-1.038 there are two priorities, only the first of which (documented history of providing services to medically indigent patients or a commitment to do so) is applicable. St. Vincent's application satisfies this priority. The criteria in Rule 59C-1.030 generally address the extent to which there is a need for a particular service and the extent to which the service will be accessible to underserved members of the population. Approval of St. Vincent's application will increase the accessibility of St. Luke's to underserved groups. Approval of St. Vincent's application will promote access to health care. It will ensure that a community hospital in existence since 1873 and at its current location since 1983, will continue. When Mayo opens the replacement hospital, there will be an average daily census of approximately 90 "community" patients left behind who will continue to need "community" hospital care. Approval will ensure that the community physicians currently practicing at St. Luke's will be able to continue at the Belfort Road facility without interruption. This option is foreclosed if Mayo closes the staff at St. Luke's. St. Vincent's has a significant number of contracts with different managed-care providers, both HMOs and PPOs, and traditional indemnity providers. St. Vincent's at St. Luke's will provide the community with a wider array of payors from which to chose. Approval will foster competition and give patients greater choice. Given St. Vincent's mission and historical record of care, approval should also increase access for Medicaid patients and other traditionally underserved groups. Construction Code Issue St. Vincent's application and St. Luke's application are predicated upon a condition related to the building and life safety requirements applicable to the construction of a new hospital (and a new NICU, the subject in DOAH Case No. 02- 0457CON). The requirements will not be imposed by AHCA on St. Vincent's licensure and operation at St. Luke's provided that there is no break in hospital operations at St. Luke's hospital between the time of St. Luke's operation of the hospital to the time that St. Vincent's commences operations there. The State Agency Action Reports ("SAARs") on CON Applications Nos. 9484P (St. Vincent's) and 9481 (St. Luke's) provide as follows: CONDITIONS * * * (6) provided there is no break in licensure, the building requirements associated with the establishment of a new hospital shall not be imposed by AHCA. St. Luke's Exhibit 18, p. 90; St. Vincent's Exhibit 5, p. 34. St. Vincent's application does not involve the construction of a new facility. Nor does it call for the conversions of one type of facility to another. St. Vincent's application does not call for designing, constructing, erecting, altering, modifying, repairing or demolishing a hospital as part of its application. The application proposes that the condition be met; it proposes no break in operation at the facility when control is transferred from St. Luke's to St. Vincent's. Need for Baptist's Proposal Baptist targeted the extreme southern part of Duval County to site its proposed project as an area in need of emergency services and with potential for growth of outpatient services. The proposed site is at the center of where development is occurring, where jobs are going and where homes are being built. Today, approximately 3500 people work in the Grand Park commercial development. A number of other job centers are moving to southern Duval County. The population base and the employment base are moving south from central Duval County. The 2001 population for Baptist's proposed service area, unchallenged in this proceeding, was over 121,000 and is projected to exceed 147,000 by 2010. The proposed site will be at the center of significant highway expansion that already exists or is presently underway in the area. The site is visible from Interstate 95. The interstate is six-laned through the southern part of the county to the St. Johns County line. A new interchange has been approved and all funding committed for this site. The site is proximate to the I-295 Beltway, with a connector road known as 9- A under construction. A second connecting road, 9-B, will be constructed just south of the new site. This road has been funded and construction will commence in the near future. Old St. Augustine Road, on which the hospital will be located, will be expanded to four lanes from Interstate 295 to Interstate 95. The funding for this project is part of the Better Jacksonville Plan, a $2.2 billion long-term plan already approved by area voters and funded through a half-penny sales tax. The hospital proposed by Baptist is needed to support the healthcare needs of a dynamically growing service area. There is a vacuum of hospital services in the area; the closest hospital is 25 miles away. The proposed project will be operated under the same license as Baptist downtown from which its 92 beds will be transferred making it a satellite hospital. There will be significant integration of services so as to avoid duplication of such areas as information service management, human resource management, materials management and supply handling, laundry and others. Prior to filing its application, Baptist evaluated the bed capacity of the downtown campus and determined it could safely transfer 92 beds without creating a drain on the resources of that facility. There is no dispute that Baptist has the excess capacity to transfer the 92 beds as proposed. At 92 beds, the proposed Baptist hospital is almost identical in size to the 90-bed Baptist Beaches hospital. While Baptist Beaches serves a different market with different demographics, the Baptist System has experience in successfully operating this size hospital in an area served by a similar population volume. Baptist already operates a life flight helicopter transport as a part of Baptist Health System. The proposed new hospital will have a helipad in order to provide rapid movement of patients needing tertiary services offered at the downtown campus. Prior to pursuing this application, Baptist retained experts in architecture and construction to advise the hospital of its options with regard to these same 64 beds. All parties reached the conclusion that replacing the 64 beds at the downtown campus was not a viable option. If its application is not approved, it will be difficult for Baptist to bring the 64 beds back on line due to a lack of space and the fact that construction costs will be very expensive. Baptist's experts have advised the costs will not be significantly more to build a new 92-bed hospital than to bring the 64 beds back on line at the downtown campus. Baptist has been unable to find a way to replace the 64 beds without making a congested situation even worse. AHCA's decision to approve Baptist's proposal was based on several key factors. Baptist is a traditional urban Medicaid disproportionate share provider that has an aging physical plant and finds itself with excess capacity at its downtown campus. Baptist seeks to relocate beds to an area projected to experience significant population growth. The proposal will allow Baptist to more efficiently use existing beds to support the overall indigent care mission of the hospital. In general, it is good health planning to support a disproportionate share provider seeking to move existing beds that are underutilized at its current urban location to a suburban location so that the project will enable that provider to continue the fragile, safety-net mission that it has historically provided. Baptist is such a provider. Baptist has a 27% market share of the proposed new service area. This fact amply supports its projected fill rate. Overall, occupancy of acute care beds in Subdistrict 4-3 is quite high at 71.5%, compared with the statewide average of 55%. At the same time, the number of beds per 1,000 population is lower in Subdistrict 4-3 compared with either the state average or the average in District 4 as a whole. As such, Subdistrict 4-3 experiences a higher use rate of acute care services but has a lower supply of beds. With the exception of Baptist Beaches, the remaining hospitals in Duval County are concentrated in the center core of the county. St. Johns County's only hospital, Flagler Hospital, is located in the southern part of the county, almost 25 miles from the Duval County line. Approval of Baptist's application will enhance access to certain acute care hospital services for residents of south Duval County. Growth in Baptist's proposed new service area is significant. The area's population is already approximately the same size as that surrounding Baptist Beaches. The nearby Mandarin area is a large-scale residential development that is already built out. Its population is approximately 45,000. The area surrounding the proposed site contains a number of Development of Regional Impact (DRI) projects. The DRI process involves a needs analysis that must be done in each case to demonstrate that the population projections that are shown for a particular planning area are consistent with the supply of residential and commercial activity to be provided. Each DRI is required to submit an annual monitoring report that lists all activity, all housing starts, school starts, and population growth, both actual and projected. DRI projects have projected build-out populations as follows: Bartram Park (4,000), Julington Creek (15,000), World Golf Village (15,000 to 20,000), Marshal Creek (5,000), West Born and East Born (10,000 to 12,000), and Nocatee (36,000). The majority of these projects are family-oriented, residential communities, which means children will live there and need convenient access to emergency services. At this time, it often entails less congestion for area residents to drive south 25 miles to Flagler Hospital than it is to travel north to Jacksonville to hospitals half that distance. Likewise, the proposed site will be easier to access for the residents of Mandarin than the existing providers to the North. The proposed site falls between two interstate roadways and is adjacent to two arterial roadway systems. The current and near term transportation network surrounding this area allows for very efficient access to the hospital site. The combination of the unprecedented growth in this area coupled with the transportation network, both existing and planned, provides an extremely efficient access to the medical services proposed by Baptist. The Jacksonville area economy is doing well. Jacksonville was recently named the hottest market in America for business relocation and expansion by Expansion Management after it conducted a survey of 75 site location consultants across the nation. Baptist has received strong support from a broad spectrum of the local community in support of this project. Dozens of letters of support from community physicians, local governmental leaders, the Chamber of Commerce and major area businesses were filed as part of Baptist's application. In addition, Baptist conducted a survey of its medical staff and found there was a remarkably positive response for the satellite hospital. Significantly, Baptist received a letter of support from Flagler Hospital System in St. Augustine, which operates Flagler Hospital, the only hospital in St. Johns County. Orange Park Medical Center, an HCA hospital located in Clay County, is not a reasonable alternative in terms of access to the service area Baptist seeks to serve in southern Duval County, including the Mandarin area. Orange Park is located on the opposite side of the St. Johns River, which serves as a natural barrier to health care access. Approval of this application will have a positive impact on BMC and its mission to provide medical services to Medicaid patients and the medically indigent. Hospitals in Duval County are well utilized, and continue to grow. According to a recent study done on behalf of Memorial, it has experienced a significant increase in utilization of beds over the past three years. Its occupancy is approaching 80%. There is also continued growth in the Jacksonville market that will place additional demands on the bed capacity of Memorial. Availability of Health Personnel and Management There are a number of public and private sector initiatives being undertaken to address the problem of the heath care staffing shortage. On the public side, the Florida Legislature recently passed HB 519 to promote increased recruitment and retention of nurses. Local governments are also providing incentives to attract more interest in the nursing profession. On the private side, providers have come forward with innovative proposals to assist in dealing with this problem. Baptist has undertaken a number of projects to address the staffing shortage. Hugh Greene, CEO of Baptist, sponsored an initiative to bring together other hospital CEO's in the community to partner with the University of North Florida to establish additional capacity for nursing students. The area hospitals have committed to collectively contribute over one million dollars for this project. Annually, this program will add 50 nurses to the nursing pool. Baptist projects it will have to hire less than 100 new employees to staff its new hospital. Relocating existing staff from other Baptist facilities will fill the remainder of the proposed staff needs. Given the time to open their respective facilities, the three hospital proposals will each have an opportunity to ramp up to meet staffing needs. Based on the applications filed, the three hospital projects would be phased in over several years, with Baptist's project coming on-line in approximately two years and the St. Vincent's/St. Luke's projects taking almost four years to open their doors. The increased demand for staff, especially nursing staff, if all three applications are approved, will have some impact on other hospitals within the community. The issue is not unique to Jacksonville. Nor will it affect Memorial any more than other hospitals in the area. Notwithstanding the issue of a healthcare staffing shortage, overall, the three proposals at issue should have a positive impact on the community. Each of the parties to this proceeding conducts extensive, ongoing recruitment of nurses. It includes international recruiting, recruitment at job fairs and local schools, and proactively seeking to work more closely with local technical programs. Baptist is also very involved with the local Chamber of Commerce and its strategic initiatives to enhance education and training of potential healthcare work force. The Jacksonville Chamber has six full-time staff dedicated to work force development including healthcare. The Chamber is actively involved in recruiting not just companies, but employees, too. It is working with a company called NationJob, which has a national website system to help fill local job needs. No nursing shortage is permanent because the nursing labor market behaves like any free market. Ultimately, supply and demand are managed in a free market by offering higher wages and increasing other benefits to address the profession. Baptist has developed a variety of strategies for recruiting, training and retaining nurses. It plans to use these at the facility it proposes in its application. Strategies include local open houses at the hospital, emphasis on regional and national market searches, using the Internet, and targeting military-trained nurses through job fairs. Baptist offers scholarships and has helped the local school board create an academy for students interested in health careers, as well as partnered with the DuPont Foundation and the Ounce of Prevention to create a model for mentoring. Baptist offers these young people jobs in the summertime in some healthcare arena to encourage them to enter the healthcare field. Baptist has followed a multi-pronged approach to recruiting new healthcare workers while at the same time maintaining an environment to retain the staff it already has. An adequate, qualified workforce is a key strategic goal for Baptist. In 2001, Baptist was voted one of Jacksonville's top 25 family-friendly companies in a poll taken by Jacksonville Magazine. In 2000, Baptist commissioned research on the subject of its workforce and developed a leadership model called the "Spirit of Caregiving," which is an initiative to work closer with staff and attempt to prevent burnout which has become a problem in the industry. It also established "Flex Choice," a means to address compensation, scheduling, intensity of work and relationship with management as the four key drivers for maintaining nurse satisfaction. Baptist also created its own flex team to replace the need to use local staffing agencies to staff its hospitals. Baptist has established a relationship with H*Works, which is a consulting arm of the Healthcare Advisory Board, a national think tank research-based program headquartered in Washington, D.C. An extensive research effort was undertaken by Baptist to determine how best to recruit and retain its employees. Implementing this program has reduced Baptist's turnover and vacancy rates in nursing. Other proactive programs instituted by Baptist include developing a relationship with Lutheran Social Services to employ displaced individuals who have moved to the Jacksonville area from Bosnia. As yet another example of how it has made efforts to be proactive in staffing, Baptist changed its model for how pharmacists interact with the medical staff, allowing them to have more interaction with the clinical staff in terms of patient care. This change has been well received. While some staffing will need to be duplicated at the proposed facility due to the need for core staff at both campuses, there are a number of counterbalancing efficiencies. For example, efficiencies flow from sharing the same governing board and some of the managerial staff, in such areas as human resources, risk management, accounting functions and quality improvement functions. Approval of the new facility could actually have a slight positive effect on the staffing issue. One of the main reasons nurses leave their profession is to seek a less physically demanding one. Modernization of facilities to make them less physically demanding can help to keep some nurses in the profession. Granting Baptist's application will lead to two modernized facilities: a renovated Baptist Medical Center campus and a brand new Baptist South facility. Baptist South will be staffed by first offering existing staff at its other two hospitals in Duval County the opportunity to transfer to the new satellite facility. Over 900 current Baptist staff who work at the downtown campus were identified as living in the area surrounding the proposed site. Not all employees who transfer from the downtown facility will need to be replaced at their former workplace, as Baptist projects that a number of current patients will be redirected from the downtown campus to the Baptist South location, given its proximity to their places of residence. As previously noted, the three hospitals at issue will be phased in over several years. This will allow adequate time for the applicants to ramp up in meeting the staffing needs of their new projects without necessitating a sudden increase in patients. Memorial's expert acknowledged that as a brand new facility, it would take Baptist South several years to get established in terms of building up its patient census. Each of the applicants, while acknowledging the challenge, demonstrated the commitment to attract and maintain competent staff to run the three proposed hospital projects at issue. The average age of the work force in Jacksonville is relatively young compared to the rest of Florida. Jacksonville is more a working area than a retirement one, with strong working-age demographics compared with other parts of the state. It is reasonable to expect Baptist will be able to staff its proposed project with an impact on Memorial that Memorial can sustain. When a hospital does not have sufficient staff to take additional EMS patients, it has to go on "advisory status." In 2002, Memorial has been on advisory status proportionately less than in 2001 because it has been utilizing more creative measures to staff beds than in previous years. Baptist already has a management team in place to operate properly and effectively the proposed satellite facility once approved. As previously noted, the Baptist Health System already operates BMC, which includes the Wolfson Children's Hospital, as well as Baptist Beaches and Baptist Nassau. In addition to its existing management team, Baptist has identified Ron Robinson as the administrator who will oversee the day-to-day operation of the new hospital. He presently is employed by Baptist Medical Center as a vice president. Mr. Robinson holds a master's degree in health administration and has experience as the chief operating officer of a community hospital. Enhanced Access Accessibility is a key part of Baptist's mission. Enhancing geographic distribution of beds to an area it believes is underserved is obviously consistent with its mission. Baptist is there for the community and seeks to provide care closer to where people live. The key to access is the ability to get to a facility or service. Baptist sought a proposed site that would be easily accessible to the residents of southern Duval and northern St. Johns Counties. The Interstate 95 interchange at Old St. Augustine Road is ready to be bid and will have an 18-month construction schedule, allowing it to open prior to the commencement of operation at the new hospital, if approved. Approval of Baptist's application will address what is currently an unmet need in the area, ready access to medical services. Cost-Effectiveness The estimated cost of construction to replace the 64 beds off-line at the downtown campus is $275 per square foot. The cost to construct the proposed 92-bed satellite hospital is $190 per square foot. As noted above, there will also be savings from operating the proposed facility as a satellite of the downtown campus. Accreditation and Quality of Care BMC scored a 97 on its most recent JCAHO accreditation survey, and currently holds an Accreditation and Commendation from the Joint Commission on Accreditation of Healthcare Organizations. Baptist's laboratory is accredited by the Commission on Laboratory Accreditation of the College of American Pathologist. Over a number of years, BMC has been chosen as the consumers' choice preferred hospital for Jacksonville, based on research by the National Research Corporation. Similarly, BMC was voted Best Medical Center in Jacksonville Magazine's 2001 pool. Decompression of Downtown Campus Notwithstanding the awards and accreditation for its operational excellence, Baptist's downtown campus' location is fraught with problems. The campus is bounded by four barriers. To the south is I-95; to the east, railroad tracks and bridges; to the west, the St. Johns River; and, to the north, Prudential Drive. Prudential Drive includes the corporate offices of Aetna Insurance in a large commercial office building. Although essentially landlocked, Baptist was recently able to purchase a small parcel of land (less than two acres) on the north side of Prudential Drive. While it will offer some relief, it is too small and has building height restrictions such that it is not a viable alternative to address all the space needs of the downtown campus. There are currently 64 beds that are off-line; another 88 beds need to be replaced in order to have enough room for Wolfson Children's Hospital to expand. One of the benefits of choosing to decompress by relocating beds to the south is that all the main campus renovations can then be sequenced so the hospital is not severely disrupted during renovation. This is critical, as Baptist is expecting to see nearly 90,000 patient visits in its emergency room this year alone. Baptist has sought to alleviate the congestion on its main campus by moving outpatient programs to nearby properties. Baptist's Regional Cancer Institute provides radiation therapy and chemotherapy for oncology patients, and the Baptist Eye Institute houses eye surgery and diagnostic services. Also housed off-campus is a diagnostic center with CT scans and MRI, as well as orthopedic surgery. Further expansion is precluded by the lack of available land on or near the site. The absence of space on the campus currently requires Baptist to lease space off-campus for various non-clinical support functions, such as accounting and bookkeeping. The downtown campus also has infrastructure problems. Several of the buildings on Baptist's downtown campus are nearly 50 years old. The "main building" was built in 1955. The inpatient areas in this building have shared bathrooms. It has significant mechanical and electrical problems. The life span for this building has expired and something must be done now to address how it will be replaced. The "One Southeast Building," also on the downtown campus, was built over 20 years ago as a temporary building, but has never been replaced. A critical problem at the downtown site is inadequate parking. As part of its ongoing patient satisfaction program, Baptist routinely takes surveys of its patients. The number one complaint from patients, their families and physicians on staff is the lack of adequate parking at the downtown hospital. To help alleviate this problem, Baptist has purchased off-site parking and runs a shuttle service for over 500 employees so that patients and visitors can better access on- site-parking. Redirecting existing patients who reside closer to the new satellite facility will contribute to relief of parking inadequacy downtown. Memorial contends Baptist's proposed hospital is premature. Baptist counters that it must take action to either relocate the 64 off-line beds or find a way to bring them back on-line at the main campus. While they are off-line, it makes more sense from a health planning perspective to relocate the beds to an area where there is population growth rather than simply bring the beds back on-line at the congested downtown campus. Establishment of the satellite hospital will decompress the downtown campus and serve the dynamic growth in southern Duval and northern St. Johns Counties. Relocation Need Criteria Although AHCA has a rule to determine the need for new or additional beds, it does not have a rule specifying a methodology for evaluating a proposal to relocate existing licensed beds within the subdistrict. The acute care bed calculation methodology in Rule 59C-1.038(4), Florida Administrative Code, therefore, is not applicable to Baptist's application. Rule 59C-1.038(6)(a), Florida Administrative Code, contains a preference for applicants proposing a capital expenditure on acute care beds that have documented a history of providing services to medically indigent patients. The Agency interprets subpart (6)(a) to be applicable to acute care bed relocations. Baptist's proposal earns this preference. Baptist Medical Center has the lowest average occupancy of the subdistrict hospitals on a licensed bed basis, and can easily afford to transfer 92 beds to its proposed south project. Baptist's proposal will enhance competition. While there will likely be some competitive impact to local area hospitals if approved, it will not materially compromise the operations of any other hospital in Duval or St. Johns Counties. In fact, officials at Flagler Hospital, located in St. Johns County, submitted a letter of support for this project. Local Health Plan Preferences Baptist is deemed to meet the first general preference relating to meeting identified needs by providing quality services in an economical manner. Baptist is deemed to meet the second general preference by addressing potential geographic access problems, especially access to emergency room services. Baptist meets the third general preference in terms of demonstrating that it has access to an adequate supply of health manpower. Baptist's application sets forth a well thought-out proposal to address the issue of staffing. The fourth general preference concerning adverse impact to existing providers does not apply to Baptist as it is not adding beds or a new service. The fifth general preference focuses on maximizing services to rural county residents. Duval County is not a rural county and this provision is really not applicable to any of the applicants in this case. While Baptist's proposal will not significantly enhance access to Medicaid and indigent patients in southern Duval County, approval of the project does enable Baptist to maintain its mission as a disproportionate share provider of Medicaid and indigent services. Baptist consciously chose not to condition this application on a set Medicaid percent. It is historically on record as providing both charity/indigent care and Medicaid services as a disproportionate share provider. Baptist will continue to provide health care services regardless of ability to pay. In addition to general preferences, the local health plan also contains preferences that relate specifically to acute care beds. The first acute care preference gives priority to proposals to convert licensed, unused bed space rather than undergo new construction. This preference applies to projects seeking "new" beds and is not applicable to what Baptist is proposing. The second acute care preference concerns applicants who demonstrate that they will provide a full array of acute care services. Baptist meets this preference. The third and fourth preferences are not applicable to Baptist's proposed project. The fifth acute care preference relates to applicants who have written patient transfer agreements with the county health department. Baptist does not technically meet this preference; nonetheless, as in the case of St. Vincent's, it complies with the spirit of the concern. Baptist is a disproportionate share provider and provides access to indigent patients. The sixth acute care preference speaks to applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. Baptist meets this both by decompressing its downtown campus and by enhancing accessibility to acute care and emergency services to the southern county residents. Baptist meets the seventh acute care preference in that it is more cost-efficient to transfer the beds than to add to the congestion of its landlocked downtown campus. Finally Baptist meets the eighth acute care preference to the extent that approval of the transfer of these 92 beds will enable Baptist to continue its mission of providing health care to Medicaid and medically indigent patients. On balance, Baptist's proposal is clearly consistent with the preferences of the local health plan. Impact on Memorial 1. From St. Luke's and Baptist's Memorial is a financially strong provider, as its parent company, HCA. It will continue to grow and do well if all three applications are approved. Memorial's acute care beds are highly utilized. In the first six months of 2001 the occupancy rate was over 73%. It is projected to reach 80% occupancy before 2006. On an operating basis, Memorial is highly profitable, both historically and as projected. Memorial's earnings before interest, taxes, depreciation and amortization ("EBITDA") approximated $58 million in 2001 and $49 million the year before. Approval of St. Luke's application, alone (that is, without consideration of St. Vincent's application and its linkage with St. Luke's), will not have an adverse impact on Memorial. The replacement hospital will not be a community hospital but a tertiary/quaternary facility specifically designed to further all three components of Mayo's mission, unique within the health services planning district. The replacement hospital's unique character, its closed physician staff, the absence of obstetrical services and its regional, national and international draw will result in few local residents going to the facility for routine acute care hospital services offered at Memorial. In addition, the replacement hospital will be located approximately 10 miles east from St. Luke's, and thus further away from Memorial than St. Luke's is now. The approval of Baptist's application is not likely to have an adverse impact on Memorial. At final hearing, Memorial acknowledged that Baptist's approval would have the least consequence on its operations. Memorial calculated that the impact of approval of Baptist's application on its operations would be a net margin contribution loss in a range between $619,000 and $1.5 million. Such an impact does not weigh heavily in favor of denial of Baptist's application given Memorial's EBITDA of approximately $49 million in 2000 and $58 million in 2001. In making its analysis, moreover, Memorial did not assume any growth in its operations between 2201 and Baptist's projected second year of operation. Memorial's analysis did not take into consideration the location of the satellite hospital. In fact, the impact of approval of Baptist's application will have less of an impact on Baptist than leaving at Baptist's downtown campus the 92 beds to be transferred to the satellite hospital. The impact on Memorial from approval of either or both St. Luke's (without consideration of its linkage to St. Vincent's) and Baptist's application is so slight as to be not meaningful. 2. From St. Vincent's If zip codes making up at least 1% of admissions are used to define "primary service area," there is significant overlap between the primary service areas of Memorial and St. Vincent's at St. Luke's. If St. Vincent's application is approved, the St. Vincent's at St. Luke's primary service area will directly overlap with those zip codes from which Memorial receives the majority of its patients. The St. Vincent's at St. Luke's proposed primary service area is also concentrated within fewer zip codes than St. Luke's existing primary service area. St. Vincent's at St. Luke's will need to aggressively draw patients from its proposed primary service area in order to meet volume projections of 84.21% in 2006 and 86.52% in 2007. Financial Impact If the St. Luke's application to consolidate the Mayo operations on one campus stood alone, Memorial's health planner would not find the application "that problematic." (Tr. 2253). In fact, he agreed during cross-examination that the collocation of Mayo's clinical services with its other services creates an advantageous opportunity to share resources and achieve economies that would constitute "not normal" circumstances weighing in favor of approval of the St. Luke's application in the absence of numeric need. (Id.) Nonetheless, Memorial's health planner objected to the approval of St. Luke's application in conjunction with approval of St. Vincent's application for among other reasons the financial impact to Memorial when the two are considered together. St. Luke's projects 54,677 patient days for the St. Luke's at Mayo facility during the second year of operation (2007). St. Vincent's projects 42,632 patient days for the new St. Vincent's at St. Luke's facility during 2007 for a total projected patient days of 97,309 generated by the two new hospitals. Absent approval of its application, St. Luke's projects it will experience 70,139 patient days at the existing St. Luke's during 2007. Accordingly, there will be a net increase in patient days of 27,170 in the Subdistrict as a result of approval of the St. Luke's/St. Vincent's projects. An increase of 27,170 patient days divided by 365 days yields an incremental average daily census increase of 74.4 in 2007 in the Subdistrict that would otherwise be served by existing hospitals absent approval of the two new hospitals. Memorial experiences a 22.7% market share for non- tertiary services in Subdistrict 3. When the 22.7% market share is applied to the 74.4 incremental increase in the average daily census, Memorial can expect a loss of 6,167 patient days and a loss in average daily census of 16.9 patients during 2007. Memorial can be expected to lose 1,259 cases during the second year of operation of the new St. Vincent's at St. Luke's and the new St. Luke's at Mayo when the total lost 6,167 patient days is divided by Memorial's 4.9 average length of stay for non-tertiary services. The existing St. Vincent's projects it will treat 3,093 total patients from Subdistrict 3 in 2007 absent approval of the St. Vincent's at St. Luke's project. Therefore, St. Vincent's contends 10,695 patient days and 2,320 cases will be redirected from the existing St. Vincent's to the St. Vincent's at St. Luke's new facility based on the assumption it will capture 75% of the total volume bypassing St. Luke's to access St. Vincent's. This translates to an average daily census of 29.3 patients when the 10,695 patient days expected to be captured by St. Vincent's at St. Luke's is divided by 365 days a year. With St. Vincent's at St. Luke's capturing 75% of the subdistrict volume currently accessing St. Vincent's, the 74.4 incremental increase in average daily census projected above will be reduced by the 29.3 average daily census remaining in the St. Vincent's system. This yields a 45.1 net incremental average daily census increase in the subdistrict. Memorial will lose an average daily census of 10.2 patients per day applying Memorial's 22.7% market share to the incremental increase of 45.1 average daily census that other existing hospitals would otherwise treat assuming St. Vincent's meets the 75% transfer rate. A 10.2 loss per day multiplied by 365 days a year equates to a loss at Memorial of 3,739 patient days. Divided by Memorial's 4.9 average length of stay yields a potential loss of 763 cases in 2007. Mr. Beiseigel performed an impact analysis calculating a range of financial impact Memorial will incur assuming both 1,259 and 763 lost cases. Memorial will suffer a $3,092,775 net contribution margin loss assuming 1,259 lost cases in 2007. Assuming 763 lost cases, the contribution margin loss is $1,874,335 for 2007. The financial impact suffered by Memorial will more likely approach $3,092,775. This loss does not include losses in subsequent years. Memorial may benefit financially by the capture of some community physician open heart surgery and interventional cardiology volume due to the discontinuation of open heart surgery at the St. Vincent's at St. Luke's facility. But the benefit is not likely to be substantial. Memorial has experienced a decline in adult open heart surgery volume at its facility due in part to approvals of two new open heart programs in Georgia. Additionally, Flagler Hospital has also been approved for an adult open heart surgery program which is likely to result in lost open heart surgery and cardiology volume at Memorial. Any incidental cardiology volume realized by Memorial as a result of moving the open heart program to St. Luke's at Mayo is not likely to significantly offset the adverse impact to Memorial should the St. Vincent's, and St. Luke's projects be approved. Managed Care St. Vincent's at St. Luke's is also likely to take a significant level of managed care volume from Memorial. Managed care (HMO/PPO) accounts for 40.41% of Memorial's patient days compared to 20.7% at St. Luke's and 26% at St. Vincent's. St. Vincent's at St. Luke's projects that 40.42% of its patient days will be attributable to managed care. St. Vincent's at St. Luke's would be compelled to target managed care payors that currently contract with Memorial in order to meet its managed care projections. There currently exists adequate competition for managed care contracts within the District. Memorial has recently lost a managed care contract with United resulting in a 10 patient drop in Memorial's daily census. St. Vincent's at St. Luke's aggressive pursuit of managed care contracts as reflected in their projections will have an impact on Memorial.
Recommendation In consideration of the statutory and rule criteria, on balance, all three CON applications at issue in these consolidated cases should be approved by AHCA. DONE AND ENTERED this 5th day of February, 2003, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of February, 2003. COPIES FURNISHED: Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Kathryn F. Fenske, Esquire Agency for Health Care Administration 8355 Northwest 53rd Street Miami, Florida 33166 Michael J. Cherniga, Esquire Sean M. Frazier, Esquire Greenberg Traurig, P.A. 101 East College Avenue Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire Thomas W. Konrad, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Stephen C. Emmanuel, Esquire Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302-0391 R. Terry Rigsby, Esquire Law Office of R. Terry Rigsby, P. A. 215 South Monroe Street, Suite 505 Tallahassee, Florida 32301 Donna H. Stinson, Esquire Broad and Cassel 215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302
The Issue Whether the application of Wuesthoff Memorial Hospital, Inc. (CON 8740) for a 50-bed general acute care hospital in South Brevard County should be granted?
Findings Of Fact The Parties Wuesthoff The applicant for CON 8740 is Wuesthoff Memorial Hospital, Inc., a Florida not-for-profit corporation. Wuesthoff operates a general acute care hospital (the "Hospital" or the "Rockledge campus") in Rockledge, Florida. According to the division of the county into three areas (north, central, and south) ascribed to by Wuesthoff, Rockledge is in Central Brevard County. Wuesthoff's parent corporation is a not-for-profit corporation, Wuesthoff Health Systems, Inc. (the "Wuesthoff System"). The Wuesthoff System operates health care providers across the health care spectrum. Among the entities controlled by the Wuesthoff System is Wuesthoff Health Services, Inc., which operates a home health agency, a hospice, a durable medical equipment service and a 114-bed skilled nursing facility. The Wuesthoff Foundation, responsible for fundraising activities for all components of the Wuesthoff System and Care Span, a medical services organization which owns and operates physician practices, are also under the umbrella of the Wuesthoff System. The health care system operated by the Wuesthoff System serves residents in and around Brevard County and, to a limited extent, beyond. Examples of its service throughout Brevard County are the hospice, the durable medical equipment-company, and a reference laboratory. The hospice, for example, is licensed and serves all of Brevard County. The reference laboratory, located in Viera, provides services throughout Broward County and to other counties in Florida. The Wuesthoff System also owns a mobile health unit that travels throughout the county to provide health care services. The Wuesthoff System owns two outpatient clinics or "broad based diagnostic clinics" (Tr. 98) in Brevard County. One is on Merritt Island; the other is located in Sun Tree. Home health services are provided from a base of three different offices in the county. Similar to some of the other services offered by Wuesthoff, its home health services are provided throughout the county. Although it draws patients from throughout the county, most of Wuesthoff's hospital admissions come from Central Brevard County where the Hospital is located. If one defines "Central Brevard County" to include Port St. John and Sun Tree Viera, the sites of the northernmost and southernmost physician practices owned or operated by Care Span, then all of the practices in the Wuesthoff System are within Central Brevard County. Ownership of these practices does not restrict the physicians in them from referring patients for treatment outside the Wuesthoff System. But consolidation of the various services offered by the practices (diagnostic and radiology services, for example) enables Wuesthoff to strengthen its presence in Central Brevard County. The result is "additional volume" (Tr. 164) for the Hospital. The Hospital contains 268 acute care beds, 30 psychiatric beds, and five hospice beds, for a total of 303 beds. (It also contains 10 Level II Neonatal Intensive Care Unit beds.) If the project subject to CON review in this proceeding is ultimately approved, 100 of these beds will be de-licensed, leaving a 203-bed facility. HRMC Holmes Regional Medical Center ("HRMC") is a 528-bed regional, not-for-profit hospital, headquartered in Melbourne, Florida, operating on two acute care campuses under a single hospital license. One campus is the site of a 428-bed tertiary care facility in Melbourne; the other is a 60-bed general acute care community hospital in Palm Bay. Both facilities are in the southern portion of Brevard County. In addition to the 428 general medical and pediatric beds operated at the Melbourne facility, HRMC operates there a 10-bed Level II neonatal intensive care unit. HRMC is accredited by the Joint Commission for Accreditation on Health Care Organizations ("JCAHO"). It operates the only hospice program in the county accredited with commendation by the JCAHO; the only comprehensive community cancer program that has been accredited by the American College of Surgeons; the only American Sleep Disorders Association accredited sleep lab; the only American College of Radiology accredited respiratory therapist department; the only certified pulmonary function lab; and, the only life flight helicopter in Brevard County for hospital transports. As a regional medical center, HRMC provides open heart surgery, tertiary, orthopedic and neurosurgical referrals through a seven-county area, and provides trauma support for the central and south central Atlantic Coast in the State of Florida. It is the only designated trauma center in Brevard County. HRMC was founded 60 years ago by the community and has been a not-for-profit, community-based hospital ever since. The mission of HRMC is to improve, regardless of ability to pay, the health status of every member of the community through collaborative and cooperative agreements with other organizations and agencies it its service area. To represent the community's interests, HRMC's Board is composed of community leaders, educators, and employers. HRMC plays an active role in the community. The program denominated HOPE (Health Outreach Production and Education) is a collaborative effort by the Brevard County Public Health Unit, the American Cancer Society, the School Board, the County Commission and HRMC to solve community health problems. There are currently nine HOPE sites, and three HOPE centers. Among the purposes of the HOPE sites and centers is meeting the unique needs of children with developmental disabilities. Cape Canaveral Hospital, Health First and HFHP Cape Canaveral Hospital, Inc. ("CCH") is the licenseholder for a 150-bed hospital approximately five miles east of Wuesthoff in Cocoa Beach, Florida. Like Wuesthoff, Cocoa Beach is located in Central Brevard County. In August of 1995, HRMC entered into an agreement with CCH to create Health First, Inc. The presidents/chief operating officers of HRMC and CCH are employees of Health First. Similar to the Wuesthoff System, Health First controls the operations of its hospital facilities (HRMC and CCH) and owns and operates physician practices, health clinics, a home health agency, a hospice, and a skilled nursing facility. Health First is the sole shareholder of a Florida not- for-profit corporation known as Health First Health Plans, Inc. ("HFHP"). HFHP is the largest managed care organization in Brevard County operating both a traditional health maintenance organization ("HMO") and a Medicare HMO. Other Nearby Hospitals Parrish Medical Center, operated by a statutorily created tax district, is located in Titusville. If the county is considered to contain three distinct areas (north, central, and south) as proposed by Wuesthoff, Parrish is the only hospital in North Brevard County. Sebastian River Medical Center is located in Indian River County, south of Brevard County. Located in a relatively rural area, it is a small hospital. It provides no tertiary services. It draws some patients from South Brevard County. These patients would otherwise in all probability seek hospital services from a Brevard County hospital. Second Attempt by Wuesthoff Wuesthoff's CON application seeks to establish a new 50-bed general acute care hospital in South Brevard County. This is not the first time Wuesthoff has attempted to obtain such a CON. It applied earlier in CON 8597 for a 50-bed hospital in South Brevard County. In the first attempt, the Agency preliminarily denied the application. Wuesthoff petitioned for a formal administrative hearing. Following receipt of a Recommended Order entered in DOAH Case No. 97-0389 that CON 8597 be denied, Wuesthoff withdrew its application and dismissed its petition for a formal administrative hearing. The Agency entered a "final order" closing its file and dismissing Wuesthoff's petition in light of the application's withdrawal. (Legal proceedings which followed issuance of the order are briefly described in the Preliminary Statement of this Recommended Order.) No New Beds in the Subdistrict Proposed by the Application By the application subject to this proceeding, Wuesthoff does not propose the addition of new beds to Brevard County (the acute care subdistrict at issue, designated by the Agency as Subdistrict 7-1.) In fact, because of Wuesthoff's commitment to delicense 100 beds as a condition of the approval of its application, the granting of the application will result in a net loss of 50 hospital beds in the subdistrict. "[F]ixed need pool[s] only appl[y] to the addition of new beds to a subdistrict." (Tr. 3468). That the fixed need pool resulted in a published need of zero for general acute care hospital beds for the batching cycle in which Wuesthoff's application was filed, therefore, has "no bearing" (Id.) on the issues in this proceeding. For the same reason (that granting Wuesthoff's application will not result in the addition of new general acute care beds in the district) the applicant is not required to prove the existence of "not normal circumstances" to overcome any presumption created by the calculation of the fixed need pool as zero. The Proposed Project The site of the proposed hospital, 43 acres purchased by Wuesthoff for approximately $2.5 million, is on Wickham Road in the city of Melbourne. Twenty of the 43 acres will be devoted to a medical complex of which the 50-bed hospital will be a part. The complex will be "one building that has three very definite components." (Tr. 83). The three components are "an ambulatory and diagnostic center" (Id.), a medical office building, and the 50-bed hospital. The diagnostic center is CON- exempt and the medical office building has been issued a certificate-of-need. Although committed to construct the diagnostic facility and the medical office building at least since March of 1997, at the time of hearing, no construction permits for the property had been obtained nor had any activity on the two components been commenced. Nonetheless, Wuesthoff remains committed toward construction of the diagnostic center and the office building regardless of the outcome in this proceeding. Although the proposed hospital will not provide tertiary services, it will provide all services typically provided in a community hospital. These include obstetrics, pediatrics, and emergency services in a 24-hour emergency department. The services to be offered will not be unique in the subdistrict; all are presently available in the community. In other words, the services to be offered will duplicate services presently offered by existing providers. The estimated cost of the 50-bed hospital proposed in CON 8740 is $38,512,961, a cost that, in the case of a not-for- profit hospital, will ultimately be born by the public "one way or another." (Tr. 2402.) Wuesthoff's application included projections of revenues and expenses attributable to the proposal for the proposed construction period and the first two years of operation. It also included, as required, audited financial statements for two years and a listing of all Wuesthoff's capital projects planned, pending or underway at the time of the filing of the application. A Purpose of CON Law One of the purposes of CON review of an application for a new hospital is "to limit unnecessary, costly duplication of services that are available at other hospitals . . . at least where those services are being provided at reasonable costs." (Tr. 2401-02). Preliminary Agency Action Initially, AHCA Staff intended to recommend denial of Wuesthoff's application. After a meeting with the Director of AHCA, the decision was made to approve the application. The most important factor weighing in favor or approval was one related to competition and costs of hospital services to the ultimate consumer of the services, "[n]amely that . . . large HMO providers have no access to [HRMC] . . . or have been unable to get contractual relationships with [HRMC]." HRMC No. 75, p. 20. The meeting with the Director clarified the Agency's priorities. On July 11, 1997, AHCA issued its State Agency Action Report ("SAAR") containing its determination that the application should be approved. This proceeding was initiated on August 15, 1997, when HRMC filed its Petition for Formal Administrative Hearing on August 15, 1997, in order to challenge the Agency's decision. Need in Relation to the District Health Plan: Section 408.035(1)(a), F.S. The portion of the District 7 Local Health Plan governing the transfer of existing beds includes five parts. Preference is given to applicants that provide documentation of compliance with the five parts. The first part addresses need in the service area proposed to receive the beds. In addressing specific populations, access is one of the considerations. There was no published need for beds to be provided if the application is granted. "[A]t the time the application was filed the Agency's formula showed in excess of 342 beds. [At the time of hearing], the current formula shows an excess of 333 acute care beds for Brevard County." (Tr. 3385). There are no barriers (such as geographic barriers) typically associated with access to acute care services in the subdistrict. Every resident of Brevard County has access to a general acute care hospital within a drive time of 30 minutes usually and 40 minutes at the most. In South Brevard County, Holmes Regional at its two campuses provides high quality inpatient care and excellent medical services. Wuesthoff's hospital in Central Brevard County and Sebastian Medical Center in the adjacent county to the south also serve some of the residents of South Brevard County. Wuesthoff does not receive preference under the first part of the district plan applicable to this proceeding. The second part of the local health plan applicable to this proceeding governs impact to the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes. "[T]here would be minimal utilization decline at the Rockledge facility tied to some redirection of patients from Rockledge to south Brevard." (Tr. 1222). The space that will be vacated will be reused. Wuesthoff receives preference under this part of the district plan. The third part calls for documentation of improvement of access by at least 25 minutes to at least 10% of the population or a minimum of at least 35,000 people. While Wuesthoff's proposal will provide a competitive alternative to substantially more than 10% of the population of South Brevard County, a number in excess of 35,000 people, access to acute care hospital services is presently satisfactory in South Brevard County. Wuesthoff does not receive any preference under this part of the plan. The fourth part relates to the commitment of the applicant to the provision of charity care and care to the medically indigent. Wuesthoff meets this preference based on its commitment that 15% of the discharges from the proposed facility will be Medicaid and charity care. The fifth part addresses the applicant's participation in indigent care programs in the county. Wuesthoff participates in a significant number of community benefit and outreach programs that meet the concerns of this part: There is the We Care Program, . . . a distributed medical access point . . . [and]. . . the United Order of True Sisters, . . .a service group which Wuesthoff supports. Wuesthoff works with a CMS program to provide baby and young children support services. Wuesthoff was involved with the development of the Children's Advocacy Center . . . a community-based program. It's a participant in the Health Start Coalition. And Wuesthoff has also sponsored its own mobile health program with a specific focus and purpose to provide care to [the indigent]. (Tr. 1225). Wuesthoff clearly meets this preference. On balance, despite the lack of an access problem for residents of the subdistrict, Wuesthoff meets the need criteria identified in the applicable portion of the district plan. The Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization, and Adequacy of Like and Existing Health Care Services in the Service District: Section 408.035(1)(b),F.S. There is an excess of capacity in acute care beds in Brevard County. Despite an increase in population from 1993 to 1997 of about 2% per year overall and about 3.5% per year in the populace over 65 years of age, the use rate of hospital services declined. In 1993, the use rate was 600 acute care patient days per thousand population. In 1997, the rate was 484 acute care patients per thousand. The occupancy rates for Brevard County hospitals, despite the population increase, is also trending downward. In 1990, overall occupancy of hospital beds in Brevard County was 63%. In 1997, it was approximately 53%. This is due to a number of factors. Managed care penetration has increased; managed care exerts influence to hold down admissions and inpatient days; and there has also been a shift from inpatient surgical procedures to outpatient surgical procedures. The SunTree/Viera area, mid-way between Wuesthoff and Holmes Regional, is the most rapidly growing area of its size in Brevard County. As opposed to areas south of the SunTree/Viera area, where the overwhelming majority of patients use Holmes Regional for hospital services, the SunTree/Viera area is subject to active competition between Wuesthoff and HRMC for patients. Holmes Regional has been shown to be a consistent low charge provider operating within the expected range of outcomes. Furthermore, HRMC has performed as one of the top five hospitals in Florida in reducing overall Cesarean-Section births and increasing vaginal births after Cesarean ("VBAC"). This is important because "unnecessary Cesarean Section presents a real risk for both the mom and the baby . . . [and] the cost to the State for Cesarean Sections performed when vaginal birth would be a desirable alternative added about $3,000 per delivery to the State funded [deliveries]." (HRMC No. 77, p. 1091). Holmes Regional has had the lowest Cesarean Section rate in the county and the highest VBAC rate in the County. The construction of the proposed facility would not significantly increase access to hospital services for Brevard County patients. Holmes Regional delivers the majority of Medicaid babies in the county and is also a contract provider for Children's Medical Services. Ten years ago or so, in recognition of a substantial portion of the population in Brevard County without health insurance, Holmes Regional collaborated with the school board, the public health unit, civic organizations and others to create two school-based community health clinics. "[T]argeted at young families and children" (HRMC No. 77, p. 1063), the clinics provide pro bono health care services. The collaboration was the genesis of the HOPE program. The HOPE program's agenda was expanded to include a mobile clinic to reach those in need of pro bono services who were without transportation to the school-based clinics. The agenda was again enlarged to provide integrated services for children with developmental and cognitive disabilities and delays. Holmes Regional provides direct funding of approximately $1.5 million per year through operational costs of the HOPE program. Holmes Regional not only provides funding to HOPE but it subsidizes salaries of nurses, midwives, and obstetricians directly employed by the Public Health Unit, whose duties include the provision of medical care to the indigent. Dr. Manuel Garcia, Medical Director of the Public Health Unit in Brevard County for over 20 years until his retirement in 1998 offered the following in his testimony in the hearing before Administrative Law Judge Johnston (admitted into evidence in this proceeding as HRMC No. 65) about Holmes Regional's support of the Public Health Unit: "Holmes has always been willing to go the extra mile to help the Health Department with other programs and activities." HRMC No. 65, p. 1211. With regard to the question of which hospital "in Brevard County sets the pace in providing indigent care" (Id.) Dr. Garcia answered: ll the hospitals do a pretty good job . . . [t]here is no doubt that Holmes has been more aggressive in terms of getting into the community to kind of use all the resources available and putting together different organizations and agencies in order to provide more services to the poor in the community. They have been going the extra mile . . . (HRMC Ex. No. 65, pgs. 1211, 1212.) Holmes Regional's efforts in support of the Public Health Unit have continued following Dr. Garcia's tenure. At the same time, "it is true" (Tr. 274) that Wuesthoff, Cape Canaveral, and Parrish Medical Center all "go the extra mile in providing services to the patients that come through the health department." (Id.) Holmes Regional works with the Brevard County Public Health Unit, whose duties include provision of medical care to the poor and indigent patients in the county to develop a better system for giving prenatal care to Medicaid and indigent mothers. In 1998, HRMC provided $10 million of free charity for indigent patients not admitted through HOPE. General community donations and contributions totaled $542,000 and in-kind contributions totaled $714,000. The HOPE program, funded entirely by Holmes Regional, paid $1.1 million in clinical services for staff, pharmacy, services, and supplies to operate its clinics. In addition to these direct dollars, HRMC contributed 2.1 million in uncompensated services to the HOPE program in 1998. The HOPE program has been honored for ground-breaking work in community health improvement and for improving life in Florida through the American Hospital Association's Nova Award and the Heartland Award from the Governor of Florida. Holmes Regional supports a variety of agencies to provide care to AIDS patients. One such clinic is the Comprehensive Health Clinic. In existence since 1991, it currently treats 400 AIDS patients. Its services are mostly paid for through federal programs. Without the assistance of HRMC, the clinic would not be able to provide the quality of services it offers these AIDS patients. Holmes Regional is involved with several children's health programs, including a Healthy Families Program providing in-kind screening assessment. Health Kids Plan subscribers are provided access to managed care insurance products by Health First Health Plans, the managed care company affiliated with Holmes Regional through its parent, Health First, Inc. The company loses "hundreds of thousands of dollars" (Tr. 2108) on the Health Kids segment of its business. There was no evidence presented that persons in need of quality, general acute care services are not able to obtain those services at existing providers in Brevard County. There is no lack of availability or access to general acute care services on either geographic or financial grounds. The ability of the applicant to provide quality of care and the Applicant's Record of Providing Quality of Care: Section 408.035(1)(c), F.S. Wuesthoff is capable of providing quality inpatient health care services and has done so in the past. The Availability and Adequacy of Other Health Care Facilities in the District which may serve as Alternatives to the Health Care Facilities and Health Services to be Provided by the Applicant: Section 408.035(1)(d), F.S. There are available alternatives to the inpatient services proposed by Wuesthoff. The existing providers of acute care services have excess capacity to absorb any increase in the utilization of acute care services in the county. Utilization of the services Wuesthoff proposes, moreover, have been in decline in relation to the earlier part of the decade of the nineties. From 1993 to 1997, inpatient surgery procedures conducted in Brevard County declined approximately 18.8%, a trend consistent with the statewide trend. In 1998, "the number of inpatient procedures pretty much level[ed] off." (Tr. 3410). In contrast, the number of outpatient procedures in the county rose in 1997 from the number conducted in 1993. For each year in the same time period, the number of outpatient surgical procedures conducted in the county far exceeded the number of inpatient ones. In 1997, for example, there were more than twice as many outpatient procedures as inpatient. The move toward outpatient procedures is the result of health care providers seeking alternatives to hospitalization. Among the alternatives in the case of surgical procedures are the provision of those procedures on an outpatient basis performed in physician offices and ambulatory surgical centers. There has been a decline in Brevard County in utilization of other services Wuesthoff proposes for its 50-bed hospital. During the period of 1993-1997, while the population of Brevard County was growing at a rate in excess of 2% per year, obstetric admissions as a percentage of admissions to Brevard hospitals declined. Pediatric admissions did likewise. Not surprisingly, therefore, there is excess capacity for pediatric and obstetrical beds in Brevard County. With 66 reported available beds in Brevard County, the average daily census is about 34 beds. The average daily census for the 86 pediatric beds in the county is about 32 to 35. At the time of hearing, available data for 1998 showed a continued decline in pediatric bed demand and "[b]ased on the annualized data . . . a very slight increase" (Tr. 3402) in obstetric bed demand. The excess capacity demonstrated for the period from 1993 through 1997 remains. Although alternatives are available, they are not adequate for one reason. That reason is a competitive problem which exists in South Brevard County, discussed in Findings of Fact Nos. 91-107, below. Probable Economies and Improvements in Service that May be Derived from Operation of Joint, Cooperative, or Shared Health Care Resources: Section 408.035(1)(e), F.S. Wuesthoff does not propose its new hospital operate a joint, cooperative, or shared program with any entity except its Rockledge facility. It proposes the sharing of resources with its main facility in Rockledge. "The services that are being proposed for the South Brevard hospital [the proposed hospital] are a subset of what's there now." (Tr. 1257). The proposed services, therefore, are a duplication of existing services. There are some economies of scale and benefits enjoyed by a second campus of a hospital by virtue of the first hospital's existence, but generally, it is less efficient for a hospital to operate two campuses. The Need in the Service District for Special Equipment and Services which are not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), F.S. Wuesthoff does not intend to provide equipment that is not available within the county or in adjacent districts. The Need for Research and Educational Facilities, Health Care Practitioners, and Doctors of Osteopathy and Medicine at the Student, Internship and Residency Training Levels: Section 408.035(1)(g), F.S. This need is met in Brevard County. The Brevard County hospitals are active in community training programs in conjunction with Brevard County Community Hospital and the University of Florida. Holmes Regional has institutional training programs with the University of Florida, All Children's Hospital, the local vo-tech, and the University of Central Florida, in addition to other community programs. Immediate and Long-term Financial Feasibility of the Proposal: Section 408.035(1)(i), F.S. a. Immediate Financial Feasibility. Immediate financial feasibility is determined by whether the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operation losses. The project costs projected in Schedule 1 of Wuesthoff's application, taking into account inflation and other factors arising from delays associated with this proceeding, are reasonable and appropriate. Wuesthoff proposes to finance the project with $10.5 million in existing funds and $28 million in debt financing. At the time of hearing, Wuesthoff had $51 million in cash assets on its balance sheet available to cover the $10.5 million proposed to come from existing funds. The $28 million in debt financing was proposed in the application to be provided by "proceeds from a fixed rate bond issue." (Wuesthoff No. 1, Vol. I of II, Schedule 3 Assumptions.) "The interest rate for the debt is expected to be approximately 6.5%." (Id.) As part of its case for immediate financial feasibility, Wuesthoff presented a letter from The Robinson- Humphrey Company, Inc., dated April 6, 1999. In support of the opinion that Wuesthoff would qualify for tax exempt financing, the company wrote: Based on our long relationship and thorough understanding of Wuesthoff and its strategic direction, we believe that the rating agencies, bond insurers and capital markets will react positively to the Hospital's project. In addition, based on the Hospital's ability to secure a competitive insurance bid on its Series 1996 Bonds, the Hospital will be able to secure a new competitive bond insurance policy as well as credit ratings in the "A" category from the rating agencies in conjunction with the financing to help fund a portion of the proposed facility. Based on today's market conditions, the average interest rates available on a 30-year tax-exempt bond issue would be in the range of 5.25% to 5.50% based on an "A" rating category issue and "AAA/Aaa" rated issue with bond insurance, respectively. Although it is difficult to anticipate the interest rate environment throughout 1999, we would expect rates to be in the 5.50% to 5.75% range , using recent interest history as a benchmark. (Wuesthoff No. 3, pgs. 1 and 2). After testimony with regard to the letter by Wuesthoff's witness Rebecca M. Colker, qualified as an expert in health care finance, the following colloquy between Ms. Colker and Wuesthoff's counsel took place at hearing: Now, based on your assessment of the marketplace and your investigation of the marketplace, do you have an opinion as to whether Wuesthoff has the ability to finance the project that it proposed in [its] application . . .? A. Yes, sir, I feel [Wuesthoff] has the ability to finance the project. (Tr. 179). During the hearing, but after Ms. Colker's testimony, allegations surfaced publicly that Wuesthoff had violated the law with respect to its tax-exempt status as a "501(c)(3) organization" under the Internal Revenue Code by engaging in political activity and obtaining private benefit. Proof of the violations exposes Wuesthoff to revocation of its tax-exempt status. At the time of hearing, the IRS had not determined the truth of the allegations. If the IRS determines that the violations occurred, there are penalty options available to the Service short of revocation of Wuesthoff's tax exempt status. These options are referred to as intermediate sanctions. In addition, the IRS may enter a closing agreement with the offender in which an intermediate sanction is accepted in lieu of revocation. Wuesthoff, moreover, can take certain steps in mitigation of any ultimate penalty imposed by the IRS. Wuesthoff presented evidence that "upon a resolution of the allegations of wrongdoing which falls short of revocation of Wuesthoff's tax exempt status, there will be no cloud upon Wuesthoff's ability to obtain the tax exempt debt financing it has proposed." Joint Proposed Recommended Order of Wuesthoff Memorial, Inc., and the Agency for Health Care Administration, p. 39. Such a resolution, if it is the one chosen by the IRS, can reasonably be expected to occur within a single year. In the meantime, whatever the outcome of the IRS' dealing with the allegations, their very existence jeopardizes Wuesthoff's ability to obtain tax exempt debt financing. Given what he had heard and read about the allegations, Mr. Todd Holder, an investment banker who provides "basically the same services that Robinson-Humphrey would provide to a hospital client" (Tr. 3337) testified: At this time, my firm would not underwrite these bonds [proposed by Wuesthoff] and I wouldn't imagine at this time any firm would underwrite these bonds . . . (Tr. 3339). If Wuesthoff's tax exempt status were revoked, its bonds would be in jeopardy of being called to cover loss to existing bond holders. Such action would affect its bond rating. A BBB rating would involve approximately a 3% rise in interest rates. If its rating were to fall below investment grade, the interest rate could rise 5% or more. Based on a $28 million issue, the amount Wuesthoff proposes for financing the new facility, each percentage point rise in interest rate equates to an annual debt service cost of $250,000. Furthermore, a loss of its tax exempt status would make it more difficult to obtain bond insurance. It is by no means certain that the IRS will revoke Wuesthoff's tax exempt status as explained above. When a charitable organization continues to fulfill its charitable obligations, "the IRS has, in practice, not revoked [its] tax- exempt status but tried to exact some other type of penalty." (Tr. 3600). Furthermore, when an offending organization has removed from authority the individuals responsible for the violations, the IRS considers such action to mitigate the penalty it imposes. At bottom, predicting the action of the IRS is speculative. If the IRS does revoke Wuesthoff's tax exempt status, Wuesthoff has enough cash assets on hand to build the proposed facility without resort to financing. If it comes to that, however, Wuesthoff's decision to carry the costs of construction and getting the facility off the ground in the first few years of operation without debt financing has implications for the project's long-term financial feasibility. b. Long-term financial feasibility. Historically, AHCA has defined long-term financial feasibility as at least breaking even, if not making a profit, by the end of the second year of operation. Among other matters Wuesthoff must prove in order to satisfy the test employed by AHCA historically, it must demonstrate that "projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay." OR-1, p. 18. The processes used by Wuesthoff's expert to conclude that the project is financially feasible were conservative. But the processes contained flaws. Wuesthoff, for example, projects that it will have a volume of 8,327 patient days at its South Brevard campus in year one of operation and 11,224 patient days in year two. For the same time periods, it projects volumes of 50,000 patient days at its Rockledge facility for both year one and year two of operation, the same volume it projects at its Rockledge facility for the 12-month period during which the new facility will be built. The projections are not reasonable. Building the new hospital will not increase the demand for hospital services in Brevard County. Rather, patients will be reallocated. The proposed facility will receive patients who otherwise would be hospitalized at Holmes Regional or the Wuesthoff Rockledge campus. It is not reasonable, therefore, for Wuesthoff to project that its patient days at the Rockledge facility will remain the same in years one and two of operation of the new facility as during the year's period of construction. The Agency concurred with Holmes Regional's expert that Wuesthoff's utilization projections were overstated but did not see the overstatement as a problem because "while the applicant may not fully attain what is projected within the application . . . [it] will attain a level which will be successful, especially for a provider that is financially stable at this point in time and has the resources to carry out this project." (Tr. 3474). There are other flaws. Wuesthoff assumed that for the Rockledge facility pro forma all payors' reimbursement increased 4% a year for years one and two of operation resulting in a net revenue increase in excess of 9% for the two-year period. Managed care companies are typically not allowing a 4% per year increase to providers. Medicare reimbursement (the largest single payor source) was not likely to increase 4% per year prior to the Balanced Budget Act of 1997 (see finding of fact no. 86, below). Medicare is the largest payor source currently at Wuesthoff, accounting for in excess of 50% of operating revenues. It is also the largest payor source projected for the proposed project. In the wake of the Balanced Budget Act of 1997, Medicare margins have declined and are expected to continue to decline. Wuesthoff's Medicare revenue in year one of operation were overstated by 4.3% and in year two by 5.7%. Wuesthoff's expert did not assess the impact of the Balanced Budget Act on the Wuesthoff projections at the time they were made since they were made before the effective date of the Act. But he had not assessed the impact of the Act on the pro forma prepared for the new facility as of March 1999, after effects of the Act's impact were observable. Presumably, no such impact analysis was undertaken because Wuesthoff is a hospital that takes action to contain costs, a method for reducing the negative impact of the Act on a hospital's revenue. Other assumptions that underlie projections by Wuesthoff in the application are also not reasonable. Wuesthoff assumed that Medicare HMO would generate higher charges than traditional Medicare, but have a length of stay almost half the time such that the net reimbursement per case would be identical. On a per day basis, Weusthoff assumed that the Medicare and Medicaid HMO patient will generate a greater per diem reimbursement than a traditional Medicare and Medicaid patient, respectively. This is not a reasonable assumption. The assumption that commercial insurance remains a significant payor at the South Brevard campus is critical to the financial viability of the project. If the pro forma had shown a more reasonable managed care percentage and less commercial insurance in the payor mix, net revenue would decrease by approximately $280,000 in year two. The projected costs of operation at the South Brevard campus are unrealistically low because the projected salary expenses have been understated. The nursing staff will comprise almost one-third of the total hospital FTEs for years one and two at the South Brevard campus. There currently exists a nursing shortage such that hospitals in Brevard County are having to pay a several thousand dollar signing bonus when hiring nursing staff. Projected nursing salaries for the first and second year of operation were only minimally higher above what Wuesthoff was paying its nursing staff three years earlier. The Needs and Circumstances of those Entities which Provide a Substantial Portion of their Services or Resources or Both, to Individuals not Residing in the District: Section 409.035(1)(k), F.S. Wuesthoff's application does not address providing a substantial portion of its services or resources to individuals not residing in the District. The Probable Impact of the Proposed Project on the Costs of Providing Health Services Proposed by the Applicants, Including the Effect on Competition: Section 408.035(1)(l), F.S. Brevard County's Unusual Shape Brevard County is relatively narrow from East to West and extremely long from North to South, stretching 72 miles from its northern border to its southern one. Because of its unusual geographic shape, the county is easily divisible into three areas, north, central and south. North Brevard County's population was approximately 68,000 in 1998. Central Brevard County's population was approximately 168,000 and South Brevard County's was approximately 234,700. Since 1970, the share of total county growth has consistently been lowest in North Brevard County, peaking at 13% in 1990, with a projected share of total county growth in 2003 at 10.4%. Next in order, Central Brevard County's share of growth since 1970 has been on the rise but has remained substantially lower than South Brevard County's. Its share of growth in 2003 is expected to be about 38.8%. The County's "growth has been predominantly in [S]outh Brevard." (Tr. 375). In 1971, its share of total county growth was 71.1%. Although "the share of growth in [S]outh Brevard has declined over time . . . it is still about 50%." (Id.) In 2003, South Brevard County's share of total growth is projected to be 51.2%. Consistent with its higher share in total county growth, more than half of Brevard County housing starts have within recent years occurred in South Brevard County and more than half of Brevard County employers and employees are located in South Brevard County. South Brevard, for some time, has been the most populated of the county's three areas. It will continue to be the most heavily populated area for a considerable time in the future. North Brevard has one hospital: Parrish Medical Center. Central Brevard has two hospitals: Wuesthoff and Cape Canaveral Hospital. The two are operated by different hospital systems; Wuesthoff by the Wuesthoff Health System and Cape Canaveral by Health First. South Brevard has two hospital facilities: Holmes Regional Medical Center and Palm Bay Community Hospital. Unlike the situation in Central Brevard the two South Brevard facilities operate under a single hospital license and are part of one system: Health First. Markets, Monopolies, and the Exercise of Monopoly Power A great deal of evidence was introduced by both Wuesthoff and Holmes about whether or not South Brevard County, by itself, constitutes a market for purposes of economic analysis and, if so, whether Health First through its operation of the two South Brevard hospitals has a monopoly on hospital services within the market. Further evidence was introduced about whether Health First, in fact, exercises monopoly power. Wuesthoff posits that South Brevard County, in and of itself, is an economic market for purposes of economic analysis. While there was evidence that indicated that South Brevard County is a market for purposes of economic analysis, none of the experts who testified could ever recall a proceeding in which they had been involved in which an area smaller than a county had ever been found to constitute a market. Wuesthoff's approach, moreover, is problematic in a Certificate of Need proceeding (as distinguished from other types of proceedings that typically employ economic analysis, such as anti-trust proceedings.) Brevard County is one part of AHCA District VII, a district established by the Legislature for health planning purposes. The district is divided into subdistricts. Subdistrict 1 is composed of Brevard County, nothing more and nothing less. But the subdistricts are not further divided for health planning purposes. There is no question (nor any argument from Wuesthoff otherwise) that Health First does not have a monopoly on hospital services over the entire subdistrict, let alone the district. Assuming for the sake of argument that South Brevard County is a market for purposes of this proceeding and that Health First has a monopoly over hospital services in that market, Health First has not exercised its monopoly power as would typically be expected on the basis of net price. First of all, while one might expect that an entity with monopoly power would exercise it, that expectation cannot be assumed in the case of not-for-profit hospitals, such as Holmes Regional. The not-for-profit hospital "can't act like a profit- maximizing organization because of the way it is structured." (Tr. 2958). More importantly, "the economic hallmark of the exercise of monopoly power is a price above the competitive level, one that permits the earning of an above-competitive profit rate." (Tr. 2946). Holmes Regional's average net prices are 90.8% of what would be expected. In contrast, Wuesthoff's are 115.1% of what would be expected. Neither of these is "extraordinarily far from what you would expect." (Tr. 2971). In the final analysis, pricing data with regard to both list prices and net prices, no matter the payor source, does not indicate "the systematic exercise of monopoly power by Holmes . . ." (Tr. 2973), in "[S]outh Brevard County." (Tr. 2975). It is clear, however, that residents of South Brevard do not have convenient access to Brevard County hospitals other than the two Health First hospitals in South Brevard, Holmes Regional and Palm Bay Medical Center. The other Brevard County hospitals are either too far away in distance or require too much travel time to reach by automobile for most of the residents of South Brevard. Consistent with this convenience factor, 82% of the South Brevard County residents discharged from hospitals in the first six months of 1998 were discharged from Holmes Regional and Palm Bay Community. Of the remaining South Brevard County residents discharged from hospitals, the highest percentage (6%) of patients were discharged from Sebastian River Medical Center. Sebastian River, while close to some South Brevard County residents, does not provide a high enough level of services in many cases to be a reasonable substitute for Holmes Regional. Even if it is convenient to use hospital services that are close by, a patient will chose a more inconvenient hospital if the nearby hospital does not provide services of reasonable quality at reasonable prices. The two Health First hospitals provide services of reasonable quality at reasonable prices. Nonetheless, the establishment of Wuesthoff's proposed hospital would substantially increase the accessibility of South Brevard County residents to a non-Health First facility. The presence of Wuesthoff's proposed hospital in South Brevard County would offer residents of South Brevard more of a meaningful choice. In essence, granting Wuesthoff's application would produce a more competitive environment for the hospital services to be offered by Wuesthoff in South Brevard County, whether South Brevard County constitutes a market or not. Wuesthoff presents a greater question for resolution in this proceeding than whether granting the application would simply provide more competition. Even though Holmes Regional's net pricing in general does not indicate that it is exercising monopoly power in South Brevard County, is there, nonetheless, a need for a more competitive environment for hospital services in South Brevard County? The answer to that question is "yes" when one considers competition from the perspective of managed care payors. Need for Competition for Hospital Services in South Brevard County. In general, competition enhances the quality of health care services even when services being provided are of high quality. Competition also provides an incentive for hospitals, including non-profit hospitals to serve patients more efficiently. Competition lowers the costs consumers pay for hospital services. When managed care payors are able to reduce their payments to hospitals, they are able to lower the premiums paid by the "end purchaser." (Tr. 609). If the end purchaser is an employer, the "employer then makes [its] business decision internally as to how much of that cost is passed along to the individual employee." (Id.) This effect of competition is the basis for a number of managed care contractors and employers' vigorous support of Wuesthoff's application, the success of which will create competition in South Brevard County. Wuesthoff's proposed hospital will spur competition which will benefit consumers by lowering Holmes Regional's prices. Managed care helps contain costs and injects price sensitivity into the market. At the same time, higher levels of hospital concentration are associated with lower levels of discounting to managed care companies. Managed care penetration has been increasing in Brevard County. In South Brevard County, managed care penetration has increased but mainly due to increase in enrollment in HFHP, Health First's managed care plan. Managed care penetration in South Brevard County achieved by HFHP "in itself is not the issue." (HRMC No. 75, p. 32.) With only one active HMO in South Brevard County, there is no incentive to achieve better rates for the ultimate consumers especially if the main HMO is part of the same organization as the hospital as in this case. "[I]f you have several large commercial plans . . . they will be able to get better rates from Holmes Regional than if you only have one." (Id., p. 32-33). Commercial HMO inability to contract with HRMC was considered by the agency as the most important factor in approving Wuesthoff's application. Health maintenance organizations, other than HFHP, do not have meaningful competitive ability to compete with HFHP in South Brevard County. In recognition of their inability to use Central Brevard County hospitals or Sebastian River Medical Center as substitutes, and to avoid losses caused by the lack of hospital competition in South Brevard County, Aetna and United, two large managed care payors in Brevard County, have embarked on an exit strategy with regard to South Brevard County. It is difficult for managed care payors to steer south Brevard residents to central Brevard hospitals. Patients are generally unwilling to change physicians when it becomes necessary to enter a hospital. Discharge data demonstrates the lack of overlap in physician privileges between South and Central Brevard. The Central Florida Health Care Coalition, an organization comprised of businesses and formed to address health care issues which includes the largest of Brevard County employers, supports Wuesthoff's application because of the competition it will create and a number of consumers expressed support for the Wuesthoff application based on the need for competition in South Brevard County. In contrast, not a single employer, large or small, testified in support of opposition to the application. Wuesthoff's new hospital would provide an alternative for managed care payors to negotiate hospital prices in South Brevard County. More favorable hospital prices in managed care contracts, in turn, would lead to managed care premiums that would be lower for managed care customers. Lower health care premiums enable larger numbers of consumers to purchase health care coverage, thereby reducing the number of persons who have no source of payments for health care services. The ability of managed care plans to negotiate hospital prices is dependent upon ability to engage in selective contracting, the ability of a managed care plan to refuse to include a hospital in its network of providers. Selective contracting induces hospitals to offer discounted prices to assure participation in a managed care plan's network of hospitals in order to avoid losing the managed care plan's business to other competitive hospitals. Selective contracting can only be an effective strategy if managed care contractors have meaningful choices among hospital providers. In Brevard County, only in the central area do managed care plans have more than one hospital system from which to choose meaningfully and only in Central Brevard County has there been any real competition among hospitals for managed care contracts. Holmes Regional does not face the threat of a loss of business if it refuses to contract with any one managed care plan because South Brevard residents for the most part will not seek hospital services outside South Brevard County. Without the threat of a loss of business, Holmes Regional has little, if any, incentive to offer reduced prices to managed care plans. The lack of incentive for Holmes Regional to reduce prices to managed care plans was demonstrated by several analyses, including one showing that from 1995 through 1998, net prices paid by all managed care contractors to Holmes Regional were on average 32% higher per year than those paid to Wuesthoff, which has competition from another hospital in Central Brevard County Apart from pricing analyses, the lack of competition in the managed care arena for Holmes Regional was demonstrated by its ability to resist entry into any per diem managed care contracts despite efforts by some managed care contractors to negotiate such agreements with Holmes Regional. Per diem contracts are a favored from of contracting by managed care payors because they tend to enable managed care payors to predict the level of hospital payment to which they will be exposed. Such contracts are commonly found where there is competition among hospitals. In contrast, as is to be expected of a hospital in a competitive environment, most of Wuesthoff's contract with managed care payors are per diem contracts. The Applicant's Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent: Section 408.035(1)(n), F.S. Wuesthoff has "a history of providing care to the medically indigent population." (Tr. 1244). Its commitment to continue to provide such care at the proposed facility has been discussed. Whether Less Costly, More Efficient, or More Appropriate Alternatives to the Proposed Inpatient Services are Available: Section 408.035(2)(a), F.S. The greater weight of the evidence establishes that denial of the application is less costly and more efficient. The new facility will cost $38 million to build. At the same time, existing providers are operating efficiently and have unused capacity. In fact, there is insufficient utilization of the inpatient acute care services in existence in Brevard County. The subdistrict occupancy rate is "about 54% . . .[with] at least [hundreds of] beds that are unoccupied at any point in time with the county." (Tr. 3385). Whether the alternative of denying the application is more appropriate in light of the cost of the project and efficiency considerations turns on the weight to be given Wuesthoff's case for the need for competition in the managed care arena in South Brevard County. Whether the Existing Facilities Providing Similar Inpatient Services are being Used in an Appropriate and Efficient Manner: Section 408.035(2)(b), F.S. Existing facilities are being used in an efficient manner. Whether the status quo is appropriate, again, turns on the weight to be given Wuesthoff's case for the need for competition. That Patients Will Experience Serious Problems in Obtaining Inpatient Care of the Type Proposed in the Absence of the Proposed New Service: Section 408.035(2)(d), F.S. There was no evidence that patients will experience serious problems in obtaining inpatient care of the type proposed by Wuesthoff for its South Brevard County if the application is not granted. Rule Criteria Rule 59C-1.030, Florida Administrative Code, sets forth "health care access criteria . . . [i]n addition to criteria set forth in Section 408.035, Florida Statutes . . .". Among the criteria are [t]he contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the . . . State Health Plan as deserving of priority." The first State Health Plan preference favors an applicant that provides a disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the subdistrict. Wuesthoff has provided its fair share of Medicaid and charity care patient days in the past and proposes to continue to do so at the new facility if approved. But Wuesthoff is not a disproportionate share provider. As to the second preference which considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, Wuesthoff's application partially complies with preference in that it proposes to provide indigent care. But, Medicaid and indigent members of the population were not shown to have been denied access to hospital services in Brevard County. Approval of the facility, moreover, will not improve access or increase the number of beds since approval will result in a net loss of 50 beds in the county. The fourth preference favors an applicant with a record of accepting indigent patients for emergency care. Wuesthoff meets the preference. The fifth preference favors applicants for a type of hospital project if the facility is verified as a trauma center. Holmes Regional will remain the only verified trauma center in the subdistrict, even if the application is approved. The sixth preference favors applicants who document that they provide a full range of emergency services. The new facility will provide emergency services but not a full range unless the emergency services provided by Wuesthoff at its Rockledge campus are considered. Because the 50-bed hospital will not provide tertiary services nor high-level trauma services, "[t]he complicated or trauma cases will . . . go to Holmes Regional Medical Center" (Tr. 3384), the hospital campus closest to the new facility. The seventh preference favors applicants not fined by AHCA for any violation of emergency service statutes. Wuesthoff meets this preference. The eighth preference favors applicants who demonstrate that the subdistrict occupancy rate is at least 75%, or in the case of exiting facilities, where the occupancy rate for the most recent 12 months is at least 85%. Wuesthoff did not show that it meets this preference. The ninth preference of the State Health Plan favors an applicant with a history of providing a disproportionate share of the subdistrict's acute care and Medicaid patient days and is a Medicaid disproportionate share provider. Wuesthoff does not meet this preference.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the Agency for Health Care Administration enter a final order denying Wuesthoff Memorial Hospital, Inc.'s application for CON 8740. DONE AND ENTERED this 12th day of July, 2000, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 12th day of July, 2000. COPIES FURNISHED: Richard A. Patterson, Esquire Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Terry Rigsby, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Stephen K. Boone, Esquire Boone, Boone, Boone & Hines, P.A. Post Office Box 1596 Venice, Florida 34284-1596 David C. Ashburn, Esquire Smith & Ashburn, P.A. 1330 Thomasville Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
