Findings Of Fact The controversy Forum Group, Inc. (Forum Group), Hillsborough Healthcare, Ltd. (Hillsborough Healthcare), Health Quest Corporation (Health Quest), and Careage House Healthcare Center (Careage) filed applications for certificates of need for community nursing homes in Hillsborough County, which is a subdistrict of HRS district VI. The applications were filed in the July, 1986, batching cycle, for need in July, 1989, known as the planning horizon. As amended prior to being deemed complete by HRS, Hillsborough Healthcare and Careage sought 120 beds, Health Quest sought 88 beds, and Forum Group sought 60 beds. All of the applications satisfy and are consistent with state and local health plans. The Department's free form preliminary action Ordinarily, the Department's preliminary decision on these applications would have been issued in November or December of 1986. In these cases, the parties were orally advised of the Department's preliminary action in January, 1987, but the state agency action report containing that preliminary decision was not issued until August, 1987. The delay in decision making in this case occurred due to the altered process of free form decision making that was used in this case. Careage filed a number of applications in the July, 1986, batching cycle, in a number of subdistricts. The preliminary review conducted by HRS determined there to be bed need in four of the counties in which Careage had applications: Hillsborough, Polk, Pinellas, and Lee. During free form agency decision making on the applications in this batching cycle, Ms. Marta Hardy was the Deputy Assistant of Regulation and Health Facilities for the Department. T. 1024. Her duties included responsibility to oversee the issuance of certificates of need and develop health planning policies. Id. Ms. Hardy was the direct supervisor of Robert Maryanski, who was the head of the office of community medical facilities, and Robert Sharp, who was the head of the office of comprehensive health planning. T. 1024. Mr. Maryanski was the direct supervisor of Mr. Reid Jaffe who reviewed the applications in Hillsborough county. Preliminary decisions on the applications in this batch were normally due in November, 1986. It was the normal procedure at the Department to review applications for certificates of need in the following manner. First, an employee in the position entitled "medical facilities consultant" reviewed all applications in the batching cycle for a particular district or subdistrict and made recommendations on each application. These recommendations were then reviewed by his supervisor, the medical facilities consultant supervisor. The recommendations of the medical facilities consultant supervisor upon each application then went to Mr. Maryanski. In Hillsborough, Polk, Pinellas, and Lee Counties in the July, 1986, batching cycle, all reviewers found there to be a bed need. In the normal course of business, all reviewers forwarded through Mr. Maryanski and to Ms. Hardy recommendations that did not recommend the award of a certificate of need to Careage in any of these four counties. T. 1057, 1055, 1281-82. Mr. Maryanski told Mr. Jaffe to "find a way" to approve the Careage application in Pinellas County. T. 1283-84. The time of this communication is not in the record. At about the time that Careage applied for certificates of need (August or September, 1986), Ms. Hardy had dinner with the owner of Careage, Mr. Gene Lynn, Mr. Lynn's wife, and Mr. Ralph Haben. T. 1040. At that meeting, the representatives of Careage told Ms. Hardy that Careage operated nursing homes in other states in which care of good quality was provided. T. 1060. Mr. Haben is an attorney, and was then representing Careage. T. 1059. Mr. Haben and Ms. Hardy had been friends since the late 1970's, and in August and September, 1986, they had had lunch or dinner together socially four or five times. T. 1041- 49. In December, 1986, after Departmental staff had preliminarily recommended that Careage's applications be disapproved in the four counties in which was there was need, Ms. Hardy determined to ask Robert Sharp to review applications in the four counties. The result of Mr. Sharp's review was to recommend approval of the Careage application in the four counties. That recommendation was approved by Ms. Hardy. Mr. Sharp was responsible for health planning. He normally had nothing to do with review of certificate of need applications, although he had reviewed some hospital applications in the past. T. 1054. Ms. Hardy had come to the conclusion that Careage provided care of good quality. T. 1063. At the time she formed that opinion, Careage did not operate any nursing homes, and had not done so since 1982. Mr. Sharp understood that Ms. Hardy was impressed with Careage, but did not know the basis for such favorable impression. T. 940. Ms. Hardy told Mr. Sharp that she did not believe that the current method of comparative review of applications was adequate, and used Careage as an example of a best qualified applicant that was overlooked by the current method. T. 940. Mr. Sharp developed a method for comparative review of the applications in the batch for Hillsborough County and the other counties. The method has been referred to in the record as a matrix. Mr. Sharp simply selected certain aspects of the applications for comparison. Two types of information were selected: numerically quantified information, and "program characteristics," which called for a determination whether the selected item existed or did not exist in the proposal. The "matrix" also had a narrative for some of the applicants. Mr. Sharp used Careage as the standard of comparison for all other applicants in the comments section. There was no evidence that the items selected by Mr. Sharp were unreasonable or unfair. The items selected appear to be reasonably related to the task of comparing the virtues of the applicants. The items, for the most part, simply are based on information required by the Department in the application form. The matrix was found in September, 1987, to contain numerous factual errors, and the Department issued a revision. H.Q. Ex. 27. Need pursuant to rule 10-5.011(1)(k) Licensed beds in the district (LB) The number of licensed beds in the district (LB) as of June 1, 1986, was at least 5,964. T. 1706. This figure is derived by adding the 5,557 licensed beds shown on the August 25, 1986, semi-annual nursing home census report, H.Q. Ex. 16, to the 407 additional community nursing home beds that has been erroneously classified as sheltered nursing home beds. None of the other testimony credibly establishes this base figure. There is a dispute as to whether 96 additional beds at the Home Association should be considered licensed community nursing home beds as of June 1, 1986. The Home Association was founded in 1899. It is officially recognized that there was no certificate of need requirement in 1899. The Home Association has never received a certificate of need. Thus, it is inferred that the Home Association was never "issued" beds for "nonrestrictive use." At the time that the Home Association was licensed, there was no license category of "sheltered bed. Prior to 1982, there was no statute defining a "sheltered bed." T 1721-22. Thus, prior to 1979, the Home Association was not 1,issued" beds as "sheltered beds" or "for restrictive use". The Home Association is in the district and in the subdistrict, Hillsborough County. The Home Association had 96 beds in 1972, and had the same number on June 1, 1986. On or about August 20, 1986, HRS sent a letter to the Home Association. HQ Ex. 9. The letter stated that HRS records currently identified the Home Association as a "sheltered nursing home/continuing care facility licensed under Chapter 651, F. S.," but that HRS records did not indicate the date of the initial CON. The letter stated that the specific number of beds allocated to community and sheltered nursing home beds were listed below. At the bottom of the letter, HRS listed 96 beds in the column and line identified as current number of sheltered nursing home beds. The Home Association was told to review the data and make changes and return the letter to HRS. It further stated that a failure to respond would be interpreted as approval of the HRS listed bed allocations. The letter then provided four blanks for the Home Association to respond. The first two provided places to show the "corrected number of beds" both on a line identifying such beds as "community nursing home beds," and a line identify such beds as "sheltered nursing home beds." The Home Association left these lines blank. The third blank asked for the certificate of need number and date. The Home Association typed in: "The Home was founded in 1899; no certificate of need was issued." The fourth blank stated: "Sign Here if Corrections Requested." Initials appear in handwriting in that blank. H.Q. Ex. 9. The response of the Home Association was ambiguous. Having signed the fourth blank, thus seemingly communicating a desire to "correct" the form, the Home Association failed to tell HRS whether it wanted to correct the number of beds or the classification of the beds, or some combination thereof. HRS's need expert admitted that the only way one could settle the question would be to call the Home Association. T. 1724. The problem is further compounded by the way in which the letter from HRS was drafted. The letter did not ask the Home Association to provide information concerning the "historical utilization" of the 96 beds at the Home Association, and thus did not collect any information as to "historical utilization." See the last sentence of section 651.118(8), Fla. Stat. (1987). Instead, it told the Home Association that HRS records identified the Home Association as a sheltered nursing home/continuing care facility licensed under chapter 651. It also told the Home Association that "any nursing home bed located in a continuing care facility and not approved specifically as a sheltered nursing home bed and any nursing home bed located in a life care facility prior to 1979 shall be classified as a community nursing home bed." And the letter appeared to allow the Home Association an opportunity to request a "change in status" only if it had been issued a certificate of need as a community nursing home bed after 1979 and before 1982. It may be that when the Home Association wrote back that it had no certificate of need issued, and that it had been in existence since 1899, the Home Association was simply telling HRS that its beds fell in the category of automatically being community nursing home beds because "located in a life care facility prior to 1979." If the Home Association beds are counted as community nursing home beds, then those 96 beds are added to 5,964, and LB is 6,060. Licensed beds in the subdistrict (LBD) On June 1, 1986, there were 2,612 licensed beds (LBD) in the subdistrict, Hillsborough County. If the 96 beds at the Home Association are counted as community nursing home beds, then LBD is 2,708. Current populations (POPC and POPD) Whether POPC and POPD are the populations on January 1, 1986, or July 1, 1986 HRS divides the regulatory function with respect to certificates of need into two program offices. The office of comprehensive health planning (OCMF) is ordinarily responsible for writing the rules and developing the methodologies for the certificate of need program. It is also responsible for writing the state health plan. The office of community medical facilities (OCMF), which is now called the office of community health services and facilities, is normally responsible for making decisions upon applications for certificates of need. T. 929 (The transcript is in error on line 11; it should read OCMF), 930, 936, 1748, 1251. There are exceptions. T. 937 From 1984 through 1986, the office of comprehensive health planning routinely issued semiannual reports in which it calculated the need for community nursing home beds. H.Q. Exs. 12-18. T. 970-971, 1251. In each of these reports, bed need was projected for an established date. In each of these reports, the "current populations" (the base populations from which the need projection was made) were 3.5 years earlier than the date upon which need was projected. H.Q. Exs. 12-18; T. 1253. From 1984 through 1986, notwithstanding the fact that the semiannual report was based upon a 3.5 year period of need projection, the office of community medical facilities sometimes used a 3.0 year period of projection to actually issue certificates of need. T. 1254. That practice was not uniform within the office of community medical facilities. A number of certificate of need applications were issued based upon the calculations of need in the semiannual nursing home report, which used a 3.5 year period of projection. T. 560-561. It is officially recognized that several formal administrative hearings were settled using a 3.5 year period of projection of need. Health Quest Realty d/b/a Regents Park of Sarasota v. Department of Health and Rehabilitative Services, Final Order issued October 25, 1985 (CON number 3278), DOAH case number 84-3389, which was an exhibit in DOAH case number 86-0050, both cases which were before this Hearing Officer; Health Quest Corporation d/b/a Regents Park of Broward v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 2485, DOAH case number 84- 3297. But even that deviation was not uniform. It is officially recognized that in Manor Care of Hillsborough County v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1102, DOAH case number 86-0051, HRS proposed at the formal administrative hearing to use a 2 year period of projection, using 1986 populations as "current" populations, although the applications were filed in 1985, and need was being projected in 1988. See paragraph 18, findings of fact, of that recommended order, which was written by this Hearing Officer. See also T. 1290. It is also officially recognized that in Forum Group, Inc., et al. v. Department of Health and Rehabilitative Services, et al., 8 F.A.L.R. 5438, 5445, para. 15, the Department used January 1986, as the starting date for a projection to July, 1987, an 18 month period of projection. It would serve no useful purpose to review all the other orders in the files of the Division of Administrative Hearings. It may be concluded from the foregoing that the way in which HRS has interpreted the meaning of "current" populations in its nursing home rule in the period from 1984 to 1986 was inconsistent. In fact HRS did not uniformly use a 3.5 year period of projection as now urged by the Petitioners. Since it has been concluded as a matter of law that the values of POPC and POPD must be determined as of July 1, 1986, no findings of fact will be made as to the populations on January 1, 1986. Whether POPC and POPD are determined from the July 1, 1986, or the May 12, 1987 release of Governor's estimates and projections The Governor's estimates and projections of population are prepared by the Bureau of Economic and Business Research and the University of Florida. T. 240. The Governor's estimates are released twice a year. T. 241. A population estimate, such as POPC or POPD, is an educated guess as to current population size. T. 239. A population projection, such as POPA or POPB, is a mathematical prediction of what a future population size will be. T. 240. The Governor's population estimates are based primarily upon actual data collected with respect to residential electric hookups combined with local information about housing mixes and national data about household size, persons per household, and institutional or group populations. T. 240, 242. The information is gathered each year. T. 242. The Governor's population projections are based upon the most recent population estimate projected forward using assumptions about future migration, mortality, and fertility. T. 240, 242. The May 12, 1987, Governor's population estimates and projections were the official Governor's release on the date of the formal administrative hearing, and were then the most current release. T. 241. The May 12, 1987, Governor's population estimates and projections for July 1, 1986, and July 1, 1989, were more accurate than the release by the Governor on July 1, 1986 for the following reasons: The May 12, 1987, projection of populations on July 1, 1989, is more accurate because the projection only attempts to project two years into the future. The July 1, 1986, release tries to project three years into the future. Extrapolation is more accurate over a shorter period of time because the underlying assumptions upon which the extrapolation is based will be assumed to remain constant for a shorter period of time. Stated another way, fewer things typically go wrong with the assumption that assumptions will remain constant over a short period of time rather than a longer period of time. T. 243-244. The May 12, 1987, projection of populations on July 1, 1989, are based upon actual hard data (electric hookups) for July 1, 1986, projected forward. The July 1, 1986, projection of populations for July 1, 1989, was not based upon a population estimate, but was based upon a population projection as to the population on July 1, 1986, which itself was based upon electric hookup data from an earlier period. T. 244. (This is also the reason that the May 12, 1987, estimate of July 1, 1986, populations, is more accurate than the projection of that population released on July 1, 1986.) The May 12, 1987, projection of populations on July 1, 1989, are based more current (actual 1986) figures upon which the extrapolation is made: actual levels of fertility, mortality, and migration for 1986, as well as 1980 through 1985. The July 1, 1986, release did not have this better data available, and had to rely on figures for only 1980 through 1985. T. 244. The district has grown at about 2.9 percent a year from 1980 to 1986. The July 1, 1986, release projects a rate of growth in each year from July 1, 1986, to July 1, 1989 of only 1.6 percent, or only one-half of the actual observed rate. There is no basis to conclude that the district growth rate in the period 1986-1989 will be one-half the rate observed in the prior six years. T. 245. The July 1, 1986, release bases its projection of July 1, 1989, populations upon an extrapolation based in part upon mortality rates from 1980 mortality tables. However, the mortality rates for the age groups involved, ages 65-74 and 75+, have substantially declined since the 1980 tables were compiled. T. 247-248. Elfie Stamm is Supervisor of the HRS Health Care Facilities and Services office. That office is responsible for all HRS health planning activities, including development of regulations for the certificate of need program, issuance of health policies governing the certificate of need program, and development of the state health plan. Ms. Stamm thought that the May 12, 1987, release of Governor's estimates and projections of populations was more accurate than the July 1, 1986, release because it was based on more up-to-date data. F.G. Ex. 15. The effect of selecting the May 12, 1987, release of populations, rather than the July 1, 1986, release upon the net need projected for the subdistrict in July, 1989, by HRS's rule is exceptionally dramatic: if the July 1, 1986, release is used, the net bed need is 143, and if the May 12, 1987, release is used, the net bed need is 300, assuming other factors are held constant (the projection period and the Home Association beds). HQ Ex. 4. Thus, use of the May 12, 1987, release of populations reveals 100 percent more bed need in 1989 than use of the July 1, 1986, release. HRS presented only one justification or basis for its policy of using the July 1, 1986, release of population estimates and projections: those were the most current estimates and projections at the time the applicants filed their applications and subsequently when the agency conducted its review of the applications in the batching cycle and developed its proposed agency action. T. 1709. The July 1, 1986, release of population estimates and projections was not available, however, when the applicants in this batch had to file their letters of intent. T. 1286. Based upon the Governor's estimates of population released on May 12, 1987, the estimated population on July 1, 1986, for age 65-74 (POPC) was 134,968, and for age 75+ (POPD) was 94,402. H.H. Ex. 6. Projected populations on July 1, 1989, POPA and POPB Based upon the Governor's projections of population released on May l2, 1987, the projected population on July 1, 1989, for age 65-74 (POPA) was 149,771, and for age 75+ (POPB) was 108,400. H.H. Ex. 6. The occupancy rate The occupancy rate for the 2,612 licensed community nursing homes within the subdistrict for October, 1985, through March, 1986, was 94.18 percent. T. 1707. If the 96 nursing home beds at the Home Association are counted as licensed community nursing home beds within the subdistrict, the occupancy rate within the subdistrict for October, 1985, through March, 1986, was 94.29 percent for these 2,708 beds. This is derived by averaging the occupancy rate of the Home Association for the six month period, which is 97.225 percent, see T. 1725, and then factoring the two rates together as follows: (97.225 X 96/2708)) + (94.18 X 2612/2708)= 94.29. The date for determining licensed beds and approved beds for purposes of determining net need in the final calculation The number of approved beds was 368 whether one relies upon the date that the supervisor signed the state agency action report, T. 1708, or August 25, 1986, which is the date of the semiannual nursing home census report and bed need allocations, H.Q. Ex. 16. It appears that all parties agree to use of 368 for AB in the formula. See T. 1708, 437; F.G. Ex. 8. Since that is the case, the following findings of fact are made in the event that the Hearing Officer has overlooked evidence on this point in this voluminous record. HRS relies again on incipient policy for the date of determination of the number of approved beds. That policy is to determine the number of approved beds in the subdistrict on the date that the supervisor signs the state agency action report, a date different from the date that licensed beds are determined. T. 1708, 1716. Pursuant to this policy, the date for determining approved beds will vary, but will always be later than the date of determining licensed beds. T. 1291. The basis for this incipient policy was not explained in this record. T. 1698-1711, 1711-1728, 1291-1295, 1746-1764. Mr. Jaffe, the supervisor in this case, first signed the state agency action report in mid-November, 1986. T. 1295. Subsequently, however there were several superseding state agency action reports, and the report signed originally by Mr. Jaffe was never issued. As a result, the last state agency action report in this case was not issued until August 18, 1987, over one year after the initial applications were filed. This was an irregular procedure, and not the way state agency action reports normally are issued. T. 1714. Moreover, the state agency action report issued in August, 1987, did not have a line or signature for the supervisor, Mr. Jaffe, to sign. T. 1292; F.G. Ex. 5. Changes to the application of Forum Group Forum Group's original application for certificate of need in this case is F.G. Ex. 3. It should be noted that this exhibit contains some revisions to tables that were filed by Forum Group before HRS deemed application to be complete, and thus superseded earlier tables in the same exhibit. At the formal administrative hearing, Forum Group submitted an "update" of its application for certificate of need which was prepared about a year after the initial application, as amended, was filed. The update is F.G. Ex. 6. T. 43. Table 7 of both applications contains Forum Group's plan for utilization by class of pay. Table 7 in the original application was for the first year of operation. Table 7 of the update is for the second year of operation. Table 8 of the application is a list of projected patient charges by reimbursement or charge type. Table 8 of the update is significantly different from the original application. Table 8 of the original application, F.G. Ex. 3, listed charges that were consistent with then current charges at other Forum Group facilities. T. 185. The update is for an effective date two years later. Although Forum Group presented evidence that the charges in the updated table 8 were reasonable, T. 189, it claimed that the above increases were solely due to the two year difference in the tables. T. 195. There is also evidence that the revised charges in table 8 was based upon a telephone survey conducted of subdistrict nursing homes three months prior to the formal administrative hearing. Forum Group was unable to provide any evidence as to whether the charges in the updated table 8 were based upon data that was not available to Forum Group when the original table 8 was prepared; moreover, Forum Group did not prove that the data was such that Forum Group could not, and reasonably should not, have been expected to have gathered for its original application. T. 198. The revisions of table 8 were not based upon ordinary inflation. Forum Group assumed in both the original table 8 and the revised table 8 that the inflation rate impact on charges between the first and second year of operation would be only 3.5 percent, T. 199. Forum Group's expert on charges was of the opinion that the inflation rate for expenses would be about 3.5 percent. T. 200-201. The increases in charges shown on table 8 of the update are much greater than expected inflation. For example, the charge for Medicaid ICF semiprivate rooms increased from $50 to $63, an increase of 26 percent. The charge for private pay ICF private rooms increased from $75 to $115, an increase of 53 percent. Table 10 of the application is a projection of patient days and occupancy percentages for each month over the first two years of occupancy. The revision to table 10, F.G. Ex. 6, were prompted by the delay in the case, resulting in an initial opening date two years later. The revisions to table 10 in the update were also based upon the prior experience of Forum Group and a telephone survey of subdistrict nursing homes to obtain more current fillup and occupancy rates. T. 39, 79-80, 84-87. The telephone survey was conducted after the initial application was deemed to be complete. Table 11 of the application sets forth the "manpower" requirements, specifying full time equivalents and annual salaries. Revised table 11 in F.G. Ex. 6 contains changes both in annual salary levels and in FTE's. The dietary supervisor and maintenance supervisor are new positions in the revised table 11, and would be shared with the retirement living facility. These positions could have been reported in the original table 11. T. 164; F.G. Ex. 6. The revised table 11 reports positions for utility workers, positions not in the original application but which could have been reported in the original table 11. T. 166. The revised table 11 has fewer registered nurses and licensed practical nurses than the original application. This change was based upon Forum Group's decision that this new staffing pattern would be more efficient. While the testimony attributed this to a difference in projected occupancy in the first year (95 percent instead of 74.4 percent), this is not a plausible reason for changing the number of RN FTE's from 5.3 to 4.3, or the number of LPN FTE'S from 3.6 to 2.8, since one would expect a need for more nursing at higher occupancy. The revised staffing pattern could have been contained in the original application. T. 166, 170. The increases in salaries reported in the revised table 11 were caused in part by inflation (a later opening date). T. 161-62. The revision in salaries was based upon a survey of salaries conducted a year after the application was filed, T. 162. Considered in the new survey was new information concerning federal requirements for professionals that was estimated to make the professional hiring shortage even worse. Id. It is concluded that the basis for the revisions to the salaries was market data that could not have been available to Forum Group when it filed its original application. Table 25 of the application covers estimated project costs. Revised table 25, F.G. Ex. 6, contains changes of two types: shifts of costs from one accounting line to another, and new estimates of costs based upon a later date of construction. T. 66-67, 91-94. The new estimates of costs were based upon inflation and the current construction experience off Forum Group, both of which would not have been available to Forum Group when it filed its initial application. T. 66-67. The shifts in costs by accounting line (even though one shift was to operating costs), considered alone, did not substantially change the total project cost. T. 91-94. The construction costs contained in the revised table 25, F.G. Ex. 6, are projected to be $1,654,826, which is 12 percent greater than the $1,466,500 originally projected. This new estimate is based upon inflation, current construction experience, and a decision to reduce some less essential space to lower costs. T. 66-67, 1461-65. The inflation rate is estimated to be higher than 3.5 percent in 1990, and the date of commencement of construction is inferred to be two years later than the date assumed in the original application. The revised projection is also more conservative, based upon Forum Group's analysis of current market data. The revised construction cost is thus adequately based upon new data that was not available to Forum Group when it filed its original application. As a result of inflation, Forum Group decided to reduce some space that was less essential. The reduction of space is reflected in revised tables 17 through 20 of F.G. Ex. 6. Forum Group's initial application (F.G. Ex. 3) did not mention or discuss patient treatment plans, patient rights, patient councils, or Alzheimer's programs. It did, however, list 10 special areas of nursing that it would provide, many of which are in the subacute area. See, e.g., ventilator care and compare T. 150. The revised pro forma of operating expenses projects total operating expenses in the first year of $923,153 and $1,256,991 in the second year. F.G. Ex. 6. The original application, as revised before deemed complete, reported total operating expenses of $659,900 and $740,693, respectively, for these same projected years. The new information in the revised pro forma was explained as based upon a projection of higher use by private pay patients and faster fillup, as well as some inflation. T. 202. The change clearly is not explained as a simple matter of inflation, since the increases are about 50 percent in each of the years. T. 201-202. Changes to the application of Health Quest The original Health Quest application is H.Q. Ex. 1, as amended by H.Q. Ex. 2, and is for an 88 bed community nursing home facility. Health Quest submitted a revised application for 60 beds dated a year later, in September, 1987. H.Q. Ex. 3. Table 8 of the application is the list of projected charges by patient type. The revised application, H.Q. Ex. 3, increased charges from 25 to 34 percent. This new information was not based solely upon inflation assumptions, but was based upon increased assumptions about operating costs, and a decision to make a more conservative projection. T. 629, 690-91. Health Quest did not prove that these assumptions were based upon data not available when the original application was filed. Table 11 of the application lists manpower by position and projected annual salary. The revised table 11, H.Q. Ex. 3, increases the numbers of registered nurses and licensed practical nurses from the original application. The new data is based upon the experience of Health Quest in the year following the filing of the original application. T. 630. The testimony on pages 688-89 of the transcript is not inconsistent with the testimony on page 630. It is evident that a change in planning took place, and that the change in planning was based upon new experience. Table 17 of the revised Health Quest application, H.Q. Ex. 3, does not have six 3 bed rooms which had been planned for the facility in table 17 of the original application, as amended, H.Q. Ex. 2. This new information was not caused by the reduction of the application from 88 beds to 60 beds. Health Quest did not credibly prove that its decision to delete 3 bed rooms from its project was based upon data that it could not have had when it filed its original application. T. 630-31. Table 18 of the revised application, H.Q. Ex. 3, changes the square footage of 1 bed rooms from 150 to 216. Health Quest did not credibly prove that its decision to make this change was based upon data that it could not have obtained when it filed its original application. T. 632-33. Changes to the application of Careage Careage presented new information at the hearing which consisted of Careage Exhibits 18-22 and 24-25. The changes to these exhibits were based solely upon a small (3 percent) inflation rate or a different starting date. T. 1570-85. There was also a decrease in utility rates of an apparent few thousand dollars. Compare C. Ex 25 to C. Ex. 3, attachment 12. T. 1583-85. The new projection of utility rates was shown to be based upon new information from the utility company, and new heating and cooling technology. T. 1584. Changes to the application of Hillsborough Healthcare Hillsborough Healthcare did not submit any changes to its application. The merits of the Careage application Credibility of the Careage application Credibility of Mr. Gentle Russell Gentle is Careage's Vice President for nursing home operations, and is responsible for development of the nursing home at issue in this case, and operation of the facility after it opens, as well as development and operations of other Careage nursing homes. T. 1487. The application filed by Careage in this case was prepared by Mr. Gentle, with the exception of the section on need. T. 1491. Mr. Gentle was called as an expert witness for Careage to provide opinion testimony to substantiate the Careage application and to prove the nature of the facility that Careage states it would build and operate if granted a certificate of need. T. 1491-93. Mr. Gentle testified twice that he had a bachelor's degree with a major in accounting from the Alaska Methodist University. T. 1487, 1493. This testimony was presented in order to have Mr. Gentle qualified as an expert witness. Mr. Gentle was tendered as an expert in several areas, including nursing home finance. T. 1493. Upon voir dire examination, and after it became obvious that counsel conducting the examination had investigated Mr. Gentle's academic credentials, 1493, Mr. Gentle admitted that he did not have a degree in accounting, but that his degree had been in science. T. 1496. A motion was made to have Mr. Gentle precluded from testifying as a witness due to his untruthful testimony. T. 1497-98. The motion for the sanction of preclusion of testimony was denied, but the tender of expertise was denied for lack of credible evidence in the record as to expert credentials. T. 1499, 1504, 1512-13, 1514-16. Since the witness had intentionally lied about his college education, a matter of importance in determining expertise, the remainder of the witness's testimony as to his experience and expert credentials was tainted and not credible. There was no independent evidence of the training and experience of the witness, other than from his own testimony. The tender of expertise thus was denied for lack of credible evidence of expertise in the record. If Mr. Gentle's testimony concerning his experience in nursing home development had been credible, the evidence of such experience was not sufficient to qualify Mr. Gentle as an expert in nursing home development. Since 1985, he had been fully responsible for development of only two nursing homes, and assisted in the development of five others. T. 1509, 1489, 1514-15. If Mr. Gentle's testimony concerning his experience in nursing home operation and administration had been credible, the evidence of such experience was not sufficiently detailed to qualify him as an expert in nursing home operation and administration. T. 1513-15. Mr. Gentle had never served as a nursing home administrator. T. 1494. Mr. Gentle testified that in 1972 he went to work for the State of Alaska as an auditor in the Department of Health and Social Services. He further testified that he worked his way up through the sections and became chief Medicaid auditor for the state of Alaska. T. 1487. The employment record for Mr. Gentle, however, from the State of Alaska was admitted into evidence without objection. H.H. Ex. 33. That record shows a starting date of work in 1973, not 1972. More important, it does not show continuous employment consistent with the claim of having worked "up through the sections." The record shows no employment of Mr. Gentle by the State of Alaska for 2 and 1/2 years, from July, 1973, through March, 1976, and the only employment is in temporary positions, not in permanent positions expected to have been in the "sections" Mr. Gentle "worked up through." Finally, the employment record only shows Mr. Gentle in a position as an accountant IV (temporary) for a 9 month period in 1976. Mr. Gentle's testimony that he obtained the position of chief Medicaid auditor for the State of Alaska after working his way up through the sections is not credible. Mr. Gentle testified that C. Ex. 15 was an excerpt from the magazine "Contemporary Long-Term Care," and that this excerpt was the section of the magazine that included an award. T. 1541-42. He testified that all of the narrative in the exhibit was part of the magazine and the award. T. 1542. This is testimony was incorrect. The last page of the exhibit contains narrative that is advertisement prepared by Careage. The typeset is identical to that in the interior pages as well. Thus, pages 2-4 of the exhibit are not excerpts from the magazine. Mr. Gentle did not choose his words with care as he testified. Table 11 (projected salaries and FTE's) is a part she original application filed with HRS in July of 1986. Mr. Gentle testified that in part the projected salaries were based upon salaries that "Careage is paying to its existing staff." T. 1557. At that time, Careage did not operate any nursing home. Mr. Gentle could have meant that these were salaries in nursing homes leased out by Careage, but his choice of words was misleading. Whether Careage will operate the facility Careage was started in 1962, and since that time it has constructed more than 270 new hospitals, nursing homes, and related facilities. Generally, Careage has built facilities for others to operate. T. 1516-17. A few of these (seven were named, T. 1520) may have been operated by Careage, but the vast majority were not. T. 1591-1520. In 1982, Careage ceased all nursing home operations. T. 1592. From 1982 through 1985, Careage did nothing but hospital development. T. 1519. In 1985, Careage decided to build and operate nursing homes, and in March 1985, hired Mr. Gentle to set up the operating arm of the corporation with respect to nursing homes. T 1513, 1518. In July, 1986, when Careage filed its application for a certificate of need, Careage did not operate any nursing homes in the country. T. 1595. It appears that the first nursing home now operated by Careage was opened in December, 1986. T. 1610. At the time of the formal hearing, Careage operated and managed three nursing homes on its own, and jointly managed three others. (Another was said to be "jointly operated by others.") T. 1519-20. All of these facilities are in western states. In the letter of intent, Gene D. Lynn, the proposed owner of the proposed facility, and the sole owner of Careage, stated his intent to operate the proposed nursing home in Hillsborough County. C. Ex. 3, attachment 8. The application, C. Ex. 3, asserts on page 4-24: Each community and situation is unique. There are times in which we operate directly through Healthco Management (a wholly owned subsidiary). In all cases, we establish the operating procedures and pro forma and closely monitor each facility. This strategy has generated such a successful program that, in twenty-four years of business, we can boast at never having missed a debt service payment nor have we had a single incident of governmental intervention into our operations. (E.S.) The clearly intended implication of the foregoing portion of the application is that for 24 years, Careage has either operated its nursing homes (which in the majority of cases was untrue) or, if it did not operate its nursing homes, it "closely monitored each facility." The statement in the application that Careage closely monitors each facility is not true, at least with respect to currently leased facilities. Mr. Gentle, who is in charge of nursing home operations for Careage, does not routinely review state licensure survey reports for leased facilities. T. 1842. Leased facility reports may be reviewed by the Careage leasing section, which is separate from nursing home operations. T. 1842. The only monitoring that Careage does with respect to leased facilities is to step in if there is government intervention. T. 1843. Careage has retained the contractual right to intervene in the operations of a leased facility only "in cases of severe problems in a facility." (E.S.) T. 1518. The statement in the application, P. 4-24, concerning the history of Careage as to operation or supervision of nursing homes is misleading. As will be discussed ahead, Careage representatives were either confused about the operation of nursing homes by Careage (Dr. Etten) or used words in a manner that misrepresented the operational status of Careage (Mr. Gentle and representatives of Careage at a dinner meeting with Ms. Hardy). These misleading statements, coupled with the prior history generally of not operating nursing homes, lead to the conclusion that Careage has not proved that it will operate the proposed nursing home in Hillsborough County by a preponderance of the credible evidence. Substantive aspects of the application General provisions Careage's original application proposed to construct 120 beds, 10 of which would be a subacute unit, 21 of which would be an Alzheimer's unit, and the remaining 89 beds would be general SNC/ICF (skilled/intermediate) nursing care beds. C. Ex. 3, P. 2-1. Four of the ten subacute unit beds would be designated for neonates and technology dependent children. C. Ex. 3, P. 3-6; T. 1522. The 10 bed subacute unit is proposed to provide 24 hour nursing care patients who are recovering from strokes, craniotomy patients, comatose victims of accidents, and others suffering serious chronic maladies. T. 1212. Nursing services to be provided include tube feedings, ventilators, tracheostomies, continuous intravenous infusion, hyperalimentation, total parenteral nutritional care, and inhalation therapy. T. 1213. The program proposed by Careage conforms to professional standards for such a program. Id. The 21 bed Alzheimer's disease unit is designed and intended to provide an environment adapted for the special needs of those patients. The design and program emphasizes low stimulation, safe ambulation, and simplicity to minimize confusion. The design is considerably more therapeutic for such patients than commingling such patients among other patients in an ordinary nursing home setting. T. 1206-12, 1432, 1474-75. The precise number of skilled and intermediate care nursing beds is unclear. At least 39 beds will be skilled nursing, and 21 beds for the Alzheimer's patients. T. 1136. Careage intends to concentrate on skilled nursing care rather than intermediate care. T. 1523, 1678. Careage does not intend to serve the market for intermediate care. Id.; C. Ex. 3, attachment 8. Careage did not include adult day care in its application, T. 1142, 1592, because it takes the position that adult day care does not require a certificate of need. T. 1592. Careage in fact will not offer adult day care. T. 1192. Careage intends to provide respite care at the facility. T. 1531. Careage estimates that 37 percent of its patients will be Medicaid patients. T. 1361. Quality assurance The nursing quality assurance programs described in the application of Careage are adequate, and would be adequate if implemented by Careage. T. 1221. Dr. Etten testified for Careage concerning her visit to two nursing homes owned by Careage. She did not express an opinion that the Careage quality assurance program in fact would be implemented based upon these visits. She did not describe the current operation of any Careage quality assurance program. She simply stated that she was favorably impressed by the physical environment in those two nursing homes. T. 1221-26. One of the facilities was in Salt Lake City, Utah, and there is no evidence in the record that Careage operates that facility. See T. 1519-20. Indeed, Dr. Etten later admitted on cross examination that she knew the Utah facility was not operated by Careage. T. 1234. Throughout the application process, Careage tended to misrepresent its status as an existing operator of nursing homes providing care of good quality. As discussed above, in the meeting in August or September, 1986, attended by Mr. and Mrs. Lynn, Mr. Haben, and Ms. Hardy, Careage's representatives told Ms. Hardy that Careage operated nursing homes in other states in which care of good quality was provided. T. 1060. The application, at page 4-24, appeared to assert that Careage had 24 years of experience operating nursing homes. Mr. Gentle represented that proposed salaries were based upon salaries in nursing homes currently operated by Careage. These statements were not true. Careage leased facilities, but did not operate any facilities at that time of the application, and its history had been primarily in the development of health care facilities for operation by others. Careage did not exercise close operational control of the leased facilities. And Dr. Etten seemed unconcerned as to what entity was operating the Utah nursing home that she visited. Her failure to do so caused her testimony to appear to be representative of the quality of care actually provided at Careage operated nursing homes. For these reasons, Careage did not prove by a preponderance of the credible evidence that it has had a history of operation of nursing homes, that it has had a significant history of providing nursing care of good quality, that it has had substantial experience in management of quality assurance programs, or that it would in fact implement the quality assurance program reviewed by Dr. Etten. Staffing Staffing, particularly nursing staffing, is established based upon the assumption that most of the beds at the Careage facility will be at least skilled nursing care beds, and some will be Alzheimer's disease beds or subacute beds, including beds for technology dependent children. Attachment 14, Ex. 3. The nursing staffing proposed by Careage is adequate. T. 1216. Other staffing proposed by Careage is based upon staffing at other facilities owned by Careage and standards in HRS rules. T. 1557, 1559. It is concluded that other staffing is adequate. The projected annual salaries for staff are reasonable. T. 1648, 1656, 1680-81. The objection to this testimony, taken under advisement, was overruled. T. 1687. The witness amply demonstrated expertise with regard salary levels. Construction and facility design The building proposed by Careage would be one story and have 45,500 square feet for 120 residents, or a total of 379.17 gross square feet per bed. T. 1133. The application represents that the net square foot area for living space in 2 bed (semiprivate) rooms is 283 to 295 square feet. C. Ex. 3, table This was an exaggeration. The actual square footage was shown to be substantially less upon cross examination: 213.75 square feet of living space for semiprivate rooms. This figure is based upon the fact revealed upon cross examination that the length of the room for purposes of calculating gross square feet is 23.5 feet instead of 24 feet, 4 inches. This correction reduces gross living square footage for the living area to 305.5, and net to 213.75. The floor plan, site plan, and space programs in the proposed design are adequate and will meet or exceed all requirements of Florida law. T. 1137. The nursing home floor plan does not include a space for adult day care. T. 1142. Careage projects that construction costs will be $56.77 per square foot. This estimate is in line with estimates of other applicants and is reasonable. T. 1176-78. Construction costs equate to $21,526 per bed. Careage did not include an estimate of costs for equipment for technology dependent children, but plans to cover this with funds estimated for contingencies. T. 1195. The amount of such costs is not in evidence. Id. The estimate of overall project costs, table 25 of the application, Ex. 3, is reasonable. T. 1171-76. Total project costs are estimated to be $4,150,000, or $34,583 per bed. The project cost includes $515,000 for 3 to 5 acres of land. T. 1546. The adequacy and appropriateness of the proposed equipment for the facility was not established by expert testimony. See T. 1179. Availability of resources Gene D. Lynn has an extensive history in successfully financing and constructing health care facilities, including nursing homes. T. 1516-17. Gene D. Lynn has more than adequate lines of credit to obtain complete financing for this project. T. 157 6- /7 Existing lines of credit, including SeaFirst, are available up to at least $9 million. T. 1576. The objection as to hearsay, which was sustained, was sustained only as to what unnamed persons with Washington Mutual "indicated." The remainder is not hearsay. It is testimony of the existing state of facts within the personal knowledge of the witness. The foregoing findings of fact are based upon testimony of Mr. Gentle, whose credibility as a witness was partially impeached as discussed in findings of fact above. Mr. Gentle's credibility problems, however, are not sufficient to compel the disregard of his testimony as to the general financial condition of the Lynns and Careage. Mr. Gentle demonstrated that his testimony as to his own expert qualifications was unworthy of belief, and he demonstrated that some portions of his testimony concerning the features of the proposed facility were exaggerated or incorrect. But this is not sufficient evidence to conclude that his testimony as to general financial resources of Careage is an untruth. It is noted that there is no evidence in this record to suggest in any manner that Gene Lynn does not have the net worth set presented in his unaudited financial statement. That net worth is over $45 million. If this were a substantial untruth, surely one of these highly competitive applicants would have presented evidence on the point. Financial feasibility The proposed project is financially feasible in the short term. T. 1632-39, 1686. Careage's projections as to patient mix (by payor type) and expected fillup (utilization) are reasonable. T. 1640- 42 The charges proposed by Careage are reasonable. T. 1642-45. Careage's projections as to operating expenses are reasonable. T. 1648, 1656-57. The proposed project is financially feasible in the long term. T. 1647, 1649-50, 1686. The Forum Group application General provisions Forum Group is a national company which owns and operates 11 retirement living centers and 22 nursing homes in a number of states. The retirement living centers are independent rental apartments which do not require entry fees. T. 20; F.G. Ex. 3. The Forum Group proposal is to construct and operate a 60 bed community nursing home in conjunction with a retirement living facility of 120 apartments and an adult congregate living facility of 30 units. F.G. Ex. 3, attachment 1. The community nursing home section would offer all services required for provision of skilled nursing care, intermediate nursing care, respite care, and adult daycare. T. 27. Forum Group does not propose to provide a separate Alzheimer's disease unit. The estimated total cost of the nursing home portion of the project is $2,673,084. F.G. Ex. 6, table 25. This is $44,551 per nursing bed. Forum Group will accept Medicare and Medicaid patients. T. 27, 210. Quality assurance Forum Group has never had a license denied, revoked, or suspended, and it has never had one of its facilities placed into receivership. T. 158. The proposed facility would provide 24 hour supervision by either a registered nurse or a licensed practical nurse, or by both. T. 140. The staffing levels proposed in the original application are adequate. T. 153. Staffing levels would vary according to the needs of the residents. T. 134. Medications would be distributed by unit dose. T. 139. Forum Group would implement an adequate plan for quality assurance audits. T. 141-43. The plan is in writing, is in use in other Forum Group nursing homes, and covers all aspects of the operation of the nursing home that are relevant to the quality of care received by nursing home residents. Forum Group would check staff qualifications prior to employment and would provide ongoing staff training. T. 149. Forum Group would provide residents with written statements of patients' rights upon admission to the facility, and would have an independent patients' rights council. T. 147- 48 Forum Group provides reasonably adequate nursing care in its existing nursing homes, and would do so in the proposed nursing home. T. 31-32, 158. Staffing The staffing proposed for the facility, and projected salaries, are reasonable and adequate. T. 151-154. Forum Group reviews the qualifications of applicants to insure that applicants are qualified for the job. T. 149. Construction and facility design Forum Group's community nursing home facility will have about 24,500 square feet. This is reduced from the original 27,000 due to inflation in costs. Patient room areas were not changed. T. 1453. This is 408 total gross square feet per bed. The net living area square footage allocated to semiprivate 2 bed rooms is 228 square feet. F.G. Ex. 3. The square footage allocated in both versions is reasonable. T. 1445, 1453. The building would be wood frame with brick veneer. It would have heavy roof insulation, double glazed windows, and a heat pump to conserve energy and to operate with less utility expense. T. 1454. The construction costs, including equipment costs, estimated for the revised project, F.G. Ex. 6, table 25, paragraph d., are reasonable. T. 1453. The costs as originally projected were also reasonable. T. 1446. The proposed facility would comply with state and federal standards for construction. T. 1456. The 60 bed community nursing home would require two to three acres of land. T. 1455. The $400,000 estimated to be needed to acquire a suitable site is reasonable for location in the northwest portion of Hillsborough County. T. 54, 59. Availability of resources Forum Group will attract suitable health care professionals, despite the shortage in Hillsborough County, by offering attractive fringe benefits, including attractive work schedules and continuing education. T. 156-57. Forum Group has the financial resources to construct and begin the initial operation of the facility. T. 182-84. Financial feasibility The project is financially feasible in the short term. T. 182-84. Due to its corporate size and current operation of a number of nursing facilities, as well as the size of the combined planned facility in Hillsborough County, Forum Group will be able to purchase supplies and other operational necessities at a favorable low cost, thus saving on operational expenses. T. 156. The estimated fillup rate in the original application was about 75 percent occupancy after the first year and about 86 percent occupancy after the second year. T. 37. Given the recent experience in Hillsborough County of occupancy around 95 percent and very fast fillup rates for new nursing homes, T. 116-18, a projection of 86 percent occupancy in the second year is probably too low. For purposes of determining financial feasibility, it is reasonable but conservative. T. 37. The project is financially feasible in the long term based upon the pro forma contained in the original application. T. 186-88; F.G. Ex. 3. The merits of the Hillsborough Healthcare application General provisions Hillsborough Healthcare, Ltd., is a Georgia limited partnership owned by Stiles A. Kellett, Jr. and Samuel B. Kellett. Hillsborough Healthcare, Ltd., would own the proposed facility. T. 419. The facility would be managed by Convalescent Services, Inc., (CSI) which is also owned by Stiles A. Kellett, Jr. and Samuel B. Kellett. CSI was formed in 1978 to own and operate extended care facilities owned or controlled by the Kelletts. T. 420. CSI currently operates 21 nursing homes and 3 retirement homes in 7 states. Six of the nursing homes and 2 retirement centers are in Florida. Id. Centralized management is provided by regional offices in Sarasota, Houston, Texas, and Huntsville, Alabama. T. 420. The long range plan of CSI is to acquire and develop nursing facilities in locations where CSI already has a management structure nearby. T. 421. Hillsborough Healthcare proposes to construct and operate a single story combination nursing home, consisting of 120 beds, and an adult congregate living facility, consisting of 60 beds. H.H. Ex. 1; T. 423. The 120 nursing beds would consist of 60 skilled nursing beds and 60 intermediate care beds. The 60 skilled nursing beds includes a distinct 24 bed unit for Alzheimer's disease patients. Id. The application estimates the total project cost to be $5,032,475, with $3,367,668 of that cost attributed to the nursing facility portion of the project. H.H. Ex. 1. This is $28,063.90 per nursing bed for 120 beds. The facility would have a rehabilitation program, activities, and social services programs. T. 423. The Hillsborough Healthcare facility intends to make its facility available as a training facility for medical and nursing schools. T. 461. The facility would participate in both the Medicare and Medicaid programs, and estimates about 30 percent Medicaid utilization. T. 423. Hillsborough Healthcare would accept partial approval of only 60 nursing home beds. T. 490. In that event, the 60 bed nursing facility (combined with the 60 bed adult congregate living facility) would offer the same services, including the 24 bed Alzheimer's disease unit. T. 390, 473. Access as a patient to the facility will be on an equal basis, without distinction as to race, religion, or sex. The facility will be constructed to provide handicapped access. T. 462-63. At least 30 percent of the patients served by the Hillsborough Healthcare facility would be Medicaid patients, and the percentage may well be higher. Currently, 17 of the 21 CSI nursing homes participate in state Medicaid programs, and all of the Florida nursing homes have Medicaid patients. All new nursing homes developed by CSI participate in both Medicaid and Medicare. Many of the 17 nursing homes were not Medicaid certified prior to acquisition by Hillsborough Healthcare, but are now certified and participate. CSI has never decertified one of its nursing homes as a Medicaid provider. T. 424. Existing CSI managed facilities in Florida are currently experiencing a 40 percent Medicaid utilization, which includes at least one in Hillsborough County. T. 1798. B. Quality assurance Sixteen of the 21 CSI managed nursing homes are in states that use a licensure rating system, and of these, 14 are have achieved the highest rating. T. 422. No CSI facility has ever had its licensed revoked or has ever been fined. Id. One-half (three) of CSI managed Florida facilities are rated superior. T. 319. Centralized management and location of facilities so that management resources can be shared should enhance the quality of care at the proposed nursing facility. The quality assurance program will be guided by a lengthy policies and procedures manual that is in use in other Florida CSI managed nursing homes. H.H. Ex. 11; T. 313. CSI employs a full time Florida registered nurse to make visits at least once a month to CSI facilities in Florida as a part of the quality assurance program. T. 316. The nurse conducts quality of care inspections, using measuring instruments developed by the CSI quality assurance program, and teaches new methods to improve the quality of health care. T. 317. Hillsborough Healthcare will have an adequate quality assurance program. T. 310. C. Services and programs CSI would provide programs for care of Alzheimer's disease patients, respite care, and adult day care. Respite care is temporary nursing care, for 16 days or less, to give the family a temporary rest from home care, and to improve the condition of the patient. T. 300. Adult day care is care only during the day to enable a family member to work. T. 301. Both types of care provide an opportunity for the elderly patient to receive nursing services, including the programs and medical care available at the nursing home, while giving home care providers a rest or needed free time. The Alzheimer's disease unit of 24 intensive care nursing beds would have operational and design features to meet the special needs of those patient. The medical director is to be board certified with a specialty in geriatrics and training with respect to Alzheimer's disease. Activities will be altered to accommodate the limitations of those patients. Staffing will be at a higher level, and staff will be specially trained to meet the needs of those patients. The facility will be designed with a secure courtyard, special dining room, and wander guard, to allow movement without physical or chemical intervention or restraints. T. 299, 289. CSI varies the activities programs at its facilities to match the needs of patients. T. 270. Activities for Alzheimer's patients, adult day care and respite care residents are designed within the limitations of those patients. T. 289-90. CSI typically provides activities that provide small and large group interaction, socialization, mental and physical activity, recreation, and religious activities. T. 270. The activities that have been implemented or suggested for CSI facilities are innovative, varied, and appear to be the result of much thoughtful work. T. 273-74; H.H. Ex. 1, pp. 115-123 H.H. Ex. 8. Some of CSI staff involved in activities have received awards for their work. T. 288. The proposed facility would provide activities similar to the activities provided at other CSI facilities. T. 274. CSI has employed an expert in community relations and activities programming to coordinate community relations, activities, and the volunteer program at all CSI nursing homes, including the proposed facility. That expert is the author of pp. 114-121 of the application, H.H. Ex. 1. The expert would recruit and train activities and community relations directors at the proposed facility. T. 287. CSI publishes a newsletter containing an exchange of program information, and encourages each nursing home to publish its own newsletter. Some do. H.H. Ex. 10; T. 284-85. Volunteers are encouraged to participate in nursing home activities. 272. CSI has compiled a package of volunteer information for use in development of a volunteer program at each nursing home. H.H. Ex. 9. Volunteers increase resident participation in programs, bring fresh ideas, and causes there to be a greater variety of activities and programs for residents. T. 281. Association of the nursing facility with an adult congregate living facility is a useful way to provide continuity of care and lessens the trauma to the resident of the initial move into a nursing facility. In some cases, a spouse may live in the adult congregate living facility and thus be closer to the spouse who must be in a nursing facility. CSI currently manages Sun Terrace Nursing Center, a 120 bed nursing home, and Lake Towers Retirement Center, both in Hillsborough County. Consequently, CSI has already in existence a network of relationships that would benefit residents at the proposed facility. Existing relationships include a system for patient referrals from local hospitals, transfer agreements with local hospitals for acute and emergency care, and agreements with local providers for ancillary services, such as physical therapy, diet therapy, occupational therapy, speech therapy, opthalmology, dental care, podiatry, x- ray, and pharmacy services. T. 302-304. Similar agreements for the proposed facility could be established. Such agreements are cost effective because used only as needed. T. 304. CSI would provide all the ancillary services listed in figure 1, page 14, H.H. Ex. 1. T. 304. Staffing The proposed staffing of the facility, including the 24 bed Alzheimer's disease unit, is adequate. T. 308. The proposed salaries are reasonable and adequate. T. 309. Hillsborough Healthcare will be able to recruit adequate staff. T. 309. Hillsborough Healthcare will provide a reasonable staff development program. T. 309. This program will aid in the retention of staff. T. 310. Construction and facility design The 120 bed nursing section is designed to include 4 private rooms and 58 semiprivate (double occupancy) 4 rooms. T. 355. The design includes the services and departments listed on table 12 of H.H. Ex. 1. It is proposed that the total gross square feet will be 33,996, or 283 square feet per bed. H.H. Ex. 1 The square footage allocated by the design to net living space in patient bedrooms and gross area of the nursing unit, tables 18 and 19, H.H. Ex 1, are reasonable. T. 355. Semiprivate (2 bed) rooms would have 185 net square feet of living space. The Hillsborough Healthcare design has several cost saving features. Sharing ancillary services and spaces (kitchen, administrative areas, and laundry) with the adult congregate living facility of 60 beds reduces the overall construction and equipment cost and operational cost per bed. Use of a modular "T" configuration, with straight line walls and corridors for units, results in a savings in construction cost. T. 360-61. The compact design, accompanied by extensive roof over hangs and insulating materials, will reduce energy requirements. T. 357 The floor plan could easily be altered by alteration of the arrangement of the modular wings to fit on different sites. T. 358. Nurses' stations are located in the middle of wings, giving good visibility down corridors, but no visibility into rooms. The nurses' station is 7 rooms from the most distant room on any wing. H.H. Ex. 1, p. 103. The Alzheimer's disease unit is in a separate portion of one wing, and is contiguous to an interior space that will be fenced to make a secure courtyard. T. 357; H.H. Ex. 1, p. 103. The construction cost includes additional wheelchairs and walkers, and includes $4,500 for a wander guard system for the 24 bed Alzheimer's disease unit. T. 364. The projected construction cost includes fixed equipment. T. 356. The construction cost of $2,331,418 is reasonable. T. 356. All of the costs estimated in table 25, H.H. Ex. 1, p. 33 (estimated project costs) are reasonable. T. 345-466, 356, 455-56. Availability of resources Through available equity and long term debt, adequate resources exist for Hillsborough Healthcare to construct and initially operate the proposed facility. T. 396-402. Financial feasibility The proposed facility is financially feasible in the short term. T. 396-402; H.H. Exs. 15, 16, 1. The projected charge rates, table 8, H.H. Ex. 1, are reasonable. T. 379-80, 400, 452. The projected percentages of patient utilization by payor class, table 7, H.H. Ex. 1, are reasonable. T. 450, 393. The projected number of expected patient days in the first two years of operation, tables 10 and 7, H.H. Ex. 1, reasonable. T. 488-49. The projections of total revenue, table 7, H.H. Ex. 1, are reasonable. T. 400-01. The projections of expenses and net income for the first two years of operation are reasonable. H.H. Ex. 1, pp. 100-01; T. 401-02. The 120 community nursing home bed version of Hillsborough Healthcare's application is financially feasible in the long term. T. 402. If the Department partially approves the Hillsborough Healthcare application for 60 beds, to be operated in conjunction with the 60 bed adult congregate living facility, the projection will be financially feasible in both the short and long term. T. 402. The project would be financially feasible with a higher Medicaid participation. T. 424. The merits of the Health Quest application General provisions Since critical portions of the 60 bed application, H.Q. Ex. 3, were impermissible changes to the 88 bed application, and thus not admitted into evidence, only the 88 bed application will be discussed. Health Quest proposes to construct and operate 88 community nursing home beds in conjunction with an adult congregate living facility of 124 units. H.Q. Ex. 2. The total cost of the nursing portion of the facility is estimated to be $3,054,466, or $34,719 per bed. H.Q. Ex. 2. Health Quest has entered into an agreement with a group of 129 physicians, organized as the University Community Physicians Association of Tampa. That association comprises the bulk of the physicians who practice at University Community Hospital in northern Tampa. T. 585. The agreement is that Health Quest would build and manage the nursing home, and the physicians would provide medical oversight and referrals. T. 579. The physicians would contribute to equity and share in operating profits and losses. T. 624. The share is 25 percent. T. 694-95. Other details are not in evidence. The negotiations for the agreement with the University Community Physicians Association of Tampa took several months, and the agreement itself did not come into being until August, 1987. T. 581. The University Community Physicians Association of Tampa is not named as an applicant in the original application since the agreement came into being after the application was filed. Health Quest intends to construct the proposed nursing home and adult congregate living facility near the present location of the University Community Hospital. T. 583. Health Quest intends to serve approximately 30 percent Medicaid patients. T. 841, 1102. Quality Assurance Health Quest has nursing homes in Florida, Indiana, and Illinois. Health Quest has a reputation in Indiana and Illinois for providing good health care. T. 599-609. Health Quest has three nursing homes in Florida. Of those three, two had been open long enough at the time of the hearing to have received a Florida rating. Both were rated superior. T. 610. Health Quest has a nursing home in Jacksonville, Florida, and the quality assurance program and services at that facility are representative of the type of care and services at other Health Quest facilities, as well as what is intended for the proposed Health Quest facility in Hillsborough County. T. 1077, 1102. All findings of fact which follow that reference the quality of care or scope and nature of services at the Jacksonville facility are thus also findings of fact that these quality assurance programs and services are intended to exist at the Hillsborough facility. The Jacksonville facility maintains a resident care plan on each resident. Health Quest would provide health care of good quality at its proposed facility. Services and programs The Jacksonville facility provides a number of services that require skilled nursing or arguably fall within the category of "subacute" care. The term "subacute" care is not a formal definition, and there is no Florida licensure category for that phrase. The Jacksonville facility provides intravenous therapy, parenteral nutrition, and tracheostomy care. T. 848-51. It also provides care for comatose patients (accident or stroke victims) regardless of age, and care of post-craniotomy patients. T. 851-53, 855-56. Health Quest does not intend to care for neonates (sick infants less than two weeks old). Neonates require care that is distinct from the care required for the elderly, thus requiring staff with different training. Neonates also can be at substantial risk from respiratory and urinary infections commonly present among the elderly in a nursing home. T. 859-61. The Jacksonville facility provides physical therapy, speech therapy, and occupational therapy. The physical therapist is a full time position. T. 871. The Jacksonville facility provides counseling to residents and families with a full time social worker on staff. T. 864. The Jacksonville facility provides music therapy, outside trips, and other activities, such as family night, the artist in residence program, and use of the facility for community programs. T. 866, 888, 892. Some of these programs are conducted jointly with the adult congregate living facility. Volunteers are used in the activities programs as well. T. 869. The quality of the activities program is directly related to the numbers of staff persons involved in the program. T. 871. The Jacksonville facility provides respite care of about two weeks in duration, although it could be longer. T 872. The adult congregate living facility that would be a part of the Health Quest facility would have tee same beneficial consequences as the adult congregate living facility proposed by Hillsborough Healthcare. T. 902-04. The Jacksonville facility is often used as a place for continuing nursing education for high schools or the local nursing association. T. 906-07. Staffing Health Quest proposes a total of 59.75 FTE's or .679 FTE per bed. H.Q. Ex. 2, table 11. Health Quest acknowledged that the staffing proposed for the 88 bed facility was adequate in 1986 when prepared, but by 1987, it was experiencing the need for more licensed personnel, and that it would increase licensed personnel for the 88 bed facility now. T. 630. No evidence was presented as to the specific changes that would be made. T. 632. Construction and facility design Health Quest proposed in its application to construct 34 two bed rooms, 6 three bed rooms, and 2 one bed rooms. H.Q. Ex. 2, table 17. Health Quest wants to change its design, if built, to make the three bed rooms into two bed rooms. T. 631. Health Quest proposes to provide 240 square feet of net living space for semiprivate two bed rooms. H.Q. Ex. 2. Health Quest proposes to provide a total of 37,263 square feet for the 88 bed facility, or 423 square feet per bed. H.Q. Ex. 2. Health Quest estimates that the project will need 3 to 4 acres of land, and projects that it can acquire the land for about $320,000. H.Q. Ex. 2; 634. This estimate is reasonable in comparison to the estimates of all other applicants. Health Quest has constructed three nursing homes in Florida, and others in Indiana and Illinois, and thus has substantial experience in construction. Photographs of the nursing homes constructed and now operated by Health Quest show that those nursing homes are reasonably attractive and appear to be hospitable places in which to live. H.Q. Ex. 22. Availability of resources Health Quest has access to sufficient funds to construct the project and initially operate it. T. 586-87. Financial feasibility The Health Quest proposal is financially feasible in the short term and the long term. T. 593 Summary of comparative data The space and costs associated with the four proposals may be compared as follows: Appl. Cost/Bed NetFt/Bed TotFt/bed Cost/NetFtBed Cost/TotFtBed Careage $34,583 214 306 $162 $113 Forum $44,551 228 408 $195 $109 HealthQ $34,719 240 423 $147 $ 82 HillsH $28,063 185 283 $152 $ 99 The proposed staffing of the four proposals may be compared as follows: Applicant Total FTE RN FTE LPN FTE RN Asst FTE No. Beds Careage 96.0 11.9 7.4 42.1 120 Forum 37.6 5.3 3.6 14.00 60 HealthQ 60.75 4.8 2.2 25.00 88 HillsH 64.65 2.92 8.78 36.61 120 Staffing per proposed bed may further be compared as follows: TotalFTE Applicant Per Bed PN FTE Per Bed RN & LPN FTE Per Bed Total Nursing FTE Per Bed Careage .80 .10 .16 .51 Forum .63 .08 .15 .38 HealthQ .69 .05 .08 .36 HillsH .54 .02 .10 .40 Comparison of the Careage staffing to other applicants is difficult because Careage proposes primarily to serve patients needing skilled nursing care who thus require more nursing staff per bed. Forum Group, Hillsborough Healthcare, and Health Quest are relatively the same with respect to anticipated efficiencies and continuity of care due to the association of adult congregate living facility beds with the proposed nursing home. Forum Group plans only 30 ACLF beds, but also plans 120 independent living apartments. Hillsborough proposes to provide 60 ACLF beds, and Health Quest proposes to have 124 ACLF beds. There is no evidence in the record to determine the optimum mix of ACLF beds to nursing home beds. Conclusions of Law The Division of Administrative hearings has jurisdiction of the parties and subject matter of this proceeding. The Department's free form preliminary decision The free form decision of the agency is ordinarily not dispositive since a formal administrative hearing is intended to formulate agency action, and is not intended to review prior action. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). The reasoning of the agency in its free form decision, however, ordinarily is a significant matter to be considered in the formal hearing. Findings of fact with respect to the free form decision-making upon the applications in this batching cycle have been made for two reasons: the assertion that the free form decision was influenced by considerations other than objective merit of the applications, and therefore not entitled to any persuasive effect upon this formal hearing, and representations in the free form stage made by Careage relevant to evaluation of the application of Careage. The free form decision in this case had the appearance of having been influenced in part by considerations other than the objective merit of the applications. For this reason, the free form decision with respect to these applicants has been disregarded as having no persuasive weight. Need calculated pursuant to rule 10-5.001(1)(k)2 Need for community nursing home beds is calculated pursuant to the need methodology set forth in rule 10- 5.011(1)(k)2, Fla. Admin. Code. The text of the rule is not in evidence, but comparison of the text of the rule referenced in proposed recommended orders indicates that the parties appear to agree that the rule promulgated on November 24, 1986, should govern this case. It is that rule that will be used in this recommended order. All parties agree that July 1, 1989, is the date upon which subdistrict need for community nursing home beds is to be determined. The first step in the need calculation pursuant to the rule is to determine BA. BA is defined by subparagraph 2a of the rule as the estimated bed rate for the population age 65-74 years in the relevant district. Subparagraph 2b of the rule provides: BA= LB/(POPC + (6 X POPD)) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. LB is at least 5,964, and is 6,060 if the 96 beds at the Home Association are, on this record, classified as community nursing home beds. Section 651.118(8), Fla. Stat. (1987) provides in part: This section shall not preclude a continuing care provider form applying to the Department of Health and Rehabilitative Services for a certificate of need for community nursing home beds or a combination of community and sheltered nursing home beds. Any nursing home bed located in a continuing care facility that is or has been issued for nonrestrictive use shall retain its legal status as a community nursing home bed unless the provider requests a change in status. Any nursing home bed located in a continuing care facility and not issued as a sheltered nursing home bed prior to 1979 shall be classified as a community bed. The Department of Health and Rehabilitative Services may require continuing care facilities to submit bed utilization reports for the purpose of determining community and sheltered nursing home bed inventories based on historical utilization by residents and nonresidents. (E.S.) The first sentence of this statutory section does not apply to the Home Association because it has not applied for a certificate of need. The second sentence does not apply because there is no evidence in the record that the nursing home beds at the Home Association were "issued" by anyone. The third sentence applies because the 96 nursing home beds at the Home Association were "not issued as a sheltered nursing home bed prior to 1979." The Home Association has existed since 1899 with its 96 nursing home beds, and never had a certificate of need. There was no statutory authority or definition for the issuance of a "sheltered nursing home" prior to 1979. By operation of law (the third sentence quoted above), the 96 beds are community nursing home beds. The fourth sentence appears to be directly in conflict with the third sentence. The fourth sentence states that HRS can conduct a study of historical utilization "for the purpose of determining community and sheltered nursing home bed inventories based on historical utilization by residents and nonresidents." The third sentence automatically confers community nursing home bed status upon certain beds based solely upon three criteria (located in a continuing care facility, located there before 1979, and not "issued" as a sheltered nursing home bed). Community nursing home bed status is thus conferred solely upon the three criteria, and historical utilization is irrelevant to the third sentence. If that is so, the fourth sentence, which allows HRS to "determine" community nursing home status based only upon historical utilization, is in direct conflict with the third sentence. This seemingly irreconcilable dilemma is not at issue in this case, however, because there is insufficient credible evidence in the record as to the "historical utilization" of the 96 beds at the Home Association. As discussed in the findings of fact, there is no credible evidence in this record as to how the 96 beds at the Home Association have in fact been "utilized" since 1899. Indeed, the only logical inference on this ambiguous record is that the Home Association has not felt itself constrained by any definitional categories, given its longevity in the Tampa Bay area. It thus is concluded as a matter of law, pursuant to the third sentence of section 651.118(8), Fla. Stat. (1987), that the 96 beds at the Home Association are community nursing home beds, and thus should be counted in the licensed beds in the district and subdistrict, LB and LBD. Thus, the correct value for LB in this case as of June 1, 1986, is 6,060. Next, the values of POPC and POPD must be determined Two issues arise with respect to ascertainment of the values of POPC and POPD. The first is whether the values of POPC and POPD should be determined on January 1, 1986, or on July 1, 1986. The second is whether the values of POPC and POPD should be determined based upon the Governor's estimates and projections of populations released on July 1, 1986, or on May 12, 1987. The first issue is governed by the clear language of the existing rule. The second issue has no clear guidance in the existing rule, and thus depends upon analysis of the record basis of the agency's incipient policy. With respect to the first issue, the parties urge that POPC and POPD are the populations on January 1, 1986, rather than on July 1, 1986. The basis of this argument is the inconsistent behavior of HRS over the last three years and in the January, 1987, batching cycle, wherein the values of POPC and POPD were often effectively determined on a date six months prior to the commencement of the batching cycle, a date which was the midpoint in the occupancy rate months. Notwithstanding the inconsistent manner in which HRS has interpreted its rules, a fundamental principle of law is that if the rule is clear, the agency must follow it. Kearse v. Department of Health and Rehabilitative Services, 474 So.2d 819, 820 (Fla. 1st DCA 1985); Woodley v. Department of Health and Rehabilitative Services, 505 So.2d 676, 678 (Fla. 1st DCA 1987);. There is no deference to the agency's interpretation of law (in this case, the conflicting interpretation of the office of comprehensive health planning) where the construction is based upon common meanings. Schoettle v. State of Florida, Department of Administration, Division of Retirement, 513 So.2d 1299, 1301 (Fla. 1st DCA 1987); Roberts v. Department of Professional Regulation, Construction Industry Licensing Board, 509 So.2d 1227 (Fla. 1st DCA 1987). In this case the Department has elected to follow the clear mandate of its own rule. This is not an occasion where the inconsistency of the agency with respect to incipient policy implicates questions of fairness to those regulated. Here, despite the arguable unfairness to the applicants in this batching cycle, the agency should follow its own clear rules. The populations POPC and POPD are clearly intended by the rule to be determined as of the date of the applications for certificate of need and the date of commencement of the batching cycle. The rule unequivocally calls for a projection of need "three years" into the future. T. 1254, 1250. There is no disagreement that the end date of that projection is July 1, 1989. What ends must have had a beginning. A three year period that ends on June 1, 1989, begins on July 1, 1986. Moreover, the rule clearly establishes the value of LB, licensed beds, as of June 1, 1986. The bedrate, the driving force in determining need, is the ratio of licensed beds as of June 1, 1986, to POPC and POPD, populations of elderly persons assumed to be using the beds. If LB was determined on June 1, 1986, but POPC and POPD determined on January 1, 1986, the ratio would be incongruent. The Department undoubtedly intended there to be a correlation between beds and people in existence at the same time since the result is supposed to be a model of need. Selection of the numerator from one date and the denominator for another date results in a fractured reality having little bearing upon the issue of whether the elderly in Hillsborough County will have enough or too may nursing home beds in July, 1989. Finally, the definition "current" populations POPC and POPD was established by the final order in Manor Care of Hillsborough County v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1102, DOAH case number 86-0051. The final order in that case, entered on February 7, 1987, determined that POPC and POPD must be the populations current on the date of application for the certificate of need. For these reasons, POPC and POPD should be the populations on July 1, 1986. The next issue is the source of those population estimates. HRS argues that POPC and POPD must be derived from the July 1, 1986, release of the Governor's estimates and projections of populations. HRS has failed to establish guidance in this area by rule, and instead has chosen to rely upon evolving agency policy as the basis for selecting the source off POPC and POPD. An agency need not adopt all policy as a rule, but to the extent that it relies upon non-rule incipient policy as a basis for decision and that decision is challenged in a formal administrative hearing, the agency has the burden to establish in the record "adequate support for its decision." Florida Cities Water Company v. Florida Public Service Commission, 384 So.2d 1280, 1281 (Fla. 1980); Baxter's Asphalt and Concrete, Inc. v. Department of Transportation, et al., 475 So.2d 1284, 1286 (Fla. 1st DCA 1985); McDonald v. Department of Banking and Finance, 346 So.2d 569, 582-584 (Fla. 1st DCA 1977). The only support offered by HRS for its incipient policy to use population releases available at the time of certificate of need application was that those releases were the only ones available at such time, and thus necessarily the agency's preliminary decision had to be based upon the earlier release. This may be a permissible construction of the enabling statutes, and might pass muster as an agency rule, but HRS has in this case elected to defend its policy on a case by case basis. On this record, it is clear that the policy has not been adequately supported and is unreasonable. While reliance upon the population release available at this time of preliminary agency action is obviously reasonable at that time, since it is then the most current release, the mere fact that it is the only release-then available is an inadequate reason for continuing to use that release at the de novo formal administrative hearing that follows. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). Moreover, the inadequacy of HRS's basis for its incipient policy has been demonstrated in this record. The May 12, 1987, release is substantially more accurate than the release a year earlier. The May 12, 1987, release is much closer to observed population growth in the subdistrict than the earlier release. These facts were not rebutted. To underscore the inadequacy of HRS's incipient policy, it bears repeating that use of the July 1, 1986, population release underestimates the net need for community nursing home beds in Hillsborough County in July, 1989, by 100 percent. This indicates that something is dramatically wrong with the incipient policy. For these reasons, the values of POPC and POPD should be taken from the May 12, 1987, release of population estimates. POPC is 134,968 and POPD is 94,402. The calculation of the bed rate, BA, thus is as follows: BA= LB/(POPC + (6 X POPD)) BA= 6,060/134,968 + (6 X 94,402)) BA= 0.0086401 The next step in the calculation is to calculate BB, which is defined as the estimated bed rate for the population age 75 years and over in the relevant district. The calculation is provided in subparagraph 2c of the rule: BB= 6 X BA BB= 6 X 0.0086401 BB= 0.0518406 Subparagraph 2a of the rule then requires calculation of A, which is gross need for the horizon year: A= (POPA X BA) + (POPB X BB) Where: A is the district's projected age-adjusted total number of community nursing home beds for the review cycle for which a projection is being made. POPA is the population age 65-74 years in the relevant departmental district projected three years into the future. POPB is the population age 75 years and older in the relevant departmental district projected three years into the future. For the reasons discussed with respect to selection of the date of the proper release of Governor's population estimates and projections with respect to POPC and POPD, POPA and POPB should be obtained from the May 12, 1987, Governor's release. POPA is 149,771 and POPB is 108,400. Therefore, continuing the calculation: A= (POPA X BA) + (POPB X BB) A= (149,771 X 0.0086401) + (108,400 X 0.0518406) A= 1,294.0364 + 5,619.521 A= 6,913.5574 The next step is to calculate SA, which is the preliminary subdistrict allocation of community nursing home beds pursuant to paragraph 2d of the rule: SA A X (LBD/LB) x (OR/.90) Where: * * * LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average occupancy rate for all licensed community nursing home beds within the subdistrict of the relevant district. Review of the applications submitted for the July batching cycle shall be based upon occupancy rate data for the months October- March preceding that cycle . . . * * * LBD is 2,708 since the 96 beds at the Home Association were community nursing home beds in Hillsborough County on June 1, 1986. OR is 94.29 Therefore, SA is calculated: SA= A X (LBD/LB) x (OR/.90) SA= 6,913.5574 x (2,708/6,060) x (.9429/.90) SA= 6,913.5574 X 0.4468646 X 1.0476666 SA= 3,236.6863 SA= 3,237 In the last sentence of subparagraph 2 of the rule, the "poverty adjustment" is described as follows: "In districts with a high proportion of elderly residents living in poverty, the methodology specifies a minimum bed rate." In this case, all parties agree that when the numbers are assigned to the values in the formula contained in subparagraph 2e of the rule, the poverty adjustment operates to reduce rather than enlarge the net bed need. Thus, in this case, strict application of the A formula found in subparagraph 2e fails to produce the intended "minimum" bed rate. HRS construes the rule, in this instance, to mean that the poverty adjustment does not apply, T. 1280, and all parties agree. This will be treated as a stipulation by all parties that the poverty adjustment is not an issue in this case. For this reason, the poverty adjustment will not be used in the calculations in this recommended order. The final step in the need calculation is defined by subparagraph 2i of the rule, and that is to calculate the net bed allocation for the subdistrict. Subparagraph 2i provides: The net bed allocation for a subdistrict, which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental subdistrict from the bed allocation determined under subparagraphs through I. unless the subdistrict's average estimated occupancy rate for the most recent six months is less than 80 percent, in which case the net bed allocation is zero. All parties agree that the number of licensed beds within the subdistrict is determined as of June 1, 1986, for this batching cycle. That number for purposes of determining net need is 2,708. The number of approved beds for purposes of determining net need is 368. Net need for community nursing home beds in the subdistrict for July 1, 1989, is thus determined: Net Need = SA - (LBD + (.9 X AB)) Net Need = 3,237 - (2,708 + (.9 X 368)) Net Need = 3,237 - 3,039.2 Net Need = 197.8 Net Need = 198 Thus, on July 1, 1989, the subdistrict, Hillsborough County, will need 198 community nursing home beds. Evidence of "not normal" need Rule 10-5.011(k)2.j. provides criteria for approval of community nursing home certificates of need "in the event that the net bed allocation [pursuant to the rule formula] is zero . . ." The net bed allocation pursuant to the rule method is not zero in this case. Subparagraph 2j thus does not apply. The Petitioners did not present any evidence of need pursuant to the special criteria of subparagraph 2j of the rule. Rule 10-5.011(k)1. Provides: 1. Department Goal. The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds in the subdistricts designated by local health councils. (E.S.) Many other HRS need rules have the same "not normal" loophole, and in all of these other cases, the applicants are thereby given the opportunity to show exceptional circumstances justifying the grant of additional beds by consideration of various aspects of the statutory criteria. Since subparagraph 2j does not apply, the provisions of subparagraph 1 do apply to grant a similar opportunity. The only other credible or competent evidence presented by the Petitioners as to a "not normal" condition of need was evidence concerning the numbers of elderly residents in the subdistrict and the occupancy rates of existing community nursing homes. These factors have already been accounted for in the rule formula, and cannot be counted again. Health Quest Realty, XII v. Department of Health and Rehabilitative Services, 477 So.2d 576, 578-79 (Fla. 1st DCA 1985) Amendment or update of applications Rule 10-5.008(3), Fla. Admin. Code, provides that "[s]ubsequent to an application being deemed complete by the Office of Health Planning and Development, no further information or amendment will be accepted by the Department." (E.S.) The rule states that the Department will accept no information after the application is deemed complete. The words used are not ambiguous or unclear. Thus, if normal rules of construction were to be followed, the conclusion would be drawn that the Department is bound by its own clear rule, and cannot, by interpretation, add exceptions. But an equally valid rule of construction is that absurd results must be avoided. Certificate of need cases, particular ones like the case at bar, are highly competitive and complicated. The review of these applications by HRS was delayed for months beyond the normal review period. Further delay has occurred in discovery and preparation for the lengthy formal administrative hearing. Time changes all, and over this period of time, new data has come to the attention of all parties. It would be absurd `to require the applicants to prove applications that have become erroneous due to the passage of time. It is highly probable that rule 10-5.008(3) was originally drafted with only the free form review of an application for a certificate of need in mind, and that the application (or non-application) of the rule to an administrative hearing a year or more later was not considered by those who drafted the rule. Indeed, prior to August, 1985, the Department and all litigants uniformly followed the McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977) principle of Florida administrative law that formal administrative hearings are de novo, and that new information pertaining to the application is admissible. In August, 1985, the case of Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, et al., 483 So.2d 700 (Fla. 1st DCA 1986) was decided. While the Gulf Court decision was concerned only with the competitive status of applicants with respect to bed need, in the aftermath of that decision, the Department elected to construe rule 10- 5.008(3) as forbidding practically all new information, even information that had nothing to do with bed need. This undoubtedly was an overreaction to the Gulf Court decision, but the Department, after all, has always had the authority to establish rules governing the processing of applications for certificates of need, including the number and timing of amendments to such applications. McDonald v. Department of Banking and Finance, 346 So.2d 569, 584 (Fla. 1st DCA 1977). Given the fact that the rule is so clear, the better route would have been to amend the rule. As discussed above, conventional rules of statutory construction could easily support the legal conclusion that the rule must be applied as it is written, without further interpretation. Nonetheless, the Department for this case has chosen the other route, to interpret rather than to amend its rule. While the question is a close one, the Hearing Officer has concluded that it would be better to ignore the clear words of the rule, and attempt to apply the evolving interpretative policy of the Department to avoid an absurd result. The following appear to be the existing final orders of the Department interpreting rule 10-5.008(3), and its predecessor, published in the Florida Administrative Law Reports. Health Care and Retirement Corporation of America, d/b/a Heartland of Palm Beach, 8 F.A.L.R. 4650 (September 24, 1986); Arbor Health Care Company, Inc., d/b/a Martin Health Center, Inc., v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 709 (October 13, 1986); Mease Hospital and Clinic v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 159 (October 13, 1986); Health Care and Retirement Corporation of America, d/b/a Heartland of Collier County v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 5883 (December 8, 1986); Health Care and Retirement Corporation of America, d/b/a Nursing Center of Highlands County, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1081 (December 8, 1986); Manatee Mental Health Center, Inc. d/b/a Manatee Crisis Center v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1430 (February 2, 1987); Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborough, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1630 (February 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1628 (March 2, 1987); Psychiatric Institutes of America, Inc., d/b/a Psychiatric Institute of Orlando v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1626a (March 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2139 (March 24, 1987); Wuesthoff Health Services, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2110 (April 17, 1987); Hialeah Hospital, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2363 (May 1, 1987); Palms Residential Treatment Center, Inc., d/b/a Manatee Palms Residential Treatment Center v. Department of Health and Rehabilitative Services, et al., 10 F.A.L.R. 1425 (February 15, 1988) These final orders contain the following statements concerning the Department's interpretation of rule 10-5.008(3) and its evolving policy with respect to changes to applications for certificates of need during section proceedings and admissibility of new information not contained in the original applications: Health Care and Retirement, supra, 8 F.A.L.R. at 4651: During 120.57 proceedings, an application may be updated to address facts extrinsic to the application such as interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories. An applicant is not allowed to update by adding additional services, beds, construction, or other concepts not initially reviewed by HRS. Manatee Mental Health Center, supra, 9 F.A.L.R. at 1431: . . . HRS has authority by statute to issue a CON for an identifiable portion of project. Section 381.494(8)(c), Florida Statutes. MMHC's "amended" proposal reduced the number of beds sought, and was properly considered during the 120.57 proceedings. Manor Care. Inc., supra, 9 F.A.L.R. at 2141-42: The amended applications [amended to address needs of Alzheimer's disease patients] changed the scope and character of the proposed facilities and services and thus, must be reviewed initially at HRS . . . [Gulf Court] . . . limited the de novo concept by requiring that evidence of changed circumstances be considered only if relevant to the application. Hialeah Hospital, Inc., 9 F.A.L.R. at 2366: It is recognized that more than a year may pass between the free form decision by HRS and the final 120.57 hearing and this passage of time may require updating an application by evidence of changed circumstances such as the effect of inflation on interest and construction costs. For the sake of clarity HRS would avoid the use of the word "amendment" to describe such updating. Such evidence of changed circumstances beyond the control of the applicant is relevant to the original application and is admissible at the 120.57 hearing. Taking the easiest first, those items explicitly listed by the Department in the first Health Care and Retirement case, "interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories," which change after the application is initially filed, are permitted. Not permitted are "additional services, beds, construction, or other concepts not initially reviewed by HRS." The remainder of the Department's incipient policy, as presently articulated, is extremely obscure. The word "extrinsic" without the list of examples is of little guidance. The application is only an idea on paper. Anything new, other than the bare words on the paper as originally filed, is literally "extrinsic" thereto. The concept of whether the new information changes the "scope and character of the facilities and services" originally reviewed in free form action by the Department is similarly of little guidance because the phrase "scope and character" can mean practically anything. Of fundamental difficulty is whether this phrase is intended to select substantial changes to the original application, or all changes. For example, if the original application proposes separate shower stalls and tubs for double rooms, but the amended application proposes a combination shower and tub, has the "scope and character" of the "facilities and services" changed? The phrase "additional services, beds, construction, or other concepts not initially reviewed by HRS" is similarly vague. What is a service or construction or a concept not originally reviewed? Would this include the change in bathing equipment discussed above? The concept of "control" of the applicant over the information that goes into the original application is the only phrase that gives applicants any guidance. The word "control" probably is intended as a "knew or reasonably should have known" standard. If the applicant reasonably should have known about the information and should have provided the Department with the information as a part of its original application, then the new information cannot be considered during the formal administrative hearing. The Hearing Officer will be guided, thus, by the explicit list of items provided by the Department in the Health Care and Retirement case, and by the concept of "control" provided by the Hialeah case. New information submitted by Forum Group Table 7 of the Forum Group update is for the second year of operation. There was no projection of utilization by class of pay for the second year of operation in Forum Group's original application, and Forum Group presented no evidence to explain why its original application did not or could not forecast utilization by class of pay for the second year of operation. Table 7 of the update, F.G. Ex. 6, thus constitutes an attempt to add matters to the original application which could have been a part of the original application as filed. Pursuant to rule 10-5.008(3), Fla. Admin. Code, it is now excluded from evidence because it is irrelevant. Table 8 of the Forum Group update was not proven by Forum Group to be based upon ordinary inflation. It appears that the revised charges in table 8 were based in part upon a telephone survey of subdistrict nursing homes conducted after Forum Group filed its original application. Forum Group did not prove that it could not reasonably have conducted such a telephone survey before it filed its original application. Thus, table 8 of F.G. Ex. 6 contravenes rule 10-5.008(3) and now is excluded from evidence because it is irrelevant to the original application. Table 10 of the Forum Group update was precisely the kind of new information allowed by the incipient policy of the Department. The old table 10 had an opening date of January, 1988, a date that was obviously in error due to the delay in decision in these cases. The new information was simply the old information altered by current occupancy and fillup rates in the subdistrict, data that could not have been acquired when the original application was filed. "Current occupancies" is explicitly listed by HRS as permissible new data in the Health Care and Retirement case, supra. Table 10, F.G. Ex. 6, is admitted into evidence. The revised table 11 contains positions for a dietary supervisor, maintenance supervisor, and utility workers, all of which could have been reported in the original table 11. These portions of table 11 are excluded from evidence. The revised table 11 contains changes in the FTE's for registered nurses and licensed practical nurses. These changes could have been in the original table 11 and are excluded from evidence. The revised table 11 contains changes in salaries that were adequately shown to be the result of inflation and new market data not available at the time the application was deemed complete. These portions of revised table 11 are admitted into evidence. Table 25 of the revised application, F.G. Ex. 6, which summarizes estimated project costs, including construction costs, contains new information permitted by the Department's evolving policy. The new table contains no changes of substance except changes caused by inflation and current construction experience. The bottom line, except to that extent, has not changed in substance. Table 25 of F.G. Ex. 6 is admitted into evidence in its entirety. Revisions to tables 17-20, F.G. Ex. 6, were driven entirely by inflation in construction costs. Surely if the Department allows an applicant to respond to inflation by projections of new costs, the Department's policy would also allow the applicant to respond to inflation by projections of new methods to reduce new costs caused by inflation. These revisions are admitted into evidence. The revised pro forma statement of total operating expenses has not been proven by a preponderance of the evidence. First, the revision was explained as being based upon changes in utilization by class of pay, but that data, table 7 of the revision, was not admitted into evidence. Moreover, the changes in total operating expenses resulted from impermissible changes in the numbers of FTE's which have been excluded from evidence. It is not possible on this record to determine how much of the revised pro forma statement of total operating expenses has been shown to be a credible projection, given the lack of these fundamental sources of the projection. Moreover, the revision to total operating expenses in the revised pro forma, F.G. Ex. 6, has not been credibly shown to be based upon matters that Forum Group could not have known at the time it originally filed its application. This conclusion flows from the fact that the original application did not project utilization by class of pay in year 2. Absent this projection, the revision of total operating expenses must necessarily be based upon data that was absent from the original application. The same is true with respect to changes in FTE's in the revision. For these reasons, the revision to total operating expenses in the revised pro forma, F.G. Ex. 6, constitutes an impermissible offer of new data precluded by rule 10-5.008(3). New information submitted by Health Quest Table 8 of the revised application of Health Quest, H.Q. Ex. 3, was based upon information that Health Quest could have obtained when it filed its original application. Table 8 of H.Q. Ex. 3 is thus excluded from evidence. Table 11 of the revised application was based upon the actual experience acquired after the original application was filed. Table 11 of H.Q. Ex. 3 is admitted into evidence. Table 17 of the original application projected that the facility would have six three-bed rooms, but the revised application deleted all 3 bed rooms. Since Health Quest failed to show that this new information would have been unavailable to it when it filed its original application, the change as to 3 rooms is not admissible. The ineluctable result, therefore, is that all of revised table 17 is inadmissible since the proper mix of beds has not been proven. The change of square footage of 1 bed room to 216 in the revised table 18 is inadmissible because it contravenes rule 10-5.008(3). Evidence as to the agreement with the University Community Physicians Association of Tampa is admissible as matters which did not exist and could not have been a part of the original application. The objections to that testimony, T. 579- 80, are overruled. New information submitted by Careage The changes to the Careage application, C. Exs. 18-23 and 24-25, were shown to be based upon information not reasonably obtainable by Careage when it filed its original application, and thus are admitted into evidence over the objections made that these exhibits were barred by rule 10-5.008(3). New information submitted by Hillsborough Healthcare Hillsborough Healthcare did not submit any changes to its application. Comparative review of the applications Careage failed to prove two essential portions of its application. It did not prove by a preponderance of the credible evidence that it would in fact operate the proposed facility if the certificate of need were granted, and it did not prove by credible evidence that it would provide care of good quality. For these reasons, the Careage application should be denied. The other applicants proved by credible evidence all essential portions of their applications. The only remaining task, therefore, is to determine the proper allocation of the 198 beds needed in July, 1989, among these three applicants. The space and costs associated with the remaining proposals may be compared as follows: Appli Cost/Bed NetFt/Bed TotFt/Bed Cost/NetFtBed Cost/TotFtBed Forum $44,551 228 408 $195 $109 HealthQ $34,719 240 423 $147 $ 82 HillsH $28,063 185 283 $152 $ 99 The cost per net square foot per bed (Cost/NetFtBed) is derived by dividing the cost per bed by the net square feet of living space per bed. Likewise, the cost by total square feet (gross) per bed (Cost/TotFtBed) is derived by the same division. Health Quest is preferable to the other two applicants when these cost and space figures are considered. It provides more space at a lower cost per square foot. The differences between Hillsborough Healthcare and Forum Group are not sufficiently significant to give one preference over the other. Hillsborough Healthcare is the less expensive proposal, but suffers from being the least spacious proposal in comparison to Forum Group. Moreover, the record does not contain guiding policies to determine whether there is a need in Hillsborough County for cheaper, less spacious, nursing homes, or for more expensive, more spacious nursing homes. The proposed staffing of the remaining proposals may be compared as follows: Applicant TotalFTE RN FTE LPN FTE RN Asst FTE No. Bed Forum 37.6 5.3 3.6 14.00 60 HealthQ 60.75 4.8 2.2 25.00 88 HillsH 64.65 2.92 8.78 36.61 120 Staffing per proposed bed may further be compared as follows: Total FTE Applicant Per Bed RN FTE Per Bed RN & LPN FTE Per Bed Total Nursing FTE Per Bed Forum .63 .08 .15 .38 HealthQ .69 .05 .08 .36 HillsH .54 .02 .10 .40 The total nursing FTE per bed for each applicant is relatively equal, with Hillsborough Healthcare having the highest ratio and Health Quest the lowest. Forum Group has significantly more RN's and LPN's per bed than Health Quest, but the overall nursing staffing is comparable. Hillsborough Healthcare is the lowest when only RN's and LPN's are considered, and the lowest total FTE per bed. The differences noted in staffing do not appear to be sufficient to draw meaningful conclusions. Hillsborough Healthcare's facility may be staffed at a less costly level, but whether this is due to substitution of nursing assistants for RN's and LPN's, or a result of efficiencies due to the larger number of beds (120), or reflects less than optimum staffing cannot be determined on this record. Hillsborough did not present evidence as to staffing patterns for a 60 bed facility. Other features of the proposals of the three applicants provide little to distinguish or rank them in priority. All three propose to associate the nursing facility with an adult congregate living facility, resulting in cost efficiencies and better continuity of care. All three have a substantial track record in the operation of a nursing homes, and can be expected to provide care of good quality. All three have very substantial resources and prior experience in the development and initial operation of a nursing home. If any distinction were to be made, perhaps it would be to favor the Hillsborough Healthcare application over the Forum Group application. Hillsborough Healthcare plans to serve the needs of Alzheimer's patients, and Forum Group does not. Hillsborough Healthcare's application is, relative to the Forum Group proposal, less expensive. On the other hand, the Alzheimer's disease unit is only a marginal factor since there is no qualified evidence in this record of need for that type of unit in 1989 in Hillsborough County. One can only infer that the need is probably going to be there, and it might be better to prefer Hillsborough over Forum Group for that reason. The "luxury" vs. "austerity" comparison is similarly not of ultimate persuasive weight since, as discussed above, there is no credible evidence in the record as to what the proper mix should be. Of course, it is safe to conclude that the need for less expensive nursing care is greater than the need for care that only a few can afford, but that conclusion does not necessarily result in the total denial of the Forum Group application. In summary, with respect to the question as to which applicant should be favored with approval of the most number of beds from the projected bed need, there is no major issue to adequately distinguish between the three applicants. For this reason, each applicant should be treated as equally as possible consistent with the application it submitted and the evidence it presented in support of that application. The Department appears to have several relatively reasonable ways to allocate bed need among the three applicants. It might simply divide the beds equally among the three. This alternative is less reasonable because it would ignore the detailed proof that has been presented by both Forum Group and Health Quest in support of proposed facilities of 60 beds and 88 beds respectively, and would result in implementation of facilities having staffing and design configuration that would be altered from that proof. A second alternative would be to award partial approval to Health Quest for 78 beds, to award full approval to Hillsborough Healthcare for 120 beds, and to deny the application of Forum Group. A third alternative would be to award partial approval to Health Quest for 78 beds, to award partial approval to Hillsborough Healthcare for 60 beds, and to award full approval to Forum Group for 60 beds. This third alternative is more reasonable and will be recommended by this order. This alternative has the advantage of fostering the most future competition in Hillsborough County by approving three competitors rather than two. Of the three applicants, Health Quest proposed the most space, relatively speaking, for the least cost. The staffing proposed by Health Quest is reasonable in comparison to the other two applicants. Reduction of the Health Quest proposal to 78 beds from 88 beds is a relatively minor reduction; stated another way, the proof provided by Health Quest as to the specifics of an 88 bed facility is likely to be changed only slightly for a 78 bed facility. Forum Group proved all of the details of its 60 bed proposal, and thus approval of those beds would be entirely consistent with its application and proof in this record. Hillsborough Healthcare did not prove the specifics of a 60 bed partially approved facility except that such a facility would contain the full sized Alzheimer's patient unit proposed in its 120 bed facility. It would be fairer to approve Hillsborough for that 60 bed facility than to approve Hillsborough for 120 beds, leaving Forum Group with denial of its application, given the lack of a compelling clear choice between the two applicants. Recommendation It is therefore recommended that the Department of Health and Rehabilitative Services enter its final order partially granting the application of Health Quest for 78 community nursing home beds, partially granting the application of Hillsborough Healthcare for 60 community nursing home beds, fully granting the application of Forum Group for 60 community nursing home beds, and denying the application of Careage. DONE and ORDERED this 30th day of June, 1988, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. 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 30th day of June, 1988. APPENDIX TO RECOMMENDED ORDER IN CASE NOS. 87-0670, 87-0671, and 87-0774 The following are rulings upon proposed findings of fact which have either been rejected or which have been adopted by reference. The numbers used are the numbers used by the parties. Statements of fact contained in this appendix are adopted as findings of fact. Findings of fact proposed by HRS: 1-2. These proposed findings of fact are' subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The classification of the Home Association beds has been thoroughly discussed in the findings of fact and conclusions of law. The correct population figures are discussed in the findings of fact. 9-13. These are matters of law, and thus not appropriate as proposed findings of fact. 15. The changes to table 7 were not the result of a telephone survey. T. 51. 17. Defining "extrinsic circumstances" as not inclusive of economic or market changes that occurred after the original application was deemed to have been complete, or otherwise not reasonably obtainable or knowable by the applicant when the original application was filed, is contrary to HRS policy embodied in final orders, sketchy as it may be. 18, 23-25. Rejected as explained in the findings of fact. 26, 28. Rejected with respect to table 11 as explained in the findings of fact. 30. This finding of fact, while true, is not made because Health Quest made no such change to its 88 bed application. Rule 10-5.008(1) simply states that the application for a certificate of need must be filed on form 1455. Table 12 of the form has no instructions for what must be contained therein. Since HRS has not demonstrated on this record that table 12 in the original application was supposed to have listed these items, it cannot be said that the listing of these items in the new table 12 is a change. It is noted that spaces to take showers, baths, store linen, and for nursing stations would be assumed for any nursing home, and ought not be presumed to have been excluded by the failure of an applicant to list them. Moreover, it is further noted that from a review of the original application H.Q. Ex. 1 that table 12 does include nursing administrative space, patient lounges, a central supply space, general storage, housekeeping, and laundry. Moreover, the amendment, H.Q. Ex. 2, shows the following spaces on the space diagram: laundry, shower, patient lounge, and medication room (med). Any bed room could be used for isolation. Table 20 does include a chapel. H.Q. Ex. 1. Not supported by the record cited. Findings of fact proposed by Forum Group: 1-4, 9, 13. These are matters of law, and thus not appropriate as proposed findings of fact. 5. LB of 5,964, as proposed by the Department, is most credible as the beginning figure, without considering the beds at the Home Association. 7-8, 10. Incorrect value for LB. 11. OR should be 94.29 with the Home Association beds. 18. Incorrect values for LB and OR. 21. The denial occurred orally in January, 1987. The update has been discussed in findings of fact and conclusions of law. These are matters of law, and thus not appropriate as proposed findings of fact. It is true that there is need and the need must be satisfied. 29-33. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 34. The phrase "homelike atmosphere" is too vague to be a finding of fact. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The record does not contain sufficient evidence to make a finding as to the history of Forum Group with respect to the quality of care provided at Forum Group facilities. 49-50. The update with respect to financial feasibility is not relevant since essential parts of the update with respect to financial feasibility were not admitted into evidence. 60, 65, 67, 68, 74, and 80. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 66. This is not relevant. Ms. Kennedy testified that she had authority from Hillsborough Healthcare to accept a certificate of need for a 60 bed nursing home. There is no credible evidence to contradict this statement under oath. The lack of a written partnership authorization in evidence does not negate this statement. 76. Had there been any credible evidence in theme cases that the amount of need in Hillsborough County was minimal and that, consequently, the pro formas for 60 bed nursing-homes must be closely scrutinized for long term financial feasibility, then it would be relevant that CSI did not explain in detail the pro forma for a 60 bed nursing home. CSI did, however, present expert opinion that a 60 bed nursing home would be financially feasible, and on this record, the opinion is very credible. Forum Group and Health Quest have shown the long term financial feasibility of a 60 bed nursing home, and there is a large amount of need. Moreover, existing nursing homes are experiencing very high occupancy rates and fill up rates. For these reasons, this proposed finding of fact, while true, is not relevant. Hillsborough did show that its design was modular. Scaling down the project simply means deletion of one wing. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The witness specifically addressed two portions of the state health plan. T. 777. The testimony was competent and substantial evidence. The inference that the certificate of need was "about to expire" is inappropriate since the witness's testimony leads to the inference that Health Quest intends to proceed with that project. T. 641. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 98-99. These proposed findings of fact are true, but insufficient to support a finding that Health Quest lacks the resources to construct and operate this project in the short term. 101, 105-07. These proposed findings of fact are true, but do not lead to the conclusion that the construction cost estimates are unreasonable. See T. 590. Mr. Krisher had sufficient expertise in health planning, nursing home development, and financial feasibility, to testify generally as to these matters. T. 501-516. No party presented any independent evidence to seriously question these estimates. 102. This proposed finding of fact is incorrect since the expected Medicaid rate in Boca Raton is different from the expected rate in Tampa. T. 785. 111. Not supported by the record cited. 114-116, 118-120. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. True, but insufficient to show lack of resources to make the project financially feasible in the short term. Irrelevant. The existence of lines of credit was proved by Mr. Gentle. Irrelevant. The staffing was shown to be reasonable by the testimony of other competent witnesses. 125-27. True, but insufficient to show back of financial feasibility. 129. True, but irrelevant. It would be unreasonable and a waste of health care resources for an applicant to have to buy five expensive acres of urban land to be qualified to apply for a certificate of need. 130-31. Irrelevant. The delay and inflation rates are negligible. Findings of fact proposed by Hillsborough Healthcare: 1. This is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 5. The phrasing of the first and second sentences is rejected for lack of evidence. 7. The evidence is not sufficient to show actual bias by a preponderance of the evidence. 8-9, 19-20, 22-23. These proposed findings of fact are subordinate to findings of fact that have been adopted. These proposed findings of fact are true, however, and are adopted by reference. 21. Irrelevant. 24. True, but not relevant. These matters are covered by the numeric need rule. 29. The evidence does not show that CSI managed facilities offer "superior" activities. 32, 33 (fifth and sixth sentences), 35 (last sentence), 38(a)-(i), 40,42 (first sentence), 39, 45 (second and third sentences), 46 (all but the first sentence), 49 (first two sentences), 53, 56 (all but the first two sentences), and 60-72. These proposed findings of fact are subordinate to findings of fact that have been adopted. These proposed findings of fact ace true, however, and are adopted by reference. 51. The preponderance of the evidence does not credibly show that the floor plan promotes patient safety and convenience, or that travel distances are minimal. 54. Not supported by the record cited. These proposed findings of fact are irrelevant. A finding of fact that the criminal offense of perjury was committed cannot be made since there is no evidence of a criminal conviction by a court of competent jurisdiction. The testimony of Ms. Etten was not limited to those programs. The documents used in cross examination were never properly authenticated, and are hearsay. Thus, a finding of fact that the documents are in fact surveys of Careage facilities by other agencies in other states cannot be made based upon the documents. For this reason, the remainder of the proposed finding is not relevant. Ms. Etten credibly testified that nursing staffing was generally adequate. Her opinion was not ultimately limited to special programs. T. 1216. The inability of other witnesses to testify on this point is not relevant. The ability of Careage to recruit staff was adequately proved by other parties. There is no credible evidence in this record to believe that any applicant fail to recruit adequate staff. The recruitment plans of Careage appear to be quite reasonable. T. 1562-64. On pages 1686-87 of the transcript, the Hearing Officer ruled that the expert opinion of Ms. Krueger would be allowed even though it was based on hearsay. This was a correct ruling. Section 90.704, Fla. Stat. (1987). The sentence immediately following that ruling is incorrect as stated, and directly contradicts the initial correct ruling. That is, an expert opinion is admissible and may be relied upon even though based upon evidence, such as hearsay, which in itself may not be admissible. Further, the opinion of an expert in an administrative proceeding is a proper basis for a finding of fact even though the opinion is based upon hearsay, and even though hearsay alone in an administrative hearing, absent nonhearsay evidence on the point, is not sufficient as a basis for a finding of fact. The second sentence in the transcript was intended to state that hearsay evidence alone will not be the basis of a finding of fact, setting aside for the moment the issue of expert opinion. For these reasons, these proposed findings of fact are rejected to the extent that they urge that short term financial feasibility was not established because the opinion was premised upon hearsay evidence. With respect to the unaudited financial statement question, Ms. Krueger was not asked whether experts in her field reasonably rely upon unaudited financial statements. She was only asked which type was more worthy of belief and whether her profession feels they can rely on audited statements. She was never asked whether her profession feels it cannot rely upon unaudited statements. Ms. Krueger stated that she was aware of the existence of fraudulent audited statements, implying that the question leads to answers that are not that useful. T. 1652. In fact, Ms. Krueger, who was a thoroughly credible witness, explaining her opinions in a lucid and reasonable manner, relied upon unaudited statements, as well as her conversations with several of the chief executive officers of Careage. Based on this record, a finding cannot be made that experts in this field do not reasonably rely from time to time upon unaudited financial statements. The authenticity of the letter from SeaFirst is irrelevant since that line of credit was established by the direct testimony of Mr. Gentle. T. 1576. Ms. Krueger's lack of personal knowledge as to the existence of a binding commitment for a loan for this project is irrelevant due to Mr. Gentle's direct testimony. The evidence in the record from all parties indicates that land is generally available in Hillsborough County in the 3 to 5 acre range, that 3 to 5 acres is about what is needed for any of the projects, and that the cost is from $300,000 to $600,000. The Careage facility will bring in over $3 million in gross revenue per year in all years beyond the first few. A few hundred thousand dollars can be amortized over the life of a nursing home, and will not be a significant factor in long range financial feasibility. All of the applicants have access to credit to buy land at market rates. There is essentially no reasonable dispute as to land acquisition and cost in this case. The testimony related to equipment , not floor space, for technology dependent children. Those children would be served in the subacute beds. Space for Alzheimer's patients was included in the floor plan and the 45,500 square feet. T. 1136-37. Mr. Cushing testified that the Means reference book might project a cost per square foot in the "60's." He did not adopt that as his opinion. T. 1185-86. Delay in construction for 8 months is not such delay as to necessarily result in substantial increases in construction cost. The last sentence is true but does not account for the fact that Mr. Cushing consulted the Means reference book for labor rates. That is sufficient. The remainder of the reasoning of this proposed finding of fact was rejected in paragraph 85 above. Rejected as described in the preceding paragraphs. Ms. Krueger's expertise with respect to salaries was established perhaps more completely than any other expert witness. She not only had first hand knowledge from her work reviewing salaries in nearby counties, but she consulted expert reference materials. Her inability to remember the name of the book referenced does not seriously undermine her expertise. The ruling at T. 1324 sustained an objection to a question. It was not a ruling upon the admissibility of portions of the document. Ms. Krueger prepared the long range plan section of C. Ex. 3, P. 3-7, and the under served groups section, p. 3-8, in conjunction with Mr. Gentle. T. 1322. This is sufficient predicate for her testimony as to these matters. 91-92. The telephone survey was not a needs survey. It only surveyed existing services. The survey has essentially been discounted because of lack of response and lack of statistical reliability. These proposed findings ace adopted by reference. Since none of this testimony has been relied upon in this recommended order, the proposed findings of fact are irrelevant. These proposed findings of fact are irrelevant. The testimony as to lines of credit and resources of the Lynns was enough to establish the availability of working capital. These proposed findings of fact are irrelevant. Rejected as explained in the findings of fact. These proposed findings of fact are irrelevant. 101. The continuing objection was allowed, not granted. T. 595-96. Otherwise, these proposed findings of fact are true and are adopted by reference. 102-103. These proposed findings of fact are true and are adopted by reference. 104. Essentially irrelevant as explained with respect to proposed findings of fact concerning the land acquisition and preparation costs of other applicants. 105-107. These proposed findings of fact are true and are adopted by reference, except the last clause of the last sentence of proposed finding of fact 105. Absent quantitative data and a study of salaries showing the estimates to be substantially in error, the foregoing proposed findings of fact are not sufficient to show an error affecting financial feasibility. 108-109. These proposed findings of fact are irrelevant since the 60 bed application was not a permissible amendment. These proposed findings of fact are true and are adopted by reference. These proposed findings of fact are irrelevant since these are different health districts having different patient payor mixes. Findings of fact proposed by Health Quest: 4, 5, 7-10. These are matters of law, and thus not appropriate as proposed findings of fact. 11-17. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The rationality of the OCHP's policy is irrelevant since it conflicts with the rule and other policies are also rational. A finding of a consistent pattern with respect to base date populations in the award of certificates of need cannot be made as discussed in the findings of fact. Mr. Sharp understood his position, and Mr. Jaffe well understood the inconsistencies. 22-23. True but irrelevant. Disadvantage often occurs to some person when the law is correctly applied. 24-28. Rejected as discussed at length elsewhere in this order. 33. Not supported by the record cited. 36.a. Mr. Gentle did not work with Careage in these years and could not be expected to have detailed memory on these points. He named seven such facilities. 38. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 40.b. (ii). There is no evidence that CHP is the same as Careage. 40.c.(v). Health Quest has operated since 1969. 42. Both could be true. 43.a.(ii). Mr. Gentle was not sure because this was not within his area of responsibility. T. 1603. 44. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Dr. Etten's unfamiliarity with the fact that the Health Quest facility in Jacksonville provides IV therapy and total parenteral nutrition does not demonstrate exaggeration or lack of expertise. The record does not clearly demonstrate that other Health Quest nursing homes provide these specific services. The evidence is only that services are generally the same. T. 1077. The testimony concerning Medicaid patients in the subacute unit was elicited on cross examination, and was not presented by the witness as an intended representation by Careage on direct. Ms. Krueger's understanding simply was wrong, not misleading. T. 1367. The remainder of this proposed finding of fact is similarly a red herring. Careage did not project anything more than 37 percent Medicaid utilization. C. Ex. 3, table 7B. It is one thing to expect 37 percent utilization, and another thing to represent that the facility will not discriminate. A promise to not discriminate inherently contains the caveat that a facility will not pursue that noble goal to bankruptcy. The Hearing Officer would not find that to be the case with respect to Careage any more than with respect to Health Quest. Mr. Gentle did not testify that the number of nurses aides in the Alzheimer's unit would be higher in comparison to other sections of the facility. He testified that the number would be "higher" in comparison to professional licensed staff, which would be lesser. T. 1525. 54. Irrelevant. Mr. Gentle said that day care would probably be at a location nearby. T. 1593. 57. None of the parties addressed site size with the specificity proposed by these findings of fact. Lack of such specificity has no real bearing on credibility. The record cited, T. 1526, does not support the proposed finding that equipment for technology dependent children is "substantial and expensive." Thus, the remainder of these proposed findings are rejected. It is true, however, that the application fails to itemize such equipment, and that the contingency is relied upon. There is no evidence that Careage proposes to employ a gerontological nurse practitioner. C. Ex. 3, table 11. The testimony of Dr. Etten simply describe the skills of that form of nurse practitioner. She was never asked whether such professional would be employed by Careage. T. 1217-19. The failure to tie in the testimony is only a human error, and does not show a lack of credibility. Proposed finding of fact 62.a. is not supported by the record. Dr. Etten was not asked to describe the care given an Alzheimer's patient in an ACLF. She was asked to describe the care given a "resident" of an adult congregate living facility. Her comment about such residents not being "bed patients for any period of time" is not a dodge of a question about an Alzheimer's disease patient. Moreover, she credibly and directly testified that Alzheimer's disease manifests itself so many different ways she could not say whether it would be appropriate to have such patients living in an adult congregate living facility. Next, Mr. Gentle's testimony as to the medical characteristics and needs of Alzheimer's patients is insufficient as a basis for findings of fact because Mr. Gentle was not accepted as a medical expert. Health Quest presented no credible evidence to show that an Alzheimer's patient can be treated either in an adult congregate living facility or a conventional nursing home. Absent such evidence, the failure of other parties to rebut the nonexistent negative, given the clear affirmative evidence that Alzheimer's disease patients greatly benefit from special care, is unpersuasive. These proposed findings of fact are irrelevant. These children would be served as subacute care patients. Precise identification of the area set aside for these children would have been only of marginal relevance. To the extent not adopted elsewhere in this recommended order, these proposed findings are adopted by reference. Careage's expert was clearly aware of the need to review site specific conditions in the preparation of construction plans. T. 1177. He has built nursing homes in many states. His competence to prepare adequate construction plans for Hillsborough County conditions was clearly established in the record. It is true that he had not yet prepared the final construction plans. But no party has presented final construction plans, and thus the lack of such plans is irrelevant on this record. Irrelevant on this record. Irrelevant. The amount of working capital is well within the resources available to Careage. There is no evidence in the record that a variation one way or the other by $100,000 would make the project not financially feasible. Careage's credibility was not discredited by the fact that Ms. Krueger was not aware of the mix of skilled and intermediate beds. True, but irrelevant. There is no evidence that such expenses were not accounted for, or if missing, the amount and importance. The staffing was shown by expert opinion to be adequate. T. 1216. One presumes that adequacy refers to adequate health care since the witness was only qualified in that area of expertise. The Careage design was not unique. The Careage use of the word "unique" to describe its design has been disregarded in this order. 78.c.(i)-(iii). These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 78.c.(vi). Not supported by the record cited. 78.c.(vii). The testimony cited is not competent opinion. There was no predicate for testimony as to the knowledge of Mr. Haben, and the objection to a similar question just preceding was sustained on that basis. 87-96, 100-101, 103-128. These proposed findings of fact are irrelevant for the reasons stated in Health Quest's proposed finding of fact 76. 135. These are matters of law, and thus not appropriate as proposed findings of fact. 146. Not relevant since the 60 bed proposal is not in evidence. 149. Without evidence as to what is included in the definition of "subacute" care, a finding as to "virtually all" cannot be made. 151 and 158. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 166, 169, 170 and 172. Not relevant since the 60 bed proposal is not in evidence. 168. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Findings of fact proposed by Careage: The first sentence implies that Careage has operated nursing homes for 25 years. Careage has built nursing homes fob that length of time for operation by others, for the most part. The second sentence is true, but subordinate, and is adopted by reference. Mr. Griffin testified that the decision to adhere to the recommendations made by staff before he assumed his duties at HRS was not his decision. T. 705-06, 703. His testimony reflect very little personal participation in the evaluation of the competing applications. T. 697-705. 6. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 8. There was no credible evidence in this record as to how many Alzheimer's patients need specialized services. The evidence was simply that if such patients exist, such patients need specialized services. Thus, the first sentence is rejected. 8 (second sentence) -12. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. A comparison of staffing is not possible since Careage intends to serve primarily persons in need of skilled nursing care, and hence it cannot be determined if Careage in fact has proposed nursing staff that is more generous relative to patient need than Hillsborough. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Since insufficient credible evidence has been presented to conclude that Careage will operate the proposed facility, this finding of fact is rejected. The proposed finding concerning intent to provide adult day care is not supported by the record cited. 19-20. Irrelevant since insufficient credible evidence has been presented to conclude that Careage will operate the proposed facility. 21. The first sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 22-23, 25 (all but first sentence), 26, 17 (third, fourth, and seventh sentences), 29. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 24. It is concluded that associating a nursing home with an adult congregate living facility will in fact result in cost efficiencies. The remainder of this proposed finding of fact, noting the relatively higher costs of Health Quest compared to Careage, is true, but does not disprove the conclusion that cost efficiencies would exist. It is true that the Hillsborough Healthcare Medicare mix projection may be somewhat high, but the fiscal consequences of that conclusion was not demonstrated. The second sentence is rejected because Ms. Krueger was not accepted as an expert with respect to appropriate levels of staffing. T. 1686-88. 31. The second sentence is based upon hearsay. It is also based upon the opinion of Mr. Gentle which was inadmissible. T. 1577. The fourth and fifth sentences are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 32-33. These portions of the Forum Group amended application, F.G. EX. 6, were not admitted into evidence, and thus these proposed findings of fact are not relevant. 36. Irrelevant since the Health Quest 60 bed application is an impermissible amended application. COPIES FURNISHED: Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 DEPARTMENT OF HRS Edgar Lee Elzie, Jr., Esquire Guyte P. McCord, III, Esquire McFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 CAREAGE HOUSE HEALTH Robert S. Cohen, Esquire Haben and Associates Post Office Box 10095 Tallahassee, Florida 32302 FORUM GROUP, INC. R. Terry Rigsby, Esquire Post Office Box 11188 Tallahassee, Florida 32302 HILLSBOROUGH HEALTHCARE LTD. W. David Watkins, Esquire Oertel & Hoffman, P. A. Post Office Box 6507 Tallahassee, Florida 32314-6507 HEALTH QUEST CORP. Charles N. Loeser, Esquire Assistant General Counsel 315 W. Jefferson Blvd. South Bend, IN 46601 Steven W. Huss, Esquire 1017 Thomasville Road Suite C Tallahassee, Florida 32303 HEALTH CARE AND RETIREMENT CORPORATION OF AMERICA Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302
The Issue Whether Rule 59C-1.036 constitutes an invalid exercise of delegated legislative authority, and; Whether the Agency's application form and scoring system utilized in the review of nursing home batch certificate of need applications constitute rules of the Agency as the term "rule" is defined in Section 120.52(16), employed in violation of Section 120.535, Florida Statutes (1993) and; Whether the disputed form and scoring system constitute an invalid exercise of delegated legislative authority.
Findings Of Fact The disputed rule in this case is Rule 59C-1.036(1), Florida Administrative Code, which provides in pertinent part: The community nursing home beds subject to the provisions of this rule include beds licensed by the agency in accordance with Chapter 400, Part I, Florida Statutes, and beds licensed under Chapter 395, Florida Statutes, which are located in a distinct part of a hospital that is Medicare certified as a skilled nursing unit. All proposals for community nursing home beds will be comparatively reviewed consistent with the requirements of Subsection 408.39(1), Florida Statutes, and consistent with the batching cycles for nursing home projects described in paragraph 59C-1.008(1)(l), Florida Administrative Code. The challenged rule is entitled "Community Nursing Home Beds," and also includes the "need methodology" for determining the need for community nursing home beds and specifically: regulates the construction of new community nursing home beds, the addition of new community nursing home beds, and the conversion of other health care facility bed types to community nursing home beds... Also pertinent to this case, the challenged rule provides: The Agency will not normally approve applications for new or additional community nursing home beds in any agency service subdistrict if approval of an application would cause the number of community nursing home beds in that agency subdistrict to exceed the numeric need for community nursing home beds, as determined consistent with the methodology described in paragraphs (2)(a), (b), (c), (d), (e), and (f) of this rule. The challenged rule has the effect of, among other things, requiring nursing homes and hospitals who seek to operate skilled nursing facility beds to file applications for community nursing home beds in the same batching cycle, compete against each other for those beds in nursing home subdistricts and be subject to the need methodology applicable to nursing home beds. The Agency has not developed a need methodology specifically for Medicare certified distinct part skilled nursing units. In 1980, the Agency's predecessor, the Department of Health and Rehabilitative Services, attempted to promulgate rules with the same effect of the rules challenged in this case. In Venice Hospital, Inc. v. State of Florida, Department of Health and Rehabilitative Services, 14 FALR 1220 (DOAH 1990) 1/ the Hearing Officer found the challenged rule in that case to be invalid and concluded, as a matter of law, that, with respect to the previous proposed rule: The competent, substantial evidence shows that these proposed rules are not reasonable or practical and will lead to an illogical result. There exists an inadequate factual or legal basis to support the forced inclusion of hospital-based skilled nursing beds into the community nursing bed inventory. In the 1990 challenge to the previously proposed rule, the Hearing Officer concluded that the proposed rule in question was an invalid exercise of delegated legislative authority, but also found that, from a health planning standpoint, reasons existed for and against the inclusion of hospital-based skilled nursing units within the nursing home bed inventory. In the instant proceedings, the Agency concedes that the challenged rule and the previous proposed rule are substantially identical. In this case, the parties defending the challenged rule presented several facts, many of which seek to establish changed circumstances since 1990, as evidence of a rational basis for the inclusion of hospital-based skilled nursing units within the nursing home bed inventory. Facts Established Which Arguably Support the Validity of the Challenged Rule Although the term "subacute care" does not have a generally accepted definition, this term is often applied to that care provided patients in skilled nursing units. Subacute care is an emerging and developing area of care which covers patients whose medical and clinical needs are higher than would be found in a traditional nursing home setting, but not so intense as to require an acute medical/surgical hospital bed. Subacute care is a level of care that is being developed to bridge a gap between hospital and traditional nursing home care and to lower the cost of care to the health delivery system. Both hospitals and nursing homes operate Medicare-certified distinct part skilled nursing facility units. The same criteria, including admissions criteria, staffing requirements and reimbursement methodologies, apply to such skilled nursing units, in hospitals and freestanding nursing homes. The patient population served in such units is primarily a population which comes to either a hospital or nursing home-based unit from an acute care hospital stay. This population group has a short length of stay in the Medicare distinct part unit and can be rehabilitated within a certain period of time. Skilled nursing units in hospitals and those in freestanding nursing homes are competing for the same patient population. Both hospitals and nursing homes are aggressively entering the subacute care market. There are some nursing homes which provide a level of subacute care equal to that provided by hospitals. As a general rule, the staffing, clinical programs, patient acuity and costs of care for patients do not substantially vary between skilled nursing units in hospitals and such units in freestanding nursing homes. In the past two or three years, the number of Florida nursing homes which compete for skilled unit patients has increased. In applications for skilled nursing unit beds, the services proposed by hospitals and those proposed by nursing homes are generally similar. Medicare-certified distinct part units in both freestanding nursing homes and hospitals are certified to provide the same nursing services. The types of services and equipment provided by hospital skilled nursing units and nursing home skilled nursing units are similar. There has been an increase in subacute care in the past five years. The average length of stay for patients treated in Medicare-certified distinct part nursing units in hospitals and in such units located in freestanding nursing homes is similar. The federal eligibility requirement for Medicare patients in hospital- based and in freestanding nursing home distinct part skilled nursing units are the same. Some skilled nursing units which are located in nursing homes have historically received patient referrals from hospitals. When these referring hospitals develop distinct part Medicare certified skilled nursing units, the nursing home skilled nursing units tend to experience a decline in occupancy. Uniform need methodology is developed in part based upon demographic characteristics of potential patient population. Nursing home bed need methodology utilizes changes in population by age groups over age 65 to project need for beds. Both hospital-based skilled nursing units and nursing home-based units serve substantial numbers of Medicare-eligible patients who are 65 years of age and older. Population health status is also utilized in developing uniform need methodologies. The health status of service population for Medicare units in freestanding nursing homes is, as a general rule, the same as the health status of population served in such units located in hospitals. The intent behind the process of reviewing CON applications from hospitals seeking skilled nursing unit beds and nursing homes seeking such beds is to reduce the risk of overbedding and duplication of services. Overbedding and duplication of services have the tendency to result in excessive costs and can result in deterioration of quality of care. Medicare admissions to nursing homes and Medicare revenue to nursing homes have increased in the past several years. Data also indicates that nursing homes are beginning to provide more intensive care for patients in skilled nursing units. The prevalence of freestanding nursing home Medicare-certified skilled nursing units has substantially increased in the past three years and this growth trend is expected to continue. Facts Established Which Demonstrate That the Challenged Rule Should be Declared Invalid The challenged rule requires a hospital seeking Medicare-certified skilled nursing unit beds to be comparatively reviewed with nursing home applications seeking all types of nursing home beds. There is no separate nursing home licensure bed category for skilled nursing unit beds. The Agency's inventories of freestanding nursing home beds do not identify Medicare-certified skilled nursing beds. Once an applicant to construct a nursing home opens the nursing home, the applicant does not need a separate CON to designate beds as a Medicare- certified skilled nursing unit. According to the AHCA's own witness, a freestanding nursing home can internally change its categories at any time without CON review. Pursuant to statute and agency rule, however, hospitals must obtain a CON to change the category of even one bed. 2/ Although a hospital seeking hospital licensed Medicare-certified skilled nursing beds is compelled by Rule 59C-1.036(1), Florida Administrative Code, to compete against all nursing home applicants and all nursing home beds in a batched review, it faces totally different standards of construction, operation and staffing after approval. Rule 59C-1.036(2), Florida Administrative Code, is the nursing home bed need formula. This formula does not result in an estimate of need for skilled nursing unit beds and projects need for total community nursing home beds only. There is currently no bed need methodology (hospital or nursing home) to ascertain the need for Medicare certified skilled nursing unit beds. The Agency's inventories of freestanding nursing home beds do not separately identify Medicare-certified skilled nursing home beds in nursing homes. All that is shown is whether the beds are "community nursing home beds" or "sheltered nursing home beds." The Agency has not established how, under this inventory and regulatory scheme, it controls overbedding in Medicare- certified skilled nursing units within a specific district or subdistrict since the only such beds shown on the inventories are those in hospitals. It is unreasonable and illogical to compare the need for hospital- based Medicare-certified skilled nursing unit beds with the need for all community nursing home beds. Under the present circumstances a reasonable comparison might be drawn between need for hospital-based skilled nursing unit beds and freestanding nursing home skilled nursing unit beds, but the AHCA rules do not currently provide for such a comparison. Determining the need for hospital-based skilled nursing unit beds by comparing such beds to all nursing unit beds constitutes poor health planning. Such hospital-based skilled nursing units do not provide similar services to similar patients when compared to all community nursing home beds and it is neither logical or reasonable to comparatively review the need for such services. The challenged rule also requires hospital applicants for skilled nursing unit beds to compete with nursing homes within the nursing home subdistrict. The Agency by rule divides districts differently for nursing homes than for hospitals. Thus, some hospitals' skilled nursing unit beds are comparatively reviewed against nursing home beds of all kinds and against hospital skilled nursing beds which are not within the same hospital subdistrict. As a general statement, the treatment profiles for patients in Medicare-certified skilled nursing units in hospitals and those for patients in nursing homes skilled nursing units are similar. There is, however, a distinct part of such patient population which must be treated in a setting which provides immediate access to emergency care. The provision of immediate emergency care is not typically available in nursing homes and nursing home patients in need of such care usually have to be readmitted to hospitals. Care available in hospitals (physicians and registered nurses on duty at all times, laboratory and radiation services available on premises) is sufficiently different to demonstrate that Medicare-certified skilled nursing units are not comparable to such units in freestanding nursing homes in all aspects. This distinction is clearly significant to patients who need emergency services because of age, multiple illnesses, and other conditions. Chapter 395, Florida Statutes, is the hospital licensure statute. Section 395.003(4), Florida Statutes, provides: The Agency shall issue a license which specifies the service categories and the number of hospital beds in each category for which a license is received. Such information shall be listed on the face of the license. All which are not covered by any specialty-bed-need methodology shall be specified as general beds. The Agency equates "acute care" beds with general beds. By rule, the Agency has excluded from the definition of "acute care bed": neonatal intensive care beds comprehensive medical rehabilitation beds hospital inpatient psychiatric beds hospital inpatient substance abuse beds beds in distinct part skilled nursing units, and beds in long term care hospitals licensed pursuant to Part I, Chapter 395, Florida Statutes. By Agency rule, a hospital specialty need methodology exists for all categories of hospital beds excluded from the acute care bed definition except category (e) beds in distinct part skilled nursing units and (f) long term care beds. The Agency is currently drafting a specialty hospital bed need methodology for long term care beds. The only licensed bed category for which the Agency has developed no specialty bed need methodology (existing or in process) is hospital beds in distinct part skilled nursing units. At hearing, the Agency presented the testimony of Elfie Stamm who was accepted as an expert in health planning and certificate of need policy analysis. Through Ms. Stamm's testimony, the Agency attempted to establish that the numeric need methodology established by the challenged rule includes a calculation of the need for both nursing home and hospital-based distinct part skilled nursing units. This testimony was not persuasive on this point. Indeed, Ms. Stamm acknowledged that the disputed rule does not result in an estimate of need for skilled nursing units or beds. The parties to this proceeding have attempted to establish that Medicare admission statistics in Florida support either the validity or invalidity of the challenged rule. Based upon the Medicare-related statistical data placed in the record in this case, it is more likely than not that, as of 1992, in excess of 90 percent of utilization of hospital-based skilled nursing units is Medicare covered and that the percentage of Medicare (as opposed to Medicaid) patient days in all freestanding nursing home beds was only seven percent. In this respect, it is not logical or reasonable to comparatively review the need for hospital-based Medicare-certified skilled nursing unit beds with all community nursing home beds. 47. The Agency lists Sections 408.15(8), 408.34(3)(5), 408.39(4)(a) and 400.71(7), Florida Statutes, as specific statutory authority for the challenged rule. None of the cited statutory provisions provides specific authority for the Agency to require hospitals seeking hospital licensed beds in Medicare- certified skilled nursing units to be reviewed against all community nursing home beds. There is no evidence of record in this case of any federal law requiring such review and no evidence to suggest that Medicare reimbursement is affected by such a review one way or the other. In this case, the competent, substantial evidence shows that the disputed rule is not reasonable or rational. The Agency has not developed a specific numerical need methodology providing for a reasonable and rational basis to comparatively review the need for Medicare-certified skilled nursing unit beds in hospitals or in nursing homes. There exists an inadequate factual or legal basis to support the forced inclusion of hospital-based skilled nursing units into the inventory of all community nursing home beds. Form 1455A Agency Form 1455A and the scoring methodology are used by the Agency in the review of applications for community nursing home beds and for skilled nursing facilities within distinct parts of a hospital. Various parties in this proceeding assert the Form 1455A and the scoring methodology constitute unpromulgated rules which are invalid pursuant to Section 120.535, Florida Statutes. Any party filing a letter of intent concerning community nursing home beds receives from the Agency an application package including Form 1455A and instructions. The instructions are an integral part of the application. Also included as part of the application are 34 pages of instructions on how the Agency scores the application. Form 1455A has general applicability to all applicants for community nursing home beds and for skilled nursing home facilities within distinct parts of a hospital. Form 1455A contains numerous provisions of mandatory language which facially provides that it must be submitted with applications for CON. The Agency acknowledges that such mandatory language predated the passage of Section 120.535, Florida Statutes, and considers the language obsolete. The Agency intends, in the future, to edit the form to strike "misleading language". Form 1455A is not incorporated in any rule of the Agency and has not been promulgated as a rule. Applications are reviewed based upon questions in Form 1455A. Applications are also reviewed against a numerical scoring system developed with the form. The form requires that the applicant certify that it will obtain a license to operate a nursing home. The form also requires certification that the applicant participate in Medicaid services which are not applicable to hospitals. These and other portions of the form are not rationally or reasonably related to the operation of a hospital-based distinct part skilled nursing unit. In the review and analysis of the applications at issue, a "scoring methodology" is used by the Agency. The scoring matrix is utilized to put numerous applications filed in the same agency district in perspective in terms of numerical ranking and how the applications compare to each other. The State Agency Action Report is the end product of the Agency review of the applications. The scoring system is used in the review proceedings and is utilized and included in at least some of the State Agency Action Reports. Form 1455A and the scoring methodology are utilized by the Agency in a manner that has general application and which forms significant components of a process which creates rights, and which implements, interprets, and prescribes law and Agency policy. At the final hearing, the Agency presented the testimony of Ms. Elizabeth Dudek, the Agency Chief of the Certificate of Need and budget review offices. Ms. Dudek was accepted as an expert in CON policy and procedure. Ms. Dudek provided an overview of the process whereby the challenged form and scoring system are used by the Agency in analyzing CON applications. Ms. Dudek testified that the Agency does not believe the form and scoring system meet the requirements of a rule. Ms. Dudek considers the form and system to be tools used to elicit responses in a standardized format. The fact that an application receives a high score based on the scoring matrix does not mean that the application will be approved. Ms. Dudek is of the opinion that the form and scoring system do not competitively disadvantage hospitals competing with nursing homes. Ms. Dudek cited the most recent batch cycle in which twelve hospitals were awarded distinct part nursing units, although these hospitals' applications did not receive the highest scores. Ms. Dudek's testimony was not persuasive in the above-referenced areas. As currently structured and utilized by the Agency, the form and the scoring system at issue are not reasonable or rational. There is not an adequate factual or legal basis to support the use of the form or the scoring system in analyzing applications for CON files by hospitals for distinct part Medicare-certified skilled nursing units.
The Issue Whether Petitioner's application for a Certificate of Need ("CON") authorizing establishment of a 60-bed sheltered nursing home adjacent to a 75-unit life care residential facility in HRS Health District IX, Palm Beach County, Florida, should be granted (in whole or in part), or denied.
Findings Of Fact I. The Proposal Petitioner is a not-for-profit Florida corporation organized to provide retirement and nursing home services to aged Episcopalians in the three Episcopal Dioceses in Florida: Central, Southwest and Southeast. Since 1951, Petitioner has operated a life care facility or community, with adjacent nursing home, in Davenport, Florida. It has 71 residential (well-care) units and 60 nursing home beds, operates at nearly full capacity, and has a 3-to-5 year waiting list. There are 128 residents at the facility, 57 of whom live in the nursing home. Petitioner now seeks to replicate the (Davenport) Crane Gray Inn in Lake Worth, Palm Beach County, Florida, in order to better serve the needs of older Episcopalians. The life care community, consisting of a 60-bed skilled nursing home and a 75- unit retirement facility, would be convenient to the residents of the Southeast Florida diocese, but is expected to draw residents throughout Florida. The 60-bed skilled nursing home, for which a CON is required, would be a one-story building measuring 19,100 square feet. Initially estimated to cost $1,705,515, or $68.06 per square foot to construct and equip, actual bids subsequently received have reduced the expected cost to $60.00 per square foot. The total cost of the entire project, including the well- care and nursing-care facilities, is estimated to be $3,600,000. Petitioner intends to obtain certification of the entire project as a continuing care facility in accordance with Chapter 651, Florida Statutes. In March, 1985, the State of Florida Department of Insurance and Treasurer issued Petitioner a provisional license to operate the proposed facility as a continuing care facility.2 Petitioner intends to comply with the reporting and escrow requirements which Chapter 651, Florida Statutes, imposes on life-care facilities. The admission requirements for the proposed life care facility are the same as those which have applied to the Davenport Crane Gray Inn ("Inn"). Before admission, a resident must execute a continuing care or "Resident's Agreement" with the Inn. Under that agreement, in exchange for the future maintenance and support of the resident at the Inn for the remainder of the applicant's life, the applicant transfers all of his or her real and personal property to the Inn. The resident also agrees to execute a will to the Inn to effectuate the transfer of property then owned or later acquired. No entrance fee is charged. The Inn promises to provide the resident with a personal living unit (including all utilities); three meals a day; health care (including medicine, physician fees, dental care, and hospitalization); recreational, educational, social and religious programs; funeral and burial costs; a monthly allowance for personal expenses; weekly maid service and laundry facilities; and transportation for shopping trips and other activities. Either party may terminate the agreement under specified conditions. On termination, the Inn will transfer back to the resident the property previously conveyed, or a sum equal to the value thereof, without interest and deducting therefrom an amount sufficient to compensate the Inn for the resident's care and support while at the Inn. If the resident becomes eligible for social security or government assistance, such assistance is paid to the Inn for the support of the resident. If the resident dies while at the Inn, all property transferred to the Inn on admission is considered to have been earned and becomes the property of the Inn. (Joint Exhibit I) There is no requirement that a prospective resident have any assets and applicants are ostensibly admitted without regard to their financial condition. (However, in the past ten years, only two Medicaid patients or indigent residents have been admitted to the Davenport Inn.) An account for each resident is maintained, to which earnings are transferred and costs of care deducted. Residents without assets are treated the same as those with assets and the account information is treated confidentially. Over time, the accounts of residents are depleted. Currently, 68% of the patients at the Davenport nursing home are Medicaid patients. The per diem rate reimbursed by Medicaid is $51.25. No resident has ever been transferred for lack of funds. However, the average resident, when admitted, transfers assets worth approximately $24,000 to the Inn. Prospective residents of the proposed nursing home will ordinarily come from the adjacent well-care retirement units. The purpose of the nursing home is to serve the individuals residing in the life care community who, as their needs intensify, require skilled nursing care. Only on rare occasions will an individual be admitted directly to the nursing home without first residing in the well-care portion of the life care community. At the Davenport Inn, this has happened only once. Petitioner acknowledges that prospective nursing home patients may come from eligible Episcopalians who reside in nursing homes in the local community. Actual residence in the well-care units will not be a prerequisite to admission to the nursing home. However, no person has been, or will be, admitted to the nursing home without first executing a continuing care agreement. Direct admission of nursing home patients from outside the life care center is permissible under "sheltered nursing home" rules, as construed by HRS officials. Robert E. Maryanski, Administrator of HRS' Community Medical Facilities Office of Health Planning and Development (which implements the CON licensing process) advised Petitioner's counsel on September 20, 1985, that under HRS rules, patients may--if necessary--be admitted directly to the proposed nursing home without first residing in the well-care units. Individuals who have paid for membership with the particular life care center, finding themselves in immediate need of nursing home care, may be directly admitted into the nursing home. (Petitioner's Ex. No. 11) If HRS rules were interpreted otherwise, perfunctory stops in well-care units "on the way to the nursing home" would be encouraged, a practice which would burden patients and serve no useful purpose. Although Petitioner's CON application does not specify a minimum age for admission to the life care community, Petitioner's life care centers are oriented toward members of the Episcopal Protestant Churches who are at an advanced age and "need a place to go for their last days... [In] a lot of cases they have outlived their own children." (TR-34) The average age of the patients in the Davenport nursing home is 89; in the well-care retirement units, 82. The average overall age of members of the Davenport life care community is 84 or 85. Approximately one-half of the residents eventually need nursing care. At Davenport, the minimal age for admission is 71. (TR- 12) According to a member of the Board of Directors of Petitioner, only patients 70 or over will be admitted to the life care community proposed for Palm Beach County. (TR-35) There is already a waiting list of ninety (90) qualified persons for the proposed life care community in Palm Beach County. Out of that figure, only five people currently require nursing home services. After executing the standard continuing care agreement, these five people would be admitted directly to the nursing home facility, without first residing in a well-care unit. Waiting lists are compiled six times a year, with the most recent completed only a week prior to hearing. Petitioner does not intend to utilize all the nursing home beds, since it must keep some beds open to meet the needs of well-care residents. Nursing home beds at the Palm Beach facility would be filled gradually, approximately two per week, so it would take six months to reach optimum capacity. The parties stipulate that all criteria for evaluating CON applications under Section 381.494(6)(c) and Rule 10-5.11, Florida Administrative Code, have been met or are inapplicable except for the following: The long-term financial feasibility of the project, the availability of operating capital, and the economic impact on other providers (Section 381.494(6) (c)8, 9, Fla. Stat.); The cost of construction (Section 381.494(6) (c)13, Fla. Stat.); The ratio of beds to residential units (Rule 10-5.11(22)(a), Fla. Admin. Code). II. Financial Feasibility The historical track record of the Davenport facility over the last 13 years and projections for the proposed facility demonstrate that the proposed nursing home is financially feasible and that Petitioner has, or can obtain sufficient funds to meet its operating costs. Moreover, as a licensed Chapter 651 life care facility, the financial viability of the entire operation will be monitored by the Department of Insurance. Assets available to support the costs of operating the life care community include income and assets derived from incoming residents; estates and bequests; and a fund of 1,300,000.00, functioning as an endowment, to be placed in escrow. The cost for a resident in the well-care units is approximately $27 per day; the cost in the nursing home is approximately $54 per day. Although there is a deficit of approximately $300 per month in the well-care section of the Davenport facility, there is no deficiency in the nursing home. Medicaid payments are sufficient to cover the costs of providing nursing care. Philanthropy should not be required to sustain the operation of the proposed nursing home. Petitioner has never had difficulty in obtaining financial support for its Davenport well-care units. More than one-half of the operating deficit for the well-care units was met by funds at work and did not depend on philanthropy. There are over 200 Episcopal Churches in the three Florida dioceses with 90-100,000 parishioners, who have been responsive to fund- raising efforts in the past. Last year, Petitioner raised $693,000 from fund raising drives. It is reasonably expected that this source of financial support will also be available to support the proposed life care facility, including the nursing home. An endowment fund of $1,300,000 is also available. These funds will be made available to support the proposed life care community. In addition, each new resident contributes an average of $24,000, which is used to defray operating costs. Barnett Bank will finance construction of the project at one-half percent over prime. Petitioner intends to pay off the capital debt in two or three years. The land has already been acquired and some land preparation costs have been paid. Petitioner has expended over $800,000, to date, on the proposed life care community. Petitioner has $120, 000 on hand for the project, in addition to escrowed reserves. An HRS health care planner has misgivings about the financial viability of the project since Petitioner has relied on philanthropy to support its Davenport facility, and would rely on it to some extent to support the proposed facility. However, Petitioner projects that 77% of the nursing home patients at the proposed facility will be Medicaid eligible. Due to efficiencies in operation, Medicaid payments should be sufficient to cover the costs of nursing home patients at the proposed facility, just as they have been at the Davenport nursing home. The various sources of funds available to Petitioner--proven wholly adequate in the past--should be sufficient to cover the other costs of operation and ensure the continued financial viability of the nursing home, as well as the associated well-care units. III. Cost of Construction HRS contends that the initial estimate of construction costs for the proposed nursing home ($68.00 per square foot) is excessive when compared to other 60-bed nursing facilities, where the cost is approximately $10.00 less per square foot. But, through various cost-cutting measures, the cost of the project has now been reduced to approximately $60.00 per square foot, which is reasonable and in line with the other nursing home projects. IV. Ratio of Nursing Rome Beds to Residential Units Rule 10-5.11(22)(a), Florida Administrative Code, provides that HRS "will not normally approve an application for new or additional sheltered nursing home beds if approved would result in the number of sheltered nursing home beds that exceed one for every four residential units in the life care facility." The parties stipulate that, absent unusual or exceptional circumstances, this rule would preclude approval of more than 19 of Petitioner's 60 proposed nursing home beds. The proposed nursing home, like the Davenport facility it duplicates, will be unique, unusual or extraordinary, when compared with other nursing homes in Florida, due to the advanced age of its patients. No one under 70 will be admitted. The average age of its patients is expected to approach 89 with the average age of well-care residents approaching 82. Approximately one-half of the well-care residents will eventually require transfer into the nursing home. People of advanced age are more likely to require nursing home care. Based on Petitioner's historical experience at its Davenport facility, it is likely that 60 nursing home beds will be required to meet the needs of residents of the proposed well- care units. It has been shown that the proposed 60 nursing beds will be needed to serve the needs of well-care residents as they age and their health care needs intensify. That has been the case at the Davenport facility, where rarely has a patient been admitted to the nursing home who did not first reside in the well-care units. The proposed nursing home and life care center will draw patients and residents similar to those drawn by the Davenport facility--the state-wide applicant "pool" of both is expected to be the same. For this reason, the proposed nursing home should have no significant impact on the census of, or need for, community nursing homes in Palm Beach County. It appears that the rationale behind the four-to-one (residential units to nursing home beds) ratio of the HRS rule is that, under normal or ordinary conditions, only one nursing home bed will be required to serve the residents of four well- care units. In the instant case, actual experience has shown this assumption to be patently erroneous. If only 19 nursing home beds were allowed Petitioner--because of the ratio cast in HRS rules--it is likely that many well-care residents at the proposed life care center would be forced to find nursing care outside of the center. Displaced, placed in nursing homes distant from the life care community, such patients would lose close contact with spouses and friends. The HRS rule, embracing a numerical ratio for the norm, allows flexibility in particular situations which are shown to be abnormal. The circumstances of the instant case show it to be an abnormal situation, fully justifying approval of 60-beds sought, rather than the 19 otherwise permitted by the HRS rule.
Recommendation Accordingly, based on the foregoing, it is RECOMMENDED: That Petitioner's application for a CON authorizing establishment of a 60-bed nursing home in Palm Beach County be GRANTED; and that the CON, on its face, state that issuance is predicated on Petitioner's statement of intent (during Section 120.57(1) licensing proceedings) that (i.) no one under 70 years of age will be admitted to the life care community (including both well-care and nursing-care sections) and (ii.) that, only in relatively rare and unusual cases, will patients be directly admitted to the nursing home without first residing in the well- care residential units of the life care communities.3 See, Section 381.494(8)(g), Florida Statutes (1985). DONE and ORDERED this 14th day of March, 1986, in Tallahassee, Florida. R. L. CALEEN, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 1986.
Findings Of Fact The Parties The Agency For Health Care Administration (AHCA) is responsible for administration of the certificate of need (CON) program pursuant to section 408.034, Florida Statutes. Clearwater Land Company (CLC) is a Florida corporation which owns, operates, and is the license holder of the Regency Oaks Continuing Care Retirement Community (Retirement Community) and Regency Oaks Nursing Center (Regency Oaks) located in Clearwater, Florida. The Johnson Ezell Corporation is a closely held private corporation owned by two shareholders who are also shareholders of CLC. Johnson Ezell provides management, financial services, data processing services, collective purchasing, and other aspects of management for CLC. CLC and Johnson Ezell Corporation are affiliates; two shareholders of Johnson Ezell comprise two out of the four shareholders of CLC. Johnson Ezell is also the contract manager of CLC. Three of the four shareholders of CLC own 100 percent of two other large continuing care retirement communities (CCRC) in Florida. One of these communities, located in Port Charlotte, is known as South Port Square. A second retirement community, Lake Port Square, is in the mid-development stage in Leesburg, Lake County, Florida. Typically, CCRCs offer a broad spectrum of services or a continuum of care ranging from independent living apartments, to assisted living, to skilled nursing which often includes home health care. South Port Square has 440 independent living apartments in which the holders of continuing care agreements reside. South Port also has a 120-bed community skilled nursing facility, originally CON approved in 1984. There are 140 additional units of assisted living. The first phase of the 240 independent living units opened in October of 1987, and the second and final phase of 200 continuing care apartments opened in October of 1990. Lake Port Square currently has 200 continuing care apartments with 205 additional apartments currently under construction. Lake Port also has a 60-bed skilled nursing facility which was originally licensed as a sheltered nursing home facility. It is now a licensed community nursing home. Lake Port also has 35 units of assisted living. Beverly Savana Cay Manor, Inc., is a wholly-owned subsidiary of Beverly Enterprises-Florida, Inc., which is a wholly owned subsidiary of Beverly Enterprises, Inc. The Beverly family of companies operates 838 nursing homes in 48 states. It is the largest provider of long-term care services in the country. Beverly Savana Cay Manor will receive substantial financial, managerial, operational and program support from Beverly Enterprises Florida's regional office. These are specific services which will be available to Beverly's proposed project from its parent's Florida regional office: A nurse consultant who is a former director of nursing will monitor the overall performance of the nursing staff and will assist in maintaining quality assurance and proper staffing patterns; a registered dietician will provide consulting dietary services; and a financial consultant will monitor and assist with the orientation of staff on all financial matters, including implementation of the billing system for Medicare and Medicaid. An area manager who is a licensed nursing home administrator will coordinate the support services. Other consulting services available through the Florida regional office include: an activities consultant, a trained social services consultant, a rehabilitation program coordinator, a rehabilitation clinical coordinator, an accounting-finance department, and a quality assurance department that conducts inspections and reviews the facility's compliance with governmental requirements. The regional maintenance department will oversee the care and maintenance of the physical plant. The regional purchasing department coordinates purchases of food, chemicals, and other items more economically purchased in large volumes. The human resources department assists in the implementation of uniform personnel and wage policies, the training of supervisory and managerial personnel, and the monitoring of facility participation in government programs. CLC Project: Regency Oaks CLC filed two CON applications: In CON Application No. 7503 (now withdrawn), it requested approval of a new 120-bed community nursing home through the conversion of 60 sheltered nursing home beds and the addition of 60 community nursing home beds. CLC also filed CON Application No. 7503P, the subject of this de novo review, to convert Regency Oaks Nursing Center's 60 sheltered nursing home beds to 60 community nursing home beds. CLC's project calls for a reclassification of existing services and assets. There is no capital required, no renovation costs, and no new equipment. The project basically involves moving from one state classification category to another, i.e., sheltered nursing home beds to community nursing home beds. The project under consideration involves Regency Oaks Nursing Center, a 60-bed facility which commenced operations and was licensed in August of 1991. Regency Oaks is a part of a 40-acre campus. The Regency Oaks Retirement Community has approximately 200 units located in a separate five-story structure which also commenced operations in August or September of 1991. There are an additional 201 independent living units in a separate phase that is also located in a separate five-story structure on the campus that is currently under construction. When fully developed, the retirement community's independent living units will be roughly equivalent in size and substantially the same as the operations at its sister communities at Lake Port and South Port. Sheltered nursing home beds are often located in a CCRC. A continuing care provider is authorized to provide a certain number of sheltered nursing home beds based upon the number of independent living apartments that are being constructed, operated and licensed pursuant to Chapter 651, Florida Statutes. Chapter 651 first authorized CCRC's to apply for and receive sheltered nursing home beds in 1986. A CCRC is regulated by statute and markets and provides services pursuant to a continuing care agreement in which the continuing care resident is provided with shelter, food, and some element of health care in exchange for a specified lump sum payment of money and the payment of a monthly maintenance or service fee. The business was largely unregulated until major revisions were incorporated into Chapter 651. Pursuant to section 651.118(4), Florida Statutes, Regency Oaks originally applied for and was granted a CON to construct a 60-bed sheltered nursing home based upon the ratio of one sheltered nursing home bed for every four residential units in the retirement community. The prevailing wisdom in the early 1980's, when Chapter 651 was enacted, held that the 1:4 ratio was appropriate. The underlying assumption was the utilization of the sheltered nursing homes by the residents in the retirement community on a 1:4 ratio should result in a fully occupied and financially feasible nursing center. The ratio also ensured that residents could gain access to nursing home care. In the last half of the 1980's the prevailing wisdom held that the 1:4 ratio was still appropriate but only after allowing for several years of "aging in place" by the residents of the retirement community. To provide needed occupancy during the initial years of operation, subsection 651.118(7) allows the sheltered nursing home to admit residents from outside the resident community for a period of up to five years from the date of the issuance of the original license. For the first five years of operation, the nursing home beds are available to residents and nonresidents of the senior living community. However, at the end of the five year period, the nursing home is not allowed to accept any additional patients from outside the senior living facility because residents alone are expected to need the beds. In 1986, CLC had no intention of converting its CON approved beds to community nursing home beds. For several reasons, including the general health of retirement community residents and their willingness to pay for home health services in order to stay in their own apartment, the 1:4 ratio is no longer a reasonable projection of sheltered nursing home bed need. In the last two years at Regency Oaks, there was an average daily census of 3.5 to 5 patients in Regency Oaks originating from the independent living facility. Of the 200 units, an average daily census of 5 patients converts to a 1:40 ratio rather than the 1:4 ratio that was included in the sheltered bed model. Currently over 90 percent of Regency Oaks' patient days are patients who do not live in the senior housing facility. Without the approval of this project, by September 1996, Regency Oaks will no longer be able to admit outside community residents. Based upon current and projected ratios, this will have an impact on the ability of Regency Oaks to continue to operate in an economical and financially feasible manner. CLC's experience at South Port Square illustrates this problem. The first phase of South Port's independent living apartments has been in operation for 7.5 years. Phase Two has been in operation more than 4.5 years. The demographics of the population area served by Regency Oaks and South Port are almost identical. The South Port community has had 7.5 years to "age in place." For the first ten months of South Port's 1994 fiscal year, 27 percent of the patient days of the South Port's 120-bed skilled nursing center were attributable to contractual requirements of residents of the independent living apartments. Twenty-three percent of the patient days were attributable to campus residents (non- contractual) who were either private pay or some other source of payment. At the top end of the scale, Regency Oaks expects to experience between 25 percent to 30 percent, and up to 40 percent, of its admissions from independent living apartments on campus. CLC does not intend to apply for new sheltered nursing home beds to complement the additional 201 independent living units now under construction. According to its qualified health care planning expert, Mark Richardson, at full build-out, CLC will need to hold (at the high end of the range) 30 beds to fulfill its contractual obligations to its life care residents. (Transcript, pp. 332-3) At full build-out, the approximately 400 independent living units will house 550 to 600 residents, all eligible for nursing home care, when needed, under their continuing care agreements. Beverly's Project: New Crown Beverly proposes a new, 120-bed community nursing home in the Seminole Park area of Pinellas County (New Crown) using 66 beds from the fixed need pool and 54 beds made available from the delicensure of its existing Crown Nursing Center (Old Crown). Granted by CON No. 7505, Old Crown originally was constructed as a motel in the 1940's and has been a nursing home since the 1960's. Although Old Crown currently holds a superior license, the facility is outmoded and is reaching the end of its useful life as a nursing home. There is no room to expand or renovate the existing physical plant, and it is perpetually in need of costly repairs. It is not in compliance with modern building codes and is allowed to continue to operate only by virtue of grandfather clauses. Resident rooms are undersized, and corridors are only 5.5 feet wide rather than the 8 feet currently required. Room doors are narrower than those required in new facilities and will not accommodate moveable beds. Bathroom doors will not accommodate wheelchairs, and there is no central air conditioning. The floor plan also is inconsistent with modern nursing home standards. The building is multistory with outside stairs. This configuration is highly undesirable because it restricts the freedom of movement of residents who are physically impaired, makes it difficult to monitor resident movement, requires extra nursing stations, and slows evacuation in an emergency. Old Crown has one four-bed ward and eight three-bed wards. Space limitations at times require that men and women reside in the same ward. There is no room for specialized services such as adult day care, subacute services or separate Alzheimer's care. Nursing stations are undersized and medical/chemical supplies must be kept in an outdoor shed. Laundry space is inadequate, and linens must be stored outside and in hallways. One room serves as the employee break room, the uniform storage room and the beauty parlor. The kitchen is too small and there is inadequate food storage. The dining area is located in the old motel lobby. Outdoor activities must be conducted in the back parking lot and there is no outdoor ambulation/recreation space. There is only one small space for physical, occupational and speech therapy, requiring that therapies sometimes be administered in hallways or bedside. This arrangement is particularly undesirable for residents receiving speech therapy, as they tend to be self- conscious about their inability to speak, eat and swallow. There is only one activities room, and it is located on the second floor. The second floor contains asbestos, and removal would require the evacuation of the entire second floor. In contrast, New Crown will meet or exceed all existing licensure requirements for construction and safety codes. It will contain 53,310 square feet of space on a single story, and is designed to optimize operational efficiency, minimize institutional effects, and emphasize a home-like atmosphere. All areas within the facility will meet federal guidelines for handicapped accessibility and use. Corridors will be 8 feet wide, and the doors to resident rooms will accommodate moveable beds. These features will eliminate the movement, monitoring and safety shortcomings inherent in Old Crown's two- story motel floor plan. There will be plenty of storage, a modern kitchen and laundry facility. Residents at New Crown will reside only in private and double occupancy semi-private rooms. Each room will feature private toilets, telephone, cable T.V., and individual thermostat controls. Homelike furnishings will be used throughout the facility. There will be two large day rooms adjacent to the nursing stations with access to three enclosed outdoor courtyards, a large restaurant-like dining area, a secured patio and an activity room. The day rooms will have aquariums, large screen televisions and VCRs. A large solarium/greenhouse will be located adjacent to the dining area. AHCA's approval of Beverly's application for New Crown is expressly contingent on the approval of expedited CON application 7505 to delicense Old Crown. This CON has been granted. Beverly will not allow operation of the two facilities to overlap. Old Crown will remain fully operational until New Crown is operational and placement is made for every Old Crown resident. Beverly will transfer Old Crown residents to New Crown, and will assist residents who choose not to move to New Crown in making whatever other arrangements the resident chooses. No resident will be "put out on the street." Compliance With The Local Health Plan The Health Council of West Central Florida, Inc. has identified three preferences, the first of which is a preference to new nursing homes which commit to serve Medicaid patients in proportion to the average number of Medicaid residents in existing nursing homes in the "health service area." That relevant average (subdistrict) is 55.32 percent. Beverly commits to 56 percent total Medicaid days for New Crown; Old Crown is at 59.24 percent; and other Beverly facilities have a high record of Medicaid services (nationally at 68.5 percent, and in Florida an average of 66 percent). CLC commits to 31.58 percent, which is a reasonable expectation since the Medicaid days will be generated primarily, if not exclusively, from patients drawn from the community at large and not from the independent living facility. CLC's Regency Oaks market is dominated by residents and potential residents from a narrow service area with higher financial resources than the southern end of Pinellas County. The second allocation factor gives a preference to applicants who propose specialized services, including adult day care, to meet identified needs. Beverly has conditioned its application on the provision of a wide range of specialized services. New Crown will provide distinct subacute care in a 20-bed Medicare certified subacute unit with four ventilator-dependent beds, and comprehensive rehabilitation in a 3,404 square foot physical therapy site with physical therapy gym, hydrotherapy area, "activities of daily living" room and outdoor ambulation court. It also will provide adult day care services in a 987-square foot Adult Day Care Center, Alzheimer's care in an 18-bed Alzheimer's wing that includes separate dining/activity areas and an enclosed courtyard, respite care services, care to individuals with mental disorders, care to individuals who are HIV+ or who have AIDS, and hospice care. Beverly also will make a $10,000 grant to Florida State University School of Nursing for research into gerontological issues in the nursing home environment and will make its facility available to nursing students for clinical rotations. CLC proposes intensive rehabilitation services, respite care, subacute care, hospice care and care to mental health patients. Its current facility has not provided respite care and it does not propose a separate unit for Alzheimer's patients. The third local health plan allocation factor gives preference to applicants who demonstrate an intent to serve HIV-infected patients. Both applicants commit to provide AIDS and HIV-positive health care. Beverly has documented its experience with these patients at its Old Crown and other facilities. CLC simply has stated that it does not discriminate in admissions of these patients; it also asserts that it has no idea which, if any, of its patients have been HIV-positive or AIDS patients since that information is not disclosed by the patient. Compliance With The State Health Plan The State Health Plan contains twelve allocation factors. Factor 1 gives preference to applicants locating in areas within subdistricts with occupancy rates exceeding 90 percent. Pinellas County's occupancy rate of 90.23 percent qualifies both Beverly and CLC. Allocation Factor 2 gives preference to applicants who propose to serve Medicaid residents at the subdistrict Medicaid average. Exceptions are considered for applicants who propose the development of multi-level care systems. The applicants' Medicaid commitments are addressed above in paragraphs 23 and 24. The applicants' experts disagree on whether the Regency Oaks facility is truly "multi-level," as contemplated by the exception. The availability of different levels of care: independent living, assisted living and nursing home, on a single campus does represent a "multi-level" care system. State Health Plan Allocation Factor 3 gives preference to applicants proposing specialized services to special needs residents, including AIDS and Alzheimer's residents and the mentally ill. Both applicants, as discussed in paragraphs 26-28, above, have described in detail their proposals for specialized services. Beverly's experience in the past and specific plans for discrete subacute, ventilator-dependent and Alzheimer's units lend credibility to its commitment to those specialized services. CLC's commitment is more general. Its proposed staffing is too low to provide the level of care proposed for New Crown's subacute unit, but its staffing would be increased as needed by the patient population. Regency Oaks has 12 Medicare certified skilled nursing beds in the general nursing home population. None can accommodate a ventilator- dependent patient. Allocation 4 encourages a continuum of services, including adult day care and respite care. Both applicants propose to meet this requirement of the State Health Plan. Again, Beverly's commitment is evidenced by a specific description of discrete programs, while CLC's plans are more general. CLC contends that there is "insufficient demand" in the area to support adult day care; Beverly proposes a 987 square foot "Adult Day Care Center" with its own staff, staff office and storage, to accommodate up to 8 guests, 8 a.m. to 6 p.m., five days a week. Day care guests will have an individual care plan prepared by professional staff and will have access to the full facility and its recreational, therapeutic and social services. Beverly will implement a respite program at New Crown and has such programs at its other facilities. CLC offers respite care but has never had a respite care patient. Allocation Factor 5 gives preference to applicants proposing facilities which provide maximum comfort and quality of care. Both applicants qualify for this preference with outstanding designs and programs. Both applicants propose therapeutic programs consistent with Allocation Factor 6. Specialized rehabilitation, restorative care and normalizing training are described in both applications and are committed to by the applicants. Both propose a more aggressive, intensive rehabilitation than other nursing homes in the area. The highest Medicaid per diem rate in Pinellas County is $100.74 (January, 1994). Inflated forward to 1996, the planning horizon, that rate becomes $113.00. New Crown's proposed rate of $100.14, and Regency Oaks' proposed rate of $102.75 (for 1995) do not exceed that highest rate (even when Regency Oaks' rate is inflated 5 percent for 1996). Both applicants are entitled to the preference in Allocation Factor 7. Both applicants qualify for the preference under Allocation Factor 8, as both enjoy the highest (superior) rating. Three of Beverly's four facilities, including Old Crown, currently hold superior licenses, and the fourth has been recommended for a superior license. Regency Oaks was eligible for a superior license shortly after issuance of its original license and actually received the superior license, after some logistical mix-up, in December of 1994. State Health Plan Allocation Factor 9 gives preference to applicants proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules. As a well-run existing facility Regency Oaks maintains appropriate staffing levels. The staffing proposed in its application omits one certified nurse assistant (CNA) on the 11:00 to 7:00 shift. The director of nursing monitors the patient population to assure that staff is added when needed. Beverly's proposed staffing plainly meets or exceeds standards, including statutory and regulatory requirements at all levels. Both Beverly and CLC use professionals from a variety of disciplines and both are entitled to the preference described in State Health Plan Allocation Factor 10. Likewise, both applications describe, and the applicants' experience bears out, a respect for residents' rights and privacy and a well- designed quality assurance and discharge planning program, as required in Allocation Factor 11. State Health Plan Allocation Factor 12 gives preference to applicants proposing lower administrative costs and higher resident care costs than the average nursing home costs in the district. As conceded by Beverly's expert health care planner, both applicants meet this preference criteria; however, Beverly's proposed administrative costs are lower, and patient costs are higher, than CLC's. Need and the Availability of Alternatives Nursing home occupancy rates in District V, subdistrict 2, Pinellas County, currently exceed 90 percent, and the need for 68 more nursing home beds in this district is undisputed. Evidence in this proceeding also established the need for such specialized services as subacute care (sometimes referred to as "step down" care), adult day care, HIV/AIDS care, Alzheimer's care and mental health care. Both applicants propose to meet a portion of the numerical need: Beverly with 66 new beds; and CLC with 60 beds converted from sheltered to community beds. Beverly's project more closely meets the numerical need; CLC concedes that some, and perhaps as many as 30, of its beds will be utilized by the residents of its independent living community. Both applicants propose outstanding programs for subacute care and other specialized services. As discussed above, Beverly's actual experience lends greater credibility to its commitment. Maintenance of the status quo in either case is not a viable alternative. Old Crown is only 54 beds; as of 1996, none of Regency Oaks' sheltered beds will be available for new community admissions. Without approval of one application or the other, the 68 bed need will remain wholly unmet. Availability of Resources, Including Staffing and Short-Term Funds Regency Oaks maintains a recruitment and staff development program designed to attract pools of qualified applicants for each personnel vacancy which occurs at the facility. This program has been effective in the recruitment and retention of high quality nurses and other professionals. Regency Oaks also maintains effective staff training and competency enhancement programs. The facility has a solid core staff in place. The parties have stipulated that Beverly will be able to hire the staff it needs at the proposed salaries and that Beverly's proposed recruitment plan career ladder, incentives and opportunities for advancement and efforts to recruit disciplines in short supply are reasonable and capable of being accomplished by the applicant. New Crown has the advantage of access to a statewide network of consultants who will draw from the expertise and resources of the Beverly companies. Since Regency Oaks is already built and in place, very little additional financial resources are needed in the short-term. The incremental project costs of $22,000 filing fee and $15,000 in consulting fees have already been expended. Whether it is a "zero cost" project or whether its cost should include the construction of the facility in 1991 for $2,634,441, as suggested by Beverly, CLC has the financial resources for short-term support of the project. Beverly likewise will be able to finance its total project cost of $6,361,751. Beverly's parent company has committed its substantial resources, including $80 million cash on hand, to finance the project. An issue arose in this proceeding regarding Beverly's failure to include on Schedule 2 of its application three nursing home facilities which it acquired on January 13, 1994. Two facilities, Old Crown and Beach Convalescent Center, were transferred to Beverly from its sister corporation, Petersen Health Care, Inc. The third facility, Clewiston Health Care Center, was transferred to Beverly from its "grandparent," Beverly California Corporation. Change of ownership applications addressing the transfers were filed with AHCA on October 15, 1993. CLC contends that these inter-company transfers involved expenditures that were "capital projects" within the meaning of section 408.037(2)(a), Florida Statutes, and therefore, Beverly should have included them on its Schedule 2. CLC introduced a closing statement and two deeds from the Beach and Old Crown change of ownership files in an attempt to suggest that Beverly had purchased the facilities in exchange for cash payments. Beverly established, however, that it gave no value of any kind in exchange for the transfers, which were accomplished simply by changing the corporate name on each facility's general ledger. Beverly prepared the documents in question only after the AHCA indicated that it would not approve the change of ownership applications until it received closing statements and deeds. No long-term debt was transferred, and each transferred facility had a positive asset value net of accumulated depreciation and amortization. Consequently, the transfers resulted in permanent additions to Beverly's equity (i.e. plant, property and equipment) valued at $3,882,033. Future Beverly audited financial statements will reflect the transfers as additions to paid-in capital. The operational assets of each facility far exceeded the operational liabilities (e.g. accounts payable) of each facility, and Beverly received net working capital in the total amount of $600,116. For reimbursement purposes, the transfers were treated as "related party transfers" and did not result in any change in Medicare or Medicaid reimbursement rates. Beverly California Corporation paid all the incidental expenses associated with the transfers such as application and legal fees. Beverly would not capitalize these expenses. Contrary to CLC's contention, Financial Accounting Standards Board (FASB) statements 11 and 14 do not require that these transfers be treated as "capital expenditures." FASB Statement 11 deals with accounting for contingencies, and does not offer any insight into the proper characterization of the intercompany transfers at issue here. FASB Statement 14 requires that financial statements of a business enterprise include information about its "segments," i.e., operations representing at least 10 percent of the company's total revenues. There is no evidence that Beverly is a "segment," nor does FASB 14 define "expenditure" or "capital expenditure." FASB Statement 14 mentions capital expenditures only once. Paragraph 27 is titled "Other Related Disclosures." Paragraph 27(b) requires that "information for reportable segments shall be made as follows: . . . Disclosure shall be made of the amount of each reportable segment's capital expenditures, i.e., additions to its property, plant and equipment." (Transcript, pp. 623) This passing reference does not define capital expenditures for all purposes, or require that all additions to plant property and equipment be characterized as capital expenditures. Paragraph 27(b) of FASB Statement 14 merely advises accountants that the financial statement of a company must disclose the capital expenditures --- as opposed to expense items --- that a reportable segment of the company has made. Read in context, the reference to additions to plant, property and equipment is meant only as an example of transactions that, under circumstances not defined in FASB 14, might involve a capital expenditure. In the universe of additions to plant property and equipment, some may involve capital expenditures. However, the transfers here at issue demonstrate that a company can obtain additions to plant, property and equipment without incurring any expenditure at all. FASB Statement 6, at paragraph 66, provides that an increase in the equity of a business entity resulting from the transfer to it of something of value to obtain or increase an equity interest in the entity is considered an investment by owners, not an expenditure by the receiving entity. Health Care Financial Management Association Principles and Practices Board Statement No. 12 similarly would characterize the transfers at issue as equity investments by affiliated companies, not expenditures. This is the proper characterization of the transactions between Beverly and its affiliated companies. The equity contributions of its affiliated companies made Beverly a financially stronger and wealthier entity that was more capable of undertaking the proposed project, and did not involve an expenditure of any kind on the part of Beverly, and therefore cannot be characterized as "capital projects" according to credible, competent expert opinion. AHCA's sample Schedule 2 form does not provide a place to list the receipt of equity, but rather asks only for "expenditures." Had Beverly incorrectly included the transfers as "expenditures" in its Schedule 2, it would have had to show them as negative expenditures, thereby reducing the total amount of reported capital projects and improving Beverly's reported financial position. Upon inquiry, AHCA properly advised Beverly that since the transfers did not involve any expenditures by the applicant, it should not disclose them. Accessibility To All Residents of the Service District Regency Oaks has never turned away a Medicaid or other patient based on payor status and affirmatively accepts patients regardless of ability to pay. Regency Oaks also accepts AIDS/HIV patients, Alzheimer's and other specialty needs patients. Beverly also has this type of "open door" policy. Its experience, however, as discussed above, has been more successful in attracting and serving Medicaid patients and patients with special needs. As an integral part of a beautifully designed, upscale retirement community, Regency Oaks has not drawn the payor mix that Old Crown and its sister facilities have served. As the residents of the independent living units age in place and increase in number with completion of the additional units, accessibility to all residents of the service district is diminished, not enhanced, if the conversion from sheltered to community beds is approved for Regency Oaks. Long Term Financial Feasibility Review of financial feasibility of Regency Oaks is simplified by the fact that it has actual operating experience to support its projections. Opened in Fall 1991, the nursing home, as typically expected, showed losses for the first few years. It turned a profit in 1993. Regency Oaks has the necessary resources to continue to operate the continuing care apartments as well as the nursing home with net operating income, including net operating income from the completion and opening of the new 200 independent living units and further supplemented by the resources of the shareholders of CLC. The four CLC shareholders are personal guarantors on the mortgage indebtedness of all the property at Regency Oaks. Their net worth is in excess of $60 million and cash reserve is greater than $10 million. If the CON is approved and Regency Oaks is permitted to accept community bed patients it will be financially healthy. If, however, the facility is restricted in 1996 and the beds will be filled only from its continuing care units, the nursing home will become financially stressed. Neil Ezell, the corporate representative of CLC and chief financial officer for the Johnson Ezell Corporation, acknowledges the difficulty in making a profit in a smaller 60-bed nursing home because of the high fixed administrative costs. If the high-end estimate that 30 beds will be filled from the continuing care facility is accurate, Regency Oaks will be operating at 50 percent capacity in 1996 or shortly thereafter. The contractual obligations to Regency Oaks residents would still be honored in some fashion, but with substantial difficulty. Absent CON approval, Regency Oaks' cost per patient day will increase and will negatively impact Medicare since Medicare is a cost-based reimbursement system for skilled nursing facilities. Beverly's proposal for a new 120-bed facility at New Crown is financially more efficient than either Regency Oaks or the existing 54-bed Old Crown facility, even considering the $6,361,751.00 total project cost. The old facility is too dated and too small to be efficiently operated much longer. The 120-bed proposal meets the need for new beds and effectively puts to rest the old well-used beds. The patients at New Crown will come from the community at large and will also be transferred from the existing Crown facility. The projected utilization is reasonable and the projected pre-tax net income of approximately $299,000.00 at the end of the second year is likewise realistic. The proposal is financially feasible. SUMMARY OF FINDINGS AND BALANCING THE CRITERIA Both applicants presented outstanding proposals. There is no question that they have provided, and will continue to provide, superior quality of care in attractive, well-equipped and well-staffed facilities. Beverly's proposal enjoys the financial "economies of scale" advantage of a larger facility; CLC's proposal is financially appealing because it requires little or no additional start-up expenditures. Beverly effectively countered CLC's assertions that the application was defective for failure to include the three recently-acquired facilities as "capital expenditures". Beverly also appropriately addressed CLC's claim that it failed to consider the transfer of Old Crown residents in its projected utilization of beds at the new 120-bed facility. Approval of Beverly's application for 120 beds will not result in approval of an excess of beds left in the fixed need pool. Approval is conditioned on approval of delicensure. The old and new facilities will not be concurrently licensed. It strains common sense to find that the concurrent approval and delicensure process should somehow result in creating a need in some future planning horizon, rather than the immediate planning horizon. Both applicants avow their commitment to serve Medicaid and specialty needs population and to remain accessible to persons regardless of ability to pay. Beverly's commitment is underscored with an existing record of service and with its willingness to accept conditions of approval. More troubling than the Medicaid and special needs accessibility issue, however, is the concern that CLC's existing 60-bed facility at Regency Oaks will, upon conversion, fall substantially short of meeting the need for 68 beds. Its continuing care community is expanding and the demand for nursing home beds by that population will increase. Somewhere between 10 and 30 beds will be filled, leaving only 30 to 50 beds available to the population at large. CLC's financial dilemma is the result of a considered decision to build 60 sheltered nursing home beds to support a 200 unit continuing care facility. The only explanation in the record for exceeding the 1:4 ratio is that initially the plan was for 240 units. Even with 50, rather than 60 sheltered beds, the facility would have problems, since the prevailing wisdom based on actual utilization experience is that far fewer sheltered beds are needed. Although the anticipated financial dilemma will have some impact on Medicare reimbursement in the Regency Oaks' facility, there is no major health care planning impact from denial of the conversion. The impact is facility- specific and was at least partially foreseeable five years ago. That is, the statute, then as now, provided a fixed 5-year period for the use of sheltered care beds by the community at large. Balancing of the criteria and weighing the evidence results in a finding that Beverly's, rather than CLC's, application should be approved.
Recommendation Based on the foregoing it is hereby RECOMMENDED: That the agency enter its Final Order denying Clearwater Land Company's application for CON #7503P and approving Beverly Savana Cay, Inc.'s application for CON #7508, conditioned upon 56 percent of patient days of care to Medicaid residents, and appropriate specific conditions for a ventilator-dependent unit, respite care, adult day care, Alzheimer's unit, and AIDS/HIV+ care. DONE and ORDERED this 30th day of June, 1995, in Tallahassee, Florida. MARY CLARK 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 June, 1995. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Clearwater Land Company's Proposed Findings 1. and 2. Adopted in paragraph 2. Adopted in paragraph 3. and 5. Adopted in paragraph 4. 6. and 7. Adopted in paragraph 5. Adopted in paragraph 9. and 10. Rejected as unnecessary. Adopted in paragraph 24. Adopted in paragraph 9. Adopted in paragraph 72. Adopted in substance in paragraph 24. Adopted in paragraph 10. Adopted in paragraph 11. - 19. Adopted in paragraph 12. Adopted in substance in paragraph 13. Adopted in substance in paragraph 14. Rejected as unnecessary. and 24. Adopted in paragraph 15. Adopted in paragraph 64. and 27. Adopted in substance in paragraph 13. Covered in Preliminary Statement. Covered in Conclusions of Law, paragraph 79. and 31. Rejected as unnecessary. Rejected as contrary to the evidence and law. Rejected as contrary to the greater weight of evidence. and 35. Adopted in substance in paragraphs 17 and 22. Adopted in substance in paragraphs 23 and 24. Adopted in substance in paragraph 27. Adopted in substance in paragraph 28. and 40. Adopted in paragraph 29. Adopted in paragraph 30. Adopted in paragraph 31. Adopted in substance in paragraph 32. Adopted in paragraph 33. Adopted in paragraph 34. Adopted in paragraph 35. Adopted in paragraph 36. Adopted in substance in paragraph 37. and 50. Adopted in paragraph 38. Adopted in paragraph 39. - 55. Rejected as cumulative and unnecessary. 56. and 57. Adopted in substance in paragraphs 47 and 64. 58. and 59. Rejected as unnecessary. Rejected as contrary to the weight of evidence. Rejected, as to the comparative conclusion; otherwise accepted generally. - 64. Rejected as unnecessary and cumulative. Adopted in paragraph 62. - 71. Rejected as unnecessary. Adopted in substance in paragraph 64. Adopted in substance in paragraph 64, except as to the impact if Beverly is approved. That finding is rejected as unsupported by the evidence. and 75. Adopted generally in paragraphs 64 and 65. Accepted, as to no impact on existing providers; rejected, as to impact by Beverly. Adopted in paragraph 67 (as to Beverly's cost). - 82. Rejected generally as contrary to the greater weight of evidence. Adopted in paragraph 10. - 86. Rejected as unnecessary. Rejected as contrary to the greater weight of evidence. - 94. Rejected as unnecessary or cumulative. Findings regarding the high quality of care and range of services are addressed above. 95. and 96. Adopted in part in paragraph 37; the one staffing omission was conceded by CLC's director of nursing. 97. - 99. Adopted in substance in paragraph 45. 100. - 117. Rejected as unnecessary or cumulative. 118. Addressed in Preliminary Statement. Beverly's Proposed Findings Addressed in Preliminary Statement. and 3. Rejected as unnecessary. Adopted in paragraph 17. Adopted in paragraph 18. and 7. Adopted in paragraph 19. Adopted in paragraph 20. Adopted in paragraph 21. Adopted in paragraph 26. Adopted in paragraph 22. Adopted in substance in paragraphs 9 and 12. Adopted in paragraph 6. Adopted in paragraph 7. Adopted in paragraph 8. and 17. Rejected as unnecessary. Adopted in summary in paragraph 70. Adopted in paragraph 50. Adopted in paragraph 51. Adopted in paragraph 52. Adopted in substance in paragraph 53, although the testimony was related to both Medicare and Medicaid reimbursement. and 24. Adopted in paragraph 54. Adopted in paragraph 55. Adopted in paragraph 56. Adopted in paragraph 57. and 29. Rejected as unnecessary. Adopted generally in paragraph 24. Adopted generally in paragraph 26. Adopted generally in paragraph 27. Adopted generally in paragraph 28. Rejected as unnecessary. Adopted in paragraph 28. Adopted in paragraph 29. Adopted generally in paragraph 30, although "multi-level" was not defined, and CLC's assertion that it is a "multi-level" facility is generally accepted. Adopted in paragraph 31. - 64. Rejected as cumulative and unnecessary. Rejected as to the characterization of CLC's rate; otherwise adopted in substance in paragraph 35. Adopted in paragraph 36. and 68. Rejected as cumulative and unnecessary. 69. and 70. Adopted in paragraph 38, except as to the conclusion that CLC does not meet the preference. 71. and 72. Adopted in part; rejected in part in paragraph 39. Adopted in paragraphs 40 and 75. - 100. Rejected as cumulative or unnecessary. 101. Adopted generally in paragraphs 72 and 73. COPIES FURNISHED: Robert Griffin, Esq. Charles A. Stampelos, Esq. MCFARLAIN, WILEY, CASSEDY & JONES, P.A. 215 S. Monroe Street, Ste. 600 Tallahassee, FL 32301 Douglas L. Mannheimer, Esq. Michael Manthei, Esq. BROAD & CASSEL 215 S. Monroe Street, Ste. 400 Tallahassee, FL 32302 Samuel D. Bunton, Esq. Agency for Health Care Administration The Atrium Building, Ste. 301 325 John Knox Road Tallahassee, FL 32303 Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, FL 32308 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, FL 32309 Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Bldg. 3, Ste. 3431 2727 Mahan Drive Tallahassee, FL 32308-5403
The Issue Whether the Department of Health and Rehabilitative Services should approve the application for certificate of need (CON) of any one or more of five applicants for community nursing home beds in Lee County for the July 1989 planning horizon.
Findings Of Fact The Applicants Applications for certificates of need (CON) for nursing homes are accepted by the Department of Health and Rehabilitative Services (Department) in batching cycles and are subject to competitive review. The Department comparatively reviewed and analyzed 13 individual applications for proposed nursing services for District VIII, Lee County, in the July, 1986 nursing home batching cycle. Five of those applications are at issue for purposes of this proceeding. Pertinent to this proceeding, petitioner, Maple Leaf of Lee County Health Care, Inc., a wholly owned subsidiary of Health Care and Retirement Corporation of America (HCR filed an application for a 120-bed nursing home (CON 4746), petitioner Forum Group, Inc. (Forum), filed an application for a 60-bed nursing home (CON 4755), petitioner, Health Quest Corporation (Health Quest), filed an application for a 60-bed nursing home (CON 4747), petitioner, Hillhaven, Inc., d/b/a Hillhaven Health Care Center Lee County (Hillhaven) filed an application for a 120-bed nursing home (CON 4756), and respondent, Gene Lynn d/b/a Careage Southwest Healthcare Center (Careage) filed an application for a 120-bed nursing home (CON 4748). Each of these applications was timely filed. The Department's "preliminary" action The Department is the state agency charged with implementing and regulating the CON program for medical facilities and services in Florida. Within the Department, the Office of Community Medical Facilities is responsible for the review of CON applications and provides a recommendation for approval or disapproval after its analysis is concluded. The Department assigned the subject District VIII applications for the July, 1986 hatching cycle to Medical Facilities Consultant Robert May for review. Mr. May was supervised in his work by Elizabeth Dudek, an experienced Medical Facilities Consultant Supervisor, who has reviewed or supervised the review of approximately 1200 CON applications. Robert Nay and Elizabeth Dudek concurred in their evaluations of the applications and recommended that Hillhaven's application be approved for 60 beds in Lee County. This recommendation was forwarded to the Administrator of the Office of Community Medical Facilities, Robert E. Naryanski, who also occurred with the recommendation on or about December 20, 1986, and forwarded the recommendation to Marta Hardy, Deputy Assistant Secretary for Health Planning and Development, for final approval. An unusual set of circumstances evolved from that approximate point in time with respect to the applications at issue. Sometime in late November 1986 Marta Hardy talked to Robert Sharpe, Administrator of the Office of Comprehensive Health Planning, concerning the applications in this batching cycle and stated that she intended to involve him in the review procedure. In late December, she asked Mr. Sharpe to review the applications for four of the counties in the cycle, including Lee County. Mr. Sharpe is in a separate and distinct part of the Department, which reports to the Deputy Assistant Secretary but does not, in the ordinary course of operations, review certificate of need applications. Mr. Sharpe's involvement with reviewing nursing home applications had never occurred before and has not occurred since. However, Mr. Sharpe has been involved on limited occasions with reviewing hospital CON applications in preparation for administrative hearings. Careage had a CON application in each of the four districts that Mr. Sharpe was asked to review. Mr. Sharpe was not asked to review any other districts other than the four districts in which Careage had applications pending. In Mr. Sharpe's conversation with Ms. Hardy, Ms. Hardy specifically mentioned Careage while expressing her concern about the Department's ability to discriminate the best applicants on the basis of quality of care. Ms. Hardy mentioned no other applicant by name. Mr. Sharpe, in all circumstances, recommended Careage for approval. Mr. Sharpe did not attempt to do a complete re-review the applications, and did not redo any part of the review that had been performed by the Office of Community Medical Facilities specifically the need calculations and comparing the applications to the statutory review criteria. Mr. Sharpe did not apply statutory review criteria in his review of the applications because it had been determined that all the applicants were minimally qualified and met the statutory review criteria. Mr. Sharpe felt that the responsibility of his office was simply to do a comparative review to determine the best applicant. Mr. Sharpe placed information in the applications into what has been termed a "matrix." The purpose of the matrix was to present the information in the applications in a format which would facilitate a comparative analysis based on a greater number of factors than had previously been considered. Traditionally, the predominant factors utilized by the Department in reviewing applications were construction costs, Medicaid participation percentages, proposed sites, and charges. The matrix developed by Mr. Sharpe included additional factors which he felt would better address the quality of care to be provided, such as the size of facility, the size of the patient rooms, the amenities available to the patients and their families, the type and level of staffing, availability of special programs, and operating costs. By including a greater number of factors in the matrix, more information was considered in selecting the best applicant. As a result, the factors that traditionally had been considered by the Department were given relatively less weight. There was no notice to the applicants of this change in practice. Further, although all the information considered by Mr. Sharpe was taken from the applications and generally required to be in the application, the applicants reported the information differently, making a direct "apples-to-apples" comparison difficult. Mr. Sharpe's review of the applications spanned approximately five to eight days. Mr. Sharpe's staff in the information on the matrix from the applications, and, although Mr. Sharpe had personally reviewed all the applications, Mr. Sharpe did not personally check the information placed on matrix for accuracy. The Office of Community Medical Facilities' initial review covered a period of approximately six months. There was no evidence that the duties and responsibilities of the Office of Community Medical Facilities were not carried out in a thorough and appropriate manner. Ms. Dudek has more experience in reviewing CON applications than Mr. Sharpe, and she took into account, among other review criteria requirements, the type programs offered by the applicant and the quality of care the applicant had demonstrated and was capable of providing. Mr. Sharpe never talked to Ms. Dudek to find out the basis for her recommendation because he felt his responsibility was to do an independent review. Robert Sharpe reported his findings with regard to Lee County to Marta Hardy who apparently accepted Mr. Sharpe's recommendation on or about January 7, 1987, approving Careage's application for 60 beds and denying all others. On or about January 23, 1987, in the Florida Administrative Weekly, it was published that Careage was approved fob a 120-bed facility in Lee County. Actually HRS approved Careage for a 60-bed facility; the 120-bed figure in the Florida Administrative Weekly was erroneous. As a result of a new administration and Bob Griffin succeeding Ms. Hardy as Deputy Secretary in the Office of Health Planning, and due to his concerns about the unique manner in which these applications were reviewed and a decision made, another review of the applications for Lee County was conducted. The Office of Community Medical Facilities, the office originally responsible for reviewing the applications, was asked to do this review. This third review was conducted during the summer of 1987 by Bob May while this case was pending before the Division of Administrative Hearings. In this third review, a matrix was also used, but not the identical matrix previously used by Mr. Sharpe. Indeed, the Office of Community Medical Facilities was instructed not to look at what Mr. Sharpe's office had done. The review resulted in a decision that HRS would maintain its position of supporting partial approval of the Careage application for 60 beds. By letter dated September 4, 1987, the parties were formally notified of the HRS decision and a Correction Notice was published in the Florida Administrative Weekly indicating that the notice published in January, 1987, stating that Careage had received a CON for 120 beds, should have shown a partial approval of 60 beds, and a denial of 60 beds. HCR, Forum, Health Quest and Hillhaven timely contested initial approval of the Careage application and their own respective denials. Careage and HRS are the respondents. Hillhaven, prior to final hearing, dismissed its case contesting the Careage approval for 60 beds, and in this proceeding contends that Hillhaven should be awarded a certificate of need because there is a bed need in excess of 60 beds in Lee County. Careage did not timely contest the denial of the 120 beds requested in its original application. Health Care and Retirement Corporation of America HCR, through its wholly owned subsidiary, Maple Leaf of Lee County Health Care, Inc., proposes to construct a 120-bed community nursing home in Lee County, Florida. At the time its application was submitted, HCR had not selected a site on the proposed facility, but at hearing proposed to locate it in the Ft. Myers area. Currently, HCR owns and operates 92 nursing homes in 19 different states, including seven within the State of Florida. Its existing Florida facilities are Pasadena Manor Nursing Home (South Pasadena, Florida), Community Convalescent Center (Plant City Florida), Kensington Manor (Sarasota, Florida), Jacaranda Manor (St. Petersburg, Florida) Wakulla Manor (Crawfordville, Florida, Heartland of St. Petersburg (St. Petersburg, Florida, and Rosedale Manor (St. Petersburg, Florida). Each of these facilities received superior ratings on their latest licensure and certification survey with the exception of Heartland and Rosedale, which received a standard and conditional rating respectively. Significantly, the conditional rating assigned to the Rosedale facility occurred less than six months after that facility was acquired by HCR, and all deficiencies were corrected within 19 days of the survey. HCR's current proposal for a 120-bed facility will be a one-story structure containing 40,000 gross square feet, including 2,000 square feet for an ancillary adult day care center. It will have 58 semi-private rooms with half-bath (toilet and sink) and four private rooms with full bath (toilet, sink and shower) located within four patient wings, two nursing stations, two dining rooms, central bathing facilities, beauty- barber shop, quite lounge, physical therapy room, occupational therapy room, multi-purpose rooms, outdoor patio areas and the other standard functional elements required to meet licensure standards. In all, the proposed facility meets or exceeds state requirements for the construction of nursing homes. HCR proposes to dedicate one wing (14 semi-private and 1 private room) of its facility to the care of patients suffering from Alzheimer's Disease and related disorders. Alzheimer's Disease is a brain disorder that results in gradual memory loss and, as such loss progresses, a need for increased personal care. Historically, Alzheimer's patients have been mixed with other patients in nursing homes, often disrupting other patients and presenting problems of control for staff separate Alzheimer's care unit enables the nursing home to utilize special techniques to manage the patient without restraint or sedation, and provides the patient with a smaller, safer and specially designed area with specially trained staff to address the needs of such patients. However, absent fill-up, HCR does not propose to limit admission to its Alzheimer's unit solely to patients suffering from Alzheimer's disease and related disorders. HCR's Alzheimer's unit is reasonably designed, equipped and minimally staffed for its intended purpose. HCR also proposes to provide, as needed, subacute care at its facility. Due to the impacts of the federal DRG (diagnostically related group) system which encourages hospitals to discharge patients earlier, there has been an increased demand for subacute services in nursing homes. Included within the subacute services HCR proposes to offer are ventilator care, IV therapy, pulmonary aids, tube feeding, hyperalimentation, and percentage and long term rehabilitation. HCR currently provides a wide variety of such subacute services at its existing facilities, and it may reasonably be expected to continue such practice at the proposed facility. As an adjunct to the proposed nursing home, HCR proposes to operate an adult day care unit for 12 Alzheimer's Disease patients. Additionally, HCR will offer respite care within the nursing home when beds available. Adult care and respite care provide alternatives to institutional long-term care in nursing homes, aid in preventing premature rising home admissions, and promote cost containment. As initially reviewed by the Department, HCR's activity would be a single story building containing 40,000 gross square feet, including the day care area, with an estimated total project cost of $3,894,000. As proposed, the total project cost equates to $32,450 per bed, and as designed provides 127 net square feet of living space for private rooms and 166 square feet for semi- private rooms. Construction equipment costs were as follows: Construction costs $2,200,000; costs per square foot $55.00; construct cost per bed 17,417; equipment costs $420,000; and equipment cost per bed $3,500. HCR's estimate of project costs is reasonable. At hearing HCR updated its project costs to account for changes that arose during the delay between initial review and de novo hearing. As updated, the total project cost was $4,375,500, or $36,462 per bed. Construction equipment costs, as updated were as follows: construction costs $2,400,000; cost per square foot $60.00; construction cost per bed $19,000, equipment costs $420,000; and equipment cost per bed $3,500. HCR's updated estimate of cost is reasonable. Staffing at the proposed 120-bed facility is designed to accommodate the needs of the skilled and intermediate care patients, as well as the special needs of the Alzheimer's and subacute patients. HCR will provide 24-hour registered nurse coverage for subacute patients and a higher staffing level in the Alzheimer's unit. The nursing home will provide 3.59 hours per patient in the Alzheimer's unit and 2.73 nursing hours overall, based on the assumption that 50 percent of the Alzheimer's patients will wanderers and that 50 percent of all patients will require skilled care. Precise staffing for subacute patients will be determined by the nature of the subacute services needed. HCR's staffing levels, as originally proposed and as updated, meet or exceed state standards. The salary and benefit estimates provided by HCR in its original application reflect salary and benefit levels current at the time of application, and the salary and benefit projections provided by HCR at bearing reflect current (1987) salaries and benefits inflated to the date of opening. Both estimates are reasonable. HCR's projection of utilization by class of pay as initially proposed was as follows: Private pay 51 percent, Medicaid 46 percent, and Medicare 3 percent. Due to its experience over the intervening 17 months since submittal of its application, HCR updated its assessment of utilization as follows: Private pay 50 percent, Medicaid 46 percent, and Medicare 4 percent. The current Lee County Medicaid experience level is 46 percent, and HCR provides an average 71 percent Medicaid occupancy in its Florida facilities. HCR's projections for payor mix are reasonable. HCR's initial application contained estimates of expenses and revenues current as of the date of application (July 1986) but failed to include an inflation factor to accommodate anticipated increases in expenses and revenues. Initially, T. projected its per diem room charges to be $60 to $85. At hearing, HCR projected its per diem room charges in the year opening (1990) to be $90 for a private room, $75 for a semiprivate room, $76.00 for Medicare patients, and $72 for Medicaid patients. The private, semi-private and Medicare charges were determined by inflating current (1987) Lee County charges forward to the year of opening. The Medicaid charges were based on a calculation of the Medicaid reimbursement formula. These charges, when multiplied by patient days, are a reasonable estimate of the projected revenues of the facility. HCR's estimate of expenses in its initial application was based on its current experience. Intervening events have lent new insight to its evaluation of expenses, as have intervening inflationary factors. While HCR's estimate of expenses and revenues was reasonable in its initial application, its current estimates comport with the reality of a 1990 opening and are reasonable. HCR has the available resources, including management personnel and funds for capital and operating expenditures, for project accomplishment and operation, and will be able to recruit any other personnel necessary to staff its facility. Since HCR does not propose to initially limit admission to its Alzheimer's unit solely to patients suffering from Alzheimer's disease and related disorders, its pro formas are premised on reasonable assumptions, and it has demonstrated the financial feasibility project in both the short term and long term. The proof demonstrates that HCR provides and Bill continue to provide quality care. HCR's corporate standards and guidelines regulate such areas as patient rights, staff development and orientation, physician and nurse services, pharmacy services and medication administration, social services, and infection control. HCR's manager of quality assurance, house professional services consultants, and quality assurance consultants regularly visit each HCR nursing home to implement the quality assurance standards and guidelines. Each HRC nursing home provides a staff development director who is responsible for the orientation of new employees, training new employees, and continuing training for all employees. Forum Group Inc. Forum is a publicly held health services company which owns, develops and operates retirement living centers and nursing homes on a national basis. Currently Forum operates 22 Lang facilities and an additional 11 retirement living centers with attached nursing facilities, including one nursing facility in Florida. Its Florida facility holds a standard rating. Other facilities owned by Forum in Texas, Kentucky and Illinois do, however, hold superior ratings. Pertinent to this case, Forum proposes to develop a retirement living center in Lee County that would consist of its proposed 60-bed skilled and intermediate care nursing home, an adult congregate living facility, and apartments or Independent living. Each of the three components which comprise Forum's retirement living center are physically connected and share some operational functions, such as a central kitchen, laundry, administrative area and heating plant. Such design provides for an efficient operation, as well as an economical distribution costs facility wide. The nursing facility proposed by Forum will be a single story building of wood frame and brick veneer construction containing 27,000 gross square feet. It will include 20 semi- private rooms with half bath, 16 private rooms with half bath, 3 private rooms with full bath, and one isolation room with full bath. Also included are a beauty-barber shop, quite lounge, physical therapy room, occupational therapy room, and exam-treatment room. But for the length of the corridors in the patient wings, discussed infra, the proposed facility meets or exceeds state requirements for the construction of nursing homes. Forum's proposal, as initially reviewed by the Department, would have a total project cost of $2,314,800. This equates to $38,580 per bed, and as designed provides 150 net square feet of living space for private rooms and 228 net square feet for semi-private rooms. Construction equipment costs were as follows: Construction costs $1,377,000; cost per square foot $51.00; construction cost per bed $22,950; equipment costs $200,000; and equipment costs per bed $3,333. Forum's estimate of project cost is reasonable. Forum provided a single-line drawing indicating the general arrangement of spaces for its proposed facility. As proposed, the facility would consist of two patient wings, and a central nurse's station. The corridor lengths in the patient wings exceed state standards by 40 feet. They could, however, be modified to conform to State standards without significantly affecting the cost of construction. The project would have energy conservation features such as heavy duty roof and side insulation, double-glazed windows, and high efficiency heating and air conditioning equipment. The forum facility will offer skilled and intermediate care, and subacute care, including IV therapy, ventilator care, hyperalimentation, pulmonary aids, and short and long term rehabilitation. Forum would contract out for physical therapy, speech therapy, pharmacy consultation and a registered dietician. If needed, Forum would offer respite care when beds are available. The proposed staffing levels and salaries proposed by Forum in its application are reasonable and meet or exceed state standards. Forum has a staff training program, with pre-service and in-service training, and utilizes a prescreening procedure to assure it hires competent staff. Twenty-four hour coverage by registered nurses will be provided, and a staffing ratio of 2.9 will be maintained. The staffing level at the proposed facility is consistent with that experienced at Forum's existing Florida Facility. Forum provides, and will continue to provide, quality care. Forum's application projected its utilization by class of pay as follows: private pay 58.47 percent, Medicaid 37.16 percent, and Medicare 4.37 percent. Currently, Forum experiences a 48 percent Medicaid occupancy rate system-wide, although it only has 2 of 35 beds dedicated to Medicaid care in its present Florida facility. Forum estimated its revenues based on patient charges ranging from $50.64 per day for Medicaid/semi-private room to $75.00 per day for SNF/private pay/private room. Based on such revenues, its pro forma, utilizing a conservative 86.25 percent occupancy rate at the end of the second year of operation, demonstrated the short term and long term financial feasibility of the project as initially reviewed by the Department notwithstanding the fact that it had underestimated its Medicaid and Medicare reimbursement rates. At hearing, Forum sought to demonstrate that its project was currently feasible by offering proof that intervening events had not significantly impacted the financial feasibility of its project. To this end, Forum offered proof that the contingencies and inflation factors it had built into the construction of its initial proposal would substantially offset any increased costs or expenses of construction. Additionally, Forum sought to update its proposal at hearing by offering testimony that included an increase in the administrator's salary from $27,000 to $39,000, a decrease in interest in year one to $187,803, an increase in interest in year two to $250,790, and an increase in revenues based on patient charges ranging from $69.19 per day for Medicaid/semi private room to $90.00 per day for SNF/private pay/private room. Some of the applicants objected to Forum's proof directed at the current financial feasibility of its project because it had not previously provided them with a written update of its application as ordered by the Hearing Officer. The applicants' objection was well founded. Further, the proof was not persuasive that any contingencies and inflation factors it had built into its initial proposal would substantially offset any increased costs or expenses of construction, nor that salaries, benefits and other expenses that would be currently experienced were appropriately considered in addressing the present financial feasibility of Forum's project. While Forum has the available resources, including management personnel and funds for initial capital and operating expenditures, for project accomplishments and operation, and will be able to recruit any other personnel necessary to staff its facility, it has failed to demonstrate that its proposal, as updated, is financially feasible in the long term. Health Quest Corporation Health Quest is a privately held corporation which owns, develops and operates health care facilities and retirement centers on a national basis. Health Quest has been in business for approximately 20 years, and currently operates 11 long-term care facilities and three retirement centers in Indiana, Illinois, and Florida. Its existing Florida facilities are located in Jacksonville, Boca Raton, and Sarasota. It also has facilities under construction in Winter Park and Sunrise, Florida. Health Quest also held a number of other certificates of need to construct nursing facilities in Florida. Recently, however, it decided to transfer or sell 3-4 of those certificates because its initial decision to develop nine new projects simultaneously would have, in its opinion, strained its management staff and commitment to high quality standards. HCR is, however, currently proceeding with several projects in Florida, and anticipates that the proposed Lee County facility will be brought on line thereafter. Pertinent to this case, Health Quest proposes to develop a retirement center in Lee County that would consist of a 60-bed skilled and intermediate care nursing home, and 124 assisted living studio apartments (an ACLF). 4/ The two components which comprise Health Quest's retirement center are physically connected and share some operational functions such as a common kitchen, laundry, therapy areas, maintenance areas, and administrative areas. Such design provides for an efficient operation, as well as an economical distribution of costs facility wide. In addition to providing an economical distribution of costs, the two components of the retirement center are mutually supportive. The nursing care unit supports the ACLF by making sure that health care services are available to the assisted living people. The ACLF supports the nursing unit as a source of referral and as an alternative to nursing home placement. The nursing facility proposed by Health Quest will be a single story building of masonry and concrete construction. It will include 6 private rooms and 27 semi-private rooms with half-bath attached, central nurse's station, central bathing facilities, beauty-barber shop, quite lounge, central dining area, physical and occupational therapy room and outdoor patio The center, itself, will provide patios, walkways and other outdoor features to render the facility pleasant and attractive, and will provide multi-purpose areas to be used for religious services and other activities, an ice cream parlor and gift shop. As proposed, the nursing home meets or exceeds state standards. As initially reviewed by the Department, Health Quest's proposed facility contained 25,269 gross square feet, with an estimated total project cost of $2,244,505. As proposed, the total project cost equates to $37,408 per bed, and as designed provides 240 net square feet of living space for both private and semi-private rooms. Construction equipment costs were as follows: Construction costs $1,470,333; cost per square foot $58.19; construction cost per bed $24,506; equipment costs $298,200; and equipment cost per bed $4,970. While the majority of Health Quest's costs are reasonable, its equipment costs are not. These costs are substantially the same as those projected in its original application for a 120-bed facility, which at an equipment cost of $300,000 derived an equipment cost per bed of $2,500. Why the same cost should prevail at this 60-bed facility was not explained by Health Quest, and its equipment cost per bed of $4,970 was not shown to be reasonable. As with most applicants, Health Quest updated its project costs at hearing to account for the changes which were occasioned by the delay between initial review and de novo hearing. As updated, the estimated project cost is $2,290.331, $38,172 per bed. Construction equipment costs were as follows: Construction costs $1,507,043; cost per square foot $59.64; construction cost per bed $25,117; equipment costs $302,700; and equipment costs per bed $5,045. Again, while the majority of Health Quest's costs are reasonable its equipment costs are, for the reasons heretofore expressed, not shown to be reasonable. The Health Quest facility will offer skilled and intermediate nursing care, and subacute care, including IV therapy, chemotherapy, TPN therapy and tracheostomy care. Also to be offered are respite care as beds are available and, within the complex, adult day care. Health Quest will maintain a nursing staffing ratio of approximately 3.25 hours per patient day for skilled care and 2.5 for intermediate care. As originally reviewed by the Department, Health Quest's staffing levels and expenses were reasonable. At hearing, Health Quest increased its staffing levels to account for an increased demand in labor intensive care, and increased its staffing expenses to account for the intervening changes in the market place. As updated, Health Quest's staffing levels and expenses are reasonable. Health Quest's projection of utilization by class of pay in the application reviewed by the Department was as follows: private pay 51.6 percent, Medicaid 45 percent, and Medicare 3.4 percent. Health Quest's utilization projection, as updated at hearing, was as follows: private pay 50.9 percent, Medicaid 45 percent, and Medicare 4.1 percent. TAB Health Quest currently serves 30 percent Medicaid patients at its Jacksonville facility, 10 percent Medicaid patients at its Boca Raton facility, and no Medicaid patients at its Sarasota facility. It has, however, committed to serve 40 percent and 48 percent Medicaid patients at its Sunrise and Winter Park facilities, respectively. Health Quest's projections of payor are reasonable. Initially, Health Quest projected its per diem room charges to range from $52 for skilled and intermediate care Medicare patients to $57.25 for skilled care-private and Medicare patients. It did not, however, draw any distinction between private and semi-private rooms. At hearing, Health Quest projected its per diem room charges as follows: $90 for SNF/single/private pay; $73 for SNF/double/private pay; $73 for SNF/double/Medicare; $68 for SF/double Medicaid; $68 for ICF/single/private pay; $70.75 for ICF/double/private pay; and $68 for ICF/double/Medicaid. Health Quest's fill-up and occupancy projections, as well as its projections of revenue and expenses, are reasonable. They were reasonable when initially reviewed by the Department, and as updated. During the course of these proceedings, a serious question was raised as to whether Health Quest had demonstrated that it had the available resources, including management personnel and funds for capital and operating expenditures, for project accomplishment and operation, or that it was committed to the subject project. Within the past three years, Health Quest has sold three of its approved CONS and is considering the sale a fourth due to its inability to handle that number of projects, and the adverse impact it would have on its ability to deliver quality care. Notwithstanding its inability to proceed with approved projects, Health Quest proceeded to hearing in October 1987 and December 1987 for nursing home CONs in Hillsborough County and Lee County (the subject application), and also had nine such applications pending in the January 1987 batching cycle and eight such applications in the October 1987 batching cycle. Health Quest's actions are not logical, nor supportive of the conclusion that it is committed to this project or that it possesses available resources for project accomplishment. Under the circumstances, Health Quest has failed to demonstrate that it has the available resources, including management personnel and funds for capital and operating expenditures, for project accomplishment and operation. Health Quest's facilities in Jacksonville and Boca Raton currently hold superior ratings from the Department. A superior rating includes consideration of staffing ratios, staff training, the physical environment, physical and restorative therapies, social services, and other professional services. Those facilities are monitored, as would the subject facility, by Health Quest for quality care through a system of quarterly peer review, and provide extensive staff education programs that include orientation training for new staff and on-going education for regular staff. Health Quest has demonstrated that it has provided quality care. However, in light of the strain its current activities have placed on its resources, it is found that Health Quest has failed to demonstrate that it could provide quality care at the proposed facility were its application approved. Hillhaven, Inc. Hillhaven is a wholly owned subsidiary of the Hillhaven Corporation, which is a subsidiary of National Medical Enterprises. The Hillhaven Corporation has been business for almost 30 years, and is currently responsible for the operation of approximately 437 nursing homes and retirement centers nationally, including 15 nursing homes which it owns or operates in the State of Florida. Hillhaven proposes to develop a new 120-bed skilled and intermediate care community nursing home in Fort Myers, Lee County, consisting of 38,323 square feet. It will include 14 private rooms and 53 semi-private rooms, a full bath attached to each room (shower, toilet and sink), central tub rooms, beauty- barber shop, quite lounge, chapel, physical therapy room, occupational therapy room, and outdoor patio areas. In all, Hillhaven's proposed facility meets or exceeds state requirements for the construction of nursing homes. As initially reviewed by the Department, Health Quest's proposed facility would be a single-story building containing 38,323 gross square feet, with an estimated total project cost of $3,544,444. As proposed, the total project cost equates to $29,537 per bed, and as designed provides 217 net square feet of living space for both private and semi-private rooms. Construction equipment costs were as follows; construction costs $2,146,000; cost per square foot $56.00; construction cost per bed $17,884; equipment costs $442,005; and equipment cost per bed $3,683.38. Hillhaven's project costs are reasonable. As with the other applicants, Hillhaven update its project costs at hearing to account for the changes which were occasioned by the delay between initial review and de novo hearing, certain oversights in its initial submission, and its decision to proceed with type 4 construction as opposed to type 5 construction as originally proposed. As updated, the estimated project cost is $4,089,639, or $34,155.33 per bed. Construction equipment costs, as updated, were as follows: construction costs $2,446,088; cost per square foot $63.82; construction cost per bed $20,384; equipment costs $521,200; and equipment costs per bed $4,343.33. By far, the biggest factor in the increased construction costs was Hillhaven's decision to proceed with type 4 construction as opposed to type 5 construction. Either type of construction would, however, meet or exceed state standards, and Hillhaven's estimates of construction and equipment costs are reasonable. The Hillhaven facility will offer skilled and intermediate care, occupational therapy, speech therapy, physical therapy, recreational services, restorative nursing services, and social services. Hillhaven does not discriminate on admission, and would admit Alzheimer's and subacute patients as presented. Were sufficient demand experienced, Hillhaven has the ability to provide and would develop a full Alzheimer's unit, and provide day care and respite care. Currently, Hillhaven operates 36 Alzheimer's units at its facilities nation wide, but has experienced no demand for such a special unit or other special care at its existent Lee County facility. As originally reviewed by the Department, Hillhaven's staffing levels an expenses were reasonable. At hearing, Hillhaven increased its staffing levels to account for staff inadvertently omitted from its initial application, and increased its staffing expenses to account or intervening changes in the market place. As updated, Hillhaven's staffing level is 2.5, and its staffing levels and expenses are reasonable. Hillhaven's projected utilization by class of pay as originally reviewed by the Department was as follows: private pay 30 percent, Medicaid 60 percent, and Medicare 10 percent. As updated at hearing, Hillhaven's utilization projection was as follows: private pay 44 percent, Medicaid 53 percent, and Medicare 3 percent. Currently, Hillhaven provides, on average, 53 percent Medicaid care at its facilities in Florida. Hillhaven's estimate of payor mix was reasonable and, in light of intervening changes in circumstance, was reasonable as updated. Hillhaven's patient charges for its second year of operation as originally reviewed by the Department ranged from $58.60 to $62.00 per day. As updated, Hillhaven's patient charges ranged from $52.13 to $73.50 per day. Hillhaven's estimated charges were achievable when initially proposed and as updated, and are reasonable. Hillhaven's fill-up and occupancy projections, as well as its projections of revenues and expenses, are reasonable. They were reasonable when initially reviewed by the Department, and comport, as updated, with the current experience in Lee County. Hillhaven has the available resources, including management personnel and funds for capital and operating expenditures, for project accomplishment and operation, and will be able to recruit any other necessary personnel to staff its facility. Its pro forma estimates are premised on reasonable assumptions, and Hillhaven has demonstrated the short term and long term financial feasibility of its project. Currently, Hillhaven owns or operates 15 facilities in the State of Florida. Of these 15 facilities, two have opened within the past year and are not eligible for ratings. Nine of the 13 eligible facilities are operating with superior licenses. Of the remaining four facilities, two have a standard license and two have a conditional license. The two facilities with conditional ratings have both resolved their deficiencies. Hillhaven has provided and will continue to provide quality care. It ensures that quality care will be maintained within its facilities by drawing upon the professional resources four regional offices comprised of registered nurses, quality assurance monitors, regional dietitians, maintenance supervisors, employee relations specialists, and other administrative support personnel. Regional consultants visit company facilities monthly to plan, organize and monitor operations, and to conduct in-service training workshops. Overall, Hillhaven provides each facility with an in-depth quality assurance program. Gene Lynn d/b/a Careage Southwest Healthcare Center Gene Lynn (Careage) is the president and 100 percent owner of Careage Corporation. Since 1962, Careage has developed approximately 150 nursing homes and retirement centers, as well as 100 medically related facilities, in 22 states and the Virgin Islands. Until December 1986 it did not, however, own or operate any facilities. Currently, Careage operates four nursing homes in the United States (one in the State of Washington, two in the State of California, and one in the State of Arizona) , but none in Florida. The home office of Careage is located in Bellevue, Washington. Careage proposed to develop a new 120-bed skilled and intermediate care nursing home in Lee County with specialty units for subacute and Alzheimer's care, consisting of 45,500 square feet. It would include a patient care unit consisting of 2 isolation rooms and 7 private rooms with full bath and 45 semiprivate rooms with half-bath, an Alzheimer's unit consisting of 1 private room with full bath and 10 semiprivate rooms with half bath, central dining area, beauty-barber shop, quiet lounge, chapel, physical therapy room, occupational therapy room, outdoor patio areas, and exam-treatment room. As proposed, the nursing home meets or exceeds state standards. As initially reviewed by the Department, Careage's proposed facility was a single-story building containing 45,500 gross square feet, with an estimated total project cost of $4,150,000. As proposed, the total project cost equates to 34,583 per bed, and as designed provides 184-227 net square feet of living space for isolation/private rooms, and 227-273 net square feet of living space or semi-private rooms. Construction equipment costs were as follows: construction costs $2,583,125; cost per square foot $56.77; construction cost per bed $21,526; equipment costs $420,000; and equipment cost per bed $3,500. Careage's methods of construction, as well as its construction and equipment costs, are reasonable. The Careage facility would offer skilled and intermediate care, occupational therapy, physical therapy, recreational services and social services. Additionally, the proposal includes a special 21-bed unit dedicated solely to the treatment of Alzheimer's disease patients, and a dedicated 10-bed unit for subacute care which will accommodate technology dependent children care. Among the subacute services to be offered are hyperalimentation, IV therapy, ventilators, heparin flush, and infusion pumps for administration of fluids. Careage will offer respite care as beds are available, and will offer day care in a separate facility. Careage's projected utilization by class of pay as originally reviewed by the Department was as follows: private pay 49 percent, Medicaid 40 percent, Medicare 3 percent, subacute (private) 6 percent, and VA 2 percent. Careage's patients charges for its facility were projected as follows: private and VA (room rate only) $63.86, Medicaid (all inclusive rate) $59.23, Medicaid (all inclusive rate) $108.15, and private (other) /subacute (room rate only) $128.75. Careage's fill-up and occupancy projections as well as its projections of revenues and expenses, for its 120-bed facility were not shown to be reasonable. First, in light of the fact that there was no quantifiable demand for a dedicated Alzheimer's unit and subacute care unit, as discussed infra at paragraphs 126-129, no reliable calculation of fill-up and occupancy rates or revenues and expenses could be derived that was, as the Careage application is, dependent on such revenue stream. Second, the Careage pro forma was predicated on average rates experienced in Lee County. Since Careage proposes heavier nursing care than that currently experienced in Lee County, its estimates of patient charges are not credible. At hearing, Careage updated its 120-bed application to account for inflationary factors that had affected the project since it was first reviewed, and to correct two staffing errors. These updates did not substantially change the project. Careage has the available resources, including management personnel and funds for capital and operating expenditures, for project accomplishment and operation, and will be able to recruit any other necessary personnel to staff its facility. Its pro forma estimates were not, however, premised on reasonable assumptions, and Careage has failed to demonstrate the short term and long term financial feasibility of its 120-bed project. Following the Department's initial review of the applications in this batching cycle, it proposed to award a certificate of need to Careage for a 60- bed facility, premised on its conclusion that there was insufficient numeric need to justify an award of beds exceeding that number, notwithstanding the fact that the application of Careage was for 120 beds and did not request or propose a 60-bed facility. Notably, all financial, staffing, construction, equipment and other projections described in the Careage application were based on a 120- bed facility, and no information was provided regarding a 60- bed facility. Also notable is the fact that the other applicants were not accorded equal consideration. Not surprisingly, the proposed award of a CON for 60-beds to Careage was timely challenged, but Careage did not protest the Department's denial of its application for 120 beds but appeared as a respondent to defend the Department's decision to award it 60 beds. At hearing, Careage offered proof of the reasonableness of its 120- bed proposal over the objection of the other applicants. /5 Careage contends that its proposed 60-bed facility is a scaled down version of its 120-bed proposal Careage proposes to offer the same services in its 60-bed facility as it proposed in its 120-bed facility, including the 21-bed Alzheimer's unit and 10-bed subacute care unit. Its proposed 60- bed facility is not, however, an identifiable portion of its initial project. As proposed, the 60-bed facility would contain 26,900 gross square feet, and meet or exceed state standards. It would include a patient care unit consisting of 1 isolation room and 4 private rooms with full bath, 17 semi- private rooms with half-bath, an Alzheimer's unit consisting of 1 private room with full bath and 10 semi-private rooms with half-bath, together with the same amenities offered by the 120-bed facility, but on a reduced scale. As proposed, the total project cost for the 60-bed facility is $2,475,000, which equates to $41,250 per bed. As designed, the facility would provide the same net square footage of living space for private and semi-private rooms as the 120-bed facility. Construction equipment costs would be as follows: construction costs $1,431,750; cost per square foot $53.22; construction cost per bed $23,863; equipment costs $210,000; and equipment cost per bed $3,500. Careage's methods of construction, as well as its construction and equipments costs, are reasonable. Careage's projected utilization by class of pay in its 60-bed facility was as follows: private pay 47 percent, Medicaid 40 percent, Medicare 5 percent, subacute (private) 6 percent, and VA 2 percent. Careage's patient charges for its 60-bed facility were projected as follows: private and VA (room rate only) $66.00, Medicaid (all Inclusive rate) $63.50, Medicare (all inclusive rate) $120.00, private (other)/subacute (room rate only) $130.00. Careage's fill-up and occupancy projections, its projections of revenue and expenses, and its pro forma estimates for its 60-bed facility suffer the same deficiencies as those for its proposed 120-bed facility. Under the circumstances, Careage has failed to demonstrate the short term and long term financial feasibility of its 60-bed facility. While Careage has only owned and operated nursing homes for a short time, the proof demonstrates that it has and will continue to provide quality care for its residents. The Alzheimer's unit and subacute care units are reasonably designed, equipped and staffed for their intended functions. Staffing ratios in the subacute unit will be 6.0, and in the other areas of the facility 3.0. Careage currently utilizes a quality assurance program at each facility which includes a utilization review committee, safety committee, infection control committee, and pharmaceutical committee. Each facility also has a resident advisory council, community advisory council, and employee advisory council. Presently, Careage is developing a company level quality assurance program, and has initiated announced and unannounced site visits by a quality assurance expert to evaluate resident care, operations, maintenance and physical environment. The Department of Health and Rehabilitative Services The opinions expressed by the witnesses offered by the Department were premised on information available to them while these applications underwent "preliminary" review. The information available to them at that time, and represented by the State Agency Action Report (SAAR), was incomplete and inaccurate in many respects, including the services to be provided by some of the applicants and the approved bed inventory and occupancy rates utilized in the need methodology. These witnesses were not made privy to, and expressed no opinions, regarding the relative merits of the applications in light of the facts developed at hearing. Throughout the hearing, counsel for the Department objected to evidence from any applicant regarding "updates" (changes) to their applications as they were deemed complete by the Department prior to its initial review. It was the position of the Department's counsel, but otherwise unexplicated, that the only appropriate evidence of changed conditions after the date the application was deemed complete were those changes which relate to or result from extrinsic circumstances beyond the control of the applicant, such as inflation and other current circumstances external to the application. The majority of the "updated" material offered by the applicants at hearing did result from the effects of inflation, the passage of time between the application preparation and the dates of final hearing, changes in the market place regarding nursing salaries, changes in the Medicaid and Medicare reimbursement system and typographical errors in the application. Some changes in design were offered as a result of the applicant's experience with other construction projects and in order to comply with licensing regulations. There were also some changes which resulted from better information having been secured through more current market surveys. None of the applicants attempted to change their planning horizon, the number of beds proposed, the proposed location of the facility or the services to be offered except Careage. The Department has established by rule the methodology whereby the need for community nursing home beds in a service district shall be determined. Rule 10-5.011(1)(k)(2), Florida Administrative Code; formerly, Rule 10- 5.11(21)(b) Florida Administrative Code. The first step in calculating need pursuant to the rule methodology is to establish a "planning horizon." Subparagraph 2 of the rule provides: Need Methodology... The Department will determine if there is a projected need for new or additional beds 3 years into the future according to the methodology specified under subparagraphs a. through i. The Department interprets subparagraph 2, and the applicants concur, as establishing a "planning horizon" in certificate of need proceedings calculated from the filing deadline for applications established by Department rule. This interpretation is consistent with the numeric methodology prescribed by subparagraph 2, and with the decision in Gulf Court Nursing Center v. Department of Health and Rehabilitative Services, 483 So.2d 700 (Fla. 1st DCA 1986). Applying the Department's interpretation to the facts of this case establishes a "planning horizon" of July 1989. Pertinent to this case, subparagraphs 2a-d provide the methodology for calculating gross bed need for the district/subdistrict in the horizon year. In this case, the applicable district is District 8, and the applicable subdistrict is Lee County. The first step in the calculation of gross need for the horizon year is to derive "BA", the estimated bed rate for the population age group 65-74 in the district. This rate is defined by subparagraph 2b as follows: BA LB/ (POPC + (6 x POPD) Where: LB is the number of licensed community nursing home beds in the relevant district. POPC is the current population age 65-74 years. POPD is the current population age 75 years and over. The parties concur that the district licensed bed figure (LB), as well as the subdistrict licensed bed figure (LBD) is calculated based on the number of community nursing home beds as of June 1, 1986. The Department's Semi-Annual Nursing Home Census Report and Bed Need Allocation prepared for the July 1986 review cycle (July 1989 planning horizon) listed 4,193 licensed community nursing home beds in District 8 and 996 in Lee County. However, that count taken on May 1, 1986, did not include 120 new beds which were licensed in Charlotte County on May 8, 1986. The count also excluded 287 beds at four other facilities in the district, including 60 beds at Calusa Harbor in Lee County, because they were listed as sheltered beds according to Department records at that time. After passage of Section 651.118(8), Florida Statutes, the Department surveyed the facilities and found that the beds at these four facilities were operated as community beds rather than sheltered beds. Under the circumstances, the proof demonstrates that as of June 1, 1986, there were 4,600 licensed community nursing home beds in district 8 (LB) and 1,056 in Lee County (LBD). The formula mandated by the rule methodology or calculating BA requires that the "current population" for the two age groups be utilized. The rule does not, however, prescribe the date on which the "current population" is to be derived. Some of the applicants contend that the current population" for POPC and POPD should correspond to the period for which the average occupancy rate (OR) is calculated or the July batching cycle, OR based upon the occupancy rates of licensed facilities for the months of October through March preceding that cycle. Under this theory, January 1, 1986, as the midpoint of that period, is the appropriate date to calculate "current population" to derive PCPC and POPD. The Department contends that "current population" for POPC and POPD should be calculated as of July 1986, the filing deadline for applications in this review cycle. The Department's position is, however, contrary to its past and current practice. The need reports issued by the Department between December 1984 and December 1986, routinely used a three and one- half year spread between the base population period and the horizon date for "current population." In the January 1987 batching cycle, which cycle immediately followed the cycle at issue in this case, the Department utilized a three and one-half spread between the base population period and the horizon date for "current population" when it awarded beds in that cycle. The Department offered no explanation of why, in this case, it proposed to deviate from its past and current practice. Under the circumstances, January 1, 1986, is the appropriate date on which the "current population" is to be calculated when deriving POPC and POPD. The parties are also in disagreement as to whether population estimates developed after the application deadline can used to establish the current population. Rule 10- 5.011(k)2h, Florida Administrative Code, mandates that population projections shall be based upon the official estimates and projections adopted by the Executive Office of the Governor, but does not limit such proof to any particular estimate. The Department advocates the use of population estimates existent at the application deadline. Accordingly, it would apply the official estimates and projections adopted by the Executive Office of the Governor as of July 1, 1986. Other parties would apply the more recent estimates adopted by the Office of the Governor as of July 1, 1987. In this case, the use of either estimate would have no significant effect on the result reached under the rule methodology; however, since all population estimates and projections are only approximations rather than actual counts, it would be more reasonable from a health planning perspective to use the latest estimates of the 1987 population than the estimates available at the time of application. In this case, this means using July 1, 1987, estimates of January 1986 populations. These estimates are still "current" as of January 1986, since It is still the January 1986 population that is to be measured, and more reliable from a health planning perspective than the prior projection. In the same manner, July 1, 1987, estimates of horizon year 1989 populations (PCPA and POP), infra, would also be used rather than July 1, 1986, estimates of that population. Accordingly, Forum's calculation POPC (128,871), POPD (77,194), POPA (149,645), and POPB (95,748) is appropriate. (Forum Exhibit 10, Appendix A) Application of the methodology prescribed by subparagraph 26 to the facts of this case produces the following calculation: BA 4,600/(128,871 + (6 x 77,194) BA 4,600/(128,871 + 463,164) BA 4,600/592,035 BA .0077698 The second step in the calculation of gross need for the horizon year is to derive "BB", the estimated bed rate for the population age group 75 and over in the district. This methodology is defined by subparagraph 2c, and calculated in this case as follows: BB 6 x BA BB 6 x .0077698 BB .0466188 The third step in the calculation of gross need for the horizon year is to derive "A", the district's age adjusted number of community nursing homes beds" at the horizon year. This methodology is defined by subparagraph 2a as follows: A (POPA x BA) + (POPB x BB) Where: POPA is the population age 65-74 years in the relevant department district projected three years into the future. POPR is the population age 75 years and older in the relevant departmental district projected three years into the future. Application of the methodology prescribed by subparagraph 2a to the facts of this case produces the following calculation: A (149,645 x .0077698) + (95,748 x .0466188) A 1,162.7117 + 4,422.4086 A 5,585.12 The final step in the calculation of gross need in the horizon year is to derive "SA", the preliminary subdistrict allocation of community nursing home beds;" gross need in the case. 7/ This calculation is defined by subparagraphs 2d as follows: SA A x (LBD/LB) x (OR/.90) Where: LBD is the number of licensed community nursing home beds in the relevant subdistrict. OR is the average 6 month occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Occupancy rates established prior to the first batching cycle shall be based upon nursing home patient days for the months of July 1 through December 31; occupancy rates established prior to the second batching cycle shall be based upon nursing home patient days for the months of January 1 through June 30. The batching cycle in which these applications were filed, however, occurred before the Department amended its rule to include the fixed need pool concept contemplated by subparagraph 2d. Accordingly, the parties concur that the six month period on which the average occupancy rate is calculated is not as set forth in subparagraph 2d of the current rule, but, rather, defined by former rule 1C--5. 11(21)(b)4 as follows: OR is the average occupancy rate for all licensed community nursing homes within the subdistrict of the relevant district. Review of applications submitted for the July batching cycle shall be based upon occupancy data for the months of October through March preceding that cycle... In calculating the occupancy rate (OR) for the licensed community nursing homes in the subdistrict (Lee County) the Department derived a figure of 91.91. The Department arrived at this figure based on the first day of the month patient census of each facility considered to have community beds (LBD=1,056), which included the 60 beds at Shell Point Nursing Pavilion; assumed that such census was maintained throughout the entire month; and then divided such patient days by the actual number of beds available. The Department's methodology is an accepted health planning technique, and comports with its previous practice. Some of the parties disagree with the technique utilized by the Department to calculate OR, and advocate the use of actual patient day occupancy to derive OR. This technique differs from the "first of the month" technique by utilizing the actual number of patient days experienced by the facility, as opposed to assuming a constant census based on first of the month data. This alternative methodology is, likewise, an accepted health planning technique, and if proper assumptions are utilized will yield a more meaningful result than the Department's methodology. In this case, the proponents of the "actual patient day occupancy" methodology, erroneously assumed that 160 beds at Shell Point Nursing Pavilion were community nursing homes beds, as opposed to 60 beds; and, based on an erroneous LBD of 1,156, derived a subdistrict occupancy rate of 92.97. Under such circumstances, these proponents calculations are not reliable, and the subdistrict occupancy rate derived by the Department is accepted. Applying the facts of this case to the methodology prescribed by subparagraph 2d produces the following gross need calculation for the subdistrict: 5A 5,585.12 x (1,056/4,600) x (.9191/.9) SA 5,585.12 x .2295652 x 1.0212222 SA 1309.36 The final step in the numeric need methodology is to derive net need from gross need. According to subparagraph 2i, this need is calculated as follows: The net bed allocation for a subdistrict, which is the number of beds available for Certificate of Need approval, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant department subdistrict from the bed allocation determined under subparagraphs 2.a. through f. unless the subdistrict's average occupancy rate for the most recent six months is less than 80 percent, in which case the net bed allocation is zero. The number of approved and licensed nursing home beds for the second batching cycle in 1987 shall be based on the number of approved and licensed beds as of August 1, 1987, in subsequent nursing home batching cycles, the number of licensed and approved beds to be used in establishing net need for a particular batching cycle shall be determined as of the agency's initial decision for the immediately preceding nursing home batching cycle. While the rule requires that net need be calculated by subtracting "the total number of licensed and 90 percent of the approved beds" In the subdistrict from the cross need previously calculated, it is silent as to the date that inventory should be calculated when, as here, the batching cycle at issue predates its enactment. In the face of this dilemma, the parties rely on the provisions of former rule 10-5.11(21)(b) , Florida Administrative Code, which was existent when their applications were filed to resolve their dispute. Under the circumstances, reference to former rule 10-5.11(21)(b), is appropriate. Former rule 10-5.11(21)(b)9 provides: The net bed allocation for a subdistrict, which is the number of beds available, is determined by subtracting the total number of licensed and 90 percent of the approved beds within the relevant departmental subdistrict from the bed allocation determined under subaragraphs 1 through 9 (sic 8).... (Emphasis added) While the former rule requires that net need be calculated by subtracting "the total number of licensed and 90 percent of the approved beds" in the subdistrict from the gross need calculated under subparagraphs (b)1-8, it is silent as to the date that inventory should be calculated. The Department asserts that the number of licensed beds should be calculated as of June 1, 1986 (the date established by subparagraph (b)7 of the former rule as the data base for calculating LB and LBD, and the number of approved beds as of December 18, 1986 (the date the Department's supervisory consultant signed the state agency action report). The other parties would likewise calculate licensed beds as of June 1, 1986, but would also calculate approved beds as of that date. The Department offered no reasonable evidentiary basis for its interpretation of the date at which the total number of licensed and approved beds are to be calculated under subparagraph (b)9 of the former rule. As discussed below, the dates used by the Department and the other parties for purposes of calculating net need were facially unreasonable. The Inventory of licensed and approved beds under subparagraph (b)9 of the former rule, as well as subparagraph 2i of the current rule, are inextricably linked. As approved beds are licensed, the approved bed inventory decreases and the licensed bed inventory increases. The Department's interpretation of the dates at which licensed and approved beds are to be counted is neither logical nor rational, since it could result in some beds not being counted as either licensed or approved. For example, if beds were approved and not yet licensed on June 1, 1986, but licensed before the consultant supervisor signed the SAAR (state agency action report), they would not be counted in either inventory. On the other hand, the other parties' approach would ignore all beds licensed or approved from previous batching cycles after June 1, 1986 which beds were intended to serve at least a portion of the future population. The fundamental flaw in the parties' approach to establishing an inventory date under subparagraph (b)9, was the assumption that subparagraph (b)7 of the former rule defined licensed bed inventory for purposes of subparagraph (b)9. The Department's rule must be construed in its entirety, and all parts of the rule must be construed so as to work harmoniously with its other parts. So construed, the only logical conclusion to be drawn, as hereinafter demonstrated, is that subparagraph (b)7 defines LB and LBD ("current" licensed beds) for the cross need calculation under the methodology defined by subparagraphs (b)1-4, and does not presume to define licensed beds for the net need calculation under subparagraph (b)9. Subparagraphs (b)1-4 and 7 of the numeric need methodology prescribed by the former rule is designed to yield a gross bed need for the horizon year. The keys to this methodology are the calculation of a current bed rate (BA) and current occupancy rate (OR) for the current using population, and the projection of those rates on the population to be served in the horizon year. A meaningful calculation of the current bed rate cannot, however, be derived without a current inventory of licensed beds (LB and LBD). Accordingly, the relationship between subparagraph (b)7, which defines the data base (June 1, 1986 in this case) for defining LB and LBD (the "current" licensed bed inventory) to the gross bed need calculation is apparent. The parties' suggestion that subparagraph (b)7 defines licensed bed inventory under subparagraph (b)9 not only ignores the inextricable link between subparagraph (b)7 and the gross bed need methodology, but also the language and purpose of subparagraph (b)9. The purpose of that subparagraph is to derive a realistic estimate of actual (net) bed need in the horizon year. Since all licensed and approved beds from previous batching cycles were intended to serve at least a portion of the horizon population, it would be illogical to ignore any of those beds when calculating net need. Accordingly, it would be unreasonable in this case not to count any beds that were licensed or approved from previous batching cycles between June 1, 1986, and the date a decision is rendered on these applications. Indeed, subparagraph (b)9 speaks to "the total number" of licensed and approved beds, not beds existent on June 1, 1986. In sum, subparagraph (b)7 cannot be read to define licensed bed inventory under subparagraph (b)9, and the parties' suggestion that it can is rejected as contrary to the clear language of the rule methodology. See: Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 493 So.2d 1055 (Fla. 1st DCA 1986). Since the purpose of subparagraph (b)9 is to calculate a realistic estimate of the net bed need for the horizon year, it is appropriate to use the most current inventory of licensed and approved beds at the point a decision is rendered on an application. This assures to the greatest extent possible that the horizon population will not be over or undeserved. In those circumstances where the SAAR becomes final agency action, the Department's approach of calculating inventory on the date the supervisory consultant signs the SAAR, assuming that inventory includes licensed and approved beds on that date, might be reasonable. However, where, as here, the SAAR constitutes only preliminary agency action, and a de novo review of the application is undertaken, there is no rational basis for subsuming that inventory. The rule methodology considered, the only rational conclusion is that net need be derived on the date of de novo review, and that it be calculated reducing the gross need calculation by the inventory of licensed and approved beds from previous batching cycles existent on that date. As of the date of administrative hearing there were 1,056 licensed beds and 120 approved beds in the subdistrict. Applying the methodology prescribed by subparagraph 2i to the facts of this case calculates a net need of 145 community nursing home beds for the July 1989 planning horizon. Special Circumstances. The Department will not normally approve an application for new or additional nursing home beds in any service district in excess of the number calculated by the aforesaid methodology. Rule 10-5.011(1)(k), Florida Administrative Code. Succinctly, the need for nursing home services, whether they be general or special, is a product of the rule methodology, and not relevant to a calculation of need absent a demonstration of special circumstances. The Department has adopted by rule the methodology to be utilized in demonstrating special circumstances that would warrant a consideration of factors other than the numeric need methodology in deciding the need for nursing home services. That rule, 10-5.011(1)(k)2; Florida Administrative Code, provides: In the event that the net bed allocation is zero the applicant may demonstrate that circumstances exist to justify the approval of additional beds under the other relevant criteria specifically contained at Section 10-5.011. Specifically, the applicant may show that persons using existing and like services are in need of nursing home care but will be unable to access nursing home services currently licensed or approved within the subdistrict. Under the provision, the applicant must demonstrate that those persons with a documented need for nursing home services have been denied access to currently licensed but unoccupied beds or that the number of persons with a documented need exceeds the number of licensed unoccupied and currently approved nursing home beds. Existing and like services shall include the following as defined in statute or rule, adult congregate living facilities, adult foster homes, homes for special 505 home health services, adult day health care, adult day care, community care for the elderly, and home care for the elderly. Patients' need for nursing home care must be documented by the attending physicians' plans of care or orders, assessments performed by staff of the Department of Health and Rehabilitative Services, or equivalent assessments performed by attending physicians indicating need for nursing home care. In the instant case, some of the applicants have proposed special services, including an Alzheimer's unit, subacute care unit, and beds for technology dependent children. They offered, however, no proof that any person with a documented need for such services had been denied access to available beds that the number of persons with a documented need exceeded the number of available beds. Succinctly, there is no credible proof that the need for nursing home services in Lee County exceeds that calculated pursuant to the numeric need methodology. While there are no special circumstances existent in this case that would justify an award of beds in excess of that calculated by the rule methodology, that does not mean that consideration of the Alzheimer's, subacute and technology dependent children services offered by some of the applicants is not relevant to the comparative review of the subject applications. Rather, it means that the need for such services will presumptively be met within the need calculated by the rule methodology. How the applicants propose to address that need is, however, a matter for consideration in a comparative review of their applications. Each of the applicants propose to provide subacute care, with Careage proposing a special 10-bed subacute care unit which would accommodate technology dependent children. HCR and Careage propose special Alzheimer's care units; a 15-bed unit by HCR and a 21-bed unit by Careage. Hillhaven will admit Alzheimer's disease patients as presented, and will develop a dedicated Alzheimer's unit if demand should subsequently develop. The prevalence of Alzheimer's disease and the increased demand for subacute services brought about by DRGs, demonstrates that there will be a demand for such services within existing and proposed facilities. There was, however, no persuasive proof of any demand for technology dependent services in Lee County. While there is a demand for Alzheimer's disease care, and the preferred mode of care is in a separate unit specifically designed, staffed, and equipped to deal with this degenerative disease, there was no persuasive proof that the demand is such as to warrant the creation of a separate unit such as proposed by HCR and Careage. 10/ Absent such quantifiable demand, the application of Hillhaven more realistically addresses the need for Alzheimer's disease patients than does that of the other applicants. With regard to subacute care services, the proof likewise fails to quantify the demand for such services. Under such circumstances, Careage's proposed 10-bed subacute care unit is not objectively warranted, and does not serve to better its proposal to provide such services over the proposals of the other applicants. Consistency with district plan and state plan The District 8 health plan contains the following pertinent standards and criteria: Community nursing home services should be available to the residents of each county, 4 within District Eight. At a minimum, community nursing home facilities should make available, in addition to minimum statutory regulation, in the facility or under contractual arrangements, the following services: a. pharmacy h. occupational therapy b. laboratory i. physical therapy c. x-ray j. speech therapy c. dental care k. mental health counseling e. visual care l. social services f. hearing care m. medial services g. diet therapy New and existing community nursing bed developments should dedicate 33-1/3 percent of their beds to use for Medicaid patients. Community nursing home (skilled and intermediate care) facilities in each county should maintain an occupancy rate of at least 90 percent. No new community nursing home facility should be constructed having less than 60 beds... Each nursing facility should have a patient transfer agreement with one or more hospitals within an hour's travel time, or the nearest hospital within the same county. All community nursing homes and applicants for community nursing homes should document their history of participation in Medicaid and Medicare programs. ... The State Health Plan contains the following pertinent goals: GOAL 1: TO DEVELOP AN ADEQUATE SUPPLY OF LONG TERM CARE SERVICES THROUGHOUT FLORIDA. GOAL 2: TO ENSURE THAT APPROPRIATE LONG TERM, CARE SERVICES ARE ACCESSIBLE TO ALL RESIDENTS OF FLORIDA. Each of the applicants demonstrated that their proposal would conform, at least minimally, with the foregoing provisions of the state and local health plans. Of particular significance to Lee County is, however, an applicant's commitment to Medicaid service. The District 8 Council has reported that hospitals in Lee County are having difficulty placing Medicaid patients in nursing homes due to the unavailability of Medicaid beds. The current Medicaid experience is 46 percent. Therefore, the local council has directed that new and existing community nursing home developments should dedicate at least 33-1/3 percent of their beds for Medicaid patients. While all applicants propose to meet this standard, Hillhaven's proposal to dedicate 53 percent of its beds to Medicaid care is substantially greater than the commitment of the other applicants, and is consistent with its current experience in meeting a community's need for nursing home care. Availability, appropriateness, and extent of utilization of existing health care services Section 381.705(1)(b), Florida Statutes, requires Consideration of the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services in the service district. When the subject applications were filed, there were 1,056 licensed beds in Lee County with an occupancy rate of 91.91 percent. The nursing home bed supply in Lee County is obviously strained, and there exist no reasonable alternatives to the addition of new beds to the subdistrict. To coordinate with existing health facilities, each applicant proposes to establish appropriate transfer agreements and affiliations with local physicians, hospitals, and other health care providers. While some of the applicants have proposed an Alzheimer's unit and subacute care unit, the proof failed to demonstrate any quantitative need for such units in the subdistrict. Some applicants also proposed to provide day care in conjunction with their nursing home. Currently, there exists adequate day care in Lee County at little or no expense to the patient, and there was no persuasive proof of a need for additional day care services. Economies derived from joint health care resources HCR and Hillhaven each proposed 120-bed facilities which would provide for a more efficient and economical operation than a 60-bed facility. The 60-bed facilities proposed by Forum and Health Quest are, however, part of a larger complex which likewise lends itself to an efficient and economical operation. HCR, Hillhaven, Forum and Health Quest are major operators of nursing home facilities, and are thereby able to negotiate and obtain bulk prices for food, medical and nursing supplies. These savings are ultimately passed on to the residents. Additionally, by drawing upon a broad spectrum of expertise existent within their corporate networks, these applicants are best able to maintain and improve the services they offer. The criteria on balance In evaluating the applications at issue in this proceeding, none of the criteria established by Section 381.705, Florida Statutes, or Rule 10- 5.011(k), Florida Administrative Code, have been overlooked. As between the competing applicants, consideration of those criteria demonstrates that Hillhaven is the superior applicant whether it is evaluated on its application as initially reviewed by the Department or as updated at hearing. Among other things, the Hillhaven facility is spacious with large and well appointed patient rooms, its project costs are most reasonable (whether type 5 or type 4 construction), its programmatic proposal and staffing levels are most reasonable in light of existing demand, its provision for Medicaid services is the highest, and its patient charges are the lowest.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered granting Hillhaven's application for a certificate of need to construct a new 20-bed community nursing home in Lee County, and denying the applications of HCR, Forum, Health Quest and Careage. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 22nd day of November, 1988. WILLIAM J. KENDRICK 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 22nd day of November, 1987.
Findings Of Fact FMCC's application is to provide a 102-bed long-term care nursing facility in Fort Myers, Florida, while AHC's and HSI's applications are to provide 120-bed long-term nursing care facilities. When each of these applications was presented to the south Central Florida Health Systems Council, Inc. (HSA), the application of FMCC was approved and forwarded to Respondent recommending approval and the other two applications were disapproved and so forwarded. The primary reason given by HSA for disapproving HSI's application was lack of firm financing and for disapproving AHC's application was cost of construction. Trained personnel to man the proposed facilities are in short supply in Lee County. Applicants' plans to import personnel, if necessary, from other parts of the country were supported by no evidence to indicate such personnel would be amenable to move to Lee County. All applications were disapproved by Respondent and each applicant requested a hearing which resulted in this consolidated hearing. At present there are 741 existing or approved long-term care nursing home beds in Lee County, Florida. A 120-bed facility at Cape Coral became operative in February, 1979 and a 60-bed addition to Beacon-Donegan Manor nursing home has also been approved. Prior to the opening of the newest 120-bed facility at Cape Coral, the occupancy rate for the other long-term care nursing homes was greater than 90 percent. Due to its recent opening, no evidence was presented as to the occupancy rate in Lee County following the opening of the Cape Coral facility. The population of Lee County in 1978 was 184,841 with 41,984 more than 65 years old, which is less than 23 percent of the population. This is in line with the population forecasts by the University of Florida and validates the estimated 1980 population figures which were used by all parties in submitting their applications. In 1978 Respondent proposed a State Health Plan which included a determination that the long-term care nursing home bed needs were 27 per 1,000 population greater than 65 years old. This determination was unacceptable to the Department of Health, Education and Welfare (HEW) whose decision is binding on Respondent. In refusing to accept this standard, HEW reaffirmed the requirement that the formula contained in the Hill-Burton Act be utilized in determining certificates of need. Following the Hill-Burton formula results in no additional long-term care nursing home beds needed in Lee County. Modification of the results produced by use of the Hill-Burton formula when extenuating and mitigating circumstances exist is authorized by the Florida Medical Facilities Plan. Accordingly, when use of Hill-Burton formula produces results contrary to obvious facts, such as a showing of no need for additional facilities when occupancy rates are high and long waiting lists for admission exists, these extenuating circumstances are considered and a finding of need is made. The parties stipulated that extenuating circumstances, notably the greater than 90 percent occupancy rate in nursing homes in 1977 and most of 1978 and the existing waiting lists created need for 100 to 120 additional beds. No evidence was presented establishing a need for more than 100-120 additional long-term care nursing home beds in Lee County. In fact, no evidence was presented showing the current occupancy rate, current waiting lists, or any other information not previously submitted to the Health Systems Agency was here presented other than the latest Census Report, which merely confirmed the accuracy of the forecasts. Even if the 27 beds per 1,000 population greater than 65 which was proposed by the South Central Florida Health Systems Agency were used to establish the number of beds needed, their limitation, that no more than 50 percent be added in the two-year planning period, would preclude approving more than one additional nursing home at this time. Absent evidence showing a need for more than one additional nursing home, the only issue remaining is which of the applicants is best qualified to provide the best service at the lowest cost for the stipulated need. HSI submitted proposed construction costs and patient charges in line with those submitted by FMCC. However, although their application states, and the Health Systems Agency apparently accepted, their allegation that an option to lease had been obtained on the property on which the proposed facility was to be erected, testimony at the hearing disclosed that only an oral agreement to lease the property had been obtained by HSI. An oral agreement affecting a long-term lease of real property comes within the Statute of Frauds and is unenforceable. This fact alone renders all cost estimates submitted by HSI suspect. Further, the financing proposed by HSI to construct the facility shows less than $200,000 equity capital available and a requirement to borrow $1,300,000. One ground noted by the Health Systems Agency for disapproving this application was the inadequacy of their financing. No evidence presented at this hearing contradicted this Health System Agency's finding. AHC operates some 50 nursing homes in 14 states with two nursing homes in the Orlando area. A certificate of need has been obtained for a third nursing home in Jacksonville. Florida Living Care, Inc., the parent corporation of FMCC, manages some 44 nursing homes and owns 25. It has certificates of need for 6 nursing homes in Florida, one of which is completed and in operation, while 3 are under construction. AHC proposes to finance 87 percent of the cost of the 120-bed project, or $2,160,000, in a 40-year loan at 8.5 percent interest. FMCC proposes to finance 80 percent of the cost of a 102-bed project, or $1,000,000, in a 25-year loan at 9.5 percent interest. Although no testimony regarding the current status of mortgage money was presented, it is recognized that interest rates are at historically high levels and that FMCC is more likely to get financing on the terms it proposed than is AHC on the terms the latter proposed. HSI proposed costs and charges result in average costs of $30.16 per patient per day. FMCC proposed costs and charges result in average costs of $30.96 per patient per day. AHC proposed costs and charges result in average costs of $34.40 per patient per day. No significant difference exists in the services proposed by each of the applicants. Savings from combined purchasing can result when numerous facilities are operated. Both AHC and FMCC are in a better position in this regard than is HSI. Additional savings in group food purchasing can result when facilities are within 200 miles of each other. The facilities FMCC's parent corporation is opening in Sebring and Port Charlotte are close enough to Fort Myers to allow group food purchasing for these facilities. AHC's construction costs are approximately 50 percent higher per bed than are the costs submitted by FMCC and HSI. This factor must result in higher charges to amortize these higher construction costs.
Findings Of Fact HCR initially applied for a CON to construct a 120-bed nursing home facility in Lee County, DHRS District VIII. DHRS assigned this application CON Action 3854, which it denied. Manor Care also initially applied for a CON to construct a 120- bed nursing home facility in Lee County, DHRS District VIII. DHRS assigned this application CON Action No. 3850, which it denied. Manor Care and HCR timely filed petitions for formal administrative hearings which resulted in the DOAH Consolidated Case Nos. 85-2937 and 85-3240. During the hearing, Manor Care and HCR offered updated CON applications (respectively MCI and HCRS). While the Manor Care proposal is a "scale-down" to 60 beds (HCR still proposes 120 beds. both applications propose nursing home beds be set aside to offer a therapeutic environment for patients with Alaheimer's Disease and patients with related disorders. Manor Care's update also provides for an attached 60-bed adult congregate living facility (ACLF), which does not require a certificate of need. DHRS objected to the admission in evidence of the respective applications but did not move for relinquishment of jurisdiction to the agency for consideration by its experts of the updated material in lieu of formal hearing (Vol. III p. 54). Both applications had been submitted to the DHRS attorney prior to hearing. Upon the Hearing Officer's own motion, an evidentiary hearing was conducted prior to the taking of other evidence solely on the propriety of consideration of the updated applications without resubmittal to DHRS. The HCR update did not change the number of beds, nor the patient mix. The Manor Care update was downsized to 60 beds, and this is permitted as a matter of law. Neither update requires amendment of the District Health Plan or the same fixed pool; neither attempts to alter the January 1988 planning horizon contemplated by the original January 1985 applications. The other changes contained in the updated applications relate to a description of the Alzheimer's Disease (AD) program and design of the AD unit for each application, or other changes such as increase or decrease in costs due to inflation and the passage of time, including particularly, the fact that subsequent to the filing of the original application there was a recognition in the District Health Plan and the State Health Plan of the special needs of AD patients, which was contained in the 1985-87 State Health Plan, Vol. III, p. 109. (T-73-74, Vol. II - testimony of HCR expert, Milo Bishop; DHRS Exhibit 5), and the subsequent Local District VIII Health Plan also identified the concern of availability of beds for Medicaid patients. Specifically, the District VIII Health Plan recommends priority consideration for nursing home beds to be given to applicants that will propose to accept a proportion of Medicaid eligible patients that is at least equal to the most recent quarterly figure of Medicaid occupancy in the district. (T-75, Vol. III, DHRS Exhibit 5). The updated application of HCR was filed to reflect these recently identified needs of the AD patients, sub- acute patients and Medicaid patients. The update of each Petitioner also clarifies assurances of Medicaid availability. The updated applications of both Manor Care and HCR proposed special programs for AD patients and a separate wing which appears now to be a treatment of choice for these types of patients. Awareness of AD and its ramification has increased significantly in the recent past. Recognition of the special needs of these patients in the respective updated CON applications constitutes refined material describing the current state of knowledge in medical care. The proposals by Manor Care and HCR to designate separate units and programs for AD patients does not constitute a substantial change in the applications for all of the foregoing reasons but also because any nursing home may admit and treat AD, related disorders, and sub-acute care patients without obtaining a specialized CON and because these types of patients could have been treated in the nursing homes described in the original applications. As far as the identification of newly available information on AD and related disorder patients are concerned, the updates are clearly encouraged within the purview of Balsam v. Department of Health and Rehabilitative Services, 486 So. 2d 1341 (Fla. 1st DCA 1986). Over all, none of the amendments of the Petitioners are substantial and the updated applications of both Manor Care and HCR are proper amendments permitted in these de novo proceedings pursuant to McDonald v. Department of Banking & Finance, 346 So. 2d 569 (Fla. 1st DCA 1977); and Gulf Court Nursing Center v. DHRS, 483 So. 2d 700 (Fla. 1st DCA 1985), Motion for Rehearing (Feb. 14, 1986). The ruling that both amended applications were not substantial amendments and therefore no remand to the agency was necessary was entered on the record (Vol. III, p. 103 and is accordingly reiterated and confirmed here, within the Recommended Order. During the hearing, all the parties stipulated to the reasonableness of construction (and equipment) cost, and financial feasibility of both projects. DHRS (but not the Petitioners) stipulated that both Petitioners projects satisfied all quality of care considerations. Upon all the evidence (oral, documentary, and demonstrative) including but not limited to the testimony of Loma Overmeyer, Charlotte Young, Tal Widdes, and John Lee, it is found that both Petitioners have affirmatively demonstrated their respective abilities to provide satisfactory quality of care to their patients through these respective proposed projects. Rule 10-5.11(21), Florida Administrative Code, contains DHRS' methodology for computing nursing home bed need. The need methodology provides that the need for proposed new community nursing home beds is to be determined 3 years into the future. Here, the applicable planning horizon is January, 1988, which is 3 years from the time the initial applications were filed. Applications for new community nursing home beds will not normally be approved if such approval would cause the number of community nursing home beds in an area to exceed the bed need calculated pursuant to Rule 10-5.11(21)(b) 1-10 Florida_ Administrative Code. Applications for community nursing home facilities are normally approved for a minimum of 60 beds. All need experts utilized current population figures provided July 1, 1986 by the Office of the Governor. However, DHRS has arrived at a 37 bed surplus. The DHRS expert, Joyce Farr, testified she used the date of hearing (July 1986) as a basis and current population figures, rendering a gross need of 1,089 beds. If current population figures are used and the January 1985 (initial application date) is used, there is a gross bed need of 1,204 beds. There are 996 licensed nursing home beds in Lee County as of June 1, 1986. Applying the rule to either gross bed need leaves 93 (1089 minus 996) net need or 208 (1204 minus 996) net need. Manor Care calculated both ways and would qualify by either method if it were the sole applicant, but the net bed need by either calculation greatly exceeds the beds proposed by Manor Care. The latter calculation, based on January 1985 instead of the 1986 population projections is urged by HCR as preserving the sanctity and logic of batching cycles and planning horizons. Such an application of the rule's methodology would clearly permit a CON for 60 nursing home beds to be issued to Manor Care and also permit a CON for 120 nursing home beds to be issued to HCR, with a surplus of 28 beds. This solution of awarding a total of 180 beds (60 plus 120) would not offend DHRS established policy that applications for community nursing home facilities are normally approved for a minimum of 60 beds. Nonetheless, HCR's reading of the rule mixes 1985 and current figures without adequate justification in the record and is neither literal nor in conformity with the agency policy and interpretation which witness Farr testified has been applied by her on behalf of DHRS in at least 100 contested CON formal hearings. Further, it is clearly logical and in the best interests of the public and the health planning professions, and in accord with the intent of Chapter 381 F.S. to apply those figures which will most accurately reflect the bed need at the projected (January 1988) planning horizon. In this instance, that set of figures renders the net general community nursing home bed need as 93. However, Joyce Farr also testified that she had been instructed by her supervisor not to apply the rule as promulgated but instead to reserve 143 beds for Lee County and to subtract these beds as if they were already approved. The "reserved" 143 beds represent DHRS' interpretation of Gulf Court v. DHRS. Pursuant to directions in the opinion of the First District Court of Appeal in that case, DHRS has received, for comparative review, CON applications from the three party applicants in that case. Those parties' applications were originally filed in 1981 and 1982, and are for nursing home beds in Lee County. As of date of formal hearing in the instant cause, none of the "Gulf Court" parties' applications had been approved. The Department's stated intention regarding the three "Gulf Court" applications is to award 143 beds to one or more of the party applicants in that case. This intention is based upon the Department's interpretation of the Gulf Court case, and not upon any calculation of need for a planning horizon. As of date of hearing, DHRS had not given any consideration to the effect of changed statutes, regulations, facts, or circumstances on the "fixed pool" of beds applied for by the "Gulf Court" applicants. In her calculation of net need for the sub-district of Lee County, the DHRS witness counted the 143 beds set aside for the "Gulf Court" applicants as "approved" beds. Other than those beds, there are no other approved beds, nor any applications pending from prior batches. The DHRS methodology used to subtract 143 beds is not consistent with the provisions of Rule 10-5.11(21), Florida Administrative Code. (See Conclusions of Law). If the DHRS bed need formula contained in Rule 10- 5.11(21), Florida Administrative Code, is used, the correct number of beds needed for the planning horizon of January 1985 through January 1988 is 93 general community nursing home beds. Each applicant has included, in the updated applications presented at hearing, a number of beds set aside in a unit for Alaheimer's Disease (AD) patients. Manor Care has indicated that 18 beds would be so designated. HCR proposes to establish a 30 bed unit for both "Alzheimer's and the related disorders"' including 15 beds "just for wanderers." AD "is a degenerative process of the brain, characterized by memory impairment and impairment in several mental and physical functions." The disease progresses at certain levels or stages. There are four progressively worsening stages of this disease. In the first stage, the patient starts to forget names and facts in the recent past, and also begins to be unable to perform some complex tasks that the patient was able to perform before the disease began. In stage two, the impairment in memory increases. The patient starts to forget common names of objects usually used in daily living, and the patient starts to wander. There are often behavioral problems, such as agitation or depression. In stage three, there is. physical impairment, including incontinency, speech disturbances, and problems with communication. In stage four, the patient most of the time is confined to a bed, and largely unaware of his_ environment. He is incontinent. Without adequate care, he has sores on his back. He is nearing death at that point. AD is irreversible and the cause is unknown. Diagnosis is very difficult. The only positive method of diagnosis is by brain biopsy. The most common method of diagnosis is by a process of elimination and this often fails in the early stages of AD. Incidence of AD increases in the over 65 population but there are cases of some patients as young as 30. A large percentage of any nursing home is suffering from some form of dementia. The estimated need of "irreversible dementia" patients in nursing homes in Lee County for the year 1988 is 2,189. Out of this number of patients, 60% would be specifically AD patients or 1,313. Dr. Baquero presently has 100 AD patients in existing area nursing homes. AD patients are cared for in almost all nursing homes, but usually there is no separate area or program. There are no specialized programs or units for AD patients currently established in Lee County. The existing facilities in Lee County do not provide adequate care to persons suffering from AD. Because of the lack of facilities, AD patients are often kept at home until families are to the pint of desperation. Care of the AD patient is an enormous, 24 hour-a-day burden on the care-givers. Additional stress is caused by personality changes that often accompany the disease. Most facilities in Lee County will not accept a difficult patient. Families of AD patients have placed patients in facilities out of country, out of state, and out of country, because of the lack of facilities in Lee County. Dr Baquero, practicing medical physician in Ft. Myers, who is experienced in treating AD patients and who has knowledge gained as Medical Director for two existing nursing homes, was qualified as an expert in the care and treatment of AD patients. Upon his evidence and upon evidence of the representatives of the Alzheimer's Disease and Related Disorders Association (ADRDA), it is found that AD patients frequently have to be placed outside Lee County, as far as 60 to 70 miles from home. Approximately 50% of AD patients consulting ADTDA return to northern home states or go to foreign countries rather than awaiting long- delayed Lee County placement. Placement of AD patients also on Medicaid or needing sub-acute care is even more difficult. The Petitioners further demonstrated that other patients in addition to AD patients are not adequately served by the existing facilities in Lee County. It is extremely difficult in Lee County to place a patient who is in need of high technology or "sub-acute" care. Such patients include those in need of intravenous antibiotic therapy, ventilators, oxygen, feeding tubes or pumps, decubitus ulcer care (bed sores), etc. Feeding pumps and bed sores may eventually become a way of life for AD patients. AD patients may also require other forms of sub acute care and can be on Medicaid. Many of the existing nursing homes are not capable of handling such patients who often must be placed out of county. These difficult patients are frequently placed out of county or at great distance from their homes within the county, creating added burdens on elderly spouses and family members. The burden of out of county placement has created or intensified "separation syndrome" accidents and death for such patients elderly spouses. Implementation of the Diagnostic Related Grouping (DRG) system of Medicare reimbursement has been an incentive for hospitals to release patients as soon as they are no longer in need of "acute care," but due to the inability to place these patients, they stay in hospitals longer than necessary, resulting in a much higher expense than would be the case if a nursing home placement could be achieved. Additionally "cost shifting' to private and third party insurance payments may be inferred from the DRG statistics admitted. Both Lee Memorial Hospital and Ft. Myers Community Hospital experience difficulty in placing sub-acute care patients, especially those on Medicaid. Fifty per cent or more of Ft. Myers Community Hospital referrals are of sub-acute care patients. Ft. Myers Community Hospital records reflect an increase in hold-overs due to unavailability of nursing home beds. Since October, 1984, Lee Memorial Hospital has had to place 75 out of 941 discharge patients out of county. Only one of these patients was private pay. The majority of Lee Memorial discharges to nursing homes are Medicaid and Medicare patients; 48.3% are Medicare and 22.6% are Medicaid patients for a total of 70.9% of the total discharges to nursing homes. Only 29% of Lee Memorial discharges-to nursing homes are private pay patients. Twenty per cent of all of Lee Memorial's Medicaid discharges to nursing homes are required to be placed out of county and 11.2% of their Medicare discharges are placed out of the County. Mary Shell, the DHRS District Human Services Coordinator confirmed the difficulty of placing Medicaid patients in the county as sub-district and testified to a serious but unquantified shortage of both Medicaid and sub-acute nursing home beds in Lee County. Mr. Dennis Eskew, Supervisor of the DHRS Adult Payments Unit, which determines the eligibility for Medicaid nursing home programs, presented a chart (HCR 15) showing 20% of 203 approved Medicaid patients (41) had to be placed out of county during the immediately preceding six months because of unavailability of such beds in Lee County. Existing nursing homes in Lee County are almost always full. Hospital discharge planners, families, and medical physicians seeking placement of patients uniformly testified that there is a shortage of beds and long waiting periods, even for non-problematic patients and that there is a need for additional nursing home beds for all types of patients including Medicare/Medicaid patients, sub-acute patients, AD patients and routine nursing home patients. However, these witnesses did not attempt to quantify the number of beds needed. There is strong evidence that recently opened nursing homes are not making available promised Medicaid beds and there have been no DHRS enforcement procedures. Although minimally demonstrated, it may be inferred from the foregoing type of testimony that the absence of competition has reduced the incentive of existing local nursing homes to accept those out of the "walkie talkie" category, those still cognitive, ambulatory patients who are able to feed and care for themselves to a large degree. Both Petitioners meet the guidelines in the local health plan that applicants should provide at least 33 1/3% of beds available to Medicaid patients. HCR agreed to provide 46% Medicaid beds (55 beds out of 120) which was the prevailing district rate. The plan gives priority to those applicant who meet this percentage. Manor agrees only to provide 35% Medicaid beds. Both Petitioners indicate a willingness to treat sub- acute patients, but neither seeks a specific number of beds for this purpose. Sub-acute care is considered within the designation of skilled care. Manor Care's emphasis on rehabilitation in its existing facilities has had significant results. Manor Care's historical Medicare percentage is above the industry average. Both Petitioners are in the forefront of developing programs for the diagnosis and treatment of AD disease. Manor Care is prepared to totally commit 18 beds exclusively to AD and related diseases and 21 beds to Medicaid. These may overlap. HCR is prepared to totally commit 32 beds exclusively to AD and related diseases and 55 beds to Medicaid. These may overlap. The special attributes of each proposed AD unit (30 beds by HCR and 18 beds by Manor Care) include a higher staff-to- patient ratio, which is needed to supervise and assist confused and wandering patients and a great deal of attention to the physical environment, from a home-like atmosphere and certain relaxing shades of pink, to special furnishing and fixtures. Particular care is necessary in preparation and serving of food, to allow patients with AD and related disorders to eat adequately and without assistance and to prevent considerable weight loss in the wandering stage which can result in further rapid debilitation. One of the goals of AD programs is to reduce the need for traditionally utilized physical restraints or heavy sedation, and to promote prolonged individual functioning. There is no competent expert testimony contrary to the theme that AD patients require special care and special programs designed to meet their unique medical and custodial needs. The experts with any personal background in the area also uniformly agreed that a separate wing or another isolated area of the nursing home facility is most desirable because of the wandering tendencies of these patients, their hostile, unpredictable, and bizarre behavior, and the other special needs specific to this type of brain degeneration. HCR's Wander Guard security system is viewed as superior by some witnesses.
Recommendation Based on the foregoing, it is RECOMMENDED: That DHRS enter a Final Order approving HCR's updated application for a 120 nursing home bed facility in Lee County limited and conditioned upon HCR's updated application's specific provision for 46% Medicaid beds and upon 30 beds being dedicated as set out in the application and evidence at formal hearing for the specific for treatment of AD patients, and denying the application of Manor Care for a 60 bed facility. DONE and Ordered this 23rd day of December, 1986 in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32309 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of December 1986. COPIES FURNISHED: Jean Laramore, Esquire Kenneth A. Hoffman, Esquire 325 North Calhoun Street Tallahassee, Florida 32302 Donna H. Stinson, Esquire The Perkins House, Suite 100 118 North Gadaden Street Tallahassee, Florida 32301 John Rodriguez, Esquire Department of Health and Rehabilitative Services 1323 Winewood Blvd. Building One, Room 407 Tallahassee, Florida 32399-0700 William Page, Jr., Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32399-0700 APPENDIX_ The following paragraphs constitute specific rulings upon the parties' respective proposed findings of fact as required by Section 120.59(2) F.S. Petitioner Manor Care's Proposals: Covered in Findings of Fact 1, 3. Covered in Findings of Fact 3 and 12. Covered in Finding of Fact 8. Covered in Findings of Fact 3, 9-12. Sentence 1 is covered in Finding of Fact 4; remainder rejected as taken out of context and not clear from the record as a whole. Covered in Finding of Fact 9. Covered in Finding of Fact 12. Covered in Finding of Fact 9-12. Covered in Findings of Fact 9-12. Up to the comma covered in Findings of Fact 12; after the comma accepted but not adopted as unnecessary. Covered in part in Finding of Fact 12; remainder accepted but unnecessary. Covered in Findings of Fact 12. 16-19. Covered in Finding of Fact 6. 20. Covered in Findings of Fact 9-12. Proposals 9, 14, and 15 are accepted but not adopted because subordinate and unnecessary. Petitioner Health Care and Retirement Corporation of America's_ Proposals: Covered in Finding of Fact 1. Covered in Findings of Fact 2. sentence 1 is covered in Finding of Fact remainder rejected as subordinate and unnecessary. Covered in Finding of Fact 3. Covered in Finding of Fact 3. Covered in Finding of Fact 3. Covered in Finding of Fact 3 Covered in Finding of Fact 3. 10-12. Covered in Findings of Fact 3 and 12. Covered in Finding of Fact 12.a. Covered in Findings of Fact 3 and 10. 16. Covered in Finding of Fact 3. 19. Covered in Finding of Fact 3. 20-22. Covered in Finding of Fact 4; rejected in part as not supported by the record. 23-24. Covered in Finding of Fact 4. Covered in Findings of Fact 8 and 9. Covered in Finding of Fact 12. 27-32. Covered in Finding of Fact 8. Covered in Findings of Fact 5 and 6. Covered in Finding of Fact 8. 38-39. Are accepted in principle but rejected in their specificity as subordinate, unnecessary and cumulative. To a large degree the same subject matter is covered in Findings of Fact 8-12. Covered in Findings of Fact 9 and 12. Covered in Finding of Fact 8. Covered in Findings of Fact 9 and 12. 43-49. Covered in Findings of Fact 9-12. What is not covered is rejected as subordinate, unnecessary, and cumulative. Covered in Findings of Fact 9-10. Covered in Findings of Fact 9-12, particularly lOe. Covered in Findings of Fact 10-11. Accepted in principle but as stated is too broad and applies to situations outside of nursing home beds. Rejected in part as taken out of context and with insufficient predicate and in part as subordinate and unnecessary. What is accepted is covered in Finding of Fact 11. 60. Covered in Findings of Fact 10-11, particularly 10. 64. Covered in Findings of Fact 10-11, particularly 10. 66. Covered in Findings of Fact 9-12, particularly lOd. 67-69. Covered in Findings of Fact 10-11, what is rejected is rejected as unnecessary, subordinate and/or cumulative. 70. Covered in Finding of Fact 11. 71-73. Covered in Findings of Fact 10-11, what is rejected is rejected as unnecessary, subordinates and/or cumulative. Covered in Findings of Fact 10-11. Covered in Findings of Fact 9-12. Covered in Findings of Fact 6 and 11-12. 77-90. Covered in Finding of Fact 6. Matters rejected are rejected as not supported by the record or as contrary to the appropriate application of law and incipient policy. See Conclusions of Law. Represents the sum total of all the Findings of Fact made and is more in the nature of a conclusion of law. See Conclusions of Law. Rejected as covered in Finding of Fact 6, and the Conclusions of Law. 93-95. Accepted and incorporated in Finding of Fact 12. 96. Covered in Findings of Fact 6, 11, and 12. Proposals 3, 15, 17, 18, 35, 36, 37, 55, 56, 57, 58, 59, 61, 62, 63, 65, are accepted but not adopted because subordinate and unnecessary. Respondent Department of Health and Rehabilitative Services' Proposals: 1-2. Covered in Finding of Fact 1. 3. Covered in Finding of Fact 2. 4. Covered in Finding of Fact 4. 5. Covered in Findings of Fact 3 and 12. 6. Covered in Finding of Fact 3. 7-9. Covered in Findings of Fact 3, 5, and 6._ 10. Covered in Finding of Fact 6. 11. Accepted but not specifically set out in Findings of Fact. Sentences 1-2 are accepted and sentence 3 is rejected in Finding of Fact 6 and in the Conclusions of Law. Rejected for the reasons set out in Finding of Fact 6 and Conclusions of Law. Covered in Findings of Fact 5 and 6 and Conclusions of Law. Rejected as set out in Findings of Fact 6, and 9-12 and as a conclusion of law. Rejected as out of context and immaterial to the facts as found. Similar material is covered in Findings of Fact 6 and 9-12. Rejected as set out in Findings of Fact 6, and 9-12 and as a conclusion of law. ================================================================= AGENCY FINAL ORDER ================================================================= STATE OF FLORIDA DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES MANOR CARE, INC., Petitioner, CASE NO. 85-2937 vs. CON NO. 3850 DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, Respondent. / HEALTH CARE AND RETIREMENT CORPORATION OF AMERICA, d/b/a HEARTLAND OF LEE, Petitioner, vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, Respondent. / CASE NO. 85-3240 CON NO. 3854
Findings Of Fact Each applicant in this proceeding submitted its application in the January, 1986 batching cycle for the January, 1989 planning horizon, each requesting a certificate of need to build a 120-bed nursing home in Brevard County, Florida. The parties have stipulated that each applicant's letter of intent and application was timely filed, that there is a need in the January, 1989 planning horizon for additional community nursing home beds, and that 120 of those beds should be awarded to one of these applicants. They further stipulated that there are sufficient professional staff available in the Brevard County area to completely staff a new nursing home facility and that each of the applicants is able to obtain the funds necessary to construct its project. Maple Leaf of Brevard County Health Care, Inc., a new corporation to be formed as a wholly-owned subsidiary of HCR proposes a 120-bed community nursing home to be located in central Brevard County in the area of Rockledge and Cocoa. In addition to traditional skilled and intermediate care, the nursing home will provide services for sub-acute patients, and a separate wing of the nursing home will be set aside for Alzheimers and related dementia disease patients (hereinafter "Alzheimers patients"). The HCR proposal includes an adult day- care unit for Alzheimers patients and respite care on a bed- availability basis. At final hearing, HCR submitted an application supplement which provided updated calculations, projections and program descriptions to account for changes occurring as a result of the elapse of time between submission of the original application and the final hearing. The application supplement does not include any programmatic changes from the original application and does not add any new concepts or elements to the original HCR proposal. The adult day-care unit will provide care to Alzheimers patients for four to eight hours a day and from one to five days a week, depending upon the needs of the patient and caregiver. The program will be staffed by a nurse director and an assistant. Patients will be provided with various activities of daily living in an environment developed for Alzheimers disease victims. This program provides placement for the patient who does not need inpatient care but whose caregiver needs rest or an opportunity to attend to matters outside of the home, such as employment. Respite care at the HCR facility is intended to provide placement for patients on a 24-hour basis while the family or caregiver attends to needs such as vacation or hospitalization incompatible with overnight care of the patient at home. Respite care provides inpatient nursing home care for short periods of time, typically a week or two. Sub-acute care is a more intensive form of skilled nursing care than typically has been provided in nursing homes. Historically, this care was provided in hospitals, but adoption of the DRG (diagnostically related group) system of acute care reimbursement has resulted in an earlier discharge from hospitals of elderly patients who continue to need an intense level of nursing care. Sub-acute care includes the provision of high-tech services such as ventilator care IV therapy, pulmonary aids, tube feeding, hyperalimentation and short- and long-term rehabilitation. HCR provides a wide variety of these sub- acute care services in its existing facilities. Hospitals in Brevard County report difficulty in placing patients who require sub-acute care and high-tech services. Particularly difficult to place are these patients whose care is reimbursed by Medicaid. The availability of sub-acute care also provides continuity of care for bedridden Alzheimers patients in the later stages of the disease when they require life support systems. HCR proposes to devote a 29-bed wing of the facility to the care of Alzheimers patients. Special design features, patient activities and programs and modified staffing will be provided to meet the special needs of Alzheimers patients. Alzheimers disease, a form of dementia, is a degenerative condition of the brain which results in a progressive dementia and loss of Previously- acquired intellectual functions and memory. Generally, the disease has three or four stages. In the earliest stages, the victims experience some mild memory loss, behavioral changes, loss of interest in previous hobbies, depression, anxiety and increased difficulty handling some routine day-to-day affairs. In the early stages, victims often are in reasonably good physical condition and symptoms tend to be fairly subtle. In stage two memory loss is much more apparent, and victims begin to have problems with the use of language. They may have increased difficulty with spatial relationships and become lost in familiar surroundings. These victims experience more noticeable problems with their memory in terms with dealing with their family and friends; as the disease progresses to stage three, those problems tend to worsen and become apparent even to people who are not otherwise familiar with the patient. The victims may have additional behavioral or psychiatric difficulties associated with depression or severe anxiety. A delusional stage is frequent. These victims experience disruption of their sleeping cycles and sleep during the day and wander during the night. Seizures may become a problem. In stage three, the victims usually require supervision. As the disease progresses through stage three, the victims have difficulty with personal hygiene, difficulty getting dressed and difficulty performing the simplest human task. As the disease progresses into stage four the victim becomes bedridden and requires total nursing care. There is no cure for the disease. It is terminal. Nursing home care is probably appropriate for everyone in stage four of Alzheimers disease. Most patients in stage three require nursing home care. Some patients in stage two may require nursing home care, depending upon the type of care that is available at home. According to some estimations, approximately 2.5 million American adults suffer from Alzheimers disease and approximately one-half of existing nursing home patients, and 15 percent of the population age 75 and over suffer from Alzheimers disease (4 - 5 percent 65 and over, 20 - 30 percent 85 and older). There are eleven nursing homes in Brevard County, but there is only one nursing home in Brevard County which provides a separate unit for Alzheimers patients. This facility is located in West Melbourne in south Brevard County. There is no nursing home which provides a separate Alzheimers program in central or north Brevard County. Historically, Alzheimers patients in nursing homes have been mixed with other patients. The Alzheimers patient in the nursing home has often created management problems because of wandering, incontinence, confusion, loss of cognitive and communicative capabilities, unusual sensitivity to normal environmental stress, and socially, unacceptable behavior. Because of these characteristics, nursing homes have sometimes avoided admitting Alzheimers patients. Often, when such patients were admitted, their behavior was controlled by sedation and physical restraints. Nursing home patients who do not suffer from Alzheimers disease are often agitated and disrupted by the Alzheimers patient. The Alzheimers patient exhibits such unacceptable social behavior as going through other patients' belongings, sleeping in other patients' beds, violent behavior, being unresponsive to attempted communications and continually wandering. A separate unit for the Alzheimers disease victim also accommodates the needs of the non- Alzheimers patient. It is medically appropriate to separate Alzheimers patients from other nursing home patients. Frequently, the Alzheimers patient is suffering from mental problems resulting in confusion and disorientation but is otherwise physically healthy and ambulatory. Other patients in the nursing home often have a variety of medical problems which require more intensive nursing care. Placing Alzheimers patients in the same area with those patients with medical problems requiring more nursing care can be disruptive to the nursing care being provided to the non- Alzheimers patient, The design of the HCR facility is intended to reduce the environmental stress on Alzheimers disease victims and allow them to maintain their cognitive capabilities for as long as possible. Special wall coverings, floor coverings, labeling and color coding features are provided. Separate dining and activities areas are provided. Wandering is permitted. A fenced courtyard is provided. A monitoring system will alert the facility staff when a patient begins to wander out of the facility. Bathrooms are designed to avoid fright and confusion by automatic lighting systems, coloring and distinctly shaped fixtures and waste baskets. Safe dinnerware and tables which enhance the Alzheimers victim's ability to continue to feed himself or herself are provided. Additional staffing in the Alzheimers unit and staff training in Alzheimers care will be provided. The goal of the Alzheimers design and program is to maintain the patient's activities of daily living and assist in the retention of the patient's cognitive capabilities for as long as possible. Separate, specialized Alzheimers care units are beneficial for several reasons. They are safer for the Alzheimers patient. They reduce the agitation and disruption of the Alzheimer's and non-Alzheimer's patient. They provide programs for Alzheimers patients which are within the patient's cognitive abilities. The units are smaller, and each patient receives more individual attention. Sedation and physical restraint is eliminated or reduced. Individual dignity is enhanced. HCR confirmed the need for an Alzheimers program in Brevard County by calculations based upon nationally-accepted statistics and contact in Brevard County with individuals knowledgeable of the availability of care being provided to Alzheimers disease patients. Special units for Alzheimers patients are a fairly new phenomenon. HCR proposes to develop Alzheimers units in other nursing homes in Florida and has submitted applications to add Alzheimers wings to existing nursing homes in Florida. HCR also proposes to convert a wing in an existing facility in Dade County to provide care for Alzheimers patients. HCR will locate its nursing home in the Rockledge- Cocoa area, about thirty miles north of Melbourne and thirty miles south of Titusville, in central Brevard County. All 120 nursing home beds in the HCR nursing home will be certified for Medicaid reimbursement. New equipment for the HCR nursing home is projected to cost $412,079. This represents an increase in cost over the original estimate of $370,000 because of a general increase in equipment cost since the original application and an allocation of approximately $13,800 for equipment for the daycare unit, a cost which was not included in the original estimate. HCR's estimate for purchase of new equipment is reasonable. Projections of payor-mix, facility utilization and revenue and expenses of a nursing home are useful to evaluate the financial feasibility of the project. All projections utilized by HCR to evaluate financial feasibility are conservative projections. The updated projections presented by HCR at final hearing are more conservative than the projections presented in HCR's original application. If the projections found in HCR's original application were realized, the facility simply would be more profitable. HCR's estimate of an 11 percent interest rate for the funds to be borrowed for this project is a reasonable and conservative estimate. HCR's estimate of 50 percent intermediate care patients and 50 percent skilled care patients is a reasonable estimate for the patients expected to be found in this facility and is a conservative estimate. No other applicant provided such an estimate. In computing revenues and expenses, HCR assumed an inflation factor of 3 percent for Medicare and Medicaid revenues, 5 percent for other revenues and 5 percent for expenses. These inflation factors are reasonable. HCR's projections of 22 percent in year one and 25 percent in year two for payroll taxes and fringe benefits are reasonable and consistent with HCR's actual experience. HCR utilized reasonable and appropriate depreciation periods of 40 years for the building and 10 years for equipment. These are the depreciation periods used by HCR in its regular course of business. The patient charges projected by HCR, including Medicaid, Medicare and private room rates and ancillary charges, are reasonable projections. HCR projected that private pay room charges at the nursing home would be $75 for a semi-private room and $85 for a private room in July, 1989. These updated projections are consistent with existing (1987) private pay rates in Brevard County, which range from $59 for a semi-private room to $90 for a private room. The HCR rates, inflated forward to 1989, are reasonable and consistent with the existing private pay charges in Brevard County. Private pay room rates charged at nursing homes tend to reflect the market for private pay rates in the vicinity of the nursing home. HCR's updated projection of payor-mix is consistent with the actual experience in central Brevard County and an open admissions policy for Medicaid patients. HCR projects that the facility will reach 95 percent occupancy within 12 months of operation. This projection is based upon HCR's experience subsequent to filing the original application. This projection is reasonable and more conservative than those of the other applicants. HCR anticipates a loss in the first year of operation of $293,885, but a profit in the second year of Operation of $241,084. These projections reveal that the project proposed by HCR is financially feasible, and these projections are reasonable. Staffing of the HCR nursing home is comprised of an administrator, a director of nursing, an assistant director of nursing, an Alzheimers program director, 8.4 FTE (full time equivalent) registered nurses, 6.3 FTE licensed practical nurses, 39.9 FTE nurse-aides, 1 full time occupational therapy aide, 1 full time recreational therapy aide, a social worker, an activities director, 10 FTE dietary personnel, 3 FTE laundry personnel, 8 FTE housekeeping personnel, a maintenance person, 2 clerical workers, and 1 medical records worker. Physical therapy, occupational therapy, recreational therapy, and speech therapy will be provided by licensed therapists on a contract basis. The updated staffing pattern represents minor changes from the staffing pattern in the original application. These changes are a direct result of HCR's experience in operating an Alzheimers wing within a nursing home. HCR's staffing level for staff who provide direct patient care (RNs, LPNs and Aides) exceeds that of Wuesthoff and Unicare. Staff levels in the HCR nursing home are designed to meet the special needs of the Alzheimers patients. An Alzheimers program director will be responsible for the Alzheimers wing and will be an advisor for the day-care facility. HCR's staffing pattern assumes 15 wandering Alzheimers patients in the Alzheimers wing. Care for Alzheimers patients requires increased staffing. Higher nurse-aides staffing is required in the Alzheimers wing during the evening and night hours than in the remainder of the nursing home because Alzheimers patients tend to wander without regard to the time of day. HCR estimates construction costs to be $2,200,000, not including site preparation, which is estimated to cost $275,000. Construction costs per square foot are estimated at $55 and $61.87 when site preparation is included. The estimates of construction cost and construction cost per square foot include an allocation of 2,000 square feet and $110,000 for the day-care unit. The cost per square foot projected in the updated application differs from that projected in the original application because the original application included site preparation, assumed a facility size of 36,000 square feet and was not changed when the original design was changed to add day- care in the original application supplement. The actual size is approximately 40,000 gross square feet. The original HCR application submitted a blueprint which is somewhat different in shape from that which HCR currently intends to build. When HCR added day-care in its Original application supplement, a change in the shape of the building was required and a new design was submitted, but cost estimates were not changed. The design which HCR will use for this facility is similar to the design being used in four ongoing HCR projects in Florida, and which, therefore, meets HRS' requirements. The design relied upon by HCR at final hearing is not substantially different from the design presented to HRS in the original application supplement. HCR's estimates of construction cost, construction cost per square foot, construction cost per bed, equipment cost per bed and total project costs are reasonable and adequate to accomplish the construction of the proposed facility. HCR's updated construction cost estimates are based upon its construction experience in Florida, its experience in having built the design proposed and its discussions with contractors and subcontractors on the east coast of Florida. HCR is currently building two facilities on the east coast of Florida. HCR does not anticipate any cost overruns on any of the facilities currently under construction. All HCR facilities under construction are being constructed within the certificate of need budgets for those facilities. HCR estimates project development costs, including feasibility studies, surveys, legal and accounting fees, planning and HRS's plan review, to be $55,000, which represents an increase over the estimate in the original application due to the passage of time. HCR estimates professional services required for the construction of the facility to cost $90,000. These services include architectural and engineering fees and a site survey and soil investigation report. These costs are approximate1y $5,000 less than the original estimate. This reduction in cost is a direct result of HCR's new staff of civil engineers. Previously, HCR had contracted for site survey work with outside engineers. Thus, while architectural and engineering fees increase, the costs for site surveys and soil investigation reports decrease. The HCR nursing home will be located on approximately 5 acres. HCR estimates land cost for the facility to be approximately $500,000. This - represents an increase over the original land cost estimate because HCR intends to acquire a site which requires less site preparation, located near a hospital. The HCR estimates for land cost are reasonable and consistent with other applicants' estimates. Site preparation costs are estimated at $275,000, a reduction from the original site preparation cost estimate of $315,000. This change is accounted for by HCR's intention to acquire a more costly site which will require less site preparation. HCR intends to build and operate the nursing home proposed for Brevard County and is willing to accept a condition to that effect on any certificate of need issued. HCR estimates a project completion schedule which will result in its nursing home being occupied and in use in July, 1989, and this project completion forecast is a reasonable forecast. HCR has taken steps to ensure that failure to initiate construction within statutory requirements will not occur. HCR has undertaken numerous nursing home projects since 1983 and has successfully constructed or initiated construction on all of those projects. At this time HCR has approximately six projects under construction, four projects have been completed, and one project is under construction for a third party. The design of the HCR facility incorporates numerous energy conservation measures and efficiencies. The HCR facility will comply with all energy code requirements. HCR owns and operates seven nursing homes in Florida. Three of these facilities have superior licenses, and the remaining facilities have standard licenses. HCR nursing homes adhere to extensive quality assurance standards and guidelines. These standards and guidelines regulate such areas as patients' rights, staff development and orientation, physician and nurses services, pharmacy services and medication administration, social services, patient activities, infection control, patient care planning, safety and the physical environmental, menus, diets, nutritional care and scheduling and staffing of dietary personnel, personal appearance and hygiene for dietary personnel, and food storage, preparation and sanitation. These standards and guidelines will be applicable to this proposed project. The standards and guidelines cover all areas of operations and patient care and incorporate survey tools used by the state of Florida and the Health Care and Finance Administration of the federal government for their annual licensure surveys. Additionally, administrators of HCR facilities have a financial incentive to optimize the performance and the quality of care of their facilities. HCR estimates that approximately 60 percent of the patient days in the facility (53 percent of the revenue) will result from Medicaid patients. This estimate is consistent with the experience in the Rockledge-Cocoa area, where one facility has a very low percentage of Medicaid patients and the remaining facilities have very high Medicaid populations (over 60 percent). HCR's estimate also takes into account HCR's recent experience in staffing a facility which includes an Alzheimers wing. HCR will not restrict the number of Medicaid patients in the Alzheimers wing or the remainder of the home. HCR's original application assumed approximately 45 percent of the patient days (42 percent of the revenues) would be accounted for by Medicaid patients. This assumption was based upon HCR's assumption at that time that, in order to cover the assumed high cost of additional staffing in the Alzheimers wing, a greater percentage of private patients (at a higher daily charge) would be required. Subsequent to submission of the original application, HCR has gained actual experience which has demonstrated that the level of staffing proposed by the original application is not necessary and that the cost of staffing can be reduced. The result is that HCR can reduce its reliance on the additional revenue generated by the private paying patient. HCR's design for its Brevard County Alzheimers unit is based upon a state-of-the-art Alzheimers wing at its facility in Perrysburg, Ohio, and HCR's experience gained there. In addition, HCR operates two other facilities which have separate units for Alzheimers patients. The HCR application is consistent with both state and local health plans. HCR projects a charge for Medicaid patients to be $60.93 and, for Medicare patients to be $76 in July, 1989. The increase in charges between the updated projections and the original projections is due to increases in costs during the passage of time since the original estimates were made. The cost of care for patients who are unable to pay is subsidized by the general revenue of the nursing home. Although HCR and Unicare have not projected a percentage of "charity" patients who will not be paying for their services, there will always be some patients who do not pay for all of their care. Patients who do not qualify for Medicaid but who cannot afford standard private pay rates are charged at lower contract rates. The loan fees projected by HCR of $57,000 for the amount of the project financed by debt are reasonable projections based upon current discussions with lenders. HCR estimates that interest during construction will cost $225,000. This amount represents the interest expense paid during the period of construction. This estimate is reasonable. HCR estimates $50,000 will be required for preopening expenses - those incurred in preparing the facility for the opening day. These expenses include marketing and the hiring of an administrator, a director of nursing, and other employees prior to opening. $50,000 is an adequate amount to cover the pre- opening expenses for the proposed facility. HCR's pro forma assumptions, proposed patient charges, projections of revenue and expense, staffing and projections of salaries are reasonable. Each HCR nursing home provides individual patient care plans for each patient, a statement of patients' rights and a resident council (which is a unit of individuals selected by the patients to afford an opportunity to have a formalized, direct method to state preferences, grievances and other opinions related to the operation of the nursing home), and each HCR nursing home has transfer agreements with local-hospitals. The planning director of the Local Health Council responsible for Brevard County performed an analysis of the need for nursing home beds in Brevard County. The results of the study demonstrate that the central part of Brevard County has a lower number of nursing home beds per thousand population over 65 than the remainder of Brevard County. If additional nursing home beds are to be approved for Brevard County, the beds should be located in the central part of the county because the need for nursing home beds in Brevard County is greatest in central Brevard. The HCR architectural design best accommodates the needs of the nursing home patient. Wuesthoff Health Services, Inc., is a non-profit corporation affiliated with Wuesthoff Hospital, Inc., a 305-bed non-profit hospital serving Brevard County, through a common parent Wuesthoff Health Systems, Inc. Wuesthoff Hospital provides some indigent medical care in central Brevard County, and the Wuesthoff nursing home certificate of need application commits to providing some indigent care at the proposed nursing home facility. Wuesthoff, through its affiliated non-profit companies, operates within Brevard County a home health agency, a hospice, four family practice clinics, Life Line for the elderly or disabled who live alone, and Brevard Medical Transport, a no- cost transportation service for the elderly. It also operates a retail pharmacy through a for-profit affiliated corporation. The hospital has for several years maintained a senior citizens' advisory council which concerns itself with the needs of the elderly in Brevard County. It also intends to compete with other businesses in operating Brevard County's Meals On Wheels due to a recent expansion of the size of the Hospital's kitchen. The proposed nursing home will be located on a tract of land owned by Wuesthoff Hospital which will make the property available to Wuesthoff Health Services, Inc., at either the nominal rental of $1 per year for the useful life of the nursing home or by outright contribution if required by HRS. The land has been owned for several years by Wuesthoff Hospital, but Wuesthoff included $48,000 for land costs in its original certificate of need application. The site for the Wuesthoff nursing home is part of a large tract of land which already has located thereon a 20,000 square feet ambulatory care center, diagnostic testing center, family practice physician, dental facility, and retail pharmacy, all of which are owned by one of the Wuesthoff corporations. The ambulatory care center includes laboratory services, physical therapy services, radiology services, two out-patient surgery suites, and 24- hour physician coverage. The nursing home will be connected to the ambulatory care center by an air conditioned, enclosed corridor through which the nursing home patients will be transported to receive any therapies or services which they require. The farthest distance from any patient room in the nursing home to the ambulatory care center, including physical therapy rooms, is approximately 400 feet. Wuesthoff's nursing home would be located in the area which the Local Health Council recognizes as having the greatest need for nursing home beds, i.e., central Brevard County in the Cocoa/Rockledge area. According to Wuesthoff's updated application the total project cost for its 120-bed nursing home would be $2,901,213, and the facility will consist of 37,500 square feet. The project size actually includes 1,000 square feet for the corridor which connects the nursing home to the ambulatory care center. Therefore, the facility itself consists of only 36,500 square feet. It is unclear whether that figure should be further reduced since Wuesthoff decreased the size of its kitchen in its amended application so that the nursing home would no longer have a full-service kitchen. Similarly, the total project cost was substantially higher in Wuesthoff's original application wherein the total project cost was given as $4,417,884. Wuesthoff made changes from its original to its updated application either because the applications were prepared by different persons or because decisions were made to change Wuesthoff's application, as follows: The original application included a full-service kitchen, while the updated application contemplates meals will be prepared at Wuesthoff Hospital and transported seven miles to the nursing home. The removal of the kitchen affects the square footage of the facility along with equipment costs, staffing costs and other costs associated with the operation of the proposed nursing home, such as the increased costs associated with transporting the food to the nursing home. In its original application, one individual was listed as both the nursing home administrator and director of nursing. In its updated application, Wuesthoff treated these as separate positions. Wuesthoff proposed $376,000 for equipment costs in its original application and projected $187,400 for equipment costs in its updated application. Wuesthoff projected 45 percent Medicaid and 15 percent Medicare in its original application and 50 percent Medicaid and 2 percent Medicare in its updated application without any evidence that the needs in the community had changed. Wuesthoff removed the debt service, in its updated application, thus reducing the financing costs. The underwriter's fees between the original and updated application were reduced based upon a dimunition of the bond size as a result of reduction of square footage in the facility and the elimination of the debt service. Wuesthoff reduced land cost from $48,000 in its original application to no cost in its updated application despite the fact that the land was owned by Wuesthoff at the time the original application was filed. Wuesthoff changed the equity contribution between its original and updated applications without any testimony of extrinsic factors while evidence showed that the funds were available to make the equity contribution at the time of the submittal of the Original certificate of need application. Although Wuesthoff's application' represents that approximately 3 percent of the revenues from private pay patients would be devoted to indigent or charity patients, the 3 percent actually applies to both charity and bad debt. Wuesthoff failed to demonstrate how much of its revenues, if any, would be allocated to charity care alone. Wuesthoff projected charges of $65 for a semi- private room for a private paying patient and $73 for a private room for a private paying patient. These charges, projected for mid-1989, are below existing (1987) charges at nursing homes in Brevard County. The projections of financial feasibility and the pro formas for the Wuesthoff facility are based upon the assumption that the Wuesthoff nursing home will be owned and operated by Wuesthoff Health Services, Inc. The only financial statements provided by Wuesthoff in support of its application are those relating to Wuesthoff Memorial Hospital. Wuesthoff Memorial Hospital is a corporation separate and distinct from Wuesthoff Health Services, Inc. Further, the financial statements of Wuesthoff Memorial Hospital provided by Wuesthoff do not include the "notes" normally appended to those statements. The "notes" to the audited financial statements are typically included in any complete financial statements and are required for a full understanding of the financial statements. The pro formas of Wuesthoff assume that 15 percent of salaries would be allocated to fringe benefits. This assumption is based upon the assumption that the employees of the nursing home will not be unionized and, therefore, their fringe benefits will not be as high as those for unionized employees. The nurses at Wuesthoff Memorial Hospital are unionized and have higher benefits than proposed for the nursing home. Unionization is a decision made by employees and not by management. Wuesthoff's assumptions for fringe benefits do not assume any increase in the fringe benefits from year to year. Wuesthoff agrees that there are required increases in fringe benefits, such as increases in required contributions to social security programs over the next few years. Thus, the amount for fringe benefits assumed by Wuesthoff understates the amount likely to be paid. A participant in the Medicaid reimbursement system is entitled to reimbursement on the basis of fair rental value of the nursing home. Although the fair rental value aspect of the reimbursement plan includes consideration of the value of land upon which a nursing home is situated, and although Wuesthoff assumes that it would receive reimbursement under this element of the plan, Wuesthoff does not include in that reimbursement any value for land value. Wuesthoff would be entitled to that form of reimbursement, but Wuesthoff was unable to specify "how that's going to be done." The Medicaid reimbursement system incorporates certain caps on reimbursement, including caps for patient care costs, operating costs and property costs. Wuesthoff is unable to specify which Medicaid reimbursement caps it utilized when calculating its Medicaid charges. It is not possible to calculate Wuesthoff's Medicaid reimbursement and Medicaid charges based upon the exhibits presented by Wuesthoff, including its applications. The Wuesthoff application does not contain any description of patient care costs or costs of operation of the Wuesthoff facility upon which Medicaid charges can be determined. Wuesthoff represented that certain services would be provided to the Wuesthoff nursing home by Wuesthoff Health Services or Wuesthoff Memorial Hospital at no charge to the nursing home. The exact nature of the services and their value are unspecified. Although Wuesthoff contends fewer staff will be needed at the nursing home, Wuesthoff has not determined how many additional staff would be required at the hospital and has not calculated the cost of transporting food to the nursing home. Ordinarily, a related entity providing services to a nursing home is entitled to reimbursement for the cost of those services under the Medicaid reimbursement system. Wuesthoff has not determined whether the Medicaid statutes and regulations will allow a related entity to waive its entitlement to such reimbursement. Wuesthoff's parent company, Wuesthoff Health Systems, and Wuesthoff Memorial Hospital will incur costs for providing those services to Wuesthoff which Wuesthoff represents will not be reimbursed. These entities' budgets and Medicaid reimbursement are regulated and audited by HRS and the Hospital Cost Containment Board. By providing services to the nursing home and no longer allocating 100 percent of costs to operation of the hospital, the hospital's reimbursement and budget will have to be adjusted. These required adjustments have not been taken into consideration by Wuesthoff. In preparing its budget to be submitted to the Hospital Cost Containment Board, the hospital will be required to allocate a certain amount of time for those persons providing services to the nursing home. The hospital will not be reimbursed for those services by Medicaid or Medicare. The total cost of providing care to nursing home residents must be reported by the nursing home in its Medicaid cost report. If a nursing home does not include allowable Medicaid costs in its cost report, HRS will include those costs when HRS audits the cost report. When those additional costs are included, the nursing home's reimbursement (Medicaid charge) will increase. It is not a generally accepted accounting principle to exclude allowable costs in a Medicaid cost report. By not including certain costs, expenses are understated and profit is overstated. Wuesthoff attempted to present evidence that a hospital-based nursing home facility maintains lower costs which can be passed on to its patients, because of an absence of taxation and the presence of group purchasing. However, this evidence also revealed that the hospital-based nursing home to which Wuesthoff sought comparison had patient care and operating costs which exceed the caps for Medicaid reimbursement. Additionally, Wuesthoff's Medicaid costs are higher than those of HCR. Wuesthoff proposes an architectural plan for its nursing home which has never been built in Florida. Wuesthoff is the only applicant which proposes three nurses' stations for 120 beds. The 120-bed nursing home with two nurses' stations is more efficient to operate than a 120-bed nursing home with three nurses' stations. Three nurses' stations result in a higher cost per patient day than two nurses' stations. Wuesthoff's architect was unable to estimate the cost of site preparation and was unable to specify the exact nature of site preparation required. However, site preparation will be required. There is confusion concerning the cost of equipment for the Wuesthoff project, particularly with regard to food service equipment. Although the Wuesthoff architect testified that Wuesthoff originally had consulted with him concerning the cost of equipment, the witness was unable to identify the equipment costs listed in the application. The equipment list relied upon by Wuesthoff and the list of used equipment and food service equipment was not prepared until the first week of the final hearing. Wuesthoff's projection of construction cost ($57 per square foot) was not prepared by Wuesthoff's architect and the source of the projection is unspecified. The project is not based upon any actual experience of nursing home construction in Florida. The original estimate was provided by the architect to Wuesthoff several years earlier and was lower than $57 per square foot. Wuesthoff proposes to connect its nursing home to a nearby ambulatory surgical center by a corridor. There are no physical therapy or Occupational therapy rooms provided at the nursing home. Although recreational therapy and speech therapy must be provided at the nursing home, only small meeting rooms are available for these purposes. A nursing home patient transported from a nursing home to a location outside the nursing home for therapies must remain in the care of nursing home staff. This mode of operation requires more staff than one in which all therapies are provided within the physical confines of the nursing home. Wuesthoff did not include in its estimate of project development cost any estimate for attorney's fees or consulting fees of the planners and financial consultants retained for the purpose of obtaining a certificate of need. The shared services referred to by Wuesthoff are not free services, and no evidence was offered to show that the sharing of those services would be cost efficient. The corridor between the ambulatory surgical center and the nursing home is estimated by Wuesthoff to be 1,000 square feet. The cost for the corridor is -included in the costs projected for the nursing home, and the corridor is included in the total size (37,500 square feet) of the nursing home. Wuesthoff proposes to equip the nursing home with used equipment and furniture. The used hospital beds which Wuesthoff proposes to use at the nursing home are eight to twelve years old. Although Wuesthoff proposes to provide therapy through professional staff from Wuesthoff Memorial Hospital, Wuesthoff could not estimate how many additional therapists must be hired by the hospital in order to provide therapy for the nursing home patients. Wuesthoff contends that it will provide a high level of charity care in its nursing home at the same level that is provided at the hospital. However, when calculating the percentage of charity care at the hospital, Wuesthoff included care provided within programs where some form of governmental funding was available to pay for care. For instance, Brevard County contributes funding toward the care of patients who are not eligible for Medicaid or Medicare reimbursement. There is also a state fund for indigent care and Wuesthoff expects to receive revenues from that fund. The total allowance for bad debt and charity care proposed by Wuesthoff is 1.1 percent of gross patient revenues. Wuesthoff will require financial screening of patients prior to admission. Unicare proposes as total project cost in both its original and updated applications the amount of $3,360,000. The project cost cannot be relied upon, however, since it will be necessary for Unicare to modify its design. As further set forth below, Unicare's projected revenues and expenses are suspect. Unicare has never constructed a new nursing home in Florida or built the design proposed. When filing a cost report and determining Medicaid reimbursement for a new nursing home, all costs incurred throughout the process of developing and constructing the project, including feasibility studies, attorney's fees, accounting fees, consulting fees and certificate of need fees must be included. Unicare failed to include all project development costs in its application. The pro formas and projections of revenues and expenses for Unicare were prepared solely by Unicare's certificate of need consultants, based upon the consultants' experience in their own nursing homes and not upon any information (other than home office costs) concerning the operation of Unicare nursing homes. Unicare's in-house financial expert agreed that it is difficult to project revenues and expenses for operation of the proposed Unicare nursing home without having knowledge of what Unicare's general costs and expenses are. Two Unicare homes have failed to comply with the isolation room requirements of Rule 10D-29, Florida Administrative Code, which governs the licensure of nursing homes. The Unicare design does not provide any single, licensed isolation room as required by HRS licensure regulations. The Unicare architectural design provides only one toilet room between two patient rooms to meet the needs of four nursing home patients. The company which designed and expects to construct the Unicare facility has not performed any nursing home construction work in Florida since 1983 or 1984 when the company remodeled a nursing home. The last nursing home which this company completed for Unicare was prior to 1985. This company did not prepare the construction cost estimates relied upon by Unicare. Calculation of the size of the Unicare facility did not include a reduction of 9 square feet for each indented, V-shaped window in the facility. There are 23 such windows proposed for the Unicare facility. Accordingly, the Unicare facility is 207 square feet smaller than represented in the application. Licensure regulations require an unobstructed view (vista) of 20 feet from the window of a nursing home resident's room. At least four Unicare patient rooms have an unobstructed view of less than 20 feet. Therefore, the design presented by Unicare at final hearing does not comply with the rules for licensure of a new nursing home, pursuant to Chapter 10D-29, Florida Administrative Code. The Unicare design has never been built, although it was prepared more than five years ago. The design was intended for patient programs not now proposed by Unicare. The original facility design accommodated residents who require a degree of care below and can participate in activities above typical nursing home residents, such as residents found in adult congregate living facilities. The design and location of the sinks in the Unicare patient rooms do not allow sufficient space for a patient in a wheelchair to have access to the sink at the same time that the door to the toilet room is open. Unicare proposes to locate its facility in the Titusville area in north Brevard County. The local health plan shows the greatest need for additional nursing home beds to be in central, not north, Brevard County. Unicare's selection of Titusville as the area for location of its nursing home was not based upon any demographic analysis or determination of need for additional nursing home beds in the Titusville area. Rather, the selection of Titusville would avoid competition with another of Unicare's facilities located in the Rockledge/Cocoa area. In determining equipment needs, Unicare's certificate of need consultants did not refer to the design of the Unicare nursing home. Unicare projects that its facility will reach 97 percent occupancy in the first nine months of operation. However, the last nursing home to open in the Titusville area, Vista Manor, did not reach 97 percent occupancy until after the first year of operation. Unicare will staff at skilled levels. Its proposed staff salaries are reasonable. Unicare has not yet settled on any site in the Titusville area although it has narrowed its search down to four sites which vary between four and seven acres with prices ranging from $25,000 to $90,000 per acre. Its current total project cost of $3,360,000 computes to a project cost per bed of exactly $28,000. Unicare's parent, United Health, Inc., is the entity that must fund this project and has, by resolution, committed to such funding "provided that said expenditure shall not exceed $28,000 per bed." Consequently, it is highly likely that the proposed design, which has never been built anywhere, which must be redone to comply with HRS codes, and which will be built on land that is yet to be acquired but which will likely require a zoning variance, will cost more than $28,000 per bed. The HCR nursing home is larger and provides more area for patient care than the facilities proposed by Wuesthoff and Unicare. The HCR facility will provide more gross square feet per bed and a larger nursing unit area (which includes patient rooms, the nursing support unit and corridor areas). The entire facility proposed by HCR will be 40,000 square feet, 2,000 of which is allocated to day-care; the day-care area will be available to nursing home residents during those hours in which the day-care area is not in use by day- care residents. The Wuesthoff facility is said to be 37,500 square feet, but 1,000 square feet consists of an outside corridor; thus, the net usable space at the Wuesthoff nursing home is only 36,5' 00 square feet. The smallest proposed facility is the Unicare facility, said to be 34,121.5 square feet, but actually less than 34,000 feet when accurately measured. The nursing homes proposed by Wuesthoff and Unicare are at or below the low gross square foot average determined by HRS. Larger patient care areas are desirable. It is not desirable to place only one toilet room between two patient rooms to accommodate four patients, as proposed by Unicare. It is a generally accepted standard for nursing home skilled nursing units to be organized in groups of 60 beds. Units of this size offer the best efficiencies of operation in terms of economics and quality of care. Each nursing unit must include, in addition to patient bedrooms, toilet rooms and bathing facilities, one nurses' station, a clean utility room, a soiled utility room, a medication preparation room, a nourishment room, a janitors closet, an equipment storage room, a stretcher and wheel chair alcove, a clean linen closet and a nurses' toilet and lavatory. By providing three nursing units, Wuesthoff must devote more space to meet these requirements than would be required for two nursing units.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that HRS enter a Final Order: Granting HCR's application for a certificate of need; Denying Unicare's application for a certificate of need; Denying Wuesthoff's application for a certificate of need; and Dismissing the Petition to Intervene of Brevard Medical Investors, Inc. DONE and RECOMMENDED this 30th day of July, 1987, in Tallahassee, Florida. LINDA M. RIGOT 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 30th day of July, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-2686, 86-2687, 86-2688 and 86-2690 Unicare's proposed findings of fact numbered 14, 22, and 25 have been adopted either verbatim or in substance in this Recommended Order. The remainder of Unicare's proposed findings of fact have been rejected as follows: 1, 3, 8, 10, 11, and 13 as being contrary to the evidence in this cause; 2, 4-7, 12, 15-17, 19-21, 23, 24, and 26 as not being supported by the weight of the evidence in this cause; 9 and 18 as being subordinate to the issues in this cause; and 27 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law. Wuesthoff's proposed findings of fact numbered 2-6, 36, 39, and 40 have been adopted either verbatim or in substance in this Recommended Order. The remainder of Wuesthoff's proposed findings of fact have been rejected as follows: 31 as being contrary to the evidence in this cause; 1, 7-18, 22-30, 32, 34, and 41 as not being supported by the weight of the evidence in this cause; 19-21, 33, 35, 37 and 38 as being subordinate to the issues in this cause; and 42 - 43 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law. HCR's and HRS' proposed findings of fact numbered 1-66, 68, 70-81, 83, 85- 92, 94, 96-104, and 106-123 have been adopted either verbatim or in substance in this Recommended Order. The remainder of HCR's and HRS' proposed findings of fact have been rejected as follows: 67 as being subordinate to the issues in this cause; 69 as being cumulative; 82 and 95 as being irrelevant; 84 as being unnecessary; 93 as not constituting a finding of fact but rather as constituting argument of counsel or a conclusion of law; and 105 as being not supported by the weight of the evidence in this cause. COPIES FURNISHED: Harold F. X. Purnell, Esquire Kenneth Hoffman, Esquire Post Office Box 6507 Tallahassee, Florida 32314-6507 Richard Patterson, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Alfred W. Clark, Esquire Post Office Box 623 Tallahassee, Florida 32302 Frank J. Santry, Esquire Post Office Box 14129 Tallahassee, Florida 3231 Jonathan S. Grout, Esquire Karen L. Goldsmith, Esquire Dempsey & Goldsmith, P.A. Post Office Box 1980 Orlando, Florida 32802 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 John Miller, Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700
The Issue The issues under consideration concern the request by Petitioner, Brookwood-Jackson County Convalescent Center (Brookwood) to be granted a certificate of need for dual certification of skilled and immediate care nursing home beds associated with the second review cycle in 1987. See Section 381.494, Florida Statutes (1985) and Rule 10-5.011(1)(k) , Florida Administrative Code.
Findings Of Fact On October 5, 1987 Brookwood filed an application with HRS seeking to expand its facility in Graceville, Jackson County, Florida, one with 120 licensed beds and 30 beds approved effective June 12, 1986, to one with 30 additional beds for a total of 180 beds. Beds being sought in this instance were upon dual certification as skilled and intermediate nursing home beds. The nursing home is located in Subdistrict A to District II which is constituted of Gadsden, Holmes, Jackson and Washington counties. This applicant is associated with Brookwood, Investments, a Georgia corporation qualified to do business and registered in the State of Florida and other states in the southeastern United States. That corporation has as its principal function the development and operation of nursing homes and other forms of residential placement of the elderly. The actual ownership of the applicant nursing home is through a general partnership. Kenneth Gummels is one of two partners who own the facility. The Brookwood group has a number of nursing home facilities which it operates in the southeastern United States. Florida facilities that it operates are found in DeFuniak Springs, Walton County, Florida; Panama City, Bay County, Florida; Chipley, Washington County, Florida; Homestead, Dade County, Florida; Hialeah Gardens, Dade County, Florida, as well as the present applicant's facility. The applicant as to the beds which it now operates, serves Medicare, Medicaid, Veteran Administration, private pay and other third party pay patients. The number of Medicaid patients in the 120 licensed beds is well in excess of 90 percent. The ratio of Medicaid patients with the advent of the 30 approved beds was diminished. As to those beds, 75 percent were attributed to Medicaid. If the 30 beds now sought were approved, the projection is for 87 percent private pay and 13 percent Medicaid for those new beds. The nursing home administration feels that the new beds must be vied for under those ratios in order for it to continue to be able to serve a high number of Medicaid patients, an observation which has not been refuted by the Respondent. Nonetheless, if these beds are approved the percentage of Medicaid patients would be reduced to the neighborhood of 80 percent within the facility which compares to the approximately 81 percent experience of Medicaid beds within the district at present and the approximately 88 percent of Medicaid beds within the subdistrict at present. The cost of the addition of the 30 beds in question would be $495,000. Financial feasibility of this project has been stipulated to by the parties assuming that need is found for the addition of those beds. The basic area within the Florida panhandle wherein the applicant facility may be found, together with other facilities in the Florida panhandle is depicted in a map found at page 101 of Petitioner's Exhibit 1 admitted into evidence. This map also shows that a second licensed nursing home facility is located in Jackson County in Marianna, Florida, known as Marianna Convalescent Center. The applicant facility is directly below the Alabama-Florida border, immediately south of Dothan, Alabama, a metropolitan community. The significance of the relative location of the applicant's facility to Dothan, Alabama concerns the fact that since 1984 roughly 50 percent of its nursing home patients have been from out-of-state, the majority of those out-of-state patients coming from Alabama. Alabama is a state which has had a moratorium on the approval of new nursing home beds for eight years. The proximity of one of that state's relatively high population areas, Dothan, Alabama, has caused its patients to seek nursing home care in other places such as the subject facility. The applicant has encouraged that arrangement by its business practices. Among the services provided by the nursing home facility are physical therapy, physical examination and treatment, dietary services, laundry, medical records, recreational activity programs and, by the use of third party consultants, occupational and social therapy and barber and beauty services, as well as sub-acute care. The facility is adjacent to the Campbellton-Graceville Hospital in Graceville, Florida. The nursing home was developed sometime in 1978 or 1979 with an original complement of 90 beds expanding to 120 beds around 1983 or 1984. The Chamber of Commerce of Marianna, Florida had held the certificate of need upon the expectation that grant funds might be available to conclude the project. When that did not materialize, the County Commissioners of Jackson County, Florida sought the assistance of Brookwood Investments and that organization took over the development of the 90 beds. The original certificate holder voluntarily terminated and the Brookwood partnership then took over after receiving a certificate of need for Brookwood-Jackson County Convalescent Center. The nursing home in Marianna, Florida which is located about 16 miles from Graceville has 180 beds having undergone a 60 bed expansion several years ago. Concerning the Brookwood organization's nursing home beds in Florida, the Walton County Convalescent Center was a 100 bed facility that expanded to 120 beds at a later date and has received permission to expand by another 32 beds approved in the same review cycle associated with the present applicant. Gulf Coast Convalescent Center in Panama City, is a 120 bed facility of Brookwood. Brookwood also has the Washington County Convalescent Center in Washington County, in particular in Chipley, Florida which has 180 beds. That facility was expanded by 60 beds as licensed in October, 1987 and those additional beds have been occupied by patients. Brookwood has a 120 bed facility in Homestead and a 180 bed facility in Hialeah Gardens. With the exception of its two South Florida facilities in Homestead and Hialeah Gardens, recent acquisitions under joint ownership, the Brookwood group has earned a superior performance rating in its Florida facilities. No attempt has been made by this applicant to utilize the 30 beds which were approved, effective June 12, 1986. Its management prefers to await the outcome in this dispute before determining its next action concerning the 30 approved beds. The applicant asserted that the 30 beds that had been approved would be quickly occupied based upon experience in nursing home facilities within Subdistrict A to District II following the advent of nursing home bed approval. That surmise is much less valuable than the real life experience and does not lend effective support for the grant of the certificate of need in this instance. The waiting list for the 120 licensed beds in the facility has been reduced to five names. This was done in recognition of the fact that there is very limited patient turnover within the facility. Therefore, to maintain a significant number of people on the waiting list would tend to frustrate the sponsors for those patients and social workers who assist in placement if too many names were carried on the waiting list. At the point in time when the hearing was conducted, the facility was not in a position to accept any patients into its 120 licensed facility. This condition of virtually 100 percent occupancy has been present since about 1984 or 1985. The applicant has transfer agreements with Campbellton-Graceville Hospital and with two hospitals in Dothan, Alabama, they are Flower's Hospital and Southeast Alabama Medical Center. The applicant also has a transfer agreement with the Marianna Community Hospital in Marianna, Florida. The referral arrangements with the Alabama hospitals were made by the applicant in recognition of the proximity of those hospitals to the nursing home facility and the belief in the need to conduct its business, which is the provision of nursing home care, without regard for the patient origin. Early on in its history with the nursing home, Brookwood promised and attempted in some fashion to primarily serve the needs of Jackson County, Florida residents, but the explanation of its more recent activities in this regard does not portray any meaningful distinction between service to the Jackson County residents and to those from other places, especially Alabama. This reflects the concern expressed by Kenneth Gummels, owner and principal with the applicant nursing home, who believes that under federal law the nursing home may not discriminate between citizens in Florida and Alabama when considering placement in the nursing home. In this connection, during 1987 the experience within the applicant nursing home was to the effect that for every patient admitted from Florida five Florida patients were turned away. By contrast, to deal with the idea of priority of placing patients some effort was made by Gummels to explain how priority is still given to Jackson County residents in the placement for nursing home care. Again, in the end analysis, there does not seem to be any meaningful difference in approach and this is evidenced by the fact that the level of out-of-state patients in the facility has remained relatively constant after 1984. If there was some meaningful differentiation in the placement of Florida patients and those from out-of-state, one would expect to see a change in the number of patients from out-of-state reflecting a downward trend. As described, historically the experience which Brookwood has had with the facility occupancy rates is one of high utilization except for brief periods of time when additional beds were added at the facility or in the Marianna Nursing Home. At time of the application the primary service area for the applicant was Jackson County with a secondary service area basically described as a 25 mile radius outside of Graceville extending into Alabama and portions of Washington and Holmes Counties. As stated, at present the occupancy rate is as high as it has ever been, essentially 100 percent, with that percentage only decreasing on those occasions where beds come empty based upon transfers between nursing homes or between the nursing home and a hospital or related to the death of a resident. Those vacancies are filled through the waiting list described or through recommendations of physicians who have a referral association with the facility. The patients who are in the facility at the place of consideration of this application were 50 percent from Florida and 50 percent from out-of-state, of which 56 of the 60 out-of-state patients were formerly from Alabama, with one patient being from Ohio and three others from Georgia. More specifically, related to the history of out-of-state patients coming to reside in the nursing home, in 1984 basically 25 percent patients were from Alabama, moving from there into 1985 at 47 percent of the patient population from Alabama, in 1986 50 percent from Alabama, in 1987 48 percent from Alabama and in 1988 the point of consideration of the case at hearing the figure was 47 percent of Alabama patients, of the 50 percent patients described in the preceding paragraph. Of the patients who are in the facility from Florida, the majority of those are believed to be from Jackson County. Those patients who come to Florida from Alabama, by history of placement, seem to be put in the applicant's facility in Graceville as a first choice because it is closest to the Dothan, Alabama area. The next preference appears to be Chipley and the Brookwood nursing home facility in Chipley, and thence to Bonifay and then to other places in the Florida panhandle, in particular Panama City. In the Brookwood-Washington County facility at Chipley, Florida 35 percent of the patients are from Alabama which tends to correspond to the observation that the Alabama placements as they come into Florida are highest in Graceville and decrease in other places. This is further borne out by the experience in the Brookwood-Walton County facility at DeFuniak Springs, Florida which has an Alabama patient percentage of approximately 10 to 12 percent. When the nursing home facilities in Chipley and Bonifay received 60 additional beds each in October, 1987, they began to experience rapid occupancy in those beds as depicted in the Petitioner's Exhibit 1 at pages 228 through 230. The other facility in Jackson County, namely Jackson County Convalescent Center, within the last six months has shown an occupancy rate in excess of 98 percent, thereby being unavailable to attend the needs of additional Jackson County patients who need placement and other patients within the subdistrict. This same basic circumstance has existed in other facilities within Subdistrict A to District II. When the applicant is unable to place patients in its facility it then attempts placement in Chipley, Bonifay, DeFuniak Springs, and Panama City, Florida, and from there to other places as nearby as possible. The proximity of the patient to family members and friends is important for therapeutic reasons in that the more remote the patient placement from family and friends, the more difficult it is for the family and friends to provide support which is a vital part of the therapy. Consequently, this is a significant issue. Notwithstanding problems in achieving a more desirable placement for some patients who must find space in outlying locales, there was no showing of the inability to place a patient who needed nursing home care. Most of the Alabama referrals are Medicaid referrals. Those patient referrals are treated like any other resident within the nursing home related to that payment class for services. Effectively, they are treated in the same way as patients who have come from locations within Florida to reside in the nursing home. Notwithstanding the management choice to delay its use of the 30 approved beds dating from June 12, 1986, which were challenged and which challenge was resolved in the fall, 1987, those beds may not be ignored in terms of their significance. They must be seen as available for patient placement. The fact that the experience in this service area has been such that beds fill up rapidly following construction does not change this reality. This circumstance becomes more significant when realizing that use of the needs formula for the project at issue reveals a surplus of 19 beds in Subdistrict A to District II for the planning horizon associated with July, 1990. See Rule 10-5.011(1)(k), Florida Administrative Code. The 19 bed surplus takes into account the 30 approved beds just described. Having recognized the inability to demonstrate need by resort to the formula which is found within the rule's provision referenced in the previous paragraph, the applicant sought to demonstrate its entitlement to a certificate through reference to what it calls "special circumstances." Those circumstances are variously described as: Patient wishing to be located in Jackson County. Lack of accessibility to currently approved CON beds. High rate of poverty, Medicaid utilization and occupancy. Jackson County Convalescent Center utilization by out-of- state patients. The applicant in asking for special relief relies upon the recommendation of the Big Bend Health Council, District II in its health plan and the Statewide Health Council remarks, whose suggestions would modify the basis for calculation of need found in the HRS rule with more emphasis being placed on the adjustment for poverty. Those suggestions for health planning are not controlling. The HRS rule takes precedence. Consequently, those suggestions not being available to substitute for the HRS rule, Petitioner is left to demonstrate the "special circumstances" or "exceptional circumstances" in the context of the HRS rule and Section 381.494(6), Florida Statutes (1985). Compliance per se with local and statewide planning ideas is required in the remaining instances where those precepts do not conflict with the HRS rule and statute concerning the need calculations by formula. Turning to the claim for an exception to the rule on need, the first argument is associated with the patient wishing to be located in Jackson County. This would be preferable but is not mandated. On the topic of this second reason for exceptions to the need formula, the matter is not so much a lack of accessibility to currently approved CON beds as it is an argument which is to the effect that there are no beds available be they licensed or approved. This theory is not convincing for reasons to be discussed, infra. Next, there is an extremely high rate of poverty in District II. It has the highest rate of poverty in the state. Moreover Subdistrict A to District II has an even greater degree of poverty and this equates to high Medicaid use and contributes to high occupancy. This coincides with the observation by the Big Bend Health Council when it takes issue with the HRS methodology rule concerning recognition of the significance of poverty within the HRS rule and the belief by the local health council that given the high poverty rates in District II some adjustments should be made to the need formula in the HRS rule. Under its theory, 161 additional beds would be needed at the planning horizon for July 1990 in Subdistrict A. Concerning the attempt by the applicant to make this rationalization its own, the record does not reflect reason to defer to the Big Bend Health Council theory as an exception to the normal poverty adjustment set forth in the HRS rule. When the applicant describes the effects of the out-of-state patients, in particularly those from Alabama in what some have described as in-migration, it argues that Rule 10-5.011(1)(k), Florida Administrative Code makes no allowance for those influences. The applicant chooses to describe these beds, the beds used by out-of-state residents, as unavailable or Inaccessible. This concept of inaccessibility is one which departs from the definition of inaccessibility set forth at Rule 10-5.011(1)(k)2.j., Florida Administrative Code. The specific exception to the requirement for compliance with the numeric need methodology in demonstration of a net need is set forth in that reference, and the proof presented did not show entitlement to the benefits of that exception. That leaves the applicant arguing in favor of recognition of its entitlement to a certificate of need premised upon a theory not specifically announced in that reference. This is the in-migration idea. It ties in the basic idea of poverty but does not depend on rigid adherence to the Big Bend Health Council idea of a substitute element in the HRS needs formula related to poverty. It also promotes the significance of problems which a number of physicians, who testified by deposition in this case, observed when attempting to place patients in the subject nursing home and other nursing homes in the surrounding area. They found high occupancy rates in the present facility and others within Subdistrict A to District II. These problems with placement as described by the physicians can have short term adverse effects on the patient and the family members, but they are not sufficient reason to grant the certification. In considering the formula for deriving need as promulgated by HRS, the proof does not seem to suggest that the nursing home residents themselves who came from out-of-state are excluded from the population census for Florida. On the other hand, unlike the situation in Florida in which the population at large is considered in trying to anticipate future nursing home bed needs, it make no assumptions concerning the Alabama population at large. Ultimately, it becomes a question of whether this unknown factor, given the history of migration of patients from Alabama into Florida and in particular into the subject nursing home, together with other relevant considerations, may properly form the basis for granting the certificate of need to the applicant. It is concluded that there is a fundamental difference in the situation found within this application compared to other planning areas within Florida which do not have to contend with the level of poverty, the proximity to Alabama and the advent of Alabama placements in this nursing home, the high occupancy rates in the subdistrict and the resulting difficulty in placement of patients near their homes. Posed against this troublesome circumstance is the fact that the applicant has failed to use its 30 approved beds or to make a decision for such use, that it had invited and continues to invite the placement of Alabama residents through the referral arrangements with the two Dothan, Alabama hospitals, realizing that such an arrangement tends to exclude opportunities for Florida residents to some extent, and the recognition that patients are being placed; that is patients are not going without nursing home care. The two Alabama hospitals with whom the applicant has referral agreements provide a substantial number of the patients who are admitted. This recount acknowledges what the ownership considers to be their obligation in law and morally to serve the interest of all patients without regard for their home of origin; however, the thrust of the certificate of need licensing process in Florida is to develop the apparatus necessary to service the needs of Florida residents, not Alabama residents. This does not include the necessity of trying to redress the circumstance which appears to exist in Alabama in which the government in that state is unable or unwilling to meet the needs of its citizens. On balance, the applicant has not demonstrated a sufficient reason to depart from the normal requirements of statute and rule, which departure would have as much benefit for Alabama residents as it would for Florida Residents. Contrary to the applicant's assertions it could legitimately de-emphasize its association with Alabama. It has chosen not to and should not be indulged In this choice in an enterprise which is not sufficiently related to the needs of Florida residents to condone the licensure of the beds sought, even when other factors described are taken into account. The applicant has also alluded to a certificate of need request made by Walton County Convalescent Center, a Brookwood facility in District I which sought a certificate of need in the same batch which pertains to the present applicant. The application and the review and comment by HRS may be found within Composite Exhibit 2 by the Petitioner admitted as evidence. Petitioner asserts that the Walton County experience in which 32 beds were granted is so similar to the present case that it would be inappropriate for the agency to act inconsistently in denying the present applicant after having granted a certificate of need to the Walton County applicant. Without making a line-by- line comparison, it suffices to say that in many respects these projects are similar. In other respects they are not. On the whole, it cannot be found that the agency is acting unfairly in denying the present applicant while granting a certificate to the applicant in the Walton County case. The differences are substantial enough to allow the agency to come to the conclusion that the present applicant should be denied and the applicant in Walton County should have its certificate granted. Likewise, no procedural impropriety on the part of HRS in its review function has been shown.
The Issue Whether there is a need for a 120 bed nursing home in Manatee County?
Findings Of Fact HCR is a health care corporation. Its sole business is designing and constructing nursing homes. During the twenty years it has been in the business, HCR has built approximately 180 nursing homes. HCR currently operates approximately 10,000 nursing home beds in twelve states including Florida. HCR filed an application for a certificate of need to construct a 120 bed nursing home in Manatee County. The Department denied this request. The only issue in this case is whether there is a need for a 120 bed nursing home facility in Manatee County. If such a need exists, the Department has agreed that HCR "meets all applicable statutory and rule criteria." The need for nursing home beds is determined under Rule 10-5.11(21), Florida Administrative Code. Rule 10-5.11(21)(a), Florida Administrative Code, contains the following Department goal: The Department will consider applications for community nursing home beds in context with applicable statutory and rule criteria. The Department will not normally approve applications for new or additional community nursing home beds in any departmental service district if approval of an application would cause the number of community nursing home beds in that departmental service district to exceed the number of community nursing home beds calculated by the methodology described in subsections (21)(b), (c), (d), (e), (f), (g), and (h) of this rule. Rule 10-5.11(21)(b), Florida Administrative Code, provides for a determination of bed need three years into the future "according to the methodology specified under subparagraphs 1 through 10." Under the methodology provided in subparagraphs 1 through 10, need is determined on a subdistrict basis if a departmental service district has been divided into subdistricts. Manatee County is located in District 6. District 6 has been divided into subdistricts for purposes of determining nursing home bed need. Manatee County has been designated as a subdistrict. Rule 10-17.018, Florida Administrative Code. Therefore, nursing home bed need is to be determined under the methodology of Rule 10-5.11(21), Florida Administrative Code, for Manatee County. The parties have agreed and the evidence proves that there is no need for nursing home beds in Manatee County based upon an application of the methodology of Rule 10-5.11(21), Florida Administrative Code (hereinafter referred to as the "Formula"). In fact, an application of the Formula indicates that there will be an excess of 105 nursing home beds in Manatee County three years into the future based upon the following: 876 nursing home beds needed - (765 existing beds + 90 percent of 240 approved beds) = (105). Based upon an application of the Formula, there is clearly no need for any additional nursing home beds in Manatee County. This determination, however, does not totally resolve the issue in this case. Rule 10-5.11(21)(b), Florida Administrative Code, provides that the Department is to determine bed need according to the Formula "[i] n addition to other statutory and rule criteria . . . " Also, Rule 10-5.11(21)(b)10, Florida Administrative Code, provides in relevant part, the following: In the event that the net bed allocation is zero, the applicant may demonstrate that circumstances exist to justify the approval of additional beds under the other relevant criteria specifically contained in the Department's Rule 10-5.11. Based upon these provisions of the Department's rules, it appears clear that if no nursing home bed need is shown to exist based upon an application of the Formula, other statutory and rule criteria should be considered, i.e., are there adequate like and existing services in the subdistrict? Rule 10-5.11(21)(b)10, Florida Administrative Code, however, goes on to provide: Specifically, the applicant may show that persons using existing and like services are in need of nursing home care but will be unable to access nursing home services currently licensed or approved within the subdistrict. Under this provision, the applicant must demonstrate that those persons with a documented need for nursing home services have been denied access to currently licensed but unoccupied beds or that the number of persons with a documented need exceeds the number of licensed, unoccupied and currently approved nursing home beds. Existing and like services shall include the following as defined in statute or rule, adult congregate living facilities, adult foster homes, homes for special services, home health services, adult day health care, adult day care, community care for the elderly, and home care for the elderly. Patients' need for nursing home care must be documented by the attending physicians' plans of care or orders, assessments performed by staff of the Department of Health and Rehabilitative Services, or equivalent assessments performed by attending physicians indicating need for nursing home care. As discussed under the Conclusions of Law, infra, this portion of the Department's rule (hereinafter referred to as the "Specific Exception") is not the only alternative method of demonstrating a need for nursing home beds when there appears to be no need based upon an application of the Formula. A need for nursing home beds can be demonstrated even if there is no need indicated under the Formula and the Specific Exception is not complied with based upon a consideration of other statutory and rule criteria. The Specific Exception is, however, the only method by which an applicant can demonstrate the need for a new nursing home facility based upon an access problem in the relevant service district. HCR has attempted to prove there is a need for its proposed 120 bed facility based in part upon a consideration of Rule 10-5.11(3)(a)-(d), Florida Administrative Code. This rule provides generally for a consideration of the extent to which all residents of the service area and, in particular, low income persons, the elderly and others, can access existing nursing home beds. In particular, HCR has attempted to prove that there is a need for a 120 bed nursing home because of alleged access problems under Rule 10- 5.11(3)(a)-(d), Florida Administrative Code, during the "peak season" in Manatee County and alleged access problems of Medicaid patients, Alzheimer patients and respite care patients. As discussed under Conclusions of Law, infra, HCR has failed to comply with the Specific Exception in attempting to demonstrate need for its proposal under Rule 10- 5.11(3)(a)-(d), Florida Administrative Code. Therefore, any evidence concerning access problems cannot be considered. HCR has also attempted to demonstrate need for its proposal based upon an application of Rules 10-5.11(4) and (6), Florida Administrative Code. These rules require a consideration of the availability of alternative, less costly, or more effective methods of providing the proposed health services and the availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services. In particular, HCR has attempted to prove that like and existing services in Manatee County are not meeting the needs of Alzheimer patients and respite care patients and that there are no alternative, less costly or more effective methods of providing HCR's proposed services. If HCR had succeeded in demonstrating need for its proposal under these rules, a certificate of need would have been recommended even though the Specific Exception was not complied with. HCR has agreed that its proposed facility will meet the alleged need for Medicaid patients, Alzheimer patients and respite care patients in Manatee County by dedicating a thirty- bed wing to the care of Alzheimer patients, a thirty-bed wing to respite care patients and guaranteeing access to fifty percent of its beds to Medicaid patients. The following findings of fact are made with regard to the specific categories of persons allegedly in need of nursing home care. Although HCR's proposed findings of fact concerning access problems of these groups are not relevant because of its failure to comply with the Specific Exception, findings are made in an abundance of caution in case the Department or a Court ultimately determines that need can be demonstrated based upon access problems even when the Specific Exception is not complied with. Medicaid Patients. Manatee County generally experiences a "peak season" from November to March during which time nursing home bed use increases. The peak season in 1984-1985, however, was only about seven weeks. During the peak season there is some difficulty in placing Medicaid patients in nursing home beds in Manatee County. Between January, 1985 and March, 1985, the Department's Manatee County office placed twenty-two Medicaid patients in nursing home beds located outside of Manatee County. Some Medicaid patients have also been placed in adult congregate living facilities even though such placements are contrary to the prohibition against placing patients in need of skilled nursing home services in such facilities. L. W. Blake Memorial Hospital has also had to place patients in nursing homes on a temporary basis outside of Manatee County. During the past year, only twenty-four patients were placed in nursing homes outside Manatee County. The evidence does not establish how many of those patients were Medicaid patients, however. Alzheimer Patients. Alzheimer's disease is a disease which primarily afflicts persons in their 50's and 60's. It can, however, afflict younger persons also. The disease progresses through three stages and has no cure. During the first stage, the afflicted person experiences forgetfulness, impairment of judgement and inability to perform routine tasks. During the second stage, the afflicted person begins to wander. During the third and final stage, the afflicted person becomes dependent and incontinent. Currently there are approximately 160 Alzheimer patients in the five existing nursing homes in Manatee County. None of these nursing homes has a special program designed for Alzheimer patients. The evidence does not, however, support a finding that Alzheimer patients are not being adequately cared for. The evidence also does not establish how many persons in Manatee County are afflicted by Alzheimer's disease or the number of persons so afflicted who are in need of nursing home care. Generally, it is not until the third stage of the disease that nursing home care becomes necessary. Even then some Alzheimer patients are cared for in the home, private boarding facilities, or mental hospitals. The evidence does establish that no person afflicted with Alzheimer's disease has been refused admittance to a nursing home bed in Manatee County. The evidence also establishes that there is a 303 bed nursing home located in neighboring Hillsborough County which treats only Alzheimer patients. Hillborough County is located in District 6. Finally, the evidence demonstrates that Alzheimer patients would benefit from a special wing dedicated to the care of Alzheimer's disease in its final stages. Respite Care Patients. Respite care is the placement of a person in need of care under the supervision of another person for a short period of time. One purpose of this care is to free-up the primary care giver for a short period of time. The patient needs supervision or may need skilled nursing care. The length of the care can vary from a few hours to several weeks. HCR has proposed to establish a thirty-bed wing in its proposed facility that will be dedicated solely to the care of respite care patients in need of skilled nursing care for a period of one to eight weeks. None of the existing nursing homes in Manatee County provides the type of specialized wing HCR in proposing. The evidence establishes that there is a need for such a service in Manatee County. The evidence does not establish, however, how many nursing home beds are needed. There was testimony that there was a need for fifty nursing home beds. This testimony was, however, purely a "guess". Additionally, this estimate was not limited to the type of respite care HCR proposes to provide; the respite care giving rise to this guess included respite care for as short a period as three to five days. Short-term respite care needs are currently being met by existing programs in Manatee County. DHRS Exhibit 4 does not corroborate the fifty bed estimate because it is not at all clear what the data on this Exhibit means. Based upon the foregoing, there is a need for nursing home beds for Medicaid patients during the "peak season" and for respite care patients in need of skilled nursing care for a period of one to eight weeks because of an access problem. The need of these patients, however, has not been properly demonstrated pursuant to the Specific Exception and therefore cannot be considered. If this need could be considered even though the Specific Exception has not been complied with, the evidence fails to demonstrate how many additional beds are needed. Additionally, two new nursing homes have been approved for construction which will add 240 nursing home beds in Manatee County. The addition of these beds will eliminate some, if not all, of the need of Medicaid patients. There is a need for nursing home beds for respite care patients in need of skilled nursing care for a period of one to eight weeks because of the lack of adequate like and existing services. HCR has, however, failed to prove that this need is sufficient to justify its proposal. The evidence fails to demonstrate a need for Alzheimer patients sufficient to justify HCR's proposal based upon the care presently being given to Alzheimer patients in Manatee County. Although the ability of Alzheimer patients to access beds is not relevant because of HCR's failure to comply with the Specific Exception, the evidence also fails to demonstrate any access problem of Alzheimer patients. Alzheimer patients would benefit from a dedicated nursing home wing. This finding, however, based upon the other findings of fact in this case, does not justify HCR's proposal. Even if it were concluded that HCR does not need to comply with the Specific Exception in this case, the evidence does not support a finding that a 120 bed facility should be approved. The only evidence as to the total number of nursing home beds allegedly needed in Manatee County was presented by Mr. Jay Cushman, an expert in the field of health planning. According to Mr. Cushman there is a need for a minimum of 193 additional nursing home beds in Manatee County. Mr. Cushman's opinion was based upon the criteria of Rules 10- 5.11(3)(a)-(d), (4) and (6), Florida Administrative Code. In particular, Mr. Cushman relied upon the effect on nursing home bed use of Manatee County's peak season and the needs of Alzheimer patients, respite care patients and Medicaid patients. Mr. Cushman's opinion was based upon his determination that there is a need for a total of 1,174 nursing home beds in Manatee County. This figure was arrived at by adding Mr. Cushman's projected need for Medicaid patients (40 beds), Alzheimer patients (121 beds), respite care patients (50 beds) and the current peak census of nursing homes in Manatee County (718 beds). The sum of these figures was multiplied by 1.137 (to account for population growth in Manatee County over the next three years) and the result was divided by ninety percent (to account for a maximum occupancy rate of ninety percent). Mr. Cushman's determination of need, to the extent his figures are based upon purported access problems associated with Medicaid patients, Alzheimer patients, respite care patients and persons in need of care during the peak season, should not and cannot be considered because of the lack of compliance with the Specific Exception. Since Mr. Cushman did take into account alleged access problems without complying with the Specific Exception in arriving at his conclusion that 193 nursing home beds are needed in Manatee County, Mr. Cushman's opinion of need is rejected. Even if it was proper for Mr. Cushman to consider access problems despite the failure to comply with the Specific Exception, the weight of the evidence does not support Mr. Cushman's opinion. In arriving at his estimate of the need for Medicaid patients, Mr. Cushman relied in part upon the fact that twenty-four patients (twenty-five according to Mr. Cushman) had been placed in nursing homes located out of Manatee County by L. W. Blake Memorial Hospital personnel. The evidence, however, does not prove that all of these patients were Medicaid patients. Mr. Cushman's determination that 50 beds are needed for respite care patients was based upon on the opinion of Mr. Russell Kitching. Mr. Kitching's estimate was rejected, supra. The most significant problem with Mr. Cushman's determination of bed need is his estimate of the need for Alzheimer's patients. The evidence does not support a conclusion that there is a need for additional nursing home beds for Alzheimer's patients. The evidence proved that no Alzheimer's patient in Manatee County has been denied access to a nursing home. Finally, Mr. Cushman's opinion is contrary to, and did not take into account, the fact that Manatee County is projected to have an excess of 105 nursing home beds under the Formula. Based upon the foregoing, it is concluded that HCR has failed to prove that there is a need for a 120 bed nursing home in Manatee County.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the certificate of need application filed by HCR for a 120-bed nursing home to be located in Manatee County be denied. DONE and ENTERED this 2nd day of August, 1985, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of August, 1985. COPIES FURNISHED: Jean Laramore, Esquire G. Steven Pfeiffer, Esquire LARAMORE & CLARK, P.A. The Bowen House 325 N. Calhoun Street Tallahassee, Florida 32301 John F. Gilroy, Esquire CULPEPPER, TURNER & MANNHEIMER P. O. Drawer 11300 Tallahassee, Florida 32302 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
