The Issue The issue is whether an application by Petitioner, Hancock Bridge Marina, LLC (Petitioner or Hancock), for an Environmental Resource Permit (ERP) and sovereign submerged lands lease to expand an existing docking facility on Hancock Creek near the Caloosahatchee River in unincorporated Lee County (County), Florida, should be approved.
Findings Of Fact Based on the evidence presented by the parties, the following findings of fact are made: Background Hancock is a limited liability corporation with two shareholders: Donald Epler and Stefen Heinke. After conducting a feasibility study, on April 26, 2004, Hancock purchased a 5.51-acre parcel of property in the County with the expectation of constructing and operating a 400-slip marina and a 5,000- square-foot building housing a restaurant, ship's store, and other sundry items needed for operation. (Hancock has subsequently revised its plan by reducing the number of slips requested from 400 to 352.) The cost of the property was around $2.5 million. The property is located in an unincorporated part of the County on the north side of the Caloosahatchee River (River), a Class III water, south of Hancock Bridge Parkway, east of the City of Cape Coral, and west of U.S. Highway 41 and the City of North Fort Myers. The property currently contains a 30-wet slip marina with 13 finger piers and a 4-slip T-dock. The remainder of the parcel is essentially vacant. The parcel borders a River tributary named Hancock Creek, which is a man- altered tidal creek branching off of the River in a northwestern direction, and the North Key Canal, which extends east from Hancock Creek for approximately one-half mile. Access to the River, which is no more than a hundred yards or so south of the parcel, is by traversing North Key Canal and Hancock Creek. The Department is the state agency with the authority under Part IV of Chapter 373, Florida Statutes, to issue an ERP. In addition, the Department has authority from the Board of Trustees of the Internal Improvement Trust Fund to review and take final agency action on requests to authorize activities in sovereign submerged lands. See § 253.002(1), Fla. Stat. The Commission is the agency with constitutional regulatory authority over "wild animal life and fresh water aquatic life and shall also exercise regulatory and executive powers of the state with respect to marine life." See Art. IV, § 9, Fla. Const. The Commission's authority for the regulation of manatees is derived from the Florida Manatee Sanctuary Act, which is codified in Section 379.2431, Florida Statutes. Under Sections 373.428 and 380.23, Florida Statutes, it also has authority to review ERP applications for federal consistency purposes pursuant to the federally approved Florida Coastal Management Program. On September 12, 2005, Petitioner filed an application for an ERP (a regulatory approval) and a lease to use sovereign submerged lands (a proprietary approval) with the Department's South District Office in Fort Myers, Florida. (For unknown reasons, the application was resubmitted to the Department on August 14, 2006.) The two requests are linked, and the Department cannot approve one without approving the other. See Fla. Admin. Code R. 62-343.075(2). The application seeks authority to expand in two phases the existing 30-slip facility. The first phase would generally authorize the construction of a 198-slip upland dry storage facility and reconfiguration of the existing docks. In phase 2, Hancock would add 154 dry slips and construct a 5,000-square-foot marina building. Because the docks are constructed on and over sovereign submerged lands, a proprietary authorization is necessary. Before making a decision on the application, the Department forwarded a copy to the Commission for its recommendation. After receiving the Commission's comments, which consist of 89 pages, including transmittal letters, on December 10, 2007, the Department issued its Notice of Intent to deny the ERP and proprietary authorization on the grounds the project area is sited in an area of very high level of manatee use and the project will increase local boat traffic, resulting in significant adverse effects on the manatee, which is listed by the state and federal governments as an endangered species. A more detailed description of the reasons for denial is found in the Notice of Intent. See Petitioner's Exhibit 6, pages 4 through 9; Department's Exhibit 1.b., pages 4 through 9. The Department acknowledges that its decision was based wholly upon the Commission's determination that the project, as proposed, would have an adverse impact on manatees. The DRI and Estoppel In its Petition, Hancock contends that the Department is "estopped to deny a permit for Phase 1 of the marina in light of its acquiescence to the approval of DRI 2-8990-99." By way of background, in 1990, Hancock's predecessor in interest (Waterway Group, Inc.) applied with the County for a DRI which included, among other things, 400 dry boat spaces on the property. DRI 2-8990-99 was approved by the County on July 8, 1991, and has been amended three times. See Petitioner's Exhibit 3. The original terms of approval contained several conditions that specifically addressed manatee protection. One separated the project into two phases of 200 spaces, the first of which was authorized without additional studies, while the second was subject to additional study and review by the Florida Department of Natural Resources (DNR). When the DRI was approved, the State's manatee protection program was under the jurisdiction of the DNR. That agency reviewed the DRI and recommended manatee protection conditions. The conditions in the final approval were consistent with the program's recommendation. On June 29, 2004, the County adopted a resolution approving a MPP for the County. See Petitioner's Exhibit 4. It was not adopted as an ordinance, and individual notice was not provided to interested property owners, including Hancock's principals. After adoption, the County incorporated the MPP into its Comprehensive Plan. The MPP is a planning document that provides a comprehensive review of manatee and boating data on a county-wide basis. It is developed, reviewed, and approved by local, state, and federal governments and is used for guidance when considering appropriate levels of slip densities within a county. The County is one of thirteen counties directed to adopt a MPP. On October 20, 2004, Hancock filed with the County an application to amend its DRI. The application included requests to extend the DRI approval a third time and to revise the site plan. The site plan changes included a reduction in the total number of dry spaces from 400 to 352. On June 20, 2005, the County approved the DRI amendment. The Development Order included a finding of fact that the marina was exempt from the requirements of the MPP because Section 8.4 of the MPP "exempts existing projects with valid permits and Chapter 380 vested status for the construction of slips (wet or dry) that have not been constructed at the time the MPP was adopted by the Board of County Commissioners." See Petitioner's Exhibit 3, Third Development Order Amendment for Hancock Bridge Marina, page 4, paragraph H. Hancock then filed the instant application on September 12, 2005. To date, Hancock has expended $1,731,000.00 in its permitting efforts, including the DRI extension and ERP application. There is no evidence that during the DRI process, the Department or Commission made any representations to Hancock about its ability to obtain an ERP or sovereign submerged lands authorization. Also, neither agency was consulted during that period of time, presumably because the DRI and ERP processes are separate and independent of one another. Permitting Criteria Section 373.414, Florida Statutes, contains the standards and criteria governing the approval of an ERP. Subsection (1) requires that the applicant provide reasonable assurance that the regulated activity is "not contrary to the public interest." In determining whether this test is met, paragraph (1)(a) requires that the Department consider and balance the following criteria: Whether the activity will adversely affect the public health, safety, or welfare or the property of others; Whether the activity will adversely affect the conservation of fish and wildlife, including endangered or threatened species, or their habitats; Whether the activity will adversely affect navigation or the flow of water or cause harmful erosion or shoaling; Whether the activity will adversely affect the fishing or recreational values or marine productivity in the vicinity of the activity; Whether the activity will be of a temporary or permanent nature. Whether the activity will adversely affect or will enhance significant historical and archaeological resources under the provisions of s. 267.061; and The current condition and relative value of functions being performed by areas affected by the proposed activity. These same factors are found in Florida Administrative Code Rule 40E-4.302, an ERP rule adopted by the South Florida Water Management District. This rule has been adopted by reference by the Department to be used when it considers ERP applications within the geographical jurisdiction of that water management district. See Fla. Admin. Code R. 62-330.200(4). An additional requirement in the rule is that an applicant give reasonable assurance that the project will not cause unacceptable cumulative impacts. See Fla. Admin. Code R. 40E- 4.302(1)(b). Besides the foregoing requirements, additional conditions for the issuance of an ERP are found in Florida Administrative Code Rule 40E-4.301, also adopted by reference by the Department. Relevant here are requirements that the applicant give reasonable assurances that the proposed activity (a) will not adversely impact the value of functions provided to fish and wildlife and listed species by wetlands and other surface waters, and (b) will not cause adverse secondary impacts to the water resources. See Fla. Admin. Code R. 40E-4.301(1)(d) and (f). Section 373.414(1)(b), Florida Statutes, provides that if an applicant is unable to meet the above criteria, the Department shall consider measures proposed by or acceptable to the applicant to mitigate adverse effects that may be caused by the regulated activity. In this case, mitigation measures have been proposed by Hancock and are discussed below. Finally, Section 373.4132, Florida Statutes, requires that the Department evaluate applications for dry storage facilities for ten or more vessels in the same manner as any other ERP application, including that the applicant demonstrate that the facility will not be harmful to the water resources, provides reasonable assurance that the secondary impacts from the facility will not cause adverse impacts to the functions of the wetlands and surface waters, and meets the public interest test in Section 373.414(1)(a), Florida Statutes. There are no rules or statutes which require that the Department consider the status of, or otherwise take into account, a DRI in evaluating an application for an ERP or proprietary authorization. Impacts on Manatees After reviewing the application for an ERP, the Department determined that the project, as proposed, should be denied because of direct, secondary, and cumulative effects it would have on manatees. The Department further determined that the applicant had not met the applicable requirements under Florida Administrative Code Rule Chapter 18-21 for authorization to use sovereign submerged lands. In making these determinations, the Department considered not only potential deaths of manatees, but also potential impacts such as harassment, disturbance, and sub-lethal boat strikes. The latter strikes may cause permanent injury and can affect reproduction and behavior. The State is a refuge and sanctuary for the manatee. See § 379.2431(2), Fla. Stat. The manatee is a marine mammal that can live as long as sixty years. It is unable to tolerate prolonged exposure to temperatures below around sixty-one degrees, which makes it susceptible to cold-related stress and death. Consequently, the manatees typically seek warm water when temperatures drop below sixty-eight degrees, migrating seasonally over extensive geographic areas. Hancock's marina is located just off the River. The River is one of the most studied and significant habitats for manatees on the west coast of Florida. The County's water bodies, including the River, provide manatees with submerged aquatic vegetation for foraging, fresh water sources, and several warm-water sites to use as refuges during colder weather. Hancock Creek, which is used to access the River from the marina, is an area used by manatees because it provides fresh water and a quiet environment. Manatees also use the River as a major travel corridor between the Florida Power and Light Company (FPL) power plant on the Orange River, a tributary of the River located around eight miles upstream from the project site, and the estuaries found downstream where foraging resources are abundant. Hundreds of manatees go up and down the River throughout the year, and those traveling to and from the warm water around the FPL plant must travel past Hancock Creek. Manatee deaths have occurred within a five mile radius of the project site. Also, the number of manatee watercraft- related deaths in the River has steadily increased over the years. According to a 1998 study of boating activity in the County, vessels use the River more as a travel corridor to the bays and estuaries outside of the River than as a destination itself, and that on weekends there is almost constant traffic with vessels leaving or entering the mouth of the River every thirty-five seconds. The majority of the boats leaving the project site are expected to travel downstream through the mouth of the River, an area with substantial vessel congestion. This travel pattern, in conjunction with the typical travel patterns of manatees, indicates that there is a great potential for boat/manatee overlap in the River, increasing the likelihood of impacts to manatees. Besides manatee deaths, there are sub-lethal effects of increased boat traffic in the area. Increased traffic in important manatee areas may create disturbances which will alter behaviors such as feeding, suckling, or resting, or it may separate mothers from their calves. Also, vessel traffic may cause them to leave preferred habitats. Finally, as noted above, vessel collisions with manatees produce non-lethal injuries as well, causing pain and extreme scarring, which can alter natural behaviors and affect reproduction. The single biggest known cause of death to manatees is impacts from boats. The project would increase the risk of watercraft collisions with manatees in this region. As the level of boat traffic increases, the probability of boat and manatee collisions is also likely to increase. Because the project is located along the travel corridor between the largest wintering aggregation of manatees on Florida's west coast and their local foraging habitat, the expected secondary impacts from increased vessel traffic associated with the project is expected to reduce the value of the functions of the River as a travel corridor. Therefore, the secondary impacts of vessel traffic from the expansion of the marina are expected to result in adverse impacts to manatees. In 1990, the DNR reviewed the proposed DRI for this site under the state manatee program. It found that during the preceding thirteen years (1976-February 1990), thirty-six manatees had died from water-related injuries in the County. Within a five-mile radius of the site, four manatees had died from watercraft-related injuries. DNR concluded that since the manatee protection speed zones for the River had just been established, they were expected to offset the impact of the additional 198 slips. From March 1990 until September 2006, however, twenty-five additional manatees have died from watercraft-related injuries within a five-mile radius of the site. Therefore, the number of deaths had increased without the additional 198 slips. The logical inference is that if the new slips are allowed, boat traffic and the associated adverse impacts on manatees will likewise increase. The fact that dry slips will be used does not change the Department and Commission's evaluation of the project. A boat has the same risk to a manatee whether stored in a wet or dry facility. Marine industry groups suggest that an average usage rate is between ten and fifteen percent at any time, and that usage is likely to increase on the weekends. Thus, as density increases so does the risk. In addition to its own analysis, the Commission reviewed the County MPP, which indicated that nine additional slips at this location would be acceptable, for a total of thirty-nine. This number was calculated by using a slip density of three slips for every one hundred feet of shoreline owned. (The actual linear feet of shoreline owned by Hancock is unclear. The Commission concedes that Hancock "may own a total of 1,214 linear feet of shoreline.") A MPP typically allows for higher boat densities in areas that pose less risk to manatees and lower boat densities in higher risk locations. Had the MPP not been considered, the number of allowable slips would remain at thirty since the MPP provides for a countywide strategy instead of a case-by-case review. To date, the Commission has never recommended approval of a marina application in the County that would authorize more docks than the MPP would authorize. The Commission initially makes an independent assessment of the application without regard to the MPP. In this case, based upon mortality data, aerial surveys, telemetry data, rescue data, and boat studies, the Commission determined that no further slips are appropriate. Therefore, even if the County's MPP is based upon outdated data and analysis, as Hancock contends, approval of the application would not be warranted. Petitioner's expert posited that the proposed project would only result in one manatee death over the next twenty years, which would amount to no more than a de minimus impact on the overall population. Assuming this to be true, manatees are nonetheless an endangered species, and there is no minimal amount of death that is considered acceptable. The witness also opined that Hancock is entitled to an unlimited number of slips under the MPP due to flawed data and analysis underpinning that document. In formulating his recommendations, however, Hancock's expert relied on mathematical models and statistics while ignoring the principles of manatee behavior and biology. Finally, the expert agreed that the greater the number of boats in the water, the greater the likelihood that a manatee could be accidentally crushed. On the issue of impacts to manatees, the testimony of the Commission witnesses is deemed to be the most credible and persuasive. The more persuasive evidence supports a finding that the marina will be located in an area adjacent to the River, that large numbers of manatees use the River, and that the project is expected to increase boat traffic. This in turn will lead to a higher incidence of boating-related manatee casualties in the area. Therefore, the proposed activity adversely affects the conservation of wildlife and marine productivity in the vicinity of the project; it adversely affects the marine productivity in the area; it is permanent in nature; and it diminishes the current condition and relative value of functions performed by areas affected by the activity. On balance, then, the project is contrary to the public interest. Based on the evidence presented, Hancock has not provided reasonable assurance that the project will not cause adverse secondary impacts to water resources, as required by Florida Administrative Code Rule 40E-4.301(1)(f). Similarly, based on the evidence presented, Hancock has not provided reasonable assurance that the project will not result in unacceptable cumulative impacts upon wetlands and other surface waters, as required by Florida Administrative Code Rule 40E-4.302(1)(b). By failing to provide reasonable assurances that the facility will not be harmful to water resources, that the secondary impacts from the facility will not cause adverse impacts to the functions of wetlands and surface waters, and that the project meets the public interest test, Hancock has failed to satisfy the requirements of Section 373.4132, Florida Statutes. Mitigation If an applicant cannot meet the requirements of Section 373.414(1)(a), Florida Statutes, the Department "shall consider measures proposed by or acceptable to the applicant to mitigate adverse effects that may be caused by the regulated activity." As noted in Finding of Fact 27, supra, the Department is willing to approve an additional nine slips that would be allowed under the County MPP, for a total of thirty- nine. According to Hancock, this number is not acceptable because more slips are needed to make the project financially feasible. Although a copy of the application is not a part of this record, the testimony suggests that in its application, Hancock proposed certain measures to mitigate the impacts on manatees. In a letter to the Department dated November 8, 2007, however, the Commission stated that "[i]f the Applicant propose[s] changes to the project to minimize fish and wildlife resource impacts that are consistent with the Lee County MPP, such a project would be consistent with Chapter 370.12(2), F.S." (The Legislature has subsequently consolidated this statute into Section 379.2431, Florida Statutes.) Despite this lack of clarity in the record, sometime during the application process, and presumably before the Notice of Intent was issued, the Commission staff discussed with Hancock whether the following mitigation measures would offset or adequately reduce the impacts: placing a size restriction on boats docking at its facility; providing boater education; installing speed zone marking and making it a requirement for all boats at the marina to be equipped with a speed zone map or a Global Positioning Satellite unit with speed zone mapping; implementing a volunteer watch program to enforce speed limits; making a cash donation to study manatee population dynamics; and installing sonar avoidance technology on vessels. The Commission established that these measures, even if implemented, would not offset the impacts from 198 slips expected with phase 1 of the project. For example, the research associated with sonar technology is not yet completed, and devices are not available for boaters. Also, given the location of the project, even with additional law enforcement and boater education, the impacts would not be offset due to the level of traffic already existing on the River at that site, and the importance of the area to manatees. The middle of the River is a high-speed corridor (with a twenty-five miles per hour speed limit) and even with one hundred percent compliance in that zone, a small boat can still hit and kill a manatee. The Proprietary Authorization Because denial of the ERP is being recommended, the proprietary authorization must likewise be denied. See Fla. Admin. Code R. 62-373.075(2). Even so, for the purpose of addressing all issues in this Recommended Order, a discussion of the application for proprietary authorization is set forth below. Florida Administrative Code Rule Chapter 18-21 contains the rules that implement the administrative and management responsibilities of the Department in authorizing activities in sovereignty submerged lands. Florida Administrative Code Rule 18-21.004 establishes the specific standards and criteria to be applied by the Department in determining whether Hancock should be allowed to use sovereign submerged lands. Paragraph (1)(a) provides that "[f]or approval, all activities on sovereignty lands must be not contrary to the public interest." The public interest is defined as "demonstrable environmental, social, and economic benefits which would accrue to the public at large as a result of a proposed action, and which would clearly exceed all demonstrable environmental, social, and economic costs of the proposed action." See Fla. Admin. Code R. 18-21.003(43). The more persuasive evidence supports a finding that, on balance, the project is contrary to the public interest based upon the standards in the rules. Florida Administrative Code Rule 18-21.004(2)(a) provides that "[a]ll sovereignty lands shall be considered single use lands and shall be managed primarily for the maintenance of essentially natural conditions, propagation of fish and wildlife, and traditional recreational uses such as fishing, boating, and swimming. Compatible secondary purposes and uses which will not detract from or interfere with the primary purpose may be allowed." The evidence does not show that Hancock's proposed marina expansion constitutes a secondary use not interfering with the propagation of wildlife. Therefore, the project is not consistent with this rule. Florida Administrative Code Rule 18-21.004(2)(b) provides that "unless there is no reasonable alternative and adequate mitigation is proposed," activities which result in significant adverse impacts to sovereignty lands and associated resources shall not be approved. As previously found, the mitigation measures proposed by Hancock are not adequate. Paragraph (2)(i) of the rule further provides that activities in submerged lands "shall be designed to minimize or eliminate adverse impacts on fish and wildlife habitat, and other natural or cultural resources. Special attention and consideration shall be given to endangered and threatened species habitat." Because Hancock failed to prove that the project would not result in unmitigated adverse impacts to manatees, it fails to meet this criterion. Paragraphs (7)(d) and (e) of the rule are general conditions for authorization and provide that activities "shall be constructed and used to avoid or minimize adverse impacts to sovereignty submerged lands and resources" and "shall not adversely affect any species which is endangered, threatened, or of special concern." Here the more persuasive evidence shows that neither condition has been met.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Environmental Protection enter a final order denying Petitioner's application for an ERP and authorization to use sovereign submerged lands to expand an existing marina on Hancock Creek in Lee County, Florida. DONE AND ENTERED this 15th day of May, 2009, in Tallahassee, Leon County, Florida. S DONALD R. ALEXANDER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of May, 2009.
The Issue Whether the application of Manatee Memorial Hospital, Inc. (CON 9170) to establish a 120-bed satellite hospital in eastern Manatee County should be granted?
Findings Of Fact The Parties Manatee Memorial Hospital, L.P. Manatee Memorial Hospital, L.P. ("Manatee Memorial") the applicant for Certificate of Need Number 9170, owns and operates Manatee Memorial Hospital. It acquired the hospital in 1995. Located at 206 Second Street East, Bradenton, Florida, Manatee Memorial is licensed at the site to operate 512 beds, 403 of which are for acute care. Of the remaining 109 beds, 24 are classified as adult psychiatric, 11 as adult substance abuse, 31 as child psychiatric, while 10 are in a skilled nursing unit, and 6 are NICU level 2 beds. Manatee Memorial is a wholly owned subsidiary of Universal Health Services, Inc. ("UHS"). UHS is a publicly traded company which currently owns 77 health care facilities, among them 28 acute care hospitals in various states, including Wellington Regional Medical Center, a 120-bed hospital in Palm Beach County, Florida. L. W. Blake Medical Center, Inc. Blake Medical Center is a 383-bed acute care hospital. With the exception of psychiatric care, Blake provides full care across the range of hospital services from obstetrics to open heart surgery. Opened in 1972, it is also located in Manatee County. Blake has provided acute care hospital services in Manatee County since 1972. Over the past 28 years, it has served the people of the county in other ways, too. The organization and its employees, for example, are actively engaged in community activities. Among many community activities, Blake supports the American Cancer Society, sports screening for local students, Legs for Life (a diabetes detection program), cardiac profiles, and Just for Girls, a mentoring program. The Agency for Health Care Administration The Agency for Health Care Administration is designated by statute as "the single state agency to issue . . . or deny certificates of need . . . in accordance with the district plans and present and future federal and state statutes." Section 408.034(1), Florida Statutes. Stipulated Facts Manatee Memorial and Blake entered a prehearing stipulation that contained "stipulated facts and law" stated below in findings 7 through 36. Manatee Memorial filed a timely and legally sufficient Letter of Intent for CON No. 9170 and subsequent Initial Application and Omissions response that were deemed complete by AHCA. Manatee Memorial filed a timely and legally sufficient Petition for Formal Hearing to challenge the initial denial of its application for CON No. 9170. Blake filed a timely and legally sufficient Petition to Intervene. Manatee Memorial is a disproportionate share Medicaid Provider. Manatee Memorial has demonstrated a history of providing quality of care and the ability to operate an acute care hospital. Manatee Memorial has the health care and administrative expertise to provide acceptable quality care. Manatee Memorial adequately demonstrated its history of serving persons who are HIV/AIDS infected. Manatee Memorial adequately demonstrated its intent to serve HIV/AIDS infected persons at the proposed Lakewood Ranch facility. Manatee Memorial and Blake are the only existing providers of acute care inpatient hospital services in Manatee County. Manatee Memorial is JCAHO accredited, with commendation, for all services, including home health care services. Manatee Memorial and Blake are currently Medicare and Medicaid certified. Manatee Memorial has demonstrated a history of providing quality of care. Manatee Memorial has the health care and administrative expertise to provide quality of care. The documents provided with the application indicate the ability to provide funding for the proposed Lakewood Ranch facility at the time of the application's filing. The proposed Lakewood Ranch project, at the schematic stage, conforms to Chapter 59A-3, Florida Administrative Code, and other applicable codes, including the Americans with Disabilities Act. The proposed construction cost of $133.74 per gross square foot compares favorably with the average cost of $138.45 for five new Florida hospitals completed since 1995. Construction time of twenty-four months is approximate although optimistic for the proposed facility. The approval of the proposed facility will reduce the bed count at Manatee Memorial's main campus. The reduction in bed count will allow the hospital to better organize its physical plant and free area to be demolished. The documents provided with the application indicate the ability to provide funding for the proposed Lakewood Ranch facility. During FY 1997, Manatee Memorial provided 12 percent of its total patient days to Medicaid patients and 3.5 percent of its total patient days to charity care and exceeded the district average for both Medicaid and charity care. Manatee Memorial is party to an agreement with the County of Manatee that requires it to provide a certain level of indigent care and provides some compensation for providing that care. Except for financing cost projections, the estimated project costs appearing on Schedule 1 are reasonable. The costs of equipping the proposed Lakewood Ranch facility are reasonable. Except for financing cost projections, the total project cost for the proposed Lakewood Ranch facility is reasonable. The letters of support contained in the application are authentic and accurate duplicate copies of letters. Manatee Memorial Hospital's past and proposed provision of services promotes a continuum of care in a multilevel health care system. Prior to filing its Petition in this case, Blake had not developed specific patient origin studies and demographic, financial, marketing, program feasibility and service feasibility studies or projects that discuss, analyze, or document a need for additional or relocated acute care beds in Manatee County. The Agency for Health Care Administration initially denied CON 9170. In the course of this litigation it filed a Notice of Change of Position. Blake Medical Center has a demonstrated history of providing quality of care. In 1995, 1997, 1998, and 1999, Blake Medical Center was named one of America's Top 100 Hospitals by AHCA. Blake Medical Center is Accredited with Commendation by the JCAHO. Manatee Memorial has satisfied the requirements of Section 408.039(2) and (3), Florida Statutes. The following statutory criteria are not at issue in this case: Sections 408.035(1)(c), 408.035(1)(f), 408.035(1)(g), 408.035(1)(j), and 408.035(1)(k), Florida Statutes (1997). The Subdistrict and Manatee Memorial's Primary Service Area Acute care health planning subdistrict 6-3 is comprised solely of Manatee County. Rule 59C-2.100, Florida Administrative Code. No zip codes in Manatee Memorial's existing primary service area are outside Manatee County. Accreditation and Quality of Care Manatee Memorial's JCAHO accreditation with commendation means it is rated in the top 15 percent or 16 percent of all JCAHO accredited hospitals. Manatee Memorial is also accredited and affiliated with the American College of Surgeons Commission on Cancer. Its Breast Cancer Center is accredited under the Mammography Quality Standards Act and by the American College of Radiology. Its laboratory is accredited by the Commission on Laboratory Accreditation of the College of American Pathologists. It has been designated by HCIA as one of the top 100 orthopedic hospitals in the country. Manatee Memorial has received the Bradenton Herald's Reader's Poll Best Hospital award for five consecutive years. Manatee Memorial is in partnership with Manatee County to deliver immunization, breast cancer screening and cancer screening in the workplace. As a result, the hospital and the county have been recognized by the National Association of Counties. Manatee Memorial is the only hospital that belongs to the West Coast Health Care Coalition. The Coalition is a group of employers in Southwest Florida whose mission is to evaluate hospital charges, assess outcomes and provide education to employers and employees on healthy lifestyles. Consistent with UHS' philosophical belief that hospitals are fundamentally community and local organizations, Manatee Memorial uses a citizen advisory board that directly participates in oversight of the medical staff organization, quality assurance and performance improvement plans. Manatee Memorial provides and has documented its ability to provide continuing education to its staff and physicians. The Proposed Project Manatee Memorial proposes to relocate 120 beds from downtown Bradenton to a new site within the planning subdistrict. Known as Lakewood Ranch, the site is approximately 17 miles southeast of Manatee Memorial, along the I-75 corridor in Manatee County. The proposal does more than relocate 120 beds. It also entails the delicensing of an additional 73 beds on the existing campus. The proposal, therefore, will not add any new beds to the subdistrict but will, in fact, result in a net loss of 73 beds in the subdistrict. The goal of the project is twofold. First, it is to provide easily accessible, affordable health care to a rapidly growing population in eastern Manatee County. Second, the goal of the project is to "decompress" Manatee Memorial's existing campus in order to modernize it and make it safer and more efficient. Decompression Notwithstanding the awards and accreditation for its operational excellence, Manatee Memorial has serious problems in the physical infrastructure of its existing campus. The main campus is bounded by major roadways and the Manatee River. Further expansion is precluded by the lack of available land on or near the site. The absence of space on the campus currently requires Manatee Memorial to lease space off campus for various non-clinical support functions, such as accounting and bookkeeping. The site is "in close proximity to . . . hurricane surge inundation zones." (Tr. 872). The entire hospital site is only 7 feet above sea level. All of the central plant operations (electrical switching gear, chillers, boilers, air handlers, and emergency generators) and parking lots are flood prone. In the event of a hurricane, the entire hospital would have to be evacuated. When the project was under consideration, "rebuilding 500 beds on [the] location . . . [never came up] as a viable alternative in . . . discussions with the architects" (Id.) because it would be so difficult to comply with rules governing hurricane surge zones. The "main building," the "annex," and three "radial" wings are older multi-story buildings where the acute care beds and patient rooms are currently located. The oldest of these areas, the main building, was built approximately in 1953. For a hospital building, "it is a very old building." (Tr. 104). The annex was built in the late 1950's. Two of the three radials were built around 1961 and the third, the one closest to the river, around 1967. None of these buildings meet minimum applicable requirements specified in the National Fire Protection Association's Life Safety Code, NFPA 101, 1994 Edition, Chapter 13. These fire safety issues at Manatee Memorial are substantial and serious. There is not only a lack of fireproofing of the facility structure but also a lack of fire- smoke compartmentation and deficiencies in vertical chases and the fire alarm system. Deficiencies in the shut-down mechanisms of the air-conditioning system pose the danger of rapid conflagration in case of even a small fire. After acquiring the hospital in 1995, Manatee Memorial undertook a renovation of the substance abuse area. During the course of final inspection by AHCA, it was discovered that the prior owner had undertaken structural work in the hospital but did not submit the work to AHCA for review. The unapproved work substantially compromised the fire integrity in many areas of the hospital. There is no question that a reduction in bed count will allow Manatee Memorial to better organize its physical plant and free more areas to be demolished. Relocation of the 120 beds out of the facility and demolition of the north radial, "one of the poorly constructed areas in the facility" (Tr. 872) was well received by James R. Gregory, the Bureau Chief of AHCA's Office of Plans and Construction, because "it certainly solved the problem at hand . . . how to bring this very large and antiquated building into minimum standards with the Life Safety Code as soon as possible." (Id.) Accordingly, the Office of Plans and Construction has approved a Fire Safety Evaluation System ("FSES") plan for Manatee Memorial's main campus. The plan is contingent upon the removal, whether by relocation or elimination, of the 120 beds Manatee Memorial proposes to relocate to the Lakewood facility and the de-licensure of additional beds. As Blake astutely points out, elimination of the 120 beds is just as effective as relocation of the beds for commencement of the solution to the fire safety problems posed by Manatee Memorial's main campus. At the same time, relocation of the 120 beds rather than elimination is consistent with the current trend in hospital design and planning, the result of changes in health care in the country not the least of which is due to technological advances: to decentralize beds by moving some existing beds in central urban facilities to smaller campuses in suburban areas. These new-style smaller, suburban facilities are oftentimes referred to as health centers and "almost replac[e] . . . the civic centers or courthouses in these areas." (Tr. 873.) As Bureau Chief Gregory summed up, I would say generally the days of going downtown to the great white giant are over except for . . . large teaching institutions. . . . [T]he trend has . . . been to decentralize and to bring health care . . . out towards where the population centers are growing. (Tr. 874). Examples of these facilities in Florida include Florida Hospital at Lake Placid or Heartland of Florida near Haines City or Columbia Hospital of Lake City, all newly- constructed replacement facilities the size of the proposed facility in this case. The Radials The radial wings at Manatee Memorial are called radials because they radiate out from the nursing station. The second floor of the radials consist of three or four-bed "wards." (Wards contain more than two beds.) Although common thirty or forty years ago, wards are no longer recommended in any national hospital construction or operational standards because of the higher average intensity of acuity of patients hospitalized today. Patients with higher acuity are at greater risk of infection. Recognition of an inpatient's right to privacy also comes into play. Patients more often than not (much as airline passengers in the coach compartment with three seats on one side of an aisle would choose to be on the window or the aisle) will choose not to be a patient in a bed in the middle of a ward. For hospital patients, lack of direct access to a window, door, or bathroom facilities typically creates a high level of dissatisfaction with wards regardless of a hospital's quality of care. The four bed wards at Manatee Memorial have no space for modern equipment, no windows to the outside, no bathrooms and no washing facilities. Although the three-bed wards are somewhat more accommodating than the four-bed wards, their bathing and sink facilities are not compliant with the Americans with Disabilities Act ("ADA"). Manatee Memorial considered modifying the wards to create semi-private rooms. All spaces, however, would have to be brought to current Life Safety and ancillary support standards, a requirement that would be impractical to meet. Creation of semi-private rooms, moreover, would result in an inefficient 20-bed floor. Modern hospital needs for efficiency make the design of a nursing station and associated acute care patient wing with less than 36 beds impractical and uncommon. Because of the age of many of the inpatient areas only about 320 of Manatee Memorial's beds are accessible on a daily, operational basis. In the past, these 320 beds for the most part have been enough to serve the hospital's population. In 1999, for example, its average daily census was 196, and not once did the hospital need to resort to emergency bypass status because of a lack of beds. But at other times, the hospital has been perilously close to 100 percent occupancy. And on one occasion in the year 2000, Manatee Memorial was required to institute emergency bypass because it did not have enough beds in adequately designed spaces to receive patients. The wards would be eliminated if Manatee Memorial's CON is approved. Main Building Existing nursing stations on the third floor of the main building are located in exit corridors. Such a location would not be allowed under current standards. The stations were designed more than forty years ago, before the existence of information systems and high-tech monitoring equipment now regarded as essential. The Agency will not permit Manatee Memorial to "grandfather" the various Life Safety and code deficiencies resulting from the age of Manatee Memorial's older patient care floors. Nor will the completion of a Facility Safety Assessment System ("FSES"), now underway at Manatee Memorial, address any of the remaining Life Safety, structural, and ADA code deficiencies that AHCA requires to be remedied if any single renovation is made. For example, installation by the hospital of a window into a patient room that is presently windowless would involve bringing an entire area of the hospital into compliance with applicable codes. As Noel Barrick, Manatee Memorial's architect, explained at hearing, "[the window installation] would be connected to other things. Once you get into any area, AHCA is going to say [']you are playing with that area, you upgrade to meet new standards."['] (Tr. 129). In some instances, bringing into compliance areas adjacent to a simple renovation would not be possible. The patient rooms have 10-foot ceilings. (See Finding of Fact Nos. 69 to 79, below.) Patient bed areas with floor-to-floor heights greater than 10 feet are necessary in order to retrofit all of the required mechanical systems. As for some of the systems, it would be impossible to "get some of that ductwork in a 10 foot floor-to- floor height to meet those standards." (Tr. 130). Because simple renovations would entail upgrading much greater areas of the hospital to meet standards, Mr. Barrick's architecture firm, hired by UHS as part of the due diligence inquiry conducted prior to UHS purchase of the hospital, recommended that Manatee Memorial be decompressed in the interests of cost effectiveness. Floor-to-floor (i.e., height from finished first floor to finished second floor) must have at least twelve-foot, six- inch floor-to-floor height in order to accommodate ductwork, lights, sprinklers, electrical conduit, data lines, and medical gases necessary to meet the basic Life Safety and operational requirements for patient care areas. The floor-to-floor heights in the main building as well as other of the hospital's oldest buildings are only ten feet. Without adequate floor-to-floor space, to accommodate those Life Safety and mechanical items needed and required by AHCA for patient areas, those floors cannot be renovated and used for patient care or brought into compliance with current Life Safety and mechanical standards. The lack of floor-to-floor space has also necessitated construction of ramps between the various older buildings containing patient beds, and the surgical building and radials. These ramps must be and are routinely used by visitors and by staff to transport patients. None of these ramps meet ADA standards. Manatee Memorial's architects considered demolishing the main building and radials entirely. The consulting architect's assessment goal was, however, to reclaim as much space as was available on Manatee Memorial's existing campus before considering the possibility of de-licensure or relocation of beds. Additionally, total demolition would require closing the entire hospital for one to three years, since buildings with patient care areas also contain functional and ancillary areas necessary for operation of the entire hospital. Manatee Memorial's consulting architects have recommended that, on balance, it would be more cost effective and achieve a better result to decompress the main campus by relocating some beds and their ancillaries to a different site. This would create sufficient space on the main campus for modernizing and using, to the maximum extent possible, the main campus. AHCA must review and approve, prior to construction, all new construction and renovation to healthcare facilities in Florida. Rule 59A-3.080(1), Florida Administrative Code. AHCA's Chief of Plans and Construction Review is a registered Florida architect. He does not favor renovation of all 512 beds on Manatee Memorial's existing site because of its location in a hurricane zone as discussed, above. If 120 beds can be relocated to Lakewood Ranch, and 73 beds de-licensed, then Manatee Memorial can eliminate: 71 beds from the north and south radials which were built in the 1960's; 56 beds from the annex, which was built in 1958; and 28 beds from the third floor main building which was built in 1953, leaving 319 beds on a decompressed campus for renovation. One of the benefits of choosing to decompress by relocating beds is that all the renovations can be sequenced so the hospital is not closed during renovation. The total cost for a three phase, 8-year plan which leaves 319 renovated acute care beds and all the tertiary services on the main campus is $43 million. Since Lakewood Ranch will cost $40 million to construct and open, the total cost for Lakewood Ranch's 120 beds and the 3 phase plan to renovate for 319 beds on the main campus is $83 million. Assuming that taking the entire hospital out of service for a sufficient period of time to renovate 512 beds is desirable, and that such renovations are otherwise possible, the cost would be at least $97 million, or $14 million more than the alternative proposed by Manatee Memorial's architects. Manatee Memorial has opted for a plan that will enable it to keep some of its beds in its inventory that would otherwise be casualties of much-needed modernization. Its decision is justified. There is not enough real estate on the main campus to accomplish work necessary to solve the fire safety issues, locate 512 beds and the support services for those beds such as emergency room, laboratory, surgery, and X- ray so that the beds and ancillary areas are designed to meet prevailing community standards for the delivery of health care. Decompression will allow more efficient renovation and use of the outdated radials and annex for business occupancy, to accommodate these non-clinical functions, instead of using them for institutional occupancy. At the same time, decompression by relocating some patient beds and ancillary support for the beds elsewhere will allow the highest and best, if not only, use of salvageable areas on the existing campus without interruption of service. Health Planning 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 need calculation methodology in Rule 59C-1.0384(4) and (5), Florida Administrative Code, therefore, is not applicable to these proceedings. Rule 59C- 1.038(6)(a), Florida Administrative Code, does contain 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. Manatee Memorial's proposal earns the preference. District and sub-district out-migration Acute care district and sub-district boundaries are used by AHCA and health planners to define the geographic boundaries for inventory and bed need projections. Consistency in providing sufficient access within a subdistrict to accommodate the needs of patients originating within the subdistrict is a desirable health planning goal. For purposes of reviewing the health planning aspects of the application, the relevant geographic health planning area is Manatee County, sub-district 6-3. It is becoming more common for hospitals that have patient care areas that have aged (as in this case, by more than 40 years) to relocate new beds to areas of new and rapid growth within the health planning subdistrict. The Agency has approved these efforts on at least four occasions in the relatively recent past. In some instances the entire hospital was relocated, as in the relocation of Sarasota Doctors Hospital in Sarasota County; in others, as in the proposal in this case, only some of the beds were relocated while the existing campus underwent renovation. The existing acute care beds in Manatee County are not well distributed in relation to population growth in the sub- district. This poor distribution has resulted in considerable out-migration of acute care patients to Sarasota County for services, and, in turn, is a significant factor in the under- utilization of Manatee County hospitals. Until Sarasota Doctors relocated, out-migration was significant back and forth between Sarasota and Manatee Counties, that is, for both the sub-districts represented by the two counties. After Sarasota Doctors' relocation from near Sarasota to eastern Sarasota County approximately 15 miles south of the Manatee County/Sarasota County line, however, the out- migration became primarily one way: from Manatee County to Sarasota County. In 1997, alone, while 312 Sarasota County District 8 residents sought acute care in Manatee County, approximately 5,000 Manatee County District 6 residents sought acute care in Sarasota County. Between 1995 and 1997, Manatee County hospitals experienced an overall increase of 9.5 percent in admissions. For the same period, out-migration from Manatee County for acute care services increased 26.5 percent. Currently, for every one person that comes from Sarasota County to be hospitalized in Manatee County, sixteen are leaving Manatee County to be admitted to a bed in Sarasota County. Out-migration patterns between Manatee County and Sarasota County contribute to the under-utilization of Manatee County hospitals. This disproportionate level of out-migration from Manatee County is inconsistent with typical out-migration between planning areas. It is the result of a poor distribution of Manatee County acute care beds in relation to Manatee County population growth combined with the unappealing and deficient four bed wards and the problems with Manatee Memorial's aged buildings. Geographic Access Manatee Memorial's existing campus is located at the junction of Routes 41 and 301 and the Manatee River. Blake is located about four miles west. Both Blake and Manatee Memorial are located in the Bradenton City limits. Lakewood Ranch is outside the city limits. Approximately one-quarter mile north of University Parkway and just east of the Interstate 75 interchange, it is in south central Manatee County near the Manatee and Sarasota County boundary line. Lakewood Ranch is a master planned community of approximately 5500 acres and involving 3 Developments of Regional Impact ("DRI"). Master planned communities are favored by the State of Florida because all aspects of daily living are included in the multi-use planning: homes, workplaces, shopping facilities, recreation facilities, worship, and medical facilities. State DRI and master planned community requirements have made growth somewhat more predictable. Using periodic aerial photography and subdivision maps to conduct an inventory by actually counting rooftops over time, it is evident that in the last two decades there has been substantial residential, commercial, and office growth in the eastern part of the county along and to the east of the I-75 corridor. This growth commenced with the opening of the corridor 20 years ago. The pattern of substantial growth east of I-75 and much less growth west of the I-75 corridor in Manatee County is expected to continue. As one witness expressed, [T]he most substantial majority of new growth will happen along the I-75 corridor and east of 75, as it's currently doing, and I believe from the activity that we see, that it'll continue. One of the reasons for that is that if you look at a map or a similar aerial photo, to the west of I-75 you will see that it's substantially all built out and there's really very little land available. (Tr. 172). The population located along and east of the I-75 corridor is expected to increase by 28,000 persons between 1999 and 2004. The County, itself, has projected that the population in the area of the county in and around Lakewood Ranch has projected growth at a rate of 600 percent over the thirty years from 1990 to 2020. Manatee County has created infrastructure to support residential development in eastern Manatee County, including 2 elementary, 3 middle and 1 high school. The area is served by many major roads. They include University Parkway which runs east and west. It is six lanes running west of I-75 to the airport and four lanes to Lakewood Ranch Boulevard with plans to six-lane it. A time travel study conducted in accordance with DOT's Manual of Uniform Traffic Studies demonstrates that currently, during the peak hour traffic, the congestion on roads leading from large portions of Lakewood Ranch's primary service area east of I-75 to Manatee Memorial and Blake results in travel times in excess of 30 minutes to reach Blake and between 20 and 30 minutes to reach Manatee Memorial. All the road improvements presently planned by Manatee County are east of I-75 and will not relieve any of the congestion west of I-75. In the absence of planned road improvements west of I-75, the congestion west of I-75 will increase as the result of development along the interstate's corridor and to its east. The road system is one of the reasons out-migration from Manatee County to Sarasota County has increased and one of the reasons Manatee Memorial is feeling the impact of competition with Sarasota hospitals. At present, four hospitals offer more than adequate access to hospital services to the residents of eastern Manatee County: Manatee Memorial and Blake in Manatee County and two Sarasota County hospitals: Sarasota Memorial and Sarasota Doctors. All four compete to and do serve the patients in Lakewood Ranch's proposed service area. There is no evidence of capacity constraints at any of these hospitals. Increasingly, physicians in Sarasota County serve patients in Manatee County and market their services to them. For instance, open heart surgeons practicing in Sarasota also have offices in Manatee County. The yellow pages for the Bradenton telephone directory reveal at least 183 physicians with Sarasota addresses. This does not include the many listings for groups or clinics. These physicians view eastern Manatee County as a market they serve and from which they seek to draw patients to their Sarasota offices. Indigent Care Manatee Memorial is a disproportionate share Medicaid provider. During fiscal year 1997, Manatee Memorial provided 12 percent of its total patient days to Medicaid patients and 3.5 percent of its total patient days to charity care, exceeding the district averages for both Medicaid and charity care. Compared to Blake, Manatee Memorial has consistently provided significantly more Medicaid and charity days. In 1996, for example, Manatee Memorial shouldered a fraction above 87 percent, compared to Blake's 12.96 percent of the Medicaid patient days in the subdistrict. In that same year, Manatee Memorial provided over $10 million in charity care, while Blake provided less than $600,000. While Blake and Manatee Memorial have the same kind of patients, their patient mixes are different. Blake takes many less Medicaid and charity care patients. This is due, in part, to location; Manatee Memorial's location (albeit only four miles from Blake's) attracts such patients. It is also due, in part, to the obligation Manatee Memorial has incurred by agreement with Manatee County to provide care to indigent Manatee County residents, an obligation which has as its source the hospital's former status as the county hospital. Blake is not a party to a similar agreement. Under the terms of Manatee Memorial's agreement with the county there are three different ways for the hospital to be reimbursed for indigent care: reimbursement of 50 percent of the annual interest earned on a fund that's used for general health care purposes within the community, reimbursement at the prevailing Medicaid rate, or reimbursement under a special indigent care calculation. The hospital receives the lowest amount yielded by the three methods. At the time of hearing, at least since September of 1995, when its chief executive officer assumed his position, Manatee Memorial has only been reimbursed on the basis of the first of the three possibilities: 50 percent of the annual interest earned on the county's general health care fund. The shortfall has been substantial. In 1999, inpatient and outpatient charges for care to indigents under Manatee Memorial's agreement with the County amounted to approximately $7.4 million. But Manatee Memorial was only reimbursed $1.5 million, resulting in a deficit of about $5.8 million. The inpatient shortfall alone was about $3.5 million. Over the past ten years, through August of 1999, the shortfall has totaled approximately $36 million worth of uncompensated care provided by Manatee Memorial. On a cost basis, for every dollar of cost incurred to provide services to a County funded indigent in 1999, Manatee Memorial recovered only 70 cents from the County. There is no question that Manatee Memorial's contribution to care of Medicaid patients and indigents is both substantial and costly. Blake's fear with regard to the impact on indigent care in Manatee County of granting the CON in this case and transferring 120 beds from their present location to eastern Manatee County was expressed by its Chief Executive Officer: [W]e'll do 120 now, then next year we will do another 120 until we have eventually moved the patient's right to have a hospital in that location [far to the] east and then we will have a shell of a hospital in a location [in which] there's a great need . . . for indigent care. (Tr. 524). But Blake conceded under cross-examination that simply granting the CON under consideration without more would leave a hospital adequate to handle the indigent care needs of the county at the location where the considerable bulk of those needs are presently met. Lakewood Ranch Design, Cost & Construction The proposed 120-bed Lakewood Ranch project, at the schematic stage, conforms to Chapter 59A-3, Florida Administrative Code, and other applicable codes, including the Americans with Disabilities Act. The proposed construction cost of $133.74 per gross square foot compares favorably with the average cost of $138.45 for five new Florida hospitals completed since 1995. The design, cost, and time necessary to construct and equip the Lakewood Ranch 120-bed facility are reasonable. Financial Feasibility: short-term and long-term Short-term financial feasibility for CON review refers to the ability of the applicant to provide or obtain sufficient capital to construct the project and to finance the project until it becomes financially self-sufficient. To determine at what point the proposed project would become financially self-sufficient, Manatee Memorial used actual recent revenue, fixed and variable cost data, and adjusted service volumes from Manatee Memorial to model Lakewood Ranch's projected financial performance. It is reflected in Schedules 7 and 8 of the application. Manatee Memorial has demonstrated that, if projected utilization is achieved, the proposed project will become profitable in the second year of operation and continue to be financially self-sufficient on an ongoing basis. UHS has provided a commitment letter in the application that states in pertinent part: This letter is to confirm the commitment of Universal Health Services, Inc. (UHS) to provide financing for the planned replacement and relocation of 120 acute care hospital beds for Manatee Memorial Hospital. UHS owns this hospital through a partnership, Manatee Memorial Hospital, L.P. (the applicant), which is comprised of partners which are wholly-owned subsidiaries of UHS. UHS anticipates that it will finance all future capital expenditures for Manatee Memorial Hospital, including this project, entirely from UHS's net cash flow from operations. Accordingly, UHS does not plan to assume any indebtedness to third parties to finance this project, or to pay interest on any such costs. Manatee Memorial has adequately evidenced UHS' commitment and ability to provide the necessary capital, using the ongoing net cash flow from UHS operations, until the proposed project becomes self-sufficient, even if it should take more than 3 years. UHS does not take loans to build hospitals, but always uses current operating funds. Since UHS will fund the project from its own cash flow, Manatee Memorial appropriately did not indicate any financing costs on Schedule 1. The Lakewood Ranch hospital only becomes a depreciable asset after it becomes operational. Accordingly, Manatee Memorial captured Lakewood Ranch's costs of capital as interest on Schedule 8A. AHCA does not require pro forma projections for the main campus. There have been no material changes in UHS' financial strength, or its commitment to the proposed project through the date of hearing. Manatee Memorial does not have any other capital projects planned or approved that would compromise its ability to undertake the proposed project. UHS continues to have ample cash flow, as well as access to credit facilities, sufficient to capitalize and fund start-up operations at Lakewood Ranch. Manatee Memorial has projected that the first year of operation, after construction and licensure, will be January 1, 2004. Manatee Memorial selected eight zip codes as the primary service area for the Lakewood Ranch project. These zip codes correspond to the sub-areas the Manatee County Planning Department uses to project growth for areas within 5-15 minutes driving time from Lakewood Ranch. The selection of these eight zip codes for the project's proposed service area is reasonable. Manatee Memorial assumed it would derive at least 70 percent of its admissions during the first three years of operation from this primary service area. The assumption is consistent with the recent, actual experience of four hospitals in Broward, Collier, Sarasota, and Marion Counties that relocated or developed a satellite by relocating beds to an area of high growth similar to Lakewood Ranch. Using the most currently available population projections provided by Claritas for the eight zip codes comprising Lakewood Ranch's primary service area, it appears the projected occupancy for the proposed facility in the third year of operation will be even greater than projected in the application. Based on reasonable assumptions and methodology, Manatee Memorial will admit 2,600 patients to the Lakewood Ranch facility from its primary service area in 2004, the first year of operation. That equals 11,961 patient days. The hospital projects 17,220 patient days in the second year of operation and 21,812 days in the third year of operation. Out of the 4,742 total admissions in year three of operations at Lakewood Ranch, approximately 3,500 would be due to the projected Manatee County population increase. In the first year of operation of the Lakewood facility, it is reasonable to project that the facility will lose slightly more than $900,000. In the second year of operation, it is reasonable to project a net profit of $3.1 million; and, at the end of the third year of operation, it is reasonable to project a profit of approximately $6.7 million. It is reasonable to expect utilization to increase beyond the third year of operation so "that the hospital [the Lakewood Ranch facility] should sustain profitability in the long run." (Tr. 475). The project is financially feasible in the long term. As an aside, it is reasonable to assume that Manatee Memorial's main campus will lose some patients to the Lakewood Ranch facility. The revenues for the campus will therefore be reduced if the project is approved. So will the main campus' expenses associated with those patients. It is reasonable to assume that the main campus' profit will be reduced if the project is approved. But, AHCA does not require pro formas to show projected financial impact on the main campus as part of the application for the Lakewood Ranch facility. That impact, therefore, whatever it may be, is not considered in this proceeding. On the other hand, the impact to Blake and to the hospitals in Sarasota County is to be considered. Impacts to Blake and hospitals in Sarasota County a. Sarasota Hospitals The two hospitals in Sarasota County that will feel the most impact from approval of CON 9170 are Sarasota Doctors and Sarasota Memorial, particularly Sarasota Doctors. If the proposed facility becomes operational, much of the disproportionate share of out-migration from Manatee County to Sarasota County will be reduced because of Manatee County patients, particularly those residing in the eastern part of the county, choosing the proposed facility over Sarasota Doctors or Sarasota Memorial. The migration patterns for Districts 6 and 8 will adjust to a normal pattern. Some of the loss of patients by the Sarasota hospitals will be mitigated by an increase in the population of Sarasota County. In any event, the continued success of Sarasota County hospitals is not dependent on the out-migration of Manatee County residents. In the case of Sarasota Doctors, the recapture of Manatee County patients by the proposed facility is appropriate in light of Sarasota Doctors' decision several years ago to relocate to the eastern part of Sarasota County near the Manatee County line. Manatee Memorial's proposal will enhance competition. There will be an impact if it is approved to other competitors. But it will not put any other hospital in Manatee County or Sarasota County out of business or compromise their operations with the possible exception of making it more difficult to staff the hospitals as explained in paragraphs 126 to 129, below. Blake calculated that the impact of approval of the application to Blake would be a loss of $1.6 million and $2.7 million in the first and third years of operation, respectively, of the Lakewood Ranch facility. The calculation did not consider that tertiary services that will not be provided at the new facility so that the calculation "is not exact but . . . is quite close." (Tr.698). Assuming the accuracy of Blake's calculation, the impacts do not weigh heavily in favor of denial of the application in the context of Blake's most recent net profit of approximately $18.5 million. Blake's concern about the impact to it from the new facility was much more than the loss in dollars it poses. Blake is much more concerned about the competition posed by the need of its patients to be served by physicians and, in particular, staff who would be given privileges or employed by the new facility. Staffing Staffing and operating three hospitals in Manatee County will require more staff than is presently required for Manatee Memorial and Blake because of the need for "core" staffing. Core staffing is the minimum number of people required to care for a hospital census. Any hospital must maintain a minimum level of core nursing staff regardless of the size of the census. For example, an emergency room must have two people on duty at all times as must a recovery room. In addition, the Lakewood Ranch facility, as a hospital, should be distinguished from an outpatient facility. In contrast to an outpatient facility, essentially an "episodic" facility, the patients at Lakewood Ranch will have a much higher intensity of acuity. In other word, they will be sicker demanding much more intense care. Existing facilities could absorb the Lakewood Ranch facility's patients incrementally without having to add many staff, whereas a brand new facility is required to fully staff its facility. The increased demand for staff, especially nursing staff, will substantially affect Blake. For one, it is likely that the facility will recruit current employees of Blake. To make staffing matters more difficult for Blake, there is a shortage in health care personnel in Manatee County. Indicative of the shortage is Blake's 12 percent vacancy in its nursing staff at the time of hearing. The vacancy existed despite a comprehensive effort on Blake's part to keep and recruit nurses. The effort includes offering nurses on-site child care that is less expensive than rates in the community at large, paid critical care and operating room courses, reimbursement of continuing education expenses and payment for time spent in continuing education, a service excellence program, free parking, and competitive wages. Blake also conducts extensive, ongoing recruitment of nurses. It includes international recruiting, advertising, targeting cities with high unemployment rates or recently closed facilities, recruitment at job fairs and local schools. Blake competes not only with Manatee Memorial for nurses but also Sarasota Memorial and, to some extent, Sarasota Doctors Hospital. It monitors the salaries of those institutions and tries to at least match them. Blake also routinely obtains and reviews regional salary surveys. Bonuses in the market range from $5,000 to $10,000 recently offered by Manatee Memorial. Despite all its extensive recruitment efforts, typically it takes Blake 90 days to fill a nursing position. Recruiting nurses is difficult and expensive. Recruiting an intensive care nurse, for example, costs upward of $60,000 in direct and indirect costs. Recruiting a surgical nurse costs $40,000. The nursing shortage in Manatee County reflects a nationwide crisis in health care personnel. It is more severe than the cyclic shortages previously experienced. But, in all likelihood, the current shortage is also cyclic. No nursing shortage, moreover, is forever. This is 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 the other benefits to address the profession. Eventually, the current shortage should be alleviated by an increase in wages. The current national shortage is expected to be at its worst in 2006. The Lakewood Ranch staffing projections underestimate nurse staff needs by 8 to 10 employees. The underestimation in the context of the whole project is insignificant. Still, approval of the application will make recruitment of nurses by Blake more difficult. It will not be easy for the Lakewood Ranch facility either although there will be many nurses in the area for whom the Lakewood Ranch facility will be the most convenient facility at which to work. Like Blake, Manatee Memorial has developed a variety of strategies for recruiting, training and retaining nurses. It plans to use these at the Lakewood Ranch facility. Strategies include local open houses at the hospital, emphasis on a regional and national market, using the internet, and targeting military trained nurses through job fairs and affiliations with the University of South Carolina and the University of South Texas that allow UHS first access to students in nursing there. While there are inefficiencies in staffing due to the need for core staff at both campuses should the application be granted, there are some counterbalancing efficiencies. For example, efficiencies flow from sharing the same governing board and some of the managerial staff, such as human resources director, risk managers, accounting functions and quality improvement functions. There is little doubt that approval of the application will make it more difficult for Blake to staff its facility and will affect Blake financially in a substantial way. Approval of the Lakewood Ranch facility, at the same time, may have a slight counterbalancing effect. One of the main reasons nurses leave nursing is to seek a less physically demanding profession; modernization of facilities to make them less physically demanding should help to keep some nurses in their profession. Granting the application will lead to two modernized facilities: a renovated Manatee Memorial campus and a brand-new Lakewood Ranch facility. Local Health Plan Preferences Local Health Plan Preference Number 1 affords a preference for applicants documenting that they provide or will provide a large percent of Medicaid and charity care in relation to other hospitals in the subdistrict. Manatee Memorial provides the most Medicaid and charity care in Manatee County, measured in both patient days and dollar volume, and has documented its willingness to do so at Lakewood Ranch. For example, in 1996, Manatee Memorial provided 87 percent of all the acute care inpatient Medicaid days in the subdistrict. Blake provided 12 percent. Manatee Memorial earns this preference. Local Health Plan Preference Number 2 affords a preference to an applicant who can document a commitment to provide care and assure access for the community regardless of ability to pay. Manatee Memorial's continued commitment to provide care, regardless of the ability to pay, is evidenced by a formal resolution of the Manatee County Commission unequivocally supporting relocation of 120 beds to Lakewood Ranch. Manatee Memorial has demonstrated a commitment to provide patient access, regardless of ability to pay. Local Health Plan Preference Number 3 relates exclusively to applicants seeking tertiary services, and is not applicable to this proceeding. Local Health Plan Preference Number 4 is not applicable to this proceeding because the application under consideration is not for additional beds in a fixed-need pool, nor are additional beds being sought under "not normal circumstances". Local Health Plan Preference Number 5A contemplates a preference when a transfer of beds will result in operating cost efficiencies. Manatee Memorial's sharing managerial staff, human resources, governance, administrative functions, and risk management will minimize operating costs achieving the economies contemplated by Local Health Plan Preference Number 5A. Local Health Plan Preference Number 5B affords a preference for an applicant who has documented growth with demographic studies for an area where beds will be transferred. Manatee Memorial has fully documented that the proposed site is in an area of Manatee County that is rapidly growing, relative to the county as a whole. Local Health Plan Preference Number 5C affords a preference for an applicant transferring beds and addresses the availability of professionals and medical personnel in the proposed area. The beds being relocated by Manatee Memorial are already licensed. Staffing them, however, will not be done without some difficulty. Local Health Plan Preference Number 5D contemplates preference for applicants providing patient origin studies related to campus and the proposed transfer site. Local Health Plan Preference Number 5D is satisfied. Local Health Plan Preference Number 6A contemplates a preference for applicants transferring beds and who have analyzed current occupancy and projected impact. Because of the mal-distribution of beds in relation to the population growth, and the inefficiency of Manatee Memorial's existing older patient areas, the occupancy rates at Manatee Memorial are not optimal. Relocation will improve utilization of Manatee Memorial by Manatee County residents. Manatee Memorial receives preference under this Local Health Plan Preference. Local Health Plan Preference Number 6B affords a preference for applicants providing a copy of the existing charge structure at its hospital. Manatee Memorial stated that it does not anticipate any material changes to its existing charge structure, because of constraints placed upon it by payors and competition in the local market. The preference in Local Health Plan Preference Number 7 is awarded to Manatee Memorial. The parties have stipulated that Manatee Memorial has demonstrated intent to serve HIV/AIDS infected persons. Local Health Plan Preference Number 8 affords a preference to applicants that analyze the need and impact of proposed project on existing providers when the need is not currently being met. Residents of District 6 and subdistrict 6- 3 are not going without needed hospital services. Local Health Plan Preference Number 9 affords a preference to applicants documenting a commitment to provide initial and continuing education of staff for patients receiving services. Manatee Memorial has earned this preference.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that the application of Manatee Memorial Hospital, L.P. (CON 9170) be granted by the Agency for Health Care Administration. DONE AND ENTERED this 14th day of September, 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 14th day of September, 2000. COPIES FURNISHED: John F. Gilroy, III, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Robert D. Newell, Jr., Esquire Newell & Terry, P.A. 817 North Gadsden Street Tallahassee, Florida 32303-6313 John D.C. Newton, II, Esquire Berger, Davis & Singerman, P.A. 215 South Monroe Street, Suite 705 Tallahassee, Florida 32301-6313 Sam Power, Agency Clerk Agency for Health Care Administration Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration Building Three, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
