Findings Of Fact The legal issue presented by agreement to the Hearing Officer for a recommended order is whether the Hospital Cost Containment Board has the authority to amend or adjust a hospital's net revenue per adjusted admission when the budget of the hospital has triggered budget review pursuant to sections 395.509(2)(a) and (b), Fla. Stat. (1984). The petition in case number 85-2465H contains this legal issue with respect to a reduction of net revenue per adjusted admission of an additional $84. Neither of the petitions in case numbers 85-2296H and 85-2297H contain any allegations raising this legal issue. At the final hearing, the parties stipulated that these three cases should be consolidated for the final hearing, and a single recommended order should be entered concerning the stipulated legal issue.
Recommendation For these reasons, it is recommended in the final order to be entered in these cases, that the Hospital Cost Containment Board conclude that it has statutory authority to alter or adjust the net revenues per adjusted admission of a hospital budget if that budget has triggered review pursuant to either of the criteria found in sections 395.509(2)(a) or (b), Fla. Stat. (1984). DONE and ENTERED this 17th day of September, 1985, in Tallahassee, Florida. Hearings Hearings 1985. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 FILED with the Clerk of the Division of Administrative this 17th day of September, COPIES FURNISHED: Curtis Ashley Billingsley, Esquire Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road, Suite 101 Tallahassee, Florida 32303 Ralph H. Haben, Esquire Robert S. Cohen, Esquire Post Office Box 669 Tallahassee, Florida 32302 Jack Shreve, Esquire Kevin O'Donnell, Esquire The Public Counsel 624 Crown Building 202 Blount Street Tallahassee, Florida 32301 Mr. James J. Bracher, Executive Director Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road Building L, Suite 101 Tallahassee, Florida 32303
The Issue Whether Rule 59C-1.038, the acute care bed need rule, is an invalid exercise of delegated legislative authority. Whether this rule challenge should be dismissed as an untimely attack on a published fixed need pool.
Findings Of Fact In August 1994, the Agency for Health Care Administration ("AHCA") published a numeric need of zero for additional acute care beds in AHCA District 9, Subdistrict 5, for southern Palm Beach County. Pursuant to Subsection 408.034(3), Florida Statutes, AHCA is the state agency responsible for establishing, by rule, uniform need methodologies for health services and facilities. In September 1994, NME Hospitals, Inc. d/b/a Delray Community Hospital, Inc. ("Delray") applied for a certificate of need ("CON") to add 24 acute care beds for a total construction cost of $4,608,260. AHCA published its intent to approve the application on January 20, 1995, in Volume 21, No. 3 of the Florida Administrative Weekly. By timely filing a petition, Bethesda Memorial Hospital, Inc. ("Bethesda") challenged AHCA's preliminary decision in DOAH Case No. 95-0730. Bethesda is also located in AHCA District 9, Subdistrict 5. On May 24, 1995, Bethesda also filed the petition in this case challenging Rule 59C-1.038, Florida Administrative Code, the acute care bed need rule. Pursuant to the acute care bed need rule, AHCA's August 1994 notice published its finding that zero additional acute care beds will be needed in the southern Palm Beach County subdistrict by July, 1999. The data, formulas, and calculations used in arriving at the number zero were not published. AHCA and Delray argue that the publication put persons on notice to inquire into the population data, occupancy rates, or the calculations leading to the published need number. An AHCA rule bars a person from seeking, and AHCA from making, any adjustments to the fixed need pool number if the person failed to notify AHCA of errors within ten days of publication. Still another rule defines "fixed need pool" as the " . . . numerical number, as published. " Bethesda is not contesting and, in fact, agrees that the fixed need pool number as published, zero, is correct. Using AHCA's definition of the fixed need pool, Bethesda's challenge is not barred because it failed to notify AHCA of an error in the fixed need pool number within 10 days of publication. Bethesda is challenging as irrational and invalid subsections (5), (6), and (7) of the acute care bed need rule. Subsection (5) directs the local health councils to determine subdistrict bed need consistent with the methodology for determining district bed need. Under that provision, total projected patient days of acute care needed in a district is calculated by adding together the projected patient care days needed in medical/surgical, intensive care, coronary care, obstetric, and pediatric beds. Each of these separate bed need projections is computed, in general, by multiplying projected population in the district for the appropriate age or gender group times a factor which is the product of the statewide discharge rate and the average length of stay for that particular type of care. After the total projected acute care patient days for district residents is computed, the number is adjusted to reflect historical patient flow patterns for acute care services, for out-of-state residents served in the district, for residents of other districts served in the district, and for residents of the district served outside the district. The rule includes specific percentages to apply for each patient flow group for each of the eleven districts. After the total number of beds needed in the district is derived, that number is decreased by the number of existing licensed or approved beds to get the number of additional acute care beds needed in the district, if any. Bethesda is challenging subsections (7)(a), (b), and (c) of the acute care rule, which authorize adjustments to the calculations from subsections (5) and (6) to achieve desired occupancy levels, based on historic utilization of acute care beds in a district. Bethesda is also seeking a determination that subsections 7(d) and (e) are invalid. Each of those subsections of the rule refer to (5)(b), although AHCA's expert witness testified that they should refer to (6)(b). Subsection (7)(d) requires at least 75 percent occupancy in all hospitals in the district before new acute care beds normally are approved, regardless of the net need projected by the formulas. Subsection (7)(e) allows approvals under special circumstances if net need is projected by the formulas and the applicant facility's occupancy rate equals or exceeds 75 percent. Subsection (7)(e), the provision directly related to the Delray application, is as follows: (e) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if a net need for beds is shown based on the formula described in paragraphs (5)(b), (7)(a), (b), (c), and (8)(a), (b), (c), and provided that the hospital's average occupancy rate for all licensed acute care beds is at or exceeds 75 percent. The determination of the average occupancy rate shall be made based on the average 12 months occupancy rate made available by the local health council two months prior to the beginning of the respective acute care hospital batching cycle. Phillip C. Rond, III, Ph.D., was the primary architect of the rule, beginning in 1981. The rule was initially published in 1982, and adopted in 1983. Constants in the rule formulas, including use rates, average lengths of stay, occupancy standards and patient flow patterns were taken from a 1979 survey of some state hospitals. Because data used for the constants in the formulas was expected to change, subsection (6) also provides, in pertinent part, that: Periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors will be done as data becomes available through the institution of statewide utilization reporting mechanisms. Patient flow factors were updated in March 1984 to reflect a change in the realignment of counties in Districts 5 and 8. No other constants have been updated since the rule was adopted in June 1983. More current data is available. The Hospital Cost Containment Board ("HCCB") began collecting statewide hospital inpatient discharge data in the fourth quarter of 1987, which became available by the fall of 1988. AHCA now collects the data. Using the rule, the projected net need for acute care beds in 1999 in District 9 is 1,442 additional beds. By contrast, with the factors updated by Dr. Rond, the projected net need is a negative 723 or, in other words, District 9 has 723 more acute care beds than it will need in 1999. The updated formulas show a need for a total of 3,676 beds in District 9, which already has 4,399 licensed or approved acute care beds. Since 1983, hospital utilization has declined in both rates of admissions or discharges, and in average lengths of stay. Although the occupancy goals in the rule are 75 to 80 percent, depending on the type of hospital service, the occupancy rate achieved by using the number of beds projected by the rule methodology is 45 to 52 percent. The statewide occupancy rate in acute beds is approximately 50 percent in 49,215 licensed beds. The formulas in the rule show a statewide net need for 6,000 more beds in 1999, but updated constants in the same formulas result in a total statewide need for approximately 36,000 acute care beds in 1999, or 13,000 fewer beds than currently exist. Statewide utilization of acute care hospital beds declined from 1187.2 days per 1000 population in 1983 to 730.5 days per 1,000 in 1993, despite increases in the percentage of the elderly population. By 1987, AHCA's predecessor realized that the need methodology in the rule was grossly overestimating need and inconsistent with its health planning objectives. Subsection (7)(d) was added to the rule to avoid having a published fixed need based on the outdated methodology in subsections (5), (6) and 7(a)- (c). The occupancy data is also, as the 1987 amendment requires, that reported for the most recent 12 months, available 2 months before the scheduled application cycle. In August 1994, AHCA published a numeric need of zero for District 9, Subdistrict 5, rather than 1,442, the calculated net need predicted by the formulas in the rule, because all subdistrict hospital occupancy rates did not equal or exceed 75 percent. Elfie Stamm of AHCA, who is responsible for the publication of fixed need pools, confirmed that the 1987 amendment to the rule was an efficient and cost-effective way to avoid publishing need where there was no actual need. She confirmed Dr. Rond's conclusions that the formulas are no longer valid and produce excessive need numbers, as in projecting a need for 6,000 or 7,000 more acute care beds in the state. She also confirmed that none of the constants in the formula have been updated as required by subsection 6. Ms. Stamm claims that the information needed to update the formulas cannot be obtained easily from any statewide utilization reporting mechanism. One problem, according to Ms. Stamm, is the possibility of including patients in acute care beds with comprehensive rehabilitation, psychiatric, or substance abuse problems, although it is not lawful for acute care providers to place patients with these primary diagnoses in licensed acute care beds and all data bases have some miscoding of diagnoses. She also testified that some factors required in the formulas are not included in HCCB data base. In addition, she testified that AHCA is in the process of filing a notice to repeal the acute care bed need rule. The filing of the notice of repeal, published in Volume 21, Florida Administrative Week, pp. 4179-4180 (6/23/95) was confirmed by Bethesda's Request For Official Recognition, which was filed on July 20, 1995, and is granted. Ms. Stamm also noted that rules for other need-based health services have facility-specific special circumstances provisions, which are not tied to numerical need, otherwise the special circumstances are not really facility- specific. Need rules make no sense, according to Ms. Stamm, without an exception in the absence of a determination of need. Subsection (7)(e) of the acute care rule requires a finding of numeric need and a 75 percent occupancy rate at the applicant facility. Ms. Stamm's records indicate that AHCA's predecessor adopted the facility-specific provisions tied to net need at the same time it adopted the 75 percent average district occupancy standard to overcome the problems with the net need formula. AHCA asserts that the admittedly irrational need methodology when combined with the 1987 amendment achieves a rational result. Because the need methodology always over estimates numeric need, facilities exceeding 75 percent occupancy have an opportunity to demonstrate special circumstances. Daniel Sullivan, Delray's expert, also testified that problems exist in extracting acute care bed from specialty bed utilization data, in hospitals which have both. He also agreed with Ms. Stamm that the 1987 amendment corrects the erroneous projections of the formula to give a rational outcome from the rule as a whole when not all hospitals in a subdistrict equal or exceed 75 percent occupancy and when one hospital, over 75 percent occupancy, attempts to establish a special circumstance, despite the fact that the need methodology itself is always wrong in projecting numeric need. Ms. Stamm testified that one district is approaching 75 percent occupancy in all hospitals. Mr. Sullivan testified that, if and when that occurs, then the formula is intended to, but does not, reflect the number of additional beds needed. An alternative methodology is required to determine bed need. AHCA, with its responsibility for the data base formerly collected by the HCCB, receives discharge data and financial worksheets from every hospital in the state. The claim that AHCA cannot update the formulas because its data may be unreliable is rejected as not credible. The data now available is more reliable than the 1979 data used in developing the rule, which was not collected from a formalized statewide reporting system, but from a sample of hospitals. The claim that AHCA cannot use its data base from mandatory statewide reporting mechanisms to extract the data needed to update the formulas is also rejected. The rule contemplated ". . .the institution of statewide utilization reporting mechanisms." Dr. Rond's work to update the formulas before the final hearing began on May 23, 1995. Dr. Rond used a total of approximately 1.5 million acute care discharges from the AHCA (formerly, HCCB) data base for the 1992 calendar year. At the time of the final hearing, Dr. Rond had not separated days of care for medical/surgical, intensive and coronary care. The data can be taken from hospital financial data, including detailed budget worksheets which are submitted to AHCA. Separate data are anticipated in the formula because the computation of need for the different bed categories is based on different occupancy goals. For medical/surgical and intensive care beds, the goal is 80 percent occupancy, but it is 75 percent for coronary care for persons age 0 to 64. For persons 65 and older, the rule applies a combined occupancy standard of 79.7 percent for all three bed categories, which assumes that approximately 4 percent of the combined days of older patients will be spent in coronary care. Dr. Rond reasonably applied the 79.7 percent occupancy standard to the combined days for persons under 65, in arriving at the total district bed need for 3,676 beds. To check these results and to assume a worse case scenario of all patient days attributable to coronary care beds, for which more beds are needed to maintain a lower occupancy, Dr. Rond worked the formula using 75 percent occupancy as the goal for medical/surgical, intensive and care coronary care beds combined. Although the base number increased by 100, the calculations and adjustments in the rule yielded the same number of total acute care beds needed in the district, 3,676. That reliably confirms that the maximum number of acute care beds needed in District 9 is 3,676 by 1999. AHCA could use its data base to update formulas and achieve rational results in the rule by using the hospital financial data to distinguish coronary care days for patients 0-64 to include in the formula, or by using a rational blended occupancy standard in a rule amending the existing methodology. AHCA demonstrated that the 1987 amendment overrides the exaggerated numeric need number to yield a rational published fixed need pool in the absence of 75 percent occupancy in all acute care beds in a subdistrict. AHCA also demonstrated that because the projected need is always excessive under the formula, hospitals are allowed to demonstrate special circumstances, although it is absurd to include a requirement of numeric need in a provision for special circumstances. AHCA's claim that the excessive need projection is, therefore, irrelevant is rejected. Net need under the rule formula fails to give any rational indication of the number of beds needed when all hospitals in a subdistrict reach 75 percent occupancy.
Findings Of Fact The Parties St. Joseph's is a tertiary care hospital located at 3001 West Buffalo Avenue, Tampa, Hillsborough County, Florida. There is spatial capacity for 703 beds at St. Joseph's, but only 649 beds are licensed, staffed and in use. It is sponsored by the Franciscan Sisters of Allegheny, and is a subsidiary of a holding company, St. Joseph's Health Care Center, Inc. Without CON approval, St. Joseph's cannot increase licensed bed capacity at its current facility on West Buffalo Avenue, or open the satellite facility which is here at issue. St. Joseph's current service area includes Hillsborough County, particularly the central and northern portions of the County. Occupancy rates for St. Joseph's in medical surgical areas have been approximately 80 percent, and at peak times have exceeded 90 percent. However during the last half of 1986, the occupancy rate fell to 74 percent. St. Joseph's provided 16.8 percent of all Medicaid care in Hillsborough County during 1982-83 and 17 percent during 1983-84. It is second to Tampa General in provision of health care to indigents in Hillsborough County. With the exception of Tampa General, St. Joseph's has the largest Medicaid patient admissions of all Hillsborough County hospitals. In 1986, the bad debt/charity care/Medicaid contractual discount for St. Joseph's was approximately $11.3 million. However, while 6.9 percent of all patient days county wide are Medicaid patient days, St. Joseph's has only 5 percent Medicaid patient days. The cost of indigent care is absorbed and offset by paying patients. St. Joseph's decision to seek approval for a satellite in the Carrollwood area is a wise business decision since there is a high percentage of paying patients residing in that area of Hillsborough County. St. Joseph's has a 23 percent market share of all patient days reported in Hillsborough County, the largest market share for all hospital medical- surgical services provided in the County, and also has the largest market share in the proposed service are of the satellite. Its market share of paying patients is much higher than for Medicaid or indigent patients. However, since 1984 St. Joseph's market share has been declining while Tampa General's has been increasing. A relatively high proportion of admissions at St. Joseph's current facility, over 40 percent, are obtained through its emergency room. The proposed satellite will have an emergency room, but it will not offer the same intensity of services as at the current facility on West Buffalo Avenue. The Department is the state agency with the authority and responsibility to consider CON applications. Intervenor Humana of Florida, d/b/a Tampa Women's Hospital (Humana) owns and operates a 192 bed women's hospital in Tampa, Florida, which includes 96 obstetrical beds. Its occupancy rate in 1986 was approximately 50 percent. Intervenor University Community Hospital (University) is an existing hospital with 404 licensed and 320 operating beds located on East Fletcher Avenue, Tampa, Florida, and offers a full range of acute care hospital services. University is located within the service area of the proposed satellite and has been experiencing a decline in patient days from 109,000 in 1983 to 84,000 in 1986. It has had to reduce its number of employees in the last three years by 15 percent-20 percent. University has a 57 percent occupancy rate. Intervenor Tampa General Hospital (Tampa General) operates a publically supported hospital in Tampa, Florida, providing a full range of acute care services, including obstetrical/gynecological services with 707 licensed and 619 operating beds. Tampa General has CON approval for 1000 beds if it completes planned renovations. It has an occupancy rate of 80 percent-82 percent and is treating 70 percent of all Medicaid patients in Hillsborough County. Tampa General has provided $70 million of indigent care, including $40 million in charity, annually. Carrollwood is within its service and marketing area. Intervenor AMI Town and Country Medical Center (Town and Country) is a 201 bed general acute care hospital located at 6001 Webb Road, Tampa, Florida. Its occupancy rate in 1986 was approximately 46 percent. There is no dispute among the parties regarding the standing of Intervenors in this proceeding. The occupancy rates at University, Town and Country and Humana are substantially below optimal levels, and substantial unused capacity exists at each of these hospitals. St. Joseph's proposed satellite will not offer any services that are not currently available to residents of the proposed service area, and will duplicate services at University, Town and Country, and Carrollwood Community Hospital, as well as services provided at St. Joseph's existing facility. The Application and Project On or about October 15, 1985 St. Joseph's filed with the Department an application for CON 4288. This application sought approval for a 150 bed general acute care satellite hospital in Carrollwood, Hillsborough County, Florida, and proposed the transfer of 150 existing licensed beds from St. Joseph's facility on West Buffalo Avenue, Tampa, to the satellite. The estimated total cost of this project was $16,775,000. Specifically, St. Joseph's proposed the transfer of 96 medical/surgical beds, including ICU, CCU and progressive care beds, 15 obstetrical beds and 39 pediatric beds, including PICU. The Department provided St. Joseph's with an omissions letter on or about November 14, 1985, to which St. Joseph's responded on or about December 30, 1985. By letter dated February 28, 1986, the Department preliminarily denied St. Joseph's application for CON 4288 stating, "The project is not justified by the 1985 District VI Health Plan or the 1985-87 Florida State Health Plan." The Department's decision to deny this application was published in Volume 12, Number 11, Florida Administrative Weekly, on March 14, 1986, and St. Joseph's filed its petition for formal administrative hearing on April 4, 1986. On or about February 18, 1987 St. Joseph's and the Department executed a Stipulation and Settlement Agreement which, in pertinent part, provides: DHRS finds and agrees that there is a need for St. Joseph's to relocate and transfer 100 acute-care beds (but not any licensed obstetrical beds) and acute-care services (but not any obstetrical services) from its existing acute-care hospital and construct a 100 bed acute-care satellite hospital in Hillsborough County in light of a balance review of all relevant criteria established by Section 381.494 Florida Statutes, including the levels of indigent and Medicaid care agreed to herein. The project will occur entirely within Hillsborough County and not result in any increase in licensed beds for St. Joseph's. DHRS agrees that a partial approval of the St. Joseph's CON Application will satisfy this need and that said application should be partially approved as hereinbelow further specified ... The agreements and commitments made by DHRS in paragraph 1 above are predicated on commitments made by St. Joseph's concerning its intention to provide certain percentages of Medicaid and indigent care in its proposed satellite hospital and to seek only partial approval of its application as specified herein... St. Joseph's commitments, which are relied upon by DHRS and which shall be set forth as conditions in said CON, are as follows: Not less than 3.5 percent of the total number of admissions at St. Joseph's satellite hospital shall be rendered to Medicaid patients. Not less than 3.0 percent of said total admissions shall be rendered to non-Medicaid "charity/uncompensated" patients whose family income as applicable for the twelve months prior to determination of eligibility is equal to or less than 150 percent of the then current Federal Poverty Guidelines. St. Joseph's shall obtain and retain sufficient information to verify this eligibility determination. The 3.0 percent "charity/uncompensated" patients shall be acknowledged as such at admission, shall not include patients receiving third party payments and shall be in addition to St. Joseph's "bad debt" patients... DHRS specifically recognizes the lengthy history and mission of St. Joseph's in providing extensive indigent care services in Hillsborough County. St. Joseph's agrees to undertake a diligent and good faith effort to encourage physicians on its medical staff to admit and treat Medicaid and charity/uncompensated care patients in such numbers as to comply with the minimum percentages established in paragraph (a)above ... (e) St. Joseph's agrees that it will request at hearing and henceforth seek only partial approval of its proposed CON Application, as follows: The satellite facility shall be reduced in scope from 150 licensed beds to 100 licensed beds. The number of licensed beds to be relocated from the existing St. Joseph's Hospital shall be reduced in scope from 150 licensed beds to 100 licensed beds. None of the licensed beds to be relocated to the satellite hospital shall include licensed obstetrical beds, nor shall the obstetrical services, if any, provided at St. Joseph's existing hospital be relocated to the satellite facility. Labor, delivery and nursery facilities shall be deleted from the satellite hospital. DHRS has consistently maintained the proposed square footage and project cost is inadequate for a 150 bed hospital and more appropriate for a 100 bed hospital. Therefore, the total square footage and total project cost shall remain unchanged... The Stipulation and Settlement Agreement referred to in Finding of Fact 21 was executed following, and in consideration of, additional information prepared and submitted by St. Joseph's to the Department on or about January 30, 1987 and February 9, 1987. At hearing, St. Joseph's and the Department sought partial approval of CON 4288 to conform to the terms of the Stipulation and Settlement Agreement. Intervenors opposed such partial approval. The partial approval sought by St. Joseph's and the Department represents an identifiable portion of St. Joseph's original CON application. Originally, St. Joseph's sought approval to transfer 150 acute care beds, including obstetrical, but at hearing St. Joseph's sought approval for a transfer of only 100 acute care beds, without obstetrical. Labor, delivery and nursery facilities have been deleted from the satellite proposal, but total square footage, physical designs and total cost of the project remain the same for the partial approval sought at hearing compared with the original application. The number of operating rooms has also remained the same. The proposed location in Carrollwood, Hillsborough County, remains unchanged. The project at issue in this case is a 100 bed acute care satellite hospital with, 96,500 total gross square footage (965 gross square feet per bed). The schematic plan submitted by St. Joseph's provides for the following beds and includes, but is not limited to, the following facilities: (72 private rooms, 2 Semi-private); pediatric beds (5 private, 5 semi-private), ICU/CCU (9 beds); space for radiology/nuclear medicine, emergency and outpatient services, laboratory, physical therapy, pharmacy, EEG/EKG, inhalation therapy, surgical suite, sterilization suite, cafeteria, laundry, storage, maintenance, chapel, nurses office, and other miscellaneous facilities. Total project costs are estimated at $16,775,000, the same as for the original 150 bed transfer proposal. The land upon which the satellite will be located was purchased for $3 million in cash. The satellite will be able to operate at a higher occupancy level than St. Joseph's existing hospital due to the larger proportion of single bed rooms and less severe cases being treated at the satellite. After review of St. Joseph's original application for the transfer of 150 acute care beds in March 1986, the Department concluded that the proposed gross square footage per bed of 643 was below the standard range of 800-1000 gross square feet per bed, and also that the total project cost estimate of $111,833 per bed was way below the average standard range of $175,000 to $200,000 per bed. After review of the identifiable portion of St. Joseph's application for which approval was sought at hearing, the Department concluded that the total gross square footage of the satellite, square footage per bed, construction estimates, and the total project cost estimates were reasonable and acceptable. The gross square footage was raised from 643 to 965, and the cost per bed was increased from $111,833 to $167,750. The Service Area The area which St. Joseph's proposes to serve with its satellite hospital is the Carrollwood area of northwest Hillsborough County which is located in the Department's District VI. This is the fastest growing area in Hillsborough County, with an average age which is lower than the rest of the County, and an average income level above the County average. Specifically, almost 35 percent of the population in the satellite's proposed primary service area was between 25 and 44 years old in 1980, compared with approximately 28 percent for the County. In the category of 65 years and older, the primary service area had 8.2 percent of its population, while the County had 11.4 percent. A higher percentage of paying patients reside within the proposed service area than for Hillsborough County as a whole. Nevertheless, 6 percent 7 percent of the service area population have incomes below the federal poverty level, compared with 16 percent for the County as a whole. The area is already served by Medicaid providers. St. Joseph's medical roster indicates over 140 of its physicians have offices in the satellite's proposed service area. However, approximately 100 of these physicians are also on the staffs of Intervenors. The site for the satellite was chosen after review of patient origin data and population growth projections for Hillsborough County. St. Joseph's is currently treating at its facility on West Buffalo avenue an average of 64 patients a day who reside within the proposed service area of the satellite and who are not cardiac, cancer or psychiatric patients. St. Joseph's has an average daily census of 519 patients and proposes to serve 64 of these patients, who reside within the satellite's primary service area, at the satellite. Stipulations The parties have stipulated that St. Joseph's is able to provide quality care at the proposed satellite, and also that St. Joseph's is not proposing or relying upon probable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources, except to the extent that the project includes a satellite facility. Intervenors contend that health services will be most economically provided by not constructing the satellite facility. Finally, the parties stipulate that Section 381.494(6)(c)11., Florida Statutes, relating to the provision of a substantial portion of services or resources to individuals not residing in the service district in which the entities are located, or adjacent thereto, is not applicable in this case. Non-Rule Policy for Bed Transfers The Department currently has no rule governing the transfer of acute care beds. Rule 10-5.011(1)(m), previously Rule 10-5.11(23), does not apply to acute care transfers since it addresses new or additional beds. However, the Department has begun developing a departmental policy for review of acute care transfer applications which do not request additional beds, and is seeking industry and staff input for the concepts expressed in a draft policy. In its current conceptual form, the transfer policy follows the statutory review criteria as they might apply to transfer applications which do not request new beds. The emerging policy, urges review of acute care transfer applications with emphasis upon the following health care planning criteria: reduction of excess beds, better utilization of existing beds, the encouragement of hospital efficiency, improvement of financial and geographic access, the encouragement of quality care, and the encouragement of competition in the hospital industry. St. Joseph's partial approval request was reviewed for conformity with this emerging policy by Robert Sharpe, the Department's Director of Comprehensive Health Planning (the state's chief health planner), who is charged with development of the bed transfer policy. Bed reduction is a key element for consideration in the Department's emerging policy. However, St. Joseph's 79-80 percent occupancy is greater than the Department's 75 percent hospital occupancy threshold contained in the acute care rule (Rule 10-5.011(1)(m)). Application of a bed reduction formula is not reasonable, according to Sharpe, for a facility which is using its beds to a much greater extent than other facilities in the County. The Department's emerging policy would evaluate whether a proposed transfer of beds to a new site would encourage a better use of the beds than at the existing site. The emerging policy contemplates transfers of acute care beds within a single county or subdistrict in an effort to be responsive to the needs of communities. This concept is consistent with the District VI Local Health Plan's stated desire that planning occur on less than a county basis. The Department's emerging policy evaluates the relative efficiency of the hospital proposing a bed transfer. In evaluating the relative charges made by similar Florida hospitals, the Hospital Cost Containment Board has devised hospital groupings for evaluation purposes. Of the 23 hospitals that are characterized as "group nine" hospitals in Florida, St. Joseph's ranks 16th of those 23 and is below the 50th percentile in gross revenues per adjusted admission. This means that St. Joseph's has lower charges per adjusted admission than most of the other comparable hospitals in Florida. Despite the fact that St. Joseph's is a large tertiary facility, Hospital Cost Containment Board data establishes that St. Joseph's is an efficient hospital facility. Another aspect of the Department's emerging policy is that of improving Medicaid and indigent access for patients. Excluding Tampa General, St. Joseph's has more Medicaid patient admissions than all other hospitals in Hillsborough County. During the past four years, St. Joseph's has consistently provided approximately 17 percent of the Medicaid care to hospital patients in Hillsborough County. The Department considers St. Joseph's to be an indigent care facility in Hillsborough County. The Department also considers geographic access when reviewing transfers. The State Health Plan has an objective that 90 percent of the population in an urban area be within 30 minutes drive time to an acute care facility by 1989. The Local Health Plan has concluded that all of Hillsborough County is currently within a 30 minute drive time. The quality of care provided by a facility proposing a transfer is also considered, and the parties have stipulated that St. Joseph's will provide quality health care services. The Department examines the competitive affects of approval of a transfer of acute care beds. In this case, the charge levels, costs per admission, and current inventory of beds at Hillsborough County acute care hospitals were examined. Since St. Joseph's charges and costs are low relative to other hospitals, and since there is an excess of beds in the County, the Department assumed that there would be competition for existing patients, and further concluded that approval of the satellite facility would promote price and non-price competition among hospitals in Hillsborough County. Considering each of the outlined elements of the Department's emerging policy, the state's chief health planner testified that the emerging policy supports the requested approval of an identifiable portion of the St. Joseph's satellite application. Need And Consistency With State and Local Plans Health planning for CON purposes involves the assessment of need on a community-wide, rather, than an institution specific, basis. Planning on less than a county-wide basis is inappropriate in Hillsborough County. In 1986 there was an excess capacity of 1400 acute care beds in Hillsborough County. District VI is overbedded by nearly 700 beds. The Local Health Council projects that in 1992 there will still be a surplus of nearly 800 beds in the County. Since this application proposes the transfer of beds, it neither increases or decreases this excess capacity. The State Health Plan as well as the Department's non-rule policy recommends eliminating excess bed capacity, but this proposal is not consistent with that recommendation. Existing acute care hospitals in Hillsborough County experienced only percent occupancy in 1986, a drop from 71 percent in 1984. Patient days have declined at an average of 2.6 percent per year since 1983 while the population in Hillsborough County actually increased 11.2 percent during this time. In spite of a significant reduction in hospital utilization and average lengths of stay in the area, the number of licensed hospital beds in Hillsborough County increased from 3,028 in 1981 to 3,457 in 1986, an increase of 14.2 percent or 429 beds. The State Health Plan contains a stated goal of 80 percent occupancy by 1989. The Local Health Plan recognizes 80 percent for medical-surgical and ICU/CCU occupancy for all beds in the County and 90 percent occupancy for each institution. Only Tampa General and St. Joseph's are currently achieving these occupancy level goals. In fact, occupancy rates for the five hospitals within, or adjacent to, the proposed satellite's service area range from 40 percent to percent. Based upon review and consideration of the expert testimony and evidence presented at hearing, it is found that an acceptable hospital optimum occupancy rate would be from 75 percent to 85 percent overall, and 90 percent for medical-surgical beds. Of the 649 beds currently at St. Joseph's, on average there are 149 unoccupied beds on any given day. St. Joseph's proposal does not address the key element of the State Health Plan and the Department's non-rule policy which calls for bed reduction when transfers are considered. This failure is particularly significant in view of the substantial overbedding which currently exists in Hillsborough County and which is projected to exist through 1992. To the contrary, the proposal actually would result in a net increase of 3 coronary care unit beds and 3 pediatric intensive care unit beds. The most important stated purpose of the acute care policies in the 1985 District VI Health Plan is "optimizing utilization of existing resources", and this purpose is implemented through a policy that provides, "Suture changes in the hospital facilities and services systems should occur so as to maintain the fiscal and programmatic integrity of all institutions providing a full range of services... " This proposal is inconsistent with this aspect of the Local Health Plan since it does not reduce the number of excess beds, while at the same time it would transfer 100 beds to a predominantly affluent, young and growing area of the County from which St. Joseph's would realize a substantial number of paying, as opposed to indigent or Medicaid, patients. This could reasonably be expected to increase St. Joseph's already very strong patient payor mix, and increase occupancy rates above 80 percent while other facilities are at or below 50 percent. At the same time, this proposal could actually weaken St. Joseph's financial position since its margin of revenue over expenses was 12.5 percent in 1985 and 10 percent in 1986, and the pro forma for the satellite, although overly optimistic as discussed below, shows only a 4.8 percent margin in the second year of operation. Underutilization of existing facilities is not consistent with sound health care planning because it ultimately results in higher costs to patients. Other facilities currently serving the proposed service area will be more likely to achieve optimum occupancy levels if the satellite is not built, than if it is. Another important purpose of the Local Health Plan is "promoting access for the indigent and underserved population to adequate health care," a purpose also stated in the Department's non-rule policy. The service area of the proposed satellite has a median family income of $30,132 which is 26 percent higher than for Hillsborough County as a whole. Locating a hospital in a predominantly affluent area, does not generally increase access for indigents. In fact, by the terms of its Settlement Agreement, St. Joseph's will actually decrease its commitment to Medicaid patients from the current 5 percent to the proposed 3 percent at the satellite. The percentage of charity care to gross revenues at St. Joseph's in 1986 was .6 percent, and was budgeted at .5 percent for 1987. This is not a significant charity commitment in relation to gross revenues, and the satellite proposal will not improve this commitment. The State Health Plan states as an objective achieving a ratio of less than 4.11 beds per thousand by 1989. This proposal does not promote this objective because it does not represent any net reduction in total number of beds. This proposal is also inconsistent with the State Health Plan which recommends a minimum pediatric size of 20 beds since it will have only 18. Need In Relation to Geographic Accessibility According to the 1985 District VI Health Plan, "The geographic distribution of hospital services in Hillsborough County is such that the entire population is within the 30 minute drive time standard of adequate resources." Ernest J. Peters, who was accepted as an expert in traffic engineering, testified that the entire proposed satellite service area is within 30 minutes of at least one existing hospital. The 30 minute drive time standard is set forth as Objective 2.2 in the 1985-87 State Health Plan. Residents of the proposed service area have geographic accessibility to hospital services within a 30 minute drive time. St. Joseph's does not dispute this fact, but rather Barbara Myres-Fernandez, who was not accepted as an expert in traffic studies, testified that at peak travel times the 30 minute standard was exceeded. However, according to Robert Sharpe, the Department's Director of Comprehensive Health Planning, who was accepted as an expert in health care planning, as well as Ward Koutnik and Ernest J. Peters, who were accepted as experts in traffic engineering, all of the proposed service area is within 30 minutes of existing hospital facilities. Peters testified that if the satellite is built, travel times to the nearest hospital would only be improved by 2.77 minutes for Carrollwood residents in 1990. The weighted average travel time, according to Peters, for the entire proposed service area to the nearest acute care hospital is 13.13 minutes, which will only increase to 13.96 minutes in 1990. The evidence therefore establishes that there would be an insubstantial geographic access gain to Hillsborough County residents if the satellite is approved, and in any event need based upon a lack of geographic accessibility has not been established. Need In Relation to Financial Accessibility According to Myres-Fernandez, it is St. Joseph's contention on the issue of accessibility that approval of the satellite will improve financial accessibility to hospital services for indigent and Medicaid patients. In order to maintain its commitment to indigent, Medicare and charity care, St. Joseph's argues it must continue to attract and maintain its market share of private pay patients, and the Carrollwood area provides a growing source of such patients. However, according to St. Joseph's, 64 of the patients to be treated at the satellite are already being treated at West Buffalo Avenue. These 64 do not include cardiac, cancer or psychiatric patients. Therefore, only 16 "new" patients would be served at the satellite if it were to achieve the goal of 80 percent occupancy. Even with St. Joseph's predicted 90 percent occupancy rate, only 26 "new" patients would be served. No evidence was offered to establish that a higher level of indigents should be expected at the satellite hospital than at St. Joseph's existing facility, particularly since in its Agreement with the Department, St. Joseph's has committed to serve a lower percentage of indigents than is presently true at the main facility on West Buffalo. St. Joseph's current payor mix is very favorable, and no reasons have been shown why it should deteriorate in the foreseeable future. In fact, the mix may actually be improving, according to Hospital Cost Containment Board data. Indigent access to health care is not improved by locating a satellite hospital in a predominantly affluent area in which only 6-7 percent of the population is below the poverty level, as compared to 16 percent for the County as a whole. This proposal represents a wise business decision by St. Joseph's because it is an attempt to increase its number of private pay patients. However, it will not improve indigent access. Financial accessibility is a criteria to be evaluated under Section 381.494(6),(c), Florida Statutes, and the Department's non-rule policy. This proposal does not improve access for indigents and therefore is not consistent with this statutory and policy criterion. Availability and Adequacy of Alternatives There are five existing hospitals within, or adjacent to, the proposed service area with substantial unused capacity, including University and Carrollwood Community Hospital which is a 120 bed facility offering general acute care, emergency room and outpatient services. Carrollwood Community Hospital has an occupancy rate of approximately 50 percent, and thus has excess capacity. While one-third of its patients are osteopathic, two-thirds are allopathic; only one-fifth of its physician staff is comprised of osteopaths. The proposed service area of the satellite is within the current service areas of Intervenors. Thus, adequate alternative facilities are available to residents in the Carrollwood area. Since there are existing alternative acute care facilities within thirty minutes of the proposed service area, an ambulatory surgical center might be an appropriate alternative to the satellite proposal. However, St. Joseph's did not explore such an alternative, and presented no evidence to establish the basis for its assertion that this would not be appropriate. Such a facility could maintain and even enhance referral patterns to the main facility on West Buffalo. Additionally, it has not been shown that splitting St. Joseph's 649 beds between two locations will be more efficient than leaving all 649 beds on West Buffalo, and thereby saving the $16,775,000 in capital expense to construct the satellite. Therefore, alternatives to the construction of a satellite facility do exist, and St. Joseph's has not shown that such alternatives are less feasible or less efficient than the satellite proposal at issue. Needs For Special Equipment and Services It has not been established that any need exists within the proposed service area for special equipment and services which this proposal would provide, and which are not reasonably and economically accessible in adjoining areas. Need For Research and Educational Facilities It has not been shown that any need exists in the proposed service area for research and educational facilities which this application would address. Availability of Manpower During the hearing, the parties stipulated to the adequacy of the staffing patterns proposed by St. Joseph's for the 100 bed satellite, and also their ability to recruit and fill those staffing needs. Approval of this satellite would not have an adverse impact on Intervenors' ability to attract or retain qualified staff since the staff for the satellite would be primarily transferred from the West Buffalo Avenue facility along with the transfer of 100 beds. Since 64 patients who reside in the satellite's service area are currently being treated at the West Buffalo Avenue site, staff who serve these patients will be transferred to the satellite when it opens. Additionally, St. Joseph's conducts an extensive recruitment program outside, as well as within, the Hillsborough County area. It is therefore unlikely that staff for the satellite will come in any significant number from any of the Intervenors. It is recognized that there is almost a 20 percent vacancy level for registered nurses in District VI, and a 33 percent vacancy level for critical care nurses. However, St. Joseph's turn-over rate is relatively low, and therefore it is reasonable to expect that the satellite would be staffed predominantly with staff already employed at the West Buffalo location. Availability of Funds St. Joseph's revenues exceeded expenses by $10-$12 million for fiscal year ending June 30, 1986, and it is among the five most profitable hospitals in the State. It has no long term debt, and is the only facility of its size in Florida which has no debt. Financially, St. Joseph's is in an extremely sound position. St. Joseph's has the ability to financially support the satellite facility and to internally finance its construction. Third-party financing is also being considered. However, its operating margin will decrease slightly as a result of the construction of the satellite. Historically, it has realized an operating margin exceeding 10 percent, although it projects a profit margin of slightly under 5 percent for fiscal year 1987. Financial Feasibility St. Joseph's proposed satellite's total gross revenue for the first two years of operation was determined by multiplying the current average bed rate at the facility on West Buffalo by the expected occupancy. Proposed deductions from revenue were also based upon St. Joseph's historical experience. Assumptions utilized to prepare the satellite's pro forma relied upon St. Joseph's historical information, including but not limited to revenues, fixed expenses and variable expenses. St. Joseph's used a patient admission rate of 125 per 1,000, and a proposed average length of stay of 6 days compared with a current average length of stay at the main facility of 7-7.2 days. A basic assumption used by St. Joseph's was that on the first day of operation, 64 patients currently being treated at the main facility who reside in the Carrollwood area, will be transferred to the satellite for treatment, and thereafter an average of 64 of the satellite's beds will be occupied each day by Carrollwood residents who would have sought treatment at the West Buffalo location in the absence of the satellite. St. Joseph's assumed a case mix intensity level of 1.36 for the satellite, compared with 1.46-1.48 at the West Buffalo location. A decrease in the case mix index results in a corresponding decrease in revenues and expenses. Complex hospitalizations receive a high case mix index, and simple procedures receive a low case mix index. St. Joseph's did not conclusively establish that 64 patients presently at the main facility, except for cardiac, cancer and psychiatric patients, who reside in the service area of the satellite could be transferred on the first day of operation, or that this daily census could be maintained. Physician and patient preferences determine where a patient is admitted. Severity of illness or age of the patient are also factors. Admissions through the emergency room, which account for nearly 50 percent of the admissions on West Buffalo, cannot be redirected. It has not been shown that physicians or patients would prefer admission to a satellite, or that the very severe cases or aged patients, as well as emergency room admissions, could be redirected away from the main facility. While the satellite will have an emergency room, the satellite will not be equipped to handle the complexity of cases presently admitted on West Buffalo. Additionally, transferring 64 patients by ambulance on the first day of operation from West Buffalo to the satellite, in the middle of treatment, has not been shown to be reasonable or feasible, or that physicians and patients would tolerate such a procedure. The opening of a satellite usually begins incrementally and gradually while staff becomes familiar with the new facility and equipment. St. Joseph's has not shown that it is feasible to open the satellite with an immediate occupancy of 64 percent on day one, and 82 percent in the first year of operation. Historically, occupancy levels at satellites run between 20 percent-40 percent the first year. Forecasted revenues are unrealistic because St. Joseph's basic assumption about the transfer of 64 Carrollwood residents is unreasonable and unsubstantiated. St. Joseph's has also failed to correctly and fully estimate salary expenses at the satellite because salary estimates do not account for shift and weekend differentials paid to nurses. More than 50 percent of nurses at St. Joseph's receive shift differential pay, which is a 15 percent increase above their base hourly rate. Given the age of the service area population, a more accurate use rate for the satellite would be between 90 and 95 admissions per 1,000 population, rather than the 125 per 1,000 used by St. Joseph's. The lower use-rate reduces the available pool of patients in the service area from 136 estimated by St. Joseph's to 109. 94 Assumptions based on historical data from the main facility are inappropriate for developing the satellite's pro forma because the satellite will treat less complex cases than the main facility, and the age and income levels in the satellite's service area are significantly different from the County as a whole. Rather than a case mix index of 1.36, an average satellite and community hospital case mix index is 1.00. Using a corrected case mix index of 1.00 rather than 1.36, results in a projected loss for the satellite rather than a profit in its second year of operation. Because construction and operation of the satellite will reduce St. Joseph's overall operating margin below 5 percent-6 percent, which is a minimum standard, St. Joseph's will be less able to provide charity, indigent and Medicaid care after construction of the satellite than it is currently. Impact On Health Care Costs St. Joseph's proposal to spend approximately $16 million on construction of the satellite to serve from 16 to 26 "new" patients could reasonably be expected to adversely affect health care costs. This is exacerbated by the shelled-in space at both the satellite and the existing facility. The size of the satellite was not reduced when beds were reduced from 150 to 100, and the St. Joseph's architect testified there is enough square footage to add back the 50 beds. Despite St. Joseph's assertions that it will not increase rates to subsidize the satellite as a business investment in its own future, it appears reasonable to expect that rates would have to be increased if St. Joseph's is to maintain its historical profit margin, and to offset its failure to properly project salaries, use rates and the case mix index at the satellite. The satellite will continue to lose money through its second year of operation, and this would have to be recouped through increased charges, or reduced profit margins, which could then be expected to result in a reduced ability to fund charity, indigent and Medicaid patients. Project Costs Construction cost estimates are reasonable. The estimated cost for fixed equipment for a 150 bed satellite facility was reduced by $250,000 to reflect the decrease cost of moving 50 beds and the obstetrical surgical suite. This $250,000 savings provides an inflationary contingency in case of construction delays, and while it does increase construction costs from $9,650,000 to 9,900,000, it does not have a negative impact on the appropriateness of the proposed construction costs. Equipment cost estimates as well as total project cost estimates, with the exception of salary estimates, are reasonable. Admitting Practices St. Joseph's has a written admissions policy which requires that it receive patients regardless of their ability to pay. There is no evidence that St. Joseph has ever denied admission to any patient in a life threatening situation. It is standard practice at St. Joseph's to request a deposit on admission and to inform patients that arrangements for payment can be made upon discharge. However, inability to pay the deposit or to make financial arrangements does not result in a patient being denied admission. Patients who are unable to pay are sometimes admitted at St. Joseph's through, the emergency room when a physician sends such patients to the emergency room. Effect On Competition Enhancement of future competition is a factor which is considered under the Department's non-rule transfer policy There is substantial competition among acute care hospitals in Hillsborough County which are currently engaged in aggressive marketing campaigns. Dominance by one provider in a market can be anti-competitive, and at the present time St. Joseph's is the dominant provider for paying patients in Hillsborough County. The current market shares for hospitals already serving the satellite's proposed service area are: St. Joseph's - 33.45 percent; University - 28.92 percent; Town and Country - 17.72 percent; Tampa General - 11.06 percent; and Carrollwood Community - 8.86 percent. The satellite will allow St. Joseph's market share to increase and possibly approach 40 percent. Such market dominance is not consistent with a competitive market. St. Joseph's increase in market share will take patients away from the other hospitals now serving the Carrollwood area, particularly University which receives almost 38 percent of all its patients from this area. University is already projecting an operating loss for fiscal year 1987 of $563,000. Tampa General is a disproportionate provider of indigent services in the County. The Local Health Plan has as one of its objectives protecting such providers of indigent care. Tampa General lost $12 million in fiscal 1983, and in order to improve its financial condition embarked on a $160 million renovation and building effort. It is now indebted to bondholders in that amount. Tampa General's payor mix has begun to improve, and it is actively marketing in the proposed service area. Approval of this project will not further the Local Health Plan objective of protecting disproportionate indigent providers, because it will result in the loss to Tampa General of a significant number of paying patients.
Recommendation Based upon the foregoing, it is recommended that the Department enter a Final Order denying St. Joseph's application for CON 4288 for the establishment of a satellite hospital with the transfer of 100 acute care beds. DONE AND ENTERED this 8th day of September, 1987, in Tallahassee, Florida. DONALD D. CONN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of September, 1987. APPENDIX TO RECOMMENDED ORDER Rulings on St. Joseph's Proposed Findings of Fact are as follows: Adopted in Finding of Fact 1. Rejected as unnecessary and cumulative. Adopted in Finding of Fact 1. Adopted in Findings of Fact 1, 2. Rejected as unnecessary and irrelevant. Adopted in Finding of Fact 2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 8. Adopted in Finding of Fact86. Rejected as irrelevant. Adopted in Findings of Fact 3, 7. Adopted in Findings of Fact 4, 38. Adopted in Finding of Fact 4. Adopted in Findings of Fact 38, 54. Adopted in Findings of Fact 38, 6, 70, 54. Adopted in Finding of Fact 5. Adopted in Finding of Fact 5. Adopted in Finding of Fact 5. Rejected as irrelevant and not supported by competent substantial evidence. Adopted in Finding of Fact 5. Adopted in Findings of Fact 5, 44. Adopted in Finding of Fact 6. Rejected as irrelevant and unnecessary. Rejected as irrelevant and unnecessary. Rejected as unnecessary. Rejected as unnecessary. Adopted in Findings of Fact 6, 38, 70. Adopted in Finding of Fact 7. Rejected as irrelevant and unnecessary. 30-34. Rejected as irrelevant and unnecessary. Adopted in Finding of Fact 10. Adopted in Finding of Fact 11. Adopted in Finding of Fact 12. Rejected as irrelevant. Adopted in Finding of Fact 108. Adopted in Finding of Fact 12. 41-43. Rejected as irrelevant and unnecessary. Rejected as cumulative and unnecessary. Rejected as speculative, irrelevent and unnecessary. Adopted in Finding of Fact 12. Adopted in Findings of Fact 21, 23, 50. Adopted in Finding of Fact 21. Rejected in Findings of Fact 59, 68. Rejected in Findings of Fact 65, 71, 97, 106. Rejected as not based on competent substantial evidence. Adopted in Findings of Fact 18, 21, 22. Adopted in Finding of Fact 24. Adopted in Finding of Fact 24. Rejected as unnecessary and cumulative. Adopted in Findings of Fact 32, 67, but rejected in 89, 90. Adopted in Findings of Fact 32, 67. Adopted in Finding of Fact 21. Adopted in Finding of Fact 26. Rejected as not based competent substantial evidence, and irrelevant. Adopted in Finding of Fact 29. 62-63. Rejected as cumulative and unnecessary. 64-65. Adopted in Finding of Fact 29. Rejected in Findings of Fact 11, 72. Rejected in Findings of Fact 65, 72. Adopted in Finding of Fact 30. Adopted in Finding of Fact 31. 70-71. Adopted in Finding of Fact 7. Rejected as unnecessary and not based competent substantial evidence. Adopted in Findings of Fact 6, 70. Rejected as irrelevant and speculative. 75-76. Adopted in Finding of Fact 7. 77-78. Adopted in Finding of Fact 6. Rejected in Findings of Fact 59, 60, 68, 70, 95. Adopted in Findings of Fact 6, 70. Rejected as irrelevant. Adopted in Finding of Fact 30. 83-91. Rejected in Findings of Fact 7, 105 and otherwise rejected as cumulative and unnecessary. Adopted in Finding of Fact 34. Adopted in Finding of Fact 35. Adopted in Finding of Fact 36. Adopted in Finding of Fact 37. Adopted in Finding of Fact 38. Adopted in part in Finding of Fact 39. Rejected as cumulative. Adopted in Finding of Fact 40. Adopted in Finding of Fact 41. Adopted in Finding of Fact 42. Adopted in Finding of Fact 43. Adopted in Finding of Fact 44 104-105. Rejected as cumulative. Adopted and rejected in part in Finding of Fact 45. Adopted in Finding of Fact 46. Adopted in Finding of Fact 47. Rejected in Findings of Fact 47, 106, 107, 108. Adopted in Finding of Fact 48. 111-122. Rejected in Findings of Fact 63, 64, 65, and otherwise irrelevant and cumulative. Rejected in Findings of Fact 68, 70, 71. Adopted in Findings of Fact 29, 70. Adopted in Finding of Fact 78. Adopted in Finding of Fact 78. Rejected as unnecessary. Adopted in Finding of Fact 80. Rejected as cumulative. Adopted in Finding of Fact 81. 131-133. Rejected as cumulative and unnecessary. 134. Adopted in Findings of Fact 78, 83, 98, 99. 135-138. Rejected in Findings of Fact 50, 56, 57, 59, 61, 62, 65, 71, 108. Rejected as unnecessary. Adopted in part in Finding of Fact 59, but otherwise rejected as unnecessary and not based competent substantial evidence. 141-146. Rejected as unnecessary and irrelevant. 147. Rejected as not based on competent substantial evidence. 148. Rejected in Findings of Fact 50, 56, 57, 59, 61, 62, 65, 71, 108. Rejected in Finding of Fact 75. Rejected in Finding of Fact 73. Rejected in Findings of Fact 72-75. 152-153. Adopted in part in Findings of Fact 89, 90 but otherwise rejected as unnecessary. 154-155. Rejected as irrelevant and unnecessary. Adopted and rejected in part in Finding of Fact 72. Rejected as irrelevant. Adopted in Finding of Fact 42. Adopted in Finding of Fact 107. Rejected as unnecessary and speculative. Rejected in Findings of Fact 87, 89. Rejected as not based on competent substantial evidence. Rejected as irrelevant and not based on competent substantial evidence. Rejected as irrelevant and unnecessary. Rejected as not based on competent substantial evidence. 166-169. Rejected as irrelevant. 170-171. Rejected in Finding of Fact 106. 172. Rejected as unnecessary. 173-174. Rejected as not based on competent substantial evidence and irrelevant. 175. Rejected as unnecessary. 176-177. Adopted in Finding of Fact 82. Rejected as unnecessary. Adopted in Finding of Fact 82. Adopted in Finding of Fact 83. Rejected as unnecessary. Rejected in Findings of Fact 91-94. Adopted and rejected in part in Finding of Fact 83. Rejected in Findings of Fact 84-95. 185-189. Adopted in part in Finding of Fact 85 but otherwise rejected as unnecessary. Rejected in Finding of Fact 97. Adopted in Finding of Fact 85. Rejected as unnecessary. Rejected as unnecessary. 194-195. Rejected in Finding of Fact 92. 196-197. Rejected as unnecessary. 198. Adopted in Finding of Fact 85. 199-200. Rejected as unnecessary and irrelevant. Adopted in Finding of Fact 86 and rejected in Finding of Fact 93. Adopted in Finding of Fact 86. Adopted in Finding of Fact 87. Rejected as not based on competent substantial evidence. Rejected in Findings of Fact 89, 90, 91. Adopted in Finding of Fact,.88. Adopted in Finding of Fact 88, but rejected in Finding of Fact 94. Adopted in Finding of Fact 88. Rejected as unnecessary and cumulative. Adopted in Finding of Fact 89. Adopted in Finding of Fact 42. Adopted in Finding of fact 43. 213-217. Rejected as unnecessary and irrelevant. 218. Adopted in part in Finding of Fact 97, but otherwise rejected as irrelevant. 219-220. Rejected as unnecessary. Rejected as cumulative. Rejected as irrelevant and unnecessary. Adopted in Finding of Fact 98. 224-233. Missing. Adopted in Finding of Fact 98. Adopted in part in Finding of Fact 24, but otherwise rejected as cumulative and unnecessary. 236-241. Adopted in Finding of Fact 28. Adopted in Finding of Fact 96. Adopted in Finding of Fact 24. Rejected as irrelevant and unnecessary. 245-246. Adopted in Finding of Fact 100. 247. Adopted in Finding of Fact 102. 248-250. Adopted in Findings of Fact 100, 101. 251. Adopted in Findings of Fact 100-102. 252-253. Adopted in Finding of Fact 101 Adopted in Finding of Fact 102. Adopted in Findings of Fact 100-102. 256-259. Rejected as cumulative. 260. Rejected as irrelevant. Rulings on Department of Health and Rehabilitative Services Proposed Findings of Fact: Adopted in Finding of Fact 34. Adopted in Finding of Fact 35. Adopted in Finding of Fact 36. Adopted in Finding of Fact 37. Adopted in Finding of Fact 38. Adopted in Finding of Fact 39. Rejected as cumulative. Adopted in Finding of Fact 40. Adopted in Finding of Fact 41. Adopted in Finding of Fact 42. Adopted in Finding of Fact 43. Adopted in Finding of Fact 44. Rejected as cumulative. Rejected as cumulative. Adopted in Finding of Fact 45. Adopted in Finding of Fact 46. Adopted in Finding of Fact 47. Adopted in Finding of Fact 47. Adopted in Finding of Fact 48. Rulings on University Community Hospital's Proposed Findings of Fact: Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Findings of Fact 19, 20. Adopted in part in Finding of Fact 21. Adopted in Finding of Fact 49. Rejected as unnecessary and cumulative. Adopted in Findings of Fact 19, 20. Adopted in Findings of Fact 37, 48. Adopted in Findings of Fact 50, 56. Adopted in Findings of Fact 51, 52, 57. Adopted in Finding of Fact 59. Adopted in Finding of Fact 61. 13-14. Rejected as unnecessary. 15. Adopted in Finding of Fact 58, but otherwise rejected as irrelevant and unnecessary. 16-17. Adopted; in Findings of Fact 63-65. 18. Rejected as irrelevant 19-21. Adopted in Findings of Fact 68-71. Adopted in part in Finding of Fact 29. Adopted in Finding of Fact 16. Adopted in Findings of Fact 72, 76, 77, 104. Adopted in Findings of Fact 56, 81. Adopted in Findings of Fact 80, 81 and otherwise rejected as not based on competent substantial evidence. 27-35. Adopted in Findings of Fact 85-94 but otherwise rejected, as cumulative and unnecessary. 36-38. Adopted in Findings of Fact 85, 94. 39-40. Adopted in Findings of Fact 88, 94. Adopted in Finding of Fact 94. Adopted in Finding of Fact 92. Adopted in Finding of Fact 73. 44-49. Adopted in Findings of Fact 96, 97 but otherwise rejected as cumulative, irrelevant and not based on competent substantial evidence. Adopted in Finding of Fact 6. Rejected as cumulative and unnecessary. Rejected as irrelevant. Adopted in Finding of Fact 105. Adopted in Finding of Fact 69. Adopted in Finding of Fact 69, but otherwise rejected as unnecessary and cumulative. Adopted in Findings of Fact 68, 95, 97. Adopted in Finding of Fact 60. Adopted in Finding of Fact 35. Adopted in Findings of Fact 38, 50. Adopted in Finding of Fact 55, but otherwise rejected as irrelevant and unnecessary. Rejected as cumulative. Adopted in Finding of Fact 53. 63-65. Rejected as cumulative and unnecessary. Adopted in Finding of Fact 104. Adopted in Finding of Fact 105. Adopted in Findings of Fact 82, 83. Adopted in Finding of Fact 105. 70-71. Rejected as unnecessary and cumulative. 72. Adopted in part in Finding of Fact 106, but otherwise rejected as cumulative and unnecessary. 73-76. Adopted in part in Findings of Fact 96, 97, but otherwise rejected as cumulative and unnecessary. Adopted in part in Finding of Fact 95, but otherwise rejected as unnecessary. Adopted in part in Findings of Fact 91, 97, but otherwise rejected as unnecessary. Rejected as cumulative. Adopted in Findings of Fact 1,1, 107. Adopted in Finding of Fact 30. 82-84. Adopted-in Finding of Fact 107, but otherwise rejected as cumulative. Rulings on Tampa General's Proposed Findings of Fact: Adopted in Finding of Fact 17. Adopted in Finding of Fact 18. Adopted in Finding of Fact 19. Adopted in Finding of Fact 22. Adopted in Finding of Fact 21. Rejected as unnecessary. Adopted in part in Finding of Fact 33, but otherwise rejected as unnecessary. 8-9. Adopted in part in Finding of Fact 1, but otherwise rejected as unnecessary. Adopted in Findings of Fact 1, 3. Adopted in Finding of Fact 4. 12-13. Rejected as irrelevant. Adopted in part in Findings of Fact 82, 83, but otherwise rejected as unnecessary. Adopted in Findings of Fact 7, 29, 57, 69, 105. Adopted in Finding of Fact 5. Adopted in Finding of Fact 11. Adopted in Finding of Fact 13. Adopted in Finding of Fact 12. Adopted in Findings of Fact 10, 72. Adopted in Findings of Fact 10, 11, 12, 13, 15, 72. Adopted in Findings of Fact 49, 50. Adopted in part in Findings of Fact 10, 11, 12, 13, 15, 50, 51, 52, 53, 54 and 72, but otherwise rejected as cumulative. Adopted in Finding of Fact 29. 25-26. Rejected as irrelevant. 27. Adopted in Finding of Fact 16. 28-35. Adopted in part in Findings of Fact 17, 21, 24, 25, 28, but otherwise rejected as unnecessary. Adopted in Findings of Fact 83, 97. Adopted in Findings of Fact 34, 35. Rejected as cumulative and unnecessary. 39-44. Adopted in Findings of Fact 63-65, but otherwise rejected as cumulative and unnecessary. 45-51. Adopted in Findings of Fact 66-71, but otherwise rejected as cumulative and unnecessary. 52-55. Adopted in Findings of Fact 36, 38, 50, 56, but otherwise rejected as unnecessary and cumulative. Adopted in Findings of Fact 12, 104. Adopted in Findings of Fact 14, 16, 72, 106. Adopted in Finding of Fact 106. Adopted in Findings of Fact 105, 106, 107. Adopted in Finding of Fact 108. Rejected as cumulative and unnecessary. Adopted in Finding of Fact 74. Rejected as irrelevant and unnecessary. 64-65. Adopted in part in Finding of Fact 74, but otherwise rejected as irrelevant. Adopted in Finding of Fact 16 Adopted in Finding of Fact 73. 68-69. Rejected as unnecessary and without specific citations to the record. 70-73. Adopted in Findings of Fact 91, 94, 95, 97, but otherwise rejected as cumulative and unnecessary. Adopted in part in Findings of Fact 81, 97. Adopted in part in Finding of Fact 57, but otherwise rejected as cumulative. Adopted in Finding of Fact 107. 77-83. Adopted in Finding of Fact 108, but otherwise rejected as cumulative and irrelevant. Rulings on Town and Country's Proposed Findings of Fact: 1-3. Introductory matters. Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Findings of Fact 19, 20. Adopted in Finding of Fact 21. Adopted in Findings of Fact 24, 25. Adopted in Finding of Fact 56. Rejected as cumulative and unnecessary. Rejected as unnecessary. 12-16. Adopted in Findings of Fact 87, 89, 90. 17. Adopted in Finding of Fact 8. 18-24. Rejected as unnecessary and cumulative. 25-26. Adopted in Finding of Fact 67, but otherwise rejected as unnecessary. 27. Rejected as without citation to the record and cumulative. 28-37. Adopted in Findings of Fact 86, 93, but otherwise rejected as unnecessary and cumulative. 38-39. Adopted in Findings of Fact 106-108. Rejected as without citation to record and unnecessary. Adopted in Findings of Fact 15, 50, 51. 42-44. Adopted in Finding of Fact 51. Adopted in Finding of Fact 52. Adopted in Findings of Fact 4, 12, 38. Adopted in Findings of Fact 11, 13, 72. 48. Rejected as without citation to the record and unnecessary 49-51. Rejected as unnecessary and not based on competent substantial evidence Adopted in Finding of Fact 50. Rejected as without citation to the record and unnecessary. 54-55. Adopted in Finding of Fact 53. 56. Adopted in Finding of Fact 54. 57-58. Adopted in Finding of Fact 58. Rejected as cumulative. Adopted in Finding of Fact 60. Rejected as unnecessary. Adopted in Findings of Fact 5, 60. 63-64. Rejected as cumulative and unnecessary. Adopted in Findings of Fact 29, 70. Adopted in Finding of Fact 29. Adopted in Findings of Fact 71, 95. 68-70. Adopted in Findings of Fact 45, 63-65. Rejected as irrelevant and unnecessary. Adopted in Findings of Fact 103-108. 73-74. Adopted in Finding of Fact 16. 75-77. Adopted in Findings of Fact 82, 83. Rejected as unnecessary. Adopted in Finding of Fact 82. Rejected as cumulative. Rejected as irrelevant. Adopted in Finding of Fact 105. Adopted in Finding of Fact 82. Rejected in Finding of Fact 99. 85-92. Rejected in Finding of Fact 98, and otherwise rejected as not based on competent substantial evidence. 93-96. Rejected in Finding of Fact 99, and otherwise rejected as not based on competent substantial evidence. Adopted in Finding of Fact 97. Rejected as unnecessary. 99-103. Rejected as cumulative and unnecessary. 104-105. Adopted in Findings of Fact 95, 97, but otherwise rejected as unnecessary and cumulative. Adopted in Finding of Fact 95. Rejected as cumulative. Adopted in Finding of Fact 95. Adopted in Finding of Fact 97. Adopted in Findings of Fact 95, 97. 111-114. Rejected as cumulative and unnecessary. 115-116. Adopted in Finding of Fact 97, but otherwise rejected as cumulative and unnecessary. 117. Rejected as without citations to the record. 118-119. Adopted in Finding of Fact 88. 120-122. Adopted in Finding of Fact 94. 123. Rejected as cumulative and without citations to the record. 124-128. Adopted in Finding of Fact 92, but otherwise rejected as cumulative and unnecessary. 129-130. Rejected as not based on competent substantial evidence. 131-133. Rejected as cumulative and unnecessary. 134. Adopted in Finding of Fact 14. Rulings on Humana's Proposed Findings of Fact: 1-2. Adopted in Finding of Fact 1. Adopted in Finding of Fact 17. Adopted in Finding of Fact 19. Adopted in Finding of Fact 21. Adopted in Finding of Fact 24. Adopted in Finding of Fact 25. 8-10. Adopted in Finding of Fact 16. 11-12. Adopted in Finding of Fact 3. 13-14. Rejected as cumulative. 15-17. Adopted in Finding of Fact 50. Adopted in Findings of Fact 53, 54. Adopted in Finding of Fact 51. 20-21. Adopted in Finding of Fact 52. Adopted in Finding of Fact 51. Adopted in Finding of Fact 55. 24-41. Adopted in Findings of Fact 45, 63-65, but otherwise rejected as unnecessary and cumulative. 42-46. Adopted in Finding of Fact 29. Adopted in Finding of Fact 21. Rejected as unnecessary. Adopted in part in Finding of Fact 59. 50-51. Adopted in Finding of Fact 60. 52. Rejected as unnecessary. 53-55. Adopted in Findings of Fact 85-95, but otherwise rejected as unnecessary. 56-57. Adopted in Finding of Fact 90. 58-66. Adopted in Findings of Fact 86, 93, but otherwise rejected as unnecessary. 67-71. Adopted in Findings of Fact 87, 89, 90, 91. Adopted in Finding of Fact 88. Rejected in Finding of Fact 88. Rejected as cumulative. 75-77. Adopted in Finding of Fact 94, but otherwise rejected as unnecessary. 78-81. Adopted in Finding of Fact 92. 82-85. Rejected as unnecessary. 86-92. Adopted in part in Finding of Fact 97, but otherwise rejected as cumulative and unnecessary. 93-94. Adopted in Finding of Fact 82, but otherwise rejected as unnecessary. 95. Adopted and Rejected in part in Findings of Fact 4, 12. 96-97. Adopted in Findings of Fact 105, 106, 107. Rejected as cumulative. Adopted in Finding of Fact 61. 100-101. Adopted in Findings of Fact 63-65. 102. Adopted in Finding of Fact 50. 103-104. Rejected as cumulative. 105-107. Adopted in Findings of Fact 57, 107, 108. 108-109. Adopted in Finding of Fact 60. 110-114. Adopted in Findings of Fact 82, 83, but otherwise rejected as cumulative and unnecessary. Adopted in Finding of Fact 108. Rejected as unnecessary. Rejected as cumulative. 118-119. Adopted in Finding of Fact 62. 120-121. Adopted in Findings of Fact 72-75. 122. Adopted in Findings of Fact 50, 56. 123-125. Rejected in Finding of Fact 28 and as not based competent substantial evidence. COPIES FURNISHED: Ivan Wood, Esquire WOOD, LUCKSINGER & EPSTEIN The Park in Houston Center 1221 Lamar Street, Suite 1400 Houston, Texas 77010 Howard J. Hochman, Esquire Southeast Financial Center 200 S. Biscayne Blvd, Suite 3700 Miami, Florida 33131 James C. Hauser, Esquire Post Office Box 1876 Tallahassee, Florida 32302 John Radey, Esquire 101 North Monroe Street, Suite 1000 Tallahassee, Florida 32302 Cynthia Tunnicliff, Esquire Post Office Box 190 Tallahassee, Florida 32302 Douglas L. Mannheimer, Esquire Post Office Drawer 11300 Tallahassee, Florida 32302 Theodore E. Mack, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Michael J. Cherniga, Esquire Post Office Drawer 1838 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact In its 1969 legislative session, the Florida Legislature enacted Section 409.266, Florida Statutes, entitled "Medical Assistance for the Needy," providing the original state legislative basis and authority for Florida's entry into the Medicaid program. Section 409.266(2), Florida Statutes, as enacted, authorized the Florida Department of Social Services or any other department that the Governor might designate to: Enter into such agreement with other state agencies or any agency of the federal government and accept such duties with respect to social welfare or public aid as may be necessary to implement the provisions of subsection (1) and to qualify for federal aid including compliance with provisions of Public Law 86-778 and the "Social Security Amendments of 1965" [estab- lishing Title XIX of the Social Security Act] Section 409.266(3), Florida Statutes, as enacted, stated that: The Department is authorized and directed to prepare and operate a program and budget in order to implement and comply with the provisions of public law 86-778 and the "Social Security Amendments of 1965." No provisions of Florida law other than Section 409.266, Florida Statutes, as enacted, authorized any agency to perform any function specifically to implement the Medicaid program. The State of Florida formally commenced participation in the Medicaid program effective January 1, 1970. At all times pertinent to this controversy, respondent, Florida Department of Health and Rehabilitative Services or its predecessor agencies (referred to as "HRS"), has been and continues to be the "State Agency" identified in 42 U.S.C. Section 1396a(a)(5), and charged under Section 409.266, Florida Statutes, as amended, with the formulation of a State Plan for Medical Assistance ("State Plan"), 42 U.S.C. Section 1396a, and with the ongoing responsibility for the administration of the Medicaid program in the State of Florida. Since Florida's entry into the Medicaid program in 1970, HRS has been authorized essentially to "[e]nter into such agreements with appropriate agents, other State agencies, or any agency of the Federal Government and accept such duties in respect to social welfare or public aid as may be necessary or needed to implement the provisions of Title XIX of the Social Security Act pertaining to medical assistance." Section 409.266(2)(a), Fla. Stat., as amended. HRS has never been authorized to enter into any agreements, accept any duties, or perform any functions with respect to the Medicaid program that are in contravention of or not authorized by Title XIX of the Social Security Act and implementing federal regulations and requirements. As a prerequisite for Florida's entry into the Medicaid program, HRS prepared and filed with the United States Department of Health, Education, and Welfare ("HEW") a State Plan, pursuant to Title XIX of the Social Security Act, and pursuant to its delegated legislative authority set forth in Section 409.266(2)(a), Florida Statutes. (In May, 1980, HEW was redesignated the United States Department of Health and Human Services, but for purposes of this action both shall be referred to as HEW.) C.W. Hollingsworth was the HRS official who had the responsibility for supervising the preparation, the filing, and for obtaining the approval of HEW of Florida's initial State Plan. Florida's initial State Plan was approved by HEW effective January 1, 1970. At the time that Florida received approval of its initial State Plan, Title XIX of the Social Security Act required state plans to provide for the payment of the reasonable cost of inpatient hospital services. At the time that Florida received approval of its initial State Plan, HEW regulations governing reimbursement for inpatient hospital services under Medicaid required the State Plan to provide for reimbursement of Medicaid inpatient hospital services furnished by those hospitals also participating in the Medicare program, applying the same standards, cost reimbursement principles, and methods of cost apportionment used in computing reimbursement to such hospitals under Medicare. 45 C.F.R. Section 250.30(a), and (b), 34 Fed. Reg. 1244 (January 25, 1969). At the time that Florida entered the Medicaid program, Medicare cost reimbursement principles in effect governing reimbursement for the cost of inpatient hospital services required payment of a participating hospital's actual and reasonable costs of providing such services to Medicare beneficiaries, and, moreover, that such payment be made on the basis of the hospital's current costs rather than upon the costs of a prior period or upon a fixed negotiated rate. 42 U.S.C. Section 1395x(v)(1)(A); 20 C.F.R. Sections 405.451(c)(2), 405.402(a) [later renumbered 42 C.F.R. Section 405.451(c)(2) and Section 405.402(a)]. Such Medicare principles and standards also provided for interim payments to be made to the hospital during its fiscal year. At the conclusions of the subject fiscal year, the hospital was required to file a cost report wherein the hospital included all of its costs of providing covered inpatient services to Medicare beneficiaries. A settlement or "retroactive adjustment" process then was required to reconcile the amount of interim payments received by the hospital during the fiscal period with its allowable costs incurred during that period. If the hospital had been overpaid during the year, it was required to refund the amount of that overpayment to the Medicare program. Conversely, if the hospital had been underpaid during the year, the Medicare program was required to make an additional payment to the hospital, retroactively, in the amount of the underpayment. 20 C.F.R. Sections 405.402(b)(2), 405.451(b)(2). Essentially the same Medicare principles and standards governing reimbursement of inpatient hospital services described in the two preceding paragraphs have been in effect at all times pertinent to this controversy. 42 C.F.R. Section 405.401, et seq. Florida's approved State Plan as of January 1, 1970, governing reimbursement of inpatient hospital services under the Medicaid program, committed HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The only versions of Florida's State Plan provisions that have been approved by HEW and that have governed HRS's reimbursement of inpatient hospital services prior to July 1, 1981, each commit HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. Attached as an appendix to the recommended order is the form agreement drafted with the supervision of C.W. Hollingsworth, which has been in use from January 1, 1970, until July 1, 1981. From the inception of the Florida Medicaid program, and as a prerequisite for participation therein, a hospital has been required to execute a copy of the form agreement. A hospital may not participate in the Medicaid program without having executed such an agreement, nor may it propose any amendments thereto. The intent and effect of the form agreement is to require HRS to reimburse hospitals that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. The form agreement requires HRS to compute a percentage allowance in lieu of the retroactive adjustments ("percentage allowances") in determining the rates that hospitals will be paid for providing inpatient hospital services to Medicaid patients. The form agreement requires HRS to compute a new percentage allowance each year based on hospital cost trends. The meanings of the terms "allowance in lieu of retroactive adjustments" in all pertinent state plans and "percentage allowance for the year in lieu of retroactive payment adjustment" contained in the form agreement are identical. In drafting the form agreement HRS intended that the "percentage allowance for the year in lieu of retroactive payment adjustment" be set at a level sufficient to ensure that hospitals participating in the Medicaid program would be reimbursed their "reasonable costs" of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards. At all times pertinent to this controversy, participating hospitals, like petitioner, have been reimbursed by HRS for inpatient hospital services provided to Medicaid patients in the following manner: Within ninety (90) days following the close of its fiscal year, the partici- pating hospital files a Form 2551 or 2552 Annual Statement of Reimbursable Costs, as applicable, with both Blue Cross of Florida, Inc., the major fiscal intermediary respon- sible for the administration of Part A of the federal Medicare program in the State of Florida, and with HRS. This document, also referred to as a "cost report" details various hospital and financial statistical data relating to the patient care activities engaged in by the hospital during the sub- ject fiscal period. Upon receipt of the participating hospital's cost report for a fiscal period, HRS makes an initial determination based upon Medicare cost reimbursement principles and standards of the hospital's total allow- able inpatient costs, charges, and total patient days during the subject fiscal period, and then determines an inpatient per diem reimbursement rate for the period. To the inpatient per diem reimburse- ment rate is then added a percentage allow- ance in lieu of making any further retroactive corrective adjustments in reimbursement which might have been due the hospital applicable to the reporting period. The adjusted inpa- tient per diem reimbursement rate is applied prospectively, and remains in effect until further adjustments in the rate are required. If HRS determines that total inpa- tient Medicaid reimbursement to a partici- pating hospital during a fiscal period exceeds the hospital's allowable and rea- sonable costs of rendering such covered inpatient services applying Medicare cost reimbursement principles and standards, then the hospital is required to remit to HRS the amount of such overpayment. If, however, HRS determines that the total inpatient Medicaid reimbursement received by a participating hospital is less than the hospital's actual and reason- able costs of rendering such covered inpa- tient services to Medicaid patients during the period applying Medicare cost reimburse- ment principles and standards, no further retroactive corrective adjustments are made; provided, however, that should an overpayment occur in a fiscal period, it may be offset and applied retroactively against an under- payment to the participating hospital which occurred during the next preceding fiscal period only. HRS has used the following "percentage allowances" in determining Medicaid reimbursement rates for inpatient hospital services: a. January 1, 1970 - June 30, 1972 . . . 12 percent July 1, 1972 - approximately March 30, 1976 . . . . . . . . . . 9 percent Approximately March 31, 1976 - June 30, 1981 . . . . . . . . . . . 6 percent Since at least January 1, 1976, HRS has not recomputed the "percentage allowance" on an annual basis. Since at least January 1, 1976, HRS has not based the "percentage allowance" that it has applied in determining Medicaid inpatient hospital reimbursement rates upon hospital cost trends. HRS has used no technical methodology based upon hospital cost trends to develop any of the "percentage allowances." At least since January 1, 1974, HRS's "percentage allowances" have been less than the corresponding average annual increases in the costs incurred by Florida hospitals of providing inpatient hospital services. Prior to March 30, 1976, all of HRS's published regulations addressing reimbursement of participating hospitals for their costs of providing inpatient hospital services to Medicaid patients required HRS to reimburse such hospitals in accordance with Medicare cost reimbursement principles and standards. In certain internal documents, Petitioner's Exhibits P-44 and P-12, HRS states that the average costs of providing inpatient hospital services in the State of Florida rose at least 18 percent during calendar year 1975. In November, 1975, the Secretary of HRS was informed by HRS officials that HRS faced a projected budgetary deficit for its fiscal year ended June 30, 1976. A decision memorandum presented options to the HRS Secretary for reducing the projected deficit. Among such options presented to and approved by the HRS Secretary was to reduce the "percentage allowance" from 9 percent to 6 percent. The reduction of the "percentage allowance" by HRS from 9 percent to 6 percent was effected in response to HRS's projected deficit, and was not based upon an analysis of hospital cost trends. HRS incorporated the 6 percent "percentage allowance" into its administrative rules which were published on March 30, 1976. In response to objections raised by the Florida Hospital Association to the reduction in the percentage allowance by HRS from 9 percent to 6 percent, HRS officials reexamined that reduction. During HRS's reexamination of its previous "percentage allowance" reduction, HRS was aware of and acknowledged the fact that Florida hospital costs were increasing at an average annual rate in excess of both the earlier 9 percent and the resulting 6 percent "percentage allowance." In a memorandum dated September 13, 1976, from HRS official Charles Hall to the Secretary of HRS, Petitioner's Exhibit P-45, Charles Hall informed the Secretary that the methods and standards then used by HRS to reimburse participating hospitals for their costs of providing inpatient hospital services to Medicaid patients was out of compliance with federal requirements. Charles Hall further informed the Secretary that the reason HRS had not theretofore been cited by HEW for noncompliance was the manner in which the Florida State Plan had been drafted, i.e., that the State Plan required HRS to reimburse hospitals under Medicaid for the reasonable costs that they would have been reimbursed applying Medicare cost reimbursement principles and standards. In a letter dated September 20, 1976, Petitioner's Exhibit P-31, HEW informed HRS that HEW had received a complaint from the Florida Hospital Association that the methods HRS was actually using to reimburse hospitals for the costs of providing inpatient hospital services to Medicaid patients were in violation of Federal Regulation 45 C.F.R. Section 250.30(a). A proposed amendment to Florida's State Plan submitted by HRS to HEW in November, 1976, Petitioner's Exhibit P-49, if approved, would have allowed HRS to reimburse hospitals for the cost of providing inpatient hospital services to Medicaid patients under methods differing from Medicare cost reimbursement principles and standards (an "alternative plan"). "Alternative plans" have been permitted under applicable federal regulations since October 21, 1974. A state participating in the Medicaid program may elect to establish an "alternative plan, but may not implement such "alternative plan" without the prior written approval of HEW. Florida has not had in effect an "alternative plan" of reimbursing participating hospitals for their costs of providing inpatient hospital services to Medicaid patients that was formally approved by HEW at any time prior to July 1, 1981. By letter dated January 7, 1977, Petitioner's Exhibit P-32, HEW notified HRS that it had formally cited HRS for noncompliance with federal regulations governing reimbursement of inpatient hospital services under Medicaid. HRS acknowledged their noncompliance and between November, 1976, and October 30, 1977, HRS attempted to revise its proposed "alternative plan" on at least two occasions in an attempt to obtain HEW approval. In October, 1977, HRS withdrew its proposed "alternative plan" then pending with HEW. HRS then contracted with an outside consultant, Alexander Grant & Company, to assist in the formulation of a new "alternative plan" proposal. In January, 1978, Alexander Grant & Company delivered its draft of an "alternative plan" to HRS. In October, 1978, HRS submitted a draft "alternative plan" to HEW for review and comment, and HEW expected HRS to submit a formal "alternative plan" proposal to HEW for its approval by November 1, 1978. HRS did not submit the formal "alternative plan" proposal to HEW until August 12, 1980. In a letter dated February 21, 1979, from Richard Morris, HEW Regional Medicaid Director, Region IV, to United States Senator Richard Stone of Florida, Mr. Morris advised Senator Stone: For more than two years the Florida Medicaid Program has not met Federal Requirements for inpatient hospital services reimbursement. Their payment methodology under-reimburses certain hospitals year after year. The pros- pective interim per diem rate paid by Florida to hospitals includes a percentage allowance to cover increased costs during the forthcom- ing year that is consistently less than increased costs in some hospitals. If the payments are less than costs, the difference is not reimbursed. This results in underpay- ments. We have worked closely with Florida to develop an acceptable alternative system that would meet Federal requirements. To date, Florida has not implemented such a system despite having received informal HEW agreement on a draft plan developed more than a year ago. It is our understanding that this alternative plan is not a high priority item at this time. We will continue to work with HRS staff to secure Florida compliance re- garding this requirement. Petitioner's Exhibit P-46. Since August 12, 1980, HRS has submitted to HEW for its approval at least four more versions of an "alternative plan." Petitioner's Exhibits P-120, P-121, P-123, and P-152. Each of these versions was approved by the Secretary of HRS, and HRS believes each to comply with applicable Florida law. Mr. Erwin Bodo, Ph.D., was and is the HRS official responsible for the development and drafting of Exhibits P-120, P-121, P-123, and P-152. In June, 1981, HEW approved an "alternative plan" for the State of Florida (Exhibit P-152), and such "alternative plan" was implemented effective July 1, 1981. Until July 1, 1981, HRS continued to use the 6 percent "percentage allowance" to compute inpatient hospital reimbursement under Medicaid. Even after its repeal, Rule 10C-7.39(6), Florida Administrative Code, is applied by respondent in calculating reimbursement for Medicaid services provided between March 30, 1976, and July 1, 1981. From November 20, 1976, until July 1, 1981--the period in which HRS was attempting to secure HEW approval for an alternative plan--HRS was aware that the costs of inpatient hospital se vices were increasing at an average annual rate in excess of the 6 percent "percentage allowance." From September 1, 1976, through July 1, 1981, HRS has been out of compliance with its a proved State Plan provisions, and HEW regulations governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals-- including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. Since the quarter ending December 31, 1976, until July 1, 1981, HEW has formally cited HRS as being in contravention of its approved State Plan provisions, and HEW (now HHS) regulations, governing reimbursement for inpatient hospital services under Medicaid because HRS's methods for reimbursing hospitals for the cost of providing those services to Medicaid patients have resulted in a substantial number of hospitals--including petitioner--being reimbursed at a lower rate than the hospitals would have been reimbursed applying Medicare cost reimbursement principles and standards. PAN AMERICAN HOSPITAL CORPORATION Petitioner, Pan American Hospital Corporation, is a not-for-profit corporation, duly organized and existing under the laws of the State of Florida. Petitioner is a tax-exempt organization as determined by the Internal Revenue Service pursuant to Section 501(c)(3) of the Internal Revenue Code of 1954, as amended. At all times pertinent to this controversy, petitioner has operated and continues to operate a duly licensed 146-bed, short-term acute care general hospital, located at 5959 Northwest Seventh Street, Miami, Florida 33126. At all times pertinent to this controversy, petitioner has been and continues to be a duly certified provider of inpatient hospital services, eligible to participate in the Florida Medicaid program since January 27, 1974. The appendix to this recommended order is a true and correct copy of the "Participation Agreement" entered into between petitioner and HRS, whereunder, inter alia, petitioner became eligible to receive payment from HRS for covered inpatient hospital services provided to Medicaid patients. At all times pertinent to this controversy, petitioner has been a certified "provider of services" participating in the Medicare program. During the fiscal periods in dispute in this action, petitioner did provide covered inpatient hospital services to Medicaid patients, and became eligible for payment by HRS of its reasonable costs of providing such services, determined in accordance with Medicare cost reimbursement principles and standards. With respect to each of the fiscal periods in dispute in this action, petitioner timely filed all cost reports and other financial data with HRS or its contracting agents, including Blue Cross of Florida, Inc., to enable HRS to determine petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients. During each of the fiscal periods in dispute in this action, to reimburse petitioner for its reasonable costs of providing covered inpatient hospital services to Medicaid patients, determined in accordance with applicable Medicare cost reimbursement principles and standards. Such costs incurred by petitioner were reasonable, necessary, related to patient care, and less than customary charges within the meaning of those Medicare principles and standards. With respect to each of the fiscal periods in dispute, HRS and/or its contracting agent, Blue Cross of Florida, Inc., reviewed and audited the cost reports filed by petitioner, and as a result of such review and audits set or adjusted, as applicable, the Medicaid inpatient per diem reimbursement rate at which petitioner would be paid during the next succeeding fiscal period or until that rate was again adjusted. On May 3, 1976, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1975, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period in respect to those services. During its fiscal year ended March 31, 1975, petitioner received $86,469 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On February 14, 1979, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1976, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1976, petitioner received $199,328 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On September 29, 1978, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1977, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1977, petitioner received $6,083 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On March 13, 1980, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1978, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1978, petitioner received $178,506 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On June 30, 1981, a Notice of Program Reimbursement was issued to petitioner applicable to its fiscal year ended March 31, 1979, and setting forth the audited amount of petitioner's reasonable costs of providing covered inpatient hospital services to Medicaid patients during such period and the amount of interim Medicaid payments made to petitioner by HRS during the period with respect to those services. During its fiscal year ended March 31, 1979, petitioner received $302,347 less than its reasonable costs of providing covered inpatient hospital services to Medicaid patients, and no retroactive corrective adjustment has been made in connection with such underpayment. On or about June 30, 1981, the audit of petitioner's Medicaid cost report for the period ending March 31, 1980, was concluded. A formal Notice of Program Reimbursement had not been issued at the time of the hearing. MOTION TO DISMISS DENIED Respondent contends that these proceedings should be summarily concluded "for failure to join an indispensable party," viz., the Federal Government, because it "is Respondent's intention, should any liability result from this action, to make a claim for federal financial participation as to approximately fifty-nine percent of such liability . . . [See generally] 42 U.S.C. Section 1320b-2(a)(2)." Motion to Dismiss, p. 2. This contention must fail for several reasons. Neither the Division of Administrative Hearings nor the Department of Health and Rehabilitative Services has the power or means to bring an unwilling party into a proceeding instituted pursuant to Section 120.57, Florida Statutes (1979). At most, "the presiding officer may, upon motion of a party, or upon his own initiative enter an order requiring that the absent person be notified of the proceeding and be given an opportunity to be joined as a party of record." Rule 28-5.107, Florida Administrative Code. There exists no administrative writ for joining a non-petitioning party in a substantial interest proceeding in the way judicial process can join a party within a court's jurisdiction in a pending judicial proceeding. The two cases respondent cites in support of its motion, Bannon v. Trammell, 118 So. 167 (Fla. 1928), and Heisler v. Florida Mortgage Title and Bonding Co., 142 So.2d 242 (Fla. 1932), are inapposite, because both cases involve judicial, not administrative proceedings. HRS does not really seek joinder of the United States Department of Health and Human Services; instead, HRS argues that the petition should be dismissed and the controversy relegated to federal court because it "believes that the Secretary [of the United States Department of Health and Human Services] will not succumb voluntarily to the jurisdiction of the Division of Administrative Hearings." 2/ Motion to Dismiss, p. 3. Participation by the Department of Health and Human Services in the present proceedings would have been welcomed, as the Hearing Officer indicated at the prehearing conference, but neither the Department itself nor either of the parties requested such participation. In any event, petitioner is seeking additional reimbursement from respondent HRS, not from any federal agency. Medicaid providers like petitioner do not receive any funds directly from the Department of Health and Human Services. Since "[t]he contracts involved are clearly between the hospitals and [H]RS [, n]o third party requirement appears," Montana Deaconess Hospital v. Department of Social and Rehabilitation Services, 538 P.2d 1021, 1024 (Mont. 1975), and the Department of Health and Human Services is not an indispensable party to administrative proceedings arising out of contracts between HRS and Medicaid providers. HRS protests that it might find itself making additional reimbursement to petitioner, yet be deprived of the federal component of such expenditures. See 42 U.S.C. Section 1396b. This prospect is an unlikely one in view of the fact that the Department of Health, Education, and Welfare has repeatedly cited HRS for noncompliance because of under-reimbursements to Medicaid providers. If the Federal Government fails to contribute to any additional reimbursement, it would not be for want of a forum in which HRS could present its claim. There are administrative mechanisms within the Department of Health and Human Services, including its Grant Appeals Board. See 42 U.S.C. Section 1116(d). After exhaustion of administrative remedies, HRS would have access to the courts, if necessary. See Georgia v. Califano, 446 F. Supp. 404 (N.D. Ga. 1977). There is no danger that HRS will be deprived of an opportunity to litigate any question about federal contribution because the United States Department of Health and Human Services is not a party to the present proceedings. MOTION FOR PARTIAL SUMMARY JUDGMENT Petitioner's motion for partial summary judgment was amended ore tenus at the final hearing to delete "and FYE March 31, 1981," on page 1 of the motion, after leave to amend was granted, without objection by respondent. As a technical matter, the motion is a misnomer, since substantial interest proceedings before the Division of Administrative Hearings eventuate in recommended orders, not judgments. But, petitioner's contention that there is no genuine issue as to any material fact is well founded. The parties have so stipulated. (T. 70; Mr. Weiss's letter of November 12, 1981.) At the time the petition was filed, the parties contemplated numerous factual disputes which, however, had all been resolved by the time of final hearing through the commendable efforts of counsel. In the absence of a disputed issue of material fact, the Administrative Procedure Act provides for informal proceedings pursuant to Section 120.57(2), Florida Statutes (1979), "[u]nless otherwise agreed." Section 120.57, Florida Statutes (1979). On December 7, 1981, the parties filed their Stipulation and Agreement to proceed pursuant to Section 120.57(1), Florida Statutes (1979), notwithstanding the absence of any factual dispute. DISPUTE COGNIZABLE In the present case, as in Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), there "can be no doubt that the Department's contract . . . calls for agency action which potentially affects . . . substantial interests," 363 So.2d at 812, of the petitioning contractor. Cf. Solar Energy Control, Inc. v. State Department of Health and Rehabilitative Services, 377 So.2d 746 (Fla 1st DCA 1979) (reh. den. 1980) (disappointed bidder substantially affected). See Section 120.52(10)(a), Florida Statutes (1979). In Graham Contracting, Inc. v. Department of General Services, 363 So.2d 810 (Fla. 1st DCA 1978), the petitioner sought "additional money and construction time under its contract," 363 So.2d at 813, with a state agency. The court found "no difficulty . . . with sovereign immunity," 363 So.2d at 813, and held that a contractor with a state agency could invoke the Administrative Procedure Act in order to enforce its contract, even though the contract purported to establish another method for settling the contract dispute. A clause in the contract at issue in the Graham Contracting case contemplated agency action outside the parameters of Chapter 120, Florida Statutes, in resolving certain disputes under the contract. In contrast, each of the successive contracts on which petitioner predicates its claim in the present case contains the following provision: "The hospital agrees to comply with the rules, policies, and procedures required by [HRS's] Division of Family Services for this program." Among the rules thus incorporated by reference into the contracts between petitioner and respondent is Rule 10C-7.35, Florida Administrative Code, which provides: An official representative of a facility participating in Medicaid, . . . or . . . representative, may appeal Medicaid Program policy, procedure, or administrative rulings whenever the provider feels there has been an unfair, illegal or inappropriate action by the Department affecting them or their facility. (1) Provider Appeals The Administrative Procedures [sic] Act, Chapter 120 F.S., provides for provider appeals and hearings, which are conducted by the Division of Administrative Hearings in the Department of Administration. The spe- cific rule relative to the appeal and hearing process is Chapter 28-3 [sic] of the Florida Administrative Rules. . . Since, by reference to Rule 10C-7.35, Florida Administrative Code, the contract in the present case incorporates Chapter 120, Florida Statutes, the applicability of the Administrative Procedure Act is even clearer here than in the Graham Contracting case. THE MERITS The parties have stipulated that petitioner has been reimbursed by respondent less than its reasonable costs of providing covered inpatient hospital services over the time period in question. Under-reimbursement of this kind is not authorized by Section 409.266, Florida Statutes, which incorporates the federal statutory requirement that hospitals which, like petitioner, provide Medicaid services be reimbursed by respondent for reasonable costs incurred, in accordance with an approved State Plan, and not some lesser amount. 42 U.S.C. Section 1396a(a)(13)(B), Pub. L. 89-97, Section 121(a) redesignated 42 U.S.C. Section 1396a(a)(13)(D), Pub. L. 90-248, Section 224(a). All Florida "State Plan provisions . . . approved by HEW and . . . govern[ing] HRS's reimbursement of inpatient hospital services prior to July 1, 1981, commit HRS to reimburse hospitals [like petitioner] that also participated in the Medicare program for their reasonable costs of providing inpatient hospital services to Medicaid patients, applying Medicare cost reimbursement principles and standards." Prehearing Stipulation, Paragraph 19. The record is clear. Respondent consistently reimbursed petitioner less than its reasonable costs of providing inpatient hospital services in order to cut its own expenses and in doing so jeopardized the entire Medicaid program. This cannot be condoned, even though respondent acted under color of law, viz., Rule 10C-7.39(6), Florida Administrative Code [now repealed and declared invalid; see Pan American Hospital Corporation v. Department of Health and Rehabilitative Services, No. 81-1480R (DOAH; December 4, 1981)], and even though a lack of money or, at least, an apparent shortage was the reason for respondent's parsimony. The question remains, however, whether this dereliction on respondent's part should inure to the benefit of petitioner; and the answer turns on the construction of the agreement between the parties attached as an appendix to this order. Petitioner argues cogently that public policy has clearly been enunciated by statute to be full reimbursement for costs reasonably incurred by Medicaid providers in furnishing covered services. There can be no clearer expression of public policy than a statute duly enacted; and the reasons behind the full reimbursement policy are themselves compelling: to deal fairly with the providers, not only for fairness sake, but also to assure their participation in the program, and to remove any temptation to give indigent patients substandard care, inter alia. But, there is surely an overriding public policy requiring that a contractor with state government who voluntarily agrees to forego a claim against the public fisc be held to that agreement in administrative proceedings like these. The form agreement between petitioner and respondent, which they renewed annually, states: "It is understood that reimbursement will be made on the basis of an interim payment plan in the form of a per diem cost rate, plus a percentage allowance for the year in lieu of retroactive payment adjustment. However, . . . in the event the hospital did not receive its audited reasonable costs in the year prior to the current year then the hospital may deduct from the refund the prior year deficiency." (Emphasis supplied.) The agreement thus contemplated under-reimbursement and specified the method for recoupment, if there was to be any. Any "retroactive payment adjustment," as the result of administrative proceedings or otherwise, is specifically ruled out. Elsewhere in the parties' agreement is found this language: [T]he fiscal responsibility of [respondent's] Division of Family Services is subjected [sic] to the appropriation and availability of funds to the Medicaid program . . . by the state legislature every year." The terms of the agreement make clear that under-reimbursement is not in itself a breach. Respondent's failure to compute annually a "new percentage . . . based on hospital cost trends" was attributable to a shortage of funds; and the agreement provided that respondent's "fiscal responsibility" was subject to just such a shortage. In sum, provisions of the agreement petitioner voluntarily entered into with respondent operate in much the same way as a liquidated damages clause and preclude the relief petitioner seeks. Petitioner's invocation of the parol evidence rule is unavailing. Even if the stipulated facts outside the four corners of the form agreement are looked to, the course of dealing between these parties buttresses the construction outlined above. The fact that respondent may have settled a case it litigated against another hospital in some other way, as asserted by petitioner, is technically irrelevant.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent deny the prayer of the petitioner for additional reimbursement. DONE AND ENTERED this 10th day of December, 1981, in Tallahassee, Florida. ROBERT T. BENTON II 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 10th day of December, 1981.
The Issue Whether Certificate of Need Application Number 9099, filed by Columbia/JFK Medical Center, L.P., d/b/a JFK Medical Center, to convert 20 skilled nursing beds to 20 acute care beds, meets the criteria for approval.
Findings Of Fact Columbia/JFK Medical Center, L.P., d/b/a JFK Medical Center (JFK) is the applicant for Certificate of Need (CON) Number 9099 to convert a 20-bed hospital-based skilled nursing unit (SNU) to 20 general acute care or medical/surgical beds. The construction cost is approximately $117,000, of the total project cost of $151,668. JFK is an affiliate of Columbia Hospital System (Columbia), the largest for-profit hospital chain in the United States. The Agency for Health Care Administration (AHCA) is the state agency which administers the CON program for health care services and facilities in Florida. JFK is a 343-bed hospital located in Atlantis, Florida, in Palm Beach County, AHCA District 9, Subdistrict 5. Pursuant to a previously approved CON, an additional 24 acute care beds are under construction at JFK, along with 12 CON-exempt observation beds, at a cost of approximately $4 million. In August 1998, JFK was allowed to convert 10 substance abuse beds to 10 acute care beds. Other acute care hospitals in District 9 include the Petitioners: St. Mary's Hospital, Inc. (St. Mary's), and Good Samaritan Hospital, Inc. (Good Samaritan), which are located in northern Palm Beach County, AHCA District 9, Subdistrict 4, approximately 11 and 9 miles, respectively, from JFK. The remaining hospitals in District 9, Subdistrict 5, in southern Palm Beach County, and their approximate distances from JFK are as follows: Wellington (8 miles), Bethesda (7 miles), West Boca (18 miles), Delray (12 miles), and Boca Raton Community (17 miles). JFK and Delray are both "cardiac" hospitals offering open heart surgery services, with active emergency rooms, and more elderly patients in their respective service areas. The parties stipulated to the following facts: JFK's CON application was submitted in the Agency for Health Care Administration ("AHCA") second hospital batching cycle in 1998, and was the only acute care bed application submitted from acute care bed District 9, Subdistrict 5. AHCA noticed its decision to approve JFK's CON 9099 by publication in Volume 25, Number 1, Florida Administrative Weekly, dated January 8, 1999. Good Samaritan and St. Mary's each timely filed a Petition for Formal Administrative Proceeding challenging approval of JFK's CON application. By Order dated March 17, 1999, the cases arising from those petitions were consolidated for the purposes of all future proceedings. JFK has the ability to provide quality care and has a record of providing quality of care. §408.035(1)((c), Fla. Stat. JFK's CON application, at Schedule 6 and otherwise, projects all necessary staff positions and adequate numbers of staff, and projects sufficient salary and related compensation. See, §408.035(1)(h). JFK has available the resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. See, §408.035(1)(h), Fla. Stat. JFK's CON application proposal is financially feasible in the immediate term. §408.035(1)(i), Fla. Stat. JFK's CON application proposal is financially feasible in the long term, except, Good Samaritan and St. Mary's contend as it relates to projected utilization. §408.035(1)(i), Fla. Stat. Schedules 9 and 10 and the architectural schematics in JFK's application are complete and satisfy all applicable CON application requirements. Schedule 1 in the application is complete, reasonable, and not at issue. JFK's proposed construction/renovation design, costs, and methods of construction/renovation are reasonable and satisfy all applicable requirements. See, §408.035(1)(m), Fla. Stat. JFK's CON application satisfies all minimum application content requirements in Section 408.037(1), Florida Statutes; except that Good Samaritan and St. Mary's contend that subsection (1)(a), is not satisfied. JFK certified that it will license and operate the facility if its CON proposal is approved. See, §408.037(2), Fla. Stat. JFK's Letter of Intent was timely filed and legally sufficient. See, §408.039(2)(a) and (c), Fla. Stat. Good Samaritan does not provide cardiac catheterization services, angioplasty, or open heart surgery. St. Mary's does not provide elective angioplasty or open heart surgery services. JFK is one of the hospitals to which Good Samaritan and St. Mary's transfer patients in need of inpatient cardiac catheterization services, angioplasty, and open heart surgery. Neither Good Samaritan nor St. Mary's have any present plans to apply for CON approval to add skilled nursing beds or acute care beds. The parties also stipulated that Subsections 408.035(1)(e), (f), (g), (h) - as related to training health professionals, (j), (k), and (2), Florida Statutes, are not at issue or not applicable to this proposal. For the batching cycle in which JFK applied for CON Number 9099, AHCA published a fixed need of zero for District 9, acute care subdistrict 5. In the absence of a numeric need for additional acute care beds in the subdistrict, JFK relied on not normal circumstances to support the need for its proposal, including the following: delays in admitting patients arriving through the emergency room to inpatient beds, delays in moving patients from surgery to recovery to acute care beds, and seasonal variations in occupancy exceeding optimal levels and, at times, exceeding 100%. Good Samaritan and St. Mary's oppose JFK's CON application. In general, these Petitioners claimed that other problems cause overcrowding in the emergency room at JFK, that the type of beds proposed will not be appropriate for the needs of most patients, that "seasonality" is not unique to or as extreme at JFK, and that a hospital-specific occupancy level below that set by rule cannot constitute a special or not normal circumstance. If JFK achieves the projected utilization, experts for Good Samaritan and St. Mary's also projected adverse financial consequences for those hospitals. Rule 59C-1.038(5) - special circumstances During the hearing, the parties stipulated that the numeric need for new acute care beds in the subdistrict is zero. The rule for determining numeric need also includes the following provision: (5) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if the hospital's average occupancy rate based on inpatient utilization of all licensed acute care beds is at or exceeds 80 percent. The determination of the average occupancy rate shall be made based on the average 12 months occupancy rate for the reporting period specified in section (4). Proposals for additional beds submitted by facilities qualifying under this subsection shall be reviewed in context with the applicable review criteria in section 408.035, F.S. The applicable time period for the special circumstances provision is calendar year 1997. JFK's reported acute care occupancy was 76.29% in 1997, and 79.7% in 1998, not 80%, as required by the rule. JFK and AHCA take the position that other special circumstances may, nevertheless, be and have been the basis for the approval of additional acute care beds. JFK also maintained that the reported average occupancy levels understated the demand for and actual use of its inpatient beds. Due to seasonal fluctuations caused by the influx of winter residents, JFK reached or exceeded 100% occupancy on 5 or 6 days, exceeded 80% occupancy on 20 days, and averaged 90.9% occupancy, in January 1999. In February 1999, the average was 96.5%, but was over 100% on 8 days, and over 90% on 25 days. In March 1999, the average occupancy was 90.1%, but exceeded 100% on one day, and 90% on 17 days. In recent years, the "season" also has extended into more months, from approximately Thanksgiving to Easter or Passover. It also includes flu season which disproportionately affects the health of the elderly. JFK also demonstrated that occupancy varies based on the day of the week, generally highest on Mondays, Tuesdays, and Wednesdays and lowest on weekends. JFK's acute care beds were also occupied by patients who were not classified as 24-hour medical/surgical inpatients. Others included observation and 23-hour patients, covered by Medicare or health maintenance organizations (HMOs). Some of those patients were classified initially as outpatients to lower reimbursement rates, but routinely subsequently reclassified and admitted as inpatients. In fact, during the applicable time period for determining occupancy, Medicare allowed patients to be classified as outpatients for up to 72-hour hospital stays. Subsequently, Medicare reduced the allowable hospital stay to 48 hours for all "outpatients," according to AHCA's expert witness. When not classified as inpatients, patients are not counted in average occupancy rates which are based solely on the admitted inpatient census, counted each midnight. For example, in February 1999, the average daily census for 23-hour patients was 10.8 patients, which, when combined with 24-hour patients, results in an average occupancy of 99.7% for the month. Due to the Medicare classification system, some but not all of the so- called 23-hour patients affect the accuracy of the inpatient utilization data. According to AHCA's expert witness, however, numeric need cannot be determined because of JFK's failure to quantify the number of Medicare patients who actually affected the acute care bed utilization. The 23-hour or observation patients may use, but do not require CON-approved and licensed acute care beds. Instead, those patients may be held in either non-CON, non-licensed "observation" beds or in licensed acute care beds. As AHCA determined, to the extent that 23-hour patients in reality stayed longer, and adversely affected JFK's ability to accommodate acute care patients, their presence can be considered to determine if special circumstances exist. Combining 24-hour and 23-hour patients, JFK experienced an occupancy rate of 80% in 1996, and 85.7% in 1997. While some of the 23-hour patients were, in fact, outpatients who should not be considered and others stayed from 24 hours up to 3 days and should be considered, JFK's proportion of Medicare services is important to determining whether special circumstances based on acute care utilization exist. With 74% of all JFK patients in the Medicare category, but without having exact numbers, it is more reasonable than not to conclude that the occupancy level is between the range of 76.29% for acute care only and 85.7% for acute care and 23-hour patients. A reasonable inference is that JFK achieved at least 80% occupancy of patients who were in reality inpatients in its acute care beds in 1997. The expert health planner for the Petitioners conceded that bed availability declines, capacity is a constraint, and high occupancy becomes a barrier to service at some level between 80 and 83% occupancy. In a prior CON filed on behalf of Good Samaritan for a 4-bed addition to an 11-bed neonatal intensive care unit (NICU), the same expert asserted that 76% occupancy was a reasonable utilization standard. That occupancy level was based on the desire to maintain 95% bed availability. An exact comparison of the occupancy levels in this and the NICU case, however, is impossible due to the small size of the NICU unit and the fact that the applicant met the occupancy level in that rule for special circumstances. The statistical data on the number patients actually using acute care beds at JFK in excess of 24-hours despite their classification, supports its claim of overcrowding. Emergency Room Conditions JFK described overcrowding in its emergency department as another special circumstance creating a need for additional acute care beds. The emergency room at JFK has 37 bays each with a bed and another 15 to 17 spaces used for stretchers. Eighteen parking spaces are reserved for ambulances in front of the emergency department. It is not uncommon for a patient to wait in the JFK emergency room up to 24 hours after being admitted to the hospital, before being moved to an acute care bed. In February 1999, after having converted 10 substance abuse beds to acute care beds in October 1998, JFK still provided 234 patient days of acute care in the emergency department. The waiting time for patients to receive a bed after being admitted through the emergency department ranged from 10 hours to 5 days in the winter, and from an average of 6 hours up to 24 hours in the summer. While JFK claims that the quality of care is not adversely affected, it does note that patient privacy and comfort are compromised due to the noise, lights, activity, and lack of space for visitors in the emergency room. JFK's patients tend to be older and sicker than the average. As a result, more patients arriving at its emergency room are admitted to the hospital. In the winter of 1998, JFK was holding up to 35 acute care inpatients at a time in the emergency room. Nationally, from 15% to 20% of emergency room patients are admitted to hospitals. By contrast, almost twice that number, or one-third of JFK's emergency room patients become admitted inpatients. Emergency room admissions are also a substantial number of total admissions at JFK. In calendar year 1998, slightly more than 65% of all inpatient admissions to JFK arrived through the emergency room, most by ambulance. Ambulance arrivals at any particular hospital are often dictated by the patient's condition, with unstable patients directed to the nearest hospital. Once patients are stabilized in the emergency room at JFK, those requiring obstetric, pediatric, or psychiatric admissions are transferred from JFK which does not provide those inpatient services. Emergency room patients in need of acute care services provided at JFK, like the neonates at issue in the prior Good Samaritan application, are unlikely candidates for transfer The emergency room at JFK receives up to 50,000 patient visits a year, up from approximately 32,000 annual visits five years ago. JFK operates one of the largest and busiest emergency departments in Palm Beach County. Due to overcrowding in the emergency department at Delray Hospital, in southern Palm Beach County, patients have been diverted to other facilities, including JFK. In terms of square footage, JFK's emergency room does not meet the standards to accommodate the 52 to 54 bays and stretchers and related activities. JFK lacks adequate space for support services which should also be available in the emergency department. The Petitioners asserted that enlarging the emergency room will alleviate its problems. JFK demonstrated, however, that regardless of the physical size of the emergency room, optimal patient care requires more capacity to transfer patients faster to acute care beds outside the emergency department. Conditions in Other Departments Of 343 operational beds at JFK at the time of the final hearing, 290 were monitored or telemetry acute care beds, 30 were critical care beds, and 23 were non-monitored, non-critical care beds. Most of the monitored beds are in rooms equipped with antennae to transmit data from electrodes and monitors when attached to patients. When monitoring is not necessary, the same beds are used by regular acute care patients. The large number of monitored beds located throughout the hospital in various units reflects JFK's largely elderly population and specialization in cardiology. In 1998, 820 inpatient cardiac catheterizations (caths) were performed at JFK. Petitioners Good Samaritan and St. Mary's transferred 90 and 28 of those cath patients, respectively to JFK. In the first five months of 1999, 449 caths were performed, including procedures on 35 patients transferred from Good Samaritan and 16 from St. Mary's. Cath lab patients are held in the lab longer after their procedures when beds are not available in cardiac or the post- anesthesia care units. The Petitioners suggested that cath lab patients could be placed in a 12-bed holding area added to the lab in July 1999; however, that space was expected to be filled by patients being prepared for caths. Open heart surgery is available in Palm Beach County at three hospitals, Delray, JFK and Palm Beach Gardens. Patients admitted to JFK for other primary diagnoses often require cardiac monitoring even though they are not in a cardiac unit. The additional 24 beds which were under construction at the time of the final hearing will also be monitored beds. The 20 beds at issue in this proceeding will not be monitored. The Petitioners questioned whether non-monitored beds will alleviate overcrowding at JFK where so many patients require monitoring. JFK physicians in various specialties testified concerning conditions in other areas of the hospital. A nephrologist, who consults primarily in intensive care units, described the backlog and delay in moving patients from intensive care into acute care beds. A cardiologist noted that patients are taking telemetry beds they do not need because there is no other place to put them. A general and vascular surgeon described the overcrowding as a problem with the ability to move patients from more to less intensive care when appropriate. Elective surgeries have been delayed to be sure that patients will have beds following surgery. The evidence presented by JFK supports the conclusion that the additional acute care beds will assist in alleviating overcrowding in other hospital units, including backlogs in the existing monitored beds. JFK has established as factual bases for special circumstances that its high occupancy exceeds the optimal much of the year, aggravated by seasonal fluctuations; that it has relatively large emergency room admissions over which it has no control; and that its intensive care and monitored beds are not available when needed. Number of Beds Needed With the conversion, in 1998, of 10 substance abuse beds to acute care beds and the 1999 construction of 24 of 40 additional beds requested by JFK, the number of licensed and approved beds at JFK increased to 367. In addition, with CON- exemption, JFK has added observation beds. As a result of AHCA's partial approval of the previous JFK request for new construction and due to unfavorable changes in Medicare reimbursement policies for hospital-based SNUs, JFK now seeks this 20-bed conversion. JFK ceased operating the SNU in October 1998, after Medicare reimbursement changed to a system based on resource utilization groups (RUGs). JFK was unable to operate the SNU without financial losses, that is, unable to cover its patient care costs under the RUGs system. The proposal to convert the beds back to acute care, as they were previously licensed will allow JFK to reconnect existing oxygen lines in the walls and to use the beds for acute care patients. Although Good Samaritan and St. Mary's suggested that JFK can profitably operate a SNU, there was no evidence presented other than its previous occupancy levels which were very high, and the fact that Columbia is not closing all of its SNUs. The Petitioners also question JFK's ability to use its SNU beds for acute care and/or observation patients. AHCA, however, took the position that acute care licensure is required for beds in which acute care patients are routinely treated. Otherwise, the agency would not have accurate data on utilization, bed inventory, and the projected need. In order to demonstrate the number of beds needed, JFK's expert used historical increases in admissions. Some admissions data was skewed because the parent corporation, Columbia, closed Palm Beach Regional in 1996, and consolidated its activities at JFK. Excluding from consideration the increase of 3,707 admissions from 1995 to 1996, JFK's expert considered approximately 800 as reasonable to assume as an average annual increase. That represents roughly the mid-point between the 1996 to 1997 increase of 605, and the 1997 to 1998 increase of 1,076 admissions. A projected increase of 800 admissions for an average 5-day length of stay would result in an increase of 4,000 patient days a year which, at 80% occupancy, justifies an increase of 14 beds a year. Considering the closing of Palm Beach Regional, the number of beds in the subdistrict will have been reduced by 170. At the hearing, JFK's expert also relied on 3.3% annual patient day increase to project the number of beds needed, having experienced an increase of 5.8% from 1997 to 1998. Using this methodology, JFK projected a need for 20 additional acute care beds by 2002, and over 40 more by 2004. That methodology assumed patient growth in the excess of population growth and, necessarily, an increase in market share. JFK's market share increased in its primary service area from approximately 19% in 1993 to 27% in 1997. But the market share also slightly declined from 1997 to 1998. AHCA's methodology for determining the number of beds needed was based on the entire population of Palm Beach County, not just the more elderly southern area. It also assumed that JFK's market share would remain constant. Using this more conservative approach than JFK, AHCA projected a need for 383 acute care beds, or 16 beds added to the current total of 367 licensed and approved beds, at an optimal 75% occupancy by the year 2004. AHCA relied on a projection of 104,959 total patient days in 2004. Using the same methodology, JFK's expert determined that total projected patient days for 1998 would have been 94,225, but the actual total was 98,126 patient days. AHCA's methodology underestimates the number of beds needed, but does confirm that more than 16 additional beds will be needed by 2004. AHCA's reliance on 75% as an optimal future occupancy level as compared to the hospital-specific historical level of 80% was criticized, as was the use of the year 2004 as a planning horizon. The rule requires 80% occupancy for a prior reporting period and does not establish any planning horizon. Good Samaritan and St. Mary's used 80% occupancy in their analysis of bed need. At 80% occupancy, Petitioners projected an average daily census of 265 patients in 331 beds in 2001, or 268 patients in 334 beds in 2002, and 270 patients in 358 beds in 2003, as compared to 367 existing and approved beds. The Petitioners' projection is an underestimate of bed-need based on the actual average daily census of 269 patients in 1998. The Petitioners' methodology erroneously projects a need for fewer licensed beds than JFK has currently, despite the special circumstances evincing overcrowding. At 80% occupancy, based on the special circumstances rule, a hospital exceeds the optimal level and needs more beds. But, according to the Petitioners, 80% is a future occupancy target for the appropriate planning horizon of 2002. As AHCA's expert noted, it is illogical to use 80% as both optimal and as an indication of the need for additional beds. Similarly, it is not reasonable to use a planning horizon which coincides with the time when more beds will be needed. Therefore, the use of 75% for the five-year planning horizon of 2004 is a reasonable optimal target, as contrasted to the need for additional beds when 80% occupancy is reached at some future time beyond the planning horizon. AHCA's underestimate of need at 16 more beds by 2004, and JFK's overestimate of need at 40 more beds by 2004, support the conclusion that the requested addition of 20 beds in this application is in a reasonably conservative range. Rule 59C-1.038(6)(a) and Subsection 408.035(l)(n) - service and commitment to medically indigent; and Rule 59C-1.038(6)(b) - conversion of beds Rule 59C-1.038(6), Florida Administrative Code, also includes the following criteria: Priority consideration for initiation of new acute care services of capital expenditures shall be given to applicants with documented history of providing services to medically indigent patients or a commitment to do so. When there are competing applications within a subdistrict, priority consideration shall be given to the applications which meet the need for additional acute care beds in a particular service through the conversion of existing underutilized beds. Subsection (a) of the Rule, overlaps with District 9 health plan allocation factor one, which must be considered pursuant to Subsection 408.035(1)(a), and with the explicit criterion of Subsection 408.035(1)(n), Florida Statutes. All three require a commitment to and record of service to Medicaid, indigent and/or handicapped patients. JFK agreed to have its CON conditioned on 5% of the care given in the 20 new beds to Medicaid and charity patients. The commitment for the 24 beds under construction is 3% for Medicaid and charity patients. If charity patients are defined as those with family incomes equal to or below 150% of federal poverty guidelines, JFK provided $2.9 million in charity care in calendar year 1998, and $720,000 as of April for 1999. JFK provided an additional 3% to 5% in Medicaid care. The Medicaid total includes Palm Beach County Health Care District patients, who are also called welfare patients. The charity care provided by JFK is equivalent to approximately 1% of its gross revenue. JFK explained its relatively low Medicaid care as a function of its relatively limited services for people covered by Medicaid, particularly, the young who utilize obstetrics and pediatrics. JFK pointed to the differing demographics in Palm Beach County with more elderly, who have Medicare coverage, located in its primary service area. Excluding pediatric and obstetric care, Medicaid covered 6.7% of patients in southern Palm Beach County as compared to 16.3% in northern Palm Beach County. Of the Medicaid patients, 2.9% in the southern area as compared to 6% in the northern area are adults. On this basis, JFK established the adequacy of its historical Medicaid and indigent care, and of its proposed commitment. Subsection (6)(b) of Rule 59C-1.038 is inapplicable when, as in this case, there are not competing applications to compare. Subsection 408.035(1)(a) - other local health plan factors and Subsection 408.035(1)(o) - continuum of care District 9 allocation factor 2, favoring cost containment practices, is enhanced by the proposed conversion rather than the new construction of beds. Within the Columbia group of hospitals, there is an effort to avoid unnecessary duplications of services. JFK caters to an elderly population and to providing cardiology, neurology, and oncology services. Columbia's Palms West provides pediatric and obstetric care. Another Columbia facility in Palm Beach County, Columbia Hospital, specializes in inpatient psychiatric services. The elimination of the hospital-based SNU at JFK does eliminate one level of care in the system, contrary to the criteria. District 9 health plan allocation factor 3 requires favorable consideration of plans, like JFK's, to convert unused or underutilized beds. In this case, the JFK SNU was highly utilized but unprofitable. There is no evidence that alternative placements in free-standing nursing homes are inappropriate or unavailable. Minor inefficiencies result from the time lag for transfers during which skilled nursing patients remain in acute care beds. To some extent, the inefficiencies were already occurring while JFK operated the SNU due to its high average census of 18 or 19 patients in a total of 20 SNU beds. Those inefficiencies are outweighed by the low cost conversion of 20 beds for $117,000, particularly as compared to its prior 24-bed construction for $4 million. In general, the applicable local health plan allocation factors support the approval of the JFK application. Rule 59C-1.030 - needs access for low income, minorities, handicapped, elderly, Medicaid, Medicare, indigent or other medically underserved In general, the proposal is intended to increase access to JFK's services by decreasing waiting times for admissions. The services are used by a large number of elderly patients, who are primarily covered by Medicare. JFK demonstrated that the population in its service area also tends to be wealthier than the population in northern Palm Beach County. Medicaid and indigent access to care at JFK is consistent and reasonable given the demographic data presented. Access for elderly Medicare patients will be enhanced by the proposal. Subsection 408.035(1)(b) - accessibility, availability, appropriateness, and adequacy of like and existing services Good Samaritan and St. Mary's argue that hospitals below 75% occupancy are available alternatives to JFK's patients. Yet, those facilities are not viable alternatives for unstable patients admitted through the emergency room. Neither is it appropriate to transfer patients who need services provided at JFK. JFK does not allege that any problems exist at other facilities, but only that it is affected by special circumstances. From January to June 1998, the closest hospitals to JFK experienced wide-ranging occupancy levels from 92% at Delray, the hospital with services most comparable to those at JFK, to 57% at Bethesda, and 47% at Wellington. The wide range in occupancy rate is further indication of uniqueness of the need for patients to access services available only at Delray and JFK. Subsection 408.035(1)(d) - outpatient care or other alternatives Admitted inpatients have no alternatives to their need for acute care beds. Subsection 408.035(1)(h) - alternative use of resources and accessibility for residents The continued use of the 20 beds as a SNU was suggested as an alternative. As noted, however, that proved to be financially unprofitable at JFK, in comparison to the low cost conversion to acute care beds. AHCA reasonably rejected the idea that of the beds being designated "observation" beds when used for acute care patients. In addition, in 1996, JFK estimated the cost of moving patients from bed to bed in the hospital due to the shortage of appropriate beds, when needed, at up to $1 million. This project is intended to meet a facility-specific need based on the demand for services at JFK from patients who cannot reasonably initially be sent or subsequently transferred to other hospitals. As such, JFK's additional beds do not meet the criterion for accessibility for all residents of the district. Subsection 408.035(1)(i) - utilization and long-term financial feasibility Good Samaritan and St. Mary's contend that JFK's proposal includes unrealistically high utilization projections for the additional 20 beds. Using 98,000 patient days in 1998, which excludes any days attributable to skilled nursing beds, total utilization projected in the second year is 78.4%. For the additional 20 beds, projected utilization is 77.4%. The expert for Good Samaritan and St. Mary's disagreed with the allocation of patient days between the existing and additional beds. If 80% utilization is assigned to existing 367 beds, as he suggested, then the average annual occupancy of the 20 new beds would be only 50%. The financial break-even point for the project, however, is 50 to 75 patient days, or 10 to 15 patients with average lengths of stay of 5 days. Therefore, even with the lower projected occupancy of 50%, or an average of 10 beds at any time, the project is financially feasible in the long-term. In reality, a separate allocation of patient days to the 20 new beds is somewhat arbitrary. It is also less important than total projected utilization, since the 20 beds do not represent a separate unit in which specialized services will be provided. The additional beds will become a part of the total medical/surgical inventory. By demonstrating that there will be sufficient total occupancy to exceed the financial break-even point in the newly converted beds regardless of the allocation of patient days to any particular bed, JFK demonstrated the long- term financial feasibility of the proposal for CON 9099. Subsection 408.035(1)(l) - impact on costs; effects of competition If the JFK proposal is approved, Good Samaritan anticipates a loss of 255 patients, or 1,392 patient days, which is equivalent to a financial loss of over $1.5 million. St. Mary's anticipates losses of 158 patients or 973 patient days, and in excess of $1 million. Both hospitals were experiencing overall operating losses in 1999. But, the estimates of financial losses for both hospitals did not take into consideration all of the expense reductions associated with serving fewer patients. Excluding pediatrics and obstetrics, which are not available at JFK, JFK's overlapping service areas with Good Samaritan and St. Mary's are minimal. Good Samaritan's market share in JFK's primary service area is 4.8%, and St. Mary's is 9.3%. Pediatrics and obstetrics contribute 30.7% of total patients at Good Samaritan, and 49.5% at St. Mary's. Physician overlap among the hospitals is also limited. Although 357 doctors admitted patients to JFK and 464 to St. Mary's in the first two quarters of 1998, the number of overlapping doctors was 28. With a total of 379 admitting doctors at Good Samaritan for the same period of time, only 21 were included in JFK's 357 admitting physicians. In general, doctors in the northern Palm Beach County acute care subdistrict seldom admit patients to hospitals in the southern subdistrict, and vice versa. The absence of overlapping medical staff also reflected the differences in the services. Most of the top twenty doctors who admitted patients to Good Samaritan and St. Mary's were obstetricians and pediatricians. When obstetricians and pediatricians are excluded, the number of overlapping doctors for JFK and Good Samaritan is reduced to 15, and for JFK and St. Mary's to 22. In addition to providing different services, to different areas of the County, doctors who practice primarily in one or the other subdistrict served patients in different payor classification mixes. In 1997, JFK's patients were 74% Medicare, consistent with the fact that a larger percentage of elderly patients live in JFK's service area. By contrast, Medicare patients were approximately 48% of the total at Good Samaritan, and 32% of the total at St. Mary's. Historically, the addition of acute care beds at JFK has not affected other hospitals in the district or even the same acute care subdistrict. After the conversion of 10 substance abuse beds in the fall of 1998, the acute care patient days at every hospital in the same subdistrict increased in early 1999 over comparable periods of time in 1998. The assumption that additional beds at JFK will take patients from other hospitals includes the assumption that JFK will draw a larger share of an incremental increase of patients. The assumption is, in other words, that all patients will be new to JFK. The expert health planner for Good Samaritan and St. Mary's conceded that facility-specific overcrowding can justify projections that the additional beds will accommodate the existing census plus growth attributable to increasing population, and will not generate new patients. The expert assumed, nevertheless that from 1478 to 1486 new patients (depending on whether the length of stay is rounded off) would be associated with JFK's project. From that total, the proportional losses allocated were 255 patients from Good Samaritan and 158 patients from St. Mary's. Another underlying assumption increase is that all of the new patients would go to other hospitals if JFK does not add 20 acute care beds. That assumption suggests that all of the patients could receive the services they need at the other facilities, which is not supported by the facts or current utilization data. More likely, with the addition of beds due to overcrowding, some patients will come from the existing hospital census at JFK. It is not reasonable to assume that JFK will have all new patients, nor that all patients could be treated at other hospitals in the absence of JFK's expansion. The proportion of emergency room admissions at JFK is reasonably expected to continue. Patients who arrive at JFK requiring open heart surgery, angioplasties or invasive cardiac caths are reasonably expected to continue to receive those services at JFK, including patients who are transferred to JFK from Good Samaritan and St. Mary's. Based on the failure to support the assumptions, and the differences in service areas, medical staff, specialties, and patient demographics, Good Samaritan and St. Mary's have not shown any adverse impact from the JFK proposal. On balance, considering the statutory and rule criteria for reviewing CON applications, JFK established, as a matter of fact, that it meets the special circumstance criteria related to emergency room admissions, pre- and post-surgical and intensive care backlogs, and average annual occupancy projections in excess of optimal levels.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED That a final order be entered issuing CON 9099 to convert 20 skilled nursing beds to 20 acute care beds at Columbia/JFK Medical Center, L.P., d/b/a JFK Medical Center, on condition that a minimum of 5% of new acute care patient days will be provided to Medicaid and charity patients. The file of the Division of Administrative Hearings, DOAH Case No. 99-0714 is hereby closed. DONE AND ENTERED this 7th day of April, 2000, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 7th day of April, 2000. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Richard A. Patterson, Esquire Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Thomas A. Sheehan, III, Esquire Moyle, Flanigan, Katz, Kolins, Raymond & Sheehan, P.A. Post Office Box 3888 West Palm Beach, Florida 33402 Stephen A. Ecenia, Esquire Thomas W. Konrad, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 Robert D. Newell, Jr., Esquire Newell & Terry, P.A. 817 North Gadsden Street Tallahassee, Florida 32303-6313
