Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: In the latter part of April, 1976, petitioner Ambulatory Surgical Center of West Palm Beach (hereinafter referred to as ASC) submitted its capital expenditure proposal to construct a freestanding ambulatory surgical center in West Palm Beach. The concept of ambulatory surgical care is approximately six or seven years old. It allows the patient to have surgery performed under general anesthesia in one day at an approximate savings of fifty percent. The patient goes to the facility the day before surgery, goes through laboratory tests, meets the anesthesiologist or other medical staff members, fills out insurance and other forms and then returns home. The next day, the surgical procedure is performed and the patient then goes home accompanied by a member of his family or a friend. The advantages of the system include more precise scheduling and less anxiety and stress for the patient. The petitioner's proposal is to occupy some 9,000 square feet on the first floor of a 33,000 square foot three story medical office building. Also to be located-on the first floor is a 1,000 square foot pharmacy, a 1,000 square foot restaurant and a 500 square foot clinical laboratory. The facility will encompass dressing rooms with lockers, five operating rooms -- one of which is to be used exclusively for dental surgery under general anesthesia -- and sixteen or seventeen recovery beds. ASC will have the same life support equipment and facilities as exist at a general hospital. Any doctor who is licensed by the State of Florida and on the staff of another hospital will be permitted to use the ASC facility. Petitioner's facility will accept all patients for treatment whether they be reimbursed by Medicare, Medicaid or other sources available at the state or county level. Some one hundred and twenty different surgical procedures are proposed to be offered at the ASC facility. Some fifty physicians in Palm Beach County were sent a questionnaire by one of the organizers of petitioner. The thirty-seven responses received indicated a weekly utilization rate of approximately sixty surgical procedures by the end of the fourth quarter of operation of petitioner's facility. On June 24, 1976, the Health Facilities Committee of the area Health Planning Council, Inc. (HPC) met to consider the petitioner's certificate of need request. By a vote of six to four, with one abstention, a motion to approve the facility failed. On the same date, the Board of Directors of the HPC voted nine to seven, with one abstention, to recommend approval of petitioner's proposal. The Board considered the fact that outpatient surgery departments were being planned for existing hospitals in the area and heard comments from proponents and opponents of the application. The Board further considered the factors supporting approval as set forth in the staff project review. These include: "1. Such a facility has the potential of lowering to a great extent the cost of patient health care by avoiding unnecessary hospital confinement; Such a service, both in terms of cost savings and utilization, have been endorsed by the HPC in its document entitled Acute Care General Hospitals, Long Range Growth Position Statement and Recommendations. In effect, this proposed service will provide a cost effective component to the area's existing health care system; Based on the manpower requirements, both from the standpoint of parti- cipating physicians and support per- sonnel, there appears to be both sufficient and appropriate manpower available to effectively operate the proposed services; and Based on a sample utilization survey, it appears that the proposed ASC will serve a population group large enough to provide a reasonable utilization level. At the same time, it is expected that this population group will be basically separate and distinct from the population group expected to be served by the OSD at the Palm Beach-Martin - County Medical Center." (Exhibit No. 11) Although Good Samaritan Hospital had been considering doing so since June of 1975, it actually opened its outpatient surgical department in early August of 1976. Being a hospital based facility, no certificate of need was required. The State Hospital Advisory Committee met on August 10, 1976, to consider petitioner's application. This Committee heard discussion from and directed questions to both the applicant and the intervenor-opponent. Letters from physicians in support of and in opposition to the application were considered. This committee, by a vote of five to zero with one abstention, voted to recommend that the application be denied. (Exhibit 6) By letter dated August 12, 1976, respondent notified petitioner that its capital expenditure proposal was not favorably considered for the following reasons: "1. Your proposed ambulatory surgical facility would be a duplication of facilities and services which are available in Good Samaritan Hospital which is within a block or two of the site of your facility. In addition, St. Nary's Hospital, approximately three (3) miles from your site, has ambulatory surgery capability. The charges you propose for surgical procedures are comparable to those of Good Samaritan Hospital, therefore, cost containment is not a real factor in this case. The fact that Medicaid virtually has eliminated the provision for paying for elective surgery for persons qualifying for care under this program. Under such restrictions, it appears that your proposed facility would not be necessary in terms of providing services to such persons. Petitioner was advised of its right to appeal this decision and petitioner timely requested a hearing on the matter. At its regular meeting on August 26, 1976, the Board of Directors of the HPC voted, by a vote of twenty-one of the twenty-two Board members present, to support petitioner's appeal. There are presently some 700 physicians in Palm Beach County. Some 265 of these doctors are on the staff of Good Samaritan Hospital, which is located on the same block as petitioner's proposed facility. Physicians not staffed at Good Samaritan are able to refer their patients for treatment by physicians staffed there. Good Samaritan has no black doctors on its staff, no podiatrists and no osteopaths. The only dentists allowed staffing privileges are those having two years of post graduate training. Good Samaritan, while it does some charity work, does not participate in the Medicare or Medicaid program, nor does it have any contract with the county to provide services for the indigent. It does have an emergency contract with Medicare. The actual amount of charity work performed is somewhat in dispute. While a figure in excess of $900,000.00 was given by the Administrator of Good Samaritan, it appears that a portion of this amount was uncollected bills. Approximately twenty percent of the procedures offered by Good Samaritan in its outpatient surgery department overlap with the procedures proposed to be offered by ASC. The patient costs of these procedures are substantially similar to those proposed by ASC. While the intervenor has had an outpatient clinic for some time now, it first began to offer general anesthetic surgical procedures on an outpatient basis in early August of 1976. Good Samaritan is currently performing about thirty such procedures per month, or six per week. While the intervenor's operating room is equipped to handle dental services under general anesthesia, it does not contain a dental chair. The evidence regarding other existing ambulatory or outpatient surgical centers or departments in the immediate area of petitioner's proposed facility is somewhat in dispute. While two hospital-based facilities, each twenty miles away, do exist, it is not clear whether St. Mary's Hospital located some three or four miles from petitioner and the intervenor actually has such a separate facility. It is clear that St. Mary's has the capabilities for such a facility. The Palm Beach County Social Services Department provides services for indigent persons in the county through the use of ad valorem tax monies. About ninety percent of the services performed are in the medical field. During the last fiscal year, the county's hospitalization budget for indigents was approximately $1,790,000.00. Amounts paid from September of 1975 through August of 1976 for short term hospitalizations were in excess of $19,400.00 for a total of 158 hospital days. (Exhibit No. 15) All of such procedures performed might have been done in an ambulatory facility. Substantially all of the procedures to be offered by ASC are performed for indigents in Palm Beach County if it is deemed necessary for the client. If the patient were able to undergo surgery and go home in the same day, the hospital per diem charge, which averages $160.00 per day, would be eliminated. The Director of the County Social Services is supporting petitioner's application for the reason that while a similar facility exists nearby -- Good Samaritan Hospital, such facility is not accessible for the indigent client. Dr. C.L. Brumback, Director of the Palm Beach County Health Department, affirmed that procedures to be offered by ASC could be provided to eligible county patients with payment available through the County Social Service Department or the County Health Department. (Exhibit No. 2). The issue of Medicaid reimbursement to an ambulatory surgical facility was somewhat in dispute during the earlier public hearings on petitioner's application. It appears that such reimbursement is presently limited to those services actually provided by a physician. The legislature decides on the services to be provided by line item appropriations, and presently physician service is a listed item while free standing outpatient clinics are not listed. The Florida Department of Health and Rehabilitative Serviced has expressed an interest in having ambulatory surgical care with adequate regulations and their legislative budget request for next year will reflect this interest. (Exhibit No. 3).
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that the determination of the Office of Community Medical Facilities to deny the petitioner's application for a certificate of need be REVERSED. Respectfully submitted and entered this 16th day of November, 1976, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: John H. French, Jr. P.O. Box 1752 Tallahassee, Florida 32302 Jon C. Moyle 707 North Flagler Drive West Palm Beach, Florida Eric J. Haugdahl 1323 Winewood Boulevard Room 406 Tallahassee, Florida 32301 Harold D. Lewis 203 West College Avenue Tallahassee, Florida
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Palm Beach County is located in Florida Health Service Area Region VII (HSA #7) which also includes Indian River, Martin, Okeechobee, and St. Lucie Counties. The Health Systems Plan (HSP) for Region VII breaks down bed need for Palm Beach County separately from the other four counties. The population of the southern portion of Palm Beach County is growing at a much faster rate than the population of the northern portion of the County. There is a maldistribution of hospital beds between the northern and southern portions of the County. The northern portion of the County has three times as many hospital beds as the southern portion of the County. Palm Beach County presently has 2,752 hospital beds which are either licensed or approved for construction. This figure includes a new 160-bed NME facility in Delray Beach projected to open in the Fall of 1982, a 50-bed expansion at Bethesda Memorial Hospital completed in January of 1982, a 50-bed expansion at Boca Raton Community Hospital and a 48-bed expansion at John F. Kennedy Hospital presently under construction. An additional 80 beds have been approved by HRS for the new Delray facility, but this is presently in litigation and these beds can not be considered in this proceeding. The two hospitals which currently serve the south Palm Beach County area are the Boca Raton Community Hospital (Boca Community) located in Boca Raton and the Bethesda Memorial Hospital (Bethesda) located in Boynton Beach and operated by the District. Both facilities are within a thirty minute driving distance for 95 percent of the population of the southwestern portion of Palm Beach County. According to patient origin studies, Boca Community draws some 7.7 percent of its patients from the southwest portion of Palm Beach County and Bethesda draws only 1.8 percent of its patients from such area. The primary service areas of both facilities are concentrated on the coastal side of the County. Boca Community has a closed medical staff and does not offer obstetrical services. In 1981, Boca Community had an average occupancy level of 91 percent. During the tourist season which runs from November to April of each year, Boca Community was overcrowded, at times operating at a 100 percent occupancy rate. Oftentimes, patients were either turned away or were placed in hallway or holding room beds. There were occasions during the tourist season when the Del Trail Fire Control Tax District, which provides emergency medical rescue service for the residents of southwest Palm Beach County, was advised by Boca Community that they were on a Priority 1 status only. This meant that they could only utilize that facility for the most severe cases of cardiac or respiratory arrest. The Fire Control Tax District's paramedic program anticipates that it will respond to approximately 2,250 medical rescue calls in 1982. A hospital located in the southwestern portion of Palm Beach County would reduce the response time of paramedics, enable them to make more calls and provide better medical service for members of the Fire Control District. In 1981, Bethesda operated at an average occupancy rate of 82.9 percent, with the rate exceeding 90 percent during the tourist season. The HSP utilizes a 75 percent occupancy rate as a guideline for determining the need for additional hospital beds. In health care planning, it is the policy of HRS to utilize county-wide population estimates prepared by the University of Florida's Bureau of Economic and Business Research (BEBR). The most recent population figure promulgated by BEBR for Palm Beach County is a 1981 estimate of 615,165. This figure indicates an increase over its prior projections of almost 20,000. For the year 1985, the medium range population estimate for Palm Beach County is projected by the BEBR to be 707,900. This figure does not significantly differ from projections made by various planning experts who testified at the hearing. Some 99 percent of the population growth in the County is attributable to migration. Among the guidelines for determining need for additional hospital beds in an area are occupancy levels of existing hospital facilities, utilization rates and a desired number of beds per thousand people in an area. The HSP for Region VII considers an occupancy rate of 75 percent to be desirable, and utilizes the formula of 4 beds per thousand population in reaching determinations on the question of need. The State Health Plan, in accordance with federal guidelines, takes into consideration the factors of age of the population and utilization, including migration in and out of an area. Persons over age 65 normally utilize hospital beds and facilities four times as much as people under 65. Some 23 percent of the residents of the southwest area of Palm Beach County were 65 years of age or older. This compares with a national average of approximately 11 percent, and a county-wide average of 20 percent. Accordingly, in computing preliminary bed need projections for 1985, the 1981 Florida State Health Plan utilizes a formula of 4.25 beds per thousand population for HSA #7 as its medium estimate and a formula of 4.61 beds per thousand population as its high estimate. Utilizing the 4/1000 formula, and assuming a 1985 population of 707,900, the bed need for Palm Beach County in 1985 would be 2,832. A 4.25/1,000 formula produces a bed need of 3,009, and a 4.61/1,000 formula results in a bed need of 3,263. Given the exsiting licensed and approved 2,752 beds in the County as a whole, there would be a need in 1985 for an additional 80 beds using the 4.0 approach, 257 beds using the 4.25 approach, and 511 beds using the 4.61 approach. Utilizing the University of Florida population figures for Palm Beach County, distributing that population to various areas within the County in accordance with the Area Planning Board estimates, and further distributing ,beds between the facilities in the southwest area of the County based upon anticipated market shares, the District's health care planning expert determined there would be a need for 157 new beds by 1986 in the southwest area. This projection takes into account the new Delray Hospital, the 50-bed additions at Bethesda and Boca Community and utilizes an 80 percent occupancy rate. By allocating County population figures into subregions, NME's planning expert projected the population of the west Boca service area to be 43,598 by 1985. Utilizing two different methodologies -- occupancy levels and bed per thousand population -- NME's expert determined that there would be a minimum additional bed need of 170 to 188 in the west Boca service area in 1985 to 1986. The previous HSA 1980-1984 HSP only showed a need for 40 or 50 beds in Palm Beach County. The 1981-1985 HSP, which now takes into account the recently approved 160 beds at Delray, 50 at Bethesda and 50 at Boca Community, shows a need for an additional 128 beds. John F. Kennedy Hospital, which does not serve the southwest portion of the County, has been granted approval for 48 beds. The Boca Raton City Council and the Board of County Commissioners for Palm Beach County have each adopted resolutions citing the need for a new hospital in the West Boca area. Many physicians practicing in the Boca Raton area are experiencing their greatest growth in numbers of patients from the West Boca area. Several physicians experienced delays in admitting patients to Boca Community in 1981, and do not believe that that facility's expansion by 50 beds will alleviate the overcrowing at that institution. There is community support for a new hospital facility located in the southwest portion of Boca Raton. The approved and existing hospitals which serve residents of the southwest Boca Raton area have expansion capabilities of approximately 300 beds -- 50 at Boca Community, 90 at Bethesda and 160 at Delray. Expansion of an existing facility can result in lower construction and operational costs than the construction of a new facility. This would be dependent upon the existence of adequate ancillary facilities, adequate space, personnel capabilities and the desires of the existing facility to expand. Other than the 80-bed expansion at Delray which is currently in litigation, no evidence was adduced at the hearing that either Boca Community or Bethesda were seeking expansion beyond that which has previously been approved. The Southeastern Palm Beach County Hospital Taxing District was created by Special Act of the Legislature in 1953 to provide hospital services for the people in a specified geographical area. It is operated by an eight- member Board of Commissioners who are appointed by the Governor for staggered four-year terms. The District currently owns and operates a 350-bed full service hospital known as Bethesda Memorial Hospital in Boynton Beach. Its services include gynecological, pediatric and new born nursery services. Bethesda has the capacity to expand to 440 beds. In 1980, Bethesda received approximately $2,000,000 in ad valorem tax revenues. Without these tax revenues, Bethesda would have operated at a deficit in excess of $1,000,000. The District proposes to construct and operate a new hospital to serve the residents of southwest Palm Beach County. The service area for the new hospital appears to include some areas beyond the geographical boundaries of the District. It intends to construct 138 medical/surgical beds and 12 intensive care beds, for a total bed count of 150. The new facility will not have obstetrics or pediatric services. The total estimated cost of the project is $34,007,000, or a cost of $226,713.33 per bed. Its cost per square foot is $162.12. The District did not itemize its predevelopment costs and based its equipment costs as a percentage of construction costs. It is anticipated that the new facility will share many services and be linked closely with Bethesda. The two facilities will utilize the same Directors of Personnel, Purchasing and Finance. Other shared services will be the central computer service, clinical laboratory services, anatomical-pathological services, certain pharmacy services and legal services. A pathologist will be on-site at the new facility during normal working hours and on-call during off hours to perform those pathological services which require an immediate result. Other lab tests will be performed at Bethesda. It is anticipated that the new facility will be financed through the issuance of two series of tax-exempt revenue bonds. The District anticipates that it can secure bond financing at an 11 percent projected interest rate, and that 87 percent of the project will be financed by debt with an equity contribution by the District of $2.2 million. Ad valorem revenue is not expected to be the source-of repaying the debt. The District projects a loss of some $1.9 million during the first year of operation and an income of $99,484 during the second year of operation of the new facility. A 21-month construction period is anticipated. While the District proposes to locate its new facility on 20 acres of land at the northeast corner of Glades Road and Lyons Road, it had no formal interest in that property as of the time of the hearing. The site is presently zoned as agricultural and is owned by a savings and loan institution. Pursuant to a "gentlemen's agreement" between the institution and the Chairman of the District's Board, it is anticipated that the District can purchase this property at an estimated cost of $1,000,000. If the District is unable to purchase this property, it intends to use its power of eminent domain to acquire that site or another suitable site. The proposed District site will not require any major road improvements, though a traffic control signal may be necessary. National Medical Enterprises, Inc. owns and operates about 40 hospitals and 160 nursing homes and manages another 18 hospitals and 22 nursing homes throughout the United States. Its corporate headquarters are in Los Angeles, California, and it has a regional office in Tampa, Florida. NME has total revenues exceeding $1.4 billion, net income of $70 million and stockholders' equity of $420 million. As of November 30, 1981, NME had over $150 million in the bank and unused commitments from lenders for $170 million. NME has sufficient cash and cash flow to fund a new project without outside financing. If financing were chosen, it would be of a long term (20 year) unsecured nature at a 15 percent interest rate which would cover 65 percent of the project cost. The balance would come from NME's equity contribution. NME proposes to construct and operate a 175-bed hospital to serve the southwest area of Palm Beach County. There are to be 151 medical/surgical beds, 16 intensive care beds and 8 beds for obstetrics, for a total project cost of $30,688,290 or $175,361.65 per bed. The cost per-square foot is $127.00. The new facility will be operated by a local governing board composed of physicians and lay persons originally appointed by NME. The Administrator of the new facility will be appointed by and report to NME's regional office. Hospitals owned and managed by NME share common support services from both the corporate and regional offices. NME employs specialists and experts in the areas of nursing (recruitment and training), energy conservation, administration, communications, architectural and design matters, financial and legal matters, planning and development, management engineering, and purchasing. These professionals are available to NME facilities. National contracts for the procurement of equipment and supplies are available to NME hospitals. NME proposes an opening date of October or November, 1984 and estimates that it will have a net income of $615,000 after its first year of operation and a net income of $917,000 after the second full year of operation. NME proposes to locate its new facility adjacent to the corner of U.S. Highway 441 and Glades Road. It has an option to purchase 20 acres of land at $30,000 per acre. It intends to use 10 of the 20 acres for the hospital site and use the remaining 10 acres for medical office buildings. Site development costs are designated as $800,000. Its total cost of $30,688,290 is broken down into predevelopment costs of $120,000, building and construction costs of $22,646,490 and equipment costs of $7,921,800. NME's projected equipment costs were based upon a room-by-room analysis. The proposed site is presently zoned for agricultural use. Some major roadway improvements would be required, and the cost for these improvements have not been specifically determined or included in NME's projected project costs, other than the $800,000 designated for site development. NME's proposal includes an 8-bed obstetrical unit. Approximately 500 deliveries are expected during the first year of operation. The recognized health planning standard for determining need for an obstetrical unit in an urban area with a population in excess of 100,000 is whether the facility would perform 1,500 births per year. In Florida, some 105 licensed hospitals have obstetrical beds. 74 of those hospitals recorded less than 1,500 births per year. Population statistics broken down by age do not illustrate a significant need for additional obstetrical beds in the southwest area of the County. Obstetrics and pediatrics are currently available at Bethesda. Bethesda recently closed down 9 of its 24 pediatric beds, and, in February of 1982, that unit had a 42 percent occupancy level. Bethesda's nursery had an occupancy rate of 52 percent in 1981, and the 18 post-partum beds had an occupancy rate of 79 percent in 1981. If needed, Bethesda can convert some of its medical/surgical beds to postpartum beds. The Boca Raton Community Hospital has an 11-bed pediatrics unit. Both the District and NME demonstrated that they would have no difficulty in staffing their proposed facilities. Each has vigorous and innovative recruiting program. By comparing data from Bethesda and Palms of Pasadena in St. Petersburg, a facility owned and operated by NME, the District attempted to illustrate that a not-for-profit tax district hospital is able to render services in a more cost-effective manner and at less cost to the patient or charge payors than an investor-owned or proprietary hospital. However, the analysis performed by the District's witness did not include the ad valorem tax income which the District receives and did not consider or compare the types or intensity of services offered or performed by the two different hospitals. It is impossible to infer the cost-effectiveness of a hospital without knowledge of the volume, intensity and mix of services provided. NME's application for a Certificate of Need included a CT scanner at its new proposed facility. No evidence was adduced at the hearing concerning the need for an additional CT scanner in the Palm Beach County area.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is RECOMMENDED that a final order be entered by HRS determining that a need for a least a 170-bed hospital exists in the southwest area of Palm Beach County and that NME's application to construct such a hospital be approved, with the exception of that portion which proposes eight obstetrical beds and a CT scanner. It is further recommended that the application of the District to construct a 150-bed hospital be DENIED. Respectfully submitted and entered this 23rd day of August, 1982, in Tallahassee, Florida. DIANE D. TREMOR, 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 23rd day of August, 1982. COPIES FURNISHED: Fred W. Baggett, Esquire and Michael J. Cherniga, Esquire Roberts, Baggett, LaFace, Richards and Wiser 101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302 C. Gary Williams, Esquire Ausley, McMullen, McGehee, Carothers & Proctor Washington Square Building 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32303 Eric J. Haugdahl, Esquire Assistant General Counsel Department of HRS 1323 Winewood Blvd. Building 1, Room 406 Tallahassee, Florida 32301 David Pingree Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301 Gary Clarke Deputy Assistant Secretary Health Planning & Development 1323 Winewood Blvd. Tallahassee, Florida 32301 =================================================================
The Issue Whether Certificate of Need (CON) Application No. 10130, filed by Florida Regional Medical Center (FRMC) for an 80-bed acute-care hospital in Palm Beach County, Florida, Agency for Health Care Administration (AHCA) health planning district 9, sub-district 9-4, satisfies, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties The Applicant and affiliates The applicant in this case, FRMC, is a Florida, for- profit, corporation formed for the purpose of filing CON Application No. 10130. FRMC is a wholly-owned subsidiary of Tenet Healthcare Corporation (Tenet). Tenet is one of the largest, for-profit, hospital organizations in the nation. It operates 49 hospitals throughout the country. Tenet owns and operates five hospitals in Palm Beach County: Palm Beach Gardens Medical Center (PBGMC), St. Mary’s Medical Center (St. Mary's), Good Samaritan Medical Center (Good Samaritan), West Boca Medical Center, and Delray Medical Center. PBGMC, St. Mary's, and Good Samaritan are all located in AHCA sub-district 9-4, in the northern half of Palm Beach County. The three hospitals have a combined total of 854 licensed, acute-care beds making up approximately 60% of the licensed, acute-care beds in the sub-district. Jupiter Medical Center JMC is a stand alone, not-for-profit, 163-bed, acute- care hospital in sub-district 9-4 located on a 30-acre campus at 1210 Old Dixie Highway, Jupiter, Florida 33458. JMC also owns and operates a 120-bed, skilled-nursing facility on that campus. JMC is approximately three miles from FRMC's proposed location. West Palm and affiliates West Palm is a 245-bed, acute care, for-profit hospital located at 2201 45th Street, West Palm Beach, Florida 33407, approximately 12 miles from FRMC's proposed location. Its 245 beds include 157 acute-care beds and 88 specialty psychiatric beds. West Palm is affiliated with Hospital Corporation of America (HCA) which operates 163 hospitals in 20 states and Great Britain. HCA’s East Coast Division includes 14 hospitals in South Florida and the Treasure Coast, including two hospitals in addition to West Palm in Palm Beach County: Palms West Hospital (Palms West), located in Loxahatchee, AHCA sub-district 9-4; and JFK Medical Center (JFK), located in Atlantis, sub- district 9-5. Agency for Health Care Administration AHCA is the state health-planning agency responsible for administering the certificate of need (CON) program under the Health Facility and Services Development Act, sections 408.031-.0455, Florida Statutes, and related administrative rules found in chapters 59C-1 and 59C-2 of the Florida Administrative Code.5/ The Proposal Overview FRMC's CON Application No. 10130 (CON Application, Proposal, or proposed hospital) is for "the establishment of a new, general acute-care hospital of 80 licensed beds," to be composed of 64 general, medical-surgical beds and 16 intensive care unit (ICU) beds. The proposed hospital is to be located in Palm Beach Gardens, Palm Beach County, AHCA planning district 9, sub-district 9-4. The proposed service area is a ten zip code area with nine of the zip codes in northern Palm Beach County and one in southern Martin County. The Proposal states that "FRMC's CON application represents the first phase of a multi-year development project that is anticipated to result in an academic teaching and research hospital of 200 beds to serve the long-term needs of residents of District 9 and potentially other parts of the State." According to the Proposal, "[t]he first phase of the Hospital's development will be geared toward providing routine medical/surgical services to residents of the immediate area as well as a platform for its future role as an academic medical center and teaching hospital." The Proposal also states that "[n]on-Tertiary types of cases for adults [15 years old and older] are the focus of the proposed [FRMC] during its initial operation and the basis upon which this CON application is being submitted." FRMC defines the "non-tertiary" acute-care services planned to be offered by excluding psychiatric, substance abuse, inpatient rehabilitation, open-heart surgery, major cardiovascular surgery procedures, therapeutic cardiac catheterization, neonatal intensive care, burn care, transplants, neurosurgical and selected spinal surgery procedures, and major significant trauma services. There is a list of diagnostic-related groups (DRGs) attached to the CON Application which further describes additional tertiary services, as well as non-tertiary obstetrical services, that are specifically excluded from the Proposal. In addition, the Proposal explains that no pediatric services will be offered because of the proximity of St. Marys, which offers pediatrics. There is no indication in the CON Application whether the excluded services will ever be offered. The Proposal discusses a "20 Year Build-Out Plan," and maintains that it is appropriate to consider the vision of FRMC becoming a 200-bed, teaching hospital in cooperation with The Scripps Research Institute (Scripps) and Florida Atlantic University (FAU). The CON Application states, however, that "[e]stimation of the parameters of bed need 20 years into the future is speculative and . . . not specifically subject to CON review at this time ” The Proposed Site The site for the proposed hospital is in zip code 33418, between I-95 and Military Trail, on the south side of Donald Ross Road. The proposed hospital would be located on a 70-acre parcel of land owned by Palm Beach County within an 863- acre tract of undeveloped land known as the Briger Tract, east of I-95 in Palm Beach County. The 70-acre parcel is located just south of Donald Ross Road in Palm Beach Gardens, directly across the road from Scripps, FAU Wilkes Honors College MacArthur campus, and the Max Planck Florida Institute. The proposed hospital would occupy approximately 30 acres of the 70- acre parcel. Zoning for the site of the proposed hospital is not an issue in this proceeding. Palm Beach County leases the 70-acre parcel to Scripps for an annual lease payment of $1. The ground lease expires in 2021, but Scripps has an option to purchase the 70-acre parcel for $1 prior to the end of the lease if it meets certain covenants relating to job growth based on operations. If FRMC is constructed on the site, jobs associated with that project will count toward Scripps' job creation goal. On July 25, 2011, Scripps and Tenet entered into a letter of intent (Letter of Intent) regarding the proposed hospital which anticipates that Tenet will sublease the proposed hospital site from Scripps. Under the Letter of Intent, it is contemplated that Tenet will pay Scripps approximately $5,000,000 annually as a combined payment for the sublease, participatory interest distributions, and mission support payments. The commercial value of the sublease is between $560,000 to $680,000 annually. Stated Goals for the Project First, the CON Application states that FRMC is needed to decompress PBGMC and resolve access issues that patients and physicians currently experience there. FRMC proposes that all of its inpatients will be patients “redirected” from PBGMC, and states that, therefore, “[t]he impact of the new hospital will be limited solely to Palm Beach Gardens Medical Center.” According to FRMC, the "decompression" will allow PBGMC to “modernize for the future by re-configuring the space vacated by the non-tertiary patients who will use the new Florida Regional Medical Center.” Second, the CON Application states that the proposed hospital is designed to provide a unique blend of treatment, teaching, and research with the collaboration of Scripps, FAU, and FRMC. According to FRMC, the project will not only meet the needs of Scripps and FAU, but will also advance and improve health care in northern Palm Beach County. AHCA’s Preliminary Review and Approval Tenet met with AHCA officials twice before the CON Application was filed. The first meeting included representatives from Tenet and Scripps and the chief of AHCA's CON unit, Jeff Gregg. During the first meeting, Scripps indicated that the proposed hospital would not be just “another community hospital in Palm Beach County,” but rather a facility to further Scripps’ “translational research”6/ that would complement Scripps’ existing resources. The CON Application, however, does not specify whether or how FRMC would further Scripps’ translational research. At the second meeting, representatives from Tenet and Scripps and the president of FAU met with Mr. Gregg and AHCA Secretary Elizabeth Dudek. The President of FAU suggested that the proposed hospital would become a "facility of regional impact" that would "offer services that [are comparable to or] even differ from those that are available at academic medical centers in Miami-Dade County." Neither the CON Application nor the evidence, however, supports a finding that FRMC would offer services comparable to those that are available at academic medical centers in Miami-Dade County. After the CON Application was filed, AHCA undertook its review and made its preliminary determination, which are detailed in the State Agency Action Report (SAAR). The SAAR was primarily authored by AHCA CON unit manager, James McLemore, and edited by Mr. Gregg. Although draft SAARs often contain a recommendation whether to approve or deny an application, the draft SAAR for the Proposal did not contain such recommendation. Mr. Gregg felt that whether the CON should be granted was a close call. He discussed the Proposal and draft SAAR with Secretary Dudek and then, at Secretary Dudek's suggestion, Mr. Gregg drafted the following language which was incorporated into the final version of the SAAR: . . . . However, the most important factor in project approval is FRMC’s commitment to develop a world-class research and teaching hospital that has the potential to become a regional rather than a local community resource. The coalition of organizations associated with the proposed facility must work together on an ongoing basis to ensure that the population gains access to services that it would otherwise not have. There is no need for an additional small community hospital that offers basic services. Contrary to the language in the SAAR, there is no “commitment to develop a world-class research and teaching hospital” in the CON Application, and the evidence does not support such a finding. Rather, the evidence only supports a finding that FRMC, Scripps, and FAU had a vision of collaboration in the future. The Letter of Intent between FRMC and Scripps regarding the proposed hospital, by its terms, is not binding, and the parties to the letter of intent "acknowledge that it would be imprudent and unreasonable to rely on the expectation of entering into a contract regarding the subject matter of this letter." At the final hearing, Mr. Greg reiterated AHCA's preliminary determination that there "is no need for an additional small community hospital that offers basic services." He confirmed that such determination was based upon AHCA's consideration of the applicable statutory and regulatory criteria in view of the proposal for an 80-bed, acute-care hospital serving the ten zip code service area. Statutory and Rule Review Criteria The statutory criteria for reviewing CON applications for new hospitals are found in section 408.035, Florida Statutes. Before 2004, section 408.035 review criteria included: The needs of research and educational facilities, including, but not limited to, facilities with institutional training programs and community training programs for health care practitioners and for doctors of osteopathic medicine and medicine at the student, internship, and residency training levels. § 408.035(5), Fla. Stat. (2003). In 2004, however, the quoted provision was deleted from the CON review criteria. See ch. 2004-383, § 5, Laws of Fla. The 2004 changes also removed the requirement that existing facilities undergo CON review for increasing the number of their acute-care beds, so that now, after notifying AHCA, existing acute-care hospitals can generally add acute-care beds without CON review. Id., § 6 (amending § 406.036). In 2008, the Florida Legislature further modified section 408.035 by limiting the criteria applied to CON applications for general hospitals to "only the criteria specified in paragraph (1)(a), paragraph (1)(b), except for quality of care in paragraph (1)(b), and paragraphs (1)(e),(g), and (i) [of section 408.035(1)]." See ch. 2008-29, § 1, Laws of Fla. As a result of the 2008 amendments, the statutory review criteria found in section 408.035(1), which are no longer applicable to CON applications for general hospitals, are: The ability of the applicant to provide quality of care and the applicant’s record of providing quality of care. The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. (f) The immediate and long-term financial feasibility of the proposal. (h) The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction. The statutory CON review criteria in section 408.035 that remain applicable to general hospital applications since the 2008 amendments are subsections 408.035(1): The need for the health care facilities and health services being proposed. The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. (e) The extent to which the proposed services will enhance access to health care for residents of the service district. (g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. (i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent. Each of the applicable review criterion under section 408.035(1)(a), (b), (e), (g), and (i), as related to the facts of this case is discussed under separate headings, below. Section 408.035(1)(a): The need for the health care facilities and health services being proposed. AND Section 408.035(1)(b): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. The analyses under subsections 408.035(1)(a) and (1)(b) are generally combined. For instance, in applying the statutory review criteria to the CON Application, the SAAR cites subsections 408.035(1)(a) and (1)(b) in framing the issue as: "Is need for the project evidenced by the availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the applicant's service area?" Following the 2004 changes in the CON law, AHCA repealed its rule relating to the need for acute-care beds.7/ As a result, AHCA does not presently have a need methodology for acute-care hospitals or acute-care beds. Florida Administrative Code Rule 59C-1.008(2)(e)2. provides, in pertinent part: . . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. While there is no evidence that AHCA has a written policy apart from statutory and rule criteria, Mr. Gregg has summarized AHCA’s “policy” regarding criteria for approval of a new hospital as requiring: One, a primary service area with a large and rapidly growing population base. Two, an expanding market in the applicant’s service area, especially the primary service area, which minimizes the impact on existing providers. And three, the benefit of enhanced access outweighs the adverse impact on existing hospitals. AHCA’s unwritten policy as expressed by Mr. Gregg is consistent with existing statutory and rule criteria. The required topics listed in rule 59C- 1.008(2)(e)2.a.-d., quoted above, are compatible with a combined analysis of the review criteria under subsections 408.035(1)(a) and (1)(b), and a discussion of each in view of the facts is organized under subheadings 1 through 4, below. 1. Population demographics and dynamics FRMC’s proposed primary service area is made up of the five zip codes immediately surrounding the proposed hospital, and its proposed secondary service area is derived from five adjacent zip codes.8/ Population growth in the proposed service area and sub-district 9-4 is estimated to be at an annual rate of approximately 1.4% throughout the five-year planning horizon from 2011 through 2016. While some evidence was presented indicating that the population growth in the proposed primary service area is greater than 1.4%, the evidence was insufficient to establish that the proposed primary service area has a large and rapidly growing population base. 2. Availability, [and] utilization and quality9/ of like services in the district, subdistrict or both In July 2011, there were 1,423 licensed, acute-care beds among seven hospitals located in AHCA district 9, sub- district 9-4, plus approvals for 14 more acute-care beds based upon notifications from JMC and West Palm to add 12 beds and two beds, respectively. Those notifications were voided in favor of subsequent notifications from JMC and West Palm in October, 2011, to add 45 and 29 acute-care beds, respectively. JMC’s intended addition of 45 new-licensed, acute-care beds includes renovation of existing space and the addition of an 80,000- square foot wing scheduled to open in the fall of 2015.10/ During calendar year 2010, sub-district 9-4’s overall acute-care bed occupancy averaged 54.22%. That number declined to 53.8% in 2011, leaving an average daily census of 657 empty, acute-care beds within the sub-district. Projected need in the proposed service area is not sufficient to support a new 80-bed, acute-care hospital. Rather, with population growth projected to be less than 1.5% and flat or declining utilization rates, the projected need for acute-care beds for the proposed hospital's five-year planning horizon is only 21 to 27 beds. 3. Medical treatment trends There is a general trend in the hospital industry away from inpatient utilization in favor of outpatient services. The trend is attributable to advances in medical care and technologies, as well as the move toward managed care and changes in reimbursement under Medicaid, Medicare, and the Affordable Care Act that focus on cost savings and efficiencies. In fiscal year 2011, 37.04% of the weighted revenue average for all acute-care hospitals in Florida came from outpatient services. The trend away from inpatient utilization is expected to continue. 4. Market conditions Discharge data for basic, non-tertiary, acute-care services within FRMC's proposed service area for fiscal years 2009 through 2010, show that JMC has the largest percentage of the market, with a total market share of approximately 39.6%, including 41.7% of FRMC’s proposed primary service area (PSA) and 35.2% of FRMC's proposed secondary service area (SSA). PBGMC follows with approximately 29.7% of the market (36% of the PSA and 17.1% of SSA); then St. Mary's with 5.6% (5.3% PSA and 6.1% SSA); Good Samaritan with 4.3% (4.7% PSA and 3.4% SSA); West Palm with 2.4% (2.2% PSA and 2.6% SSA); JFK with 2% (1.7% PSA and 2.5% SSA); Palms West with 1.8% (0.6% PSA and 2.5% SSA); and the remaining 14.8% of the market divided among all other hospitals. Market share figures derived from updated data presented at the final hearing were not appreciably different. FRMC's proposed PSA completely overlaps JMC's PSA and all of the zip codes making up FRMC's proposed PSA are within JMC's existing PSA. Despite the overlap, FRMC contends that the proposed hospital will not affect JMC's market share, nor other hospitals within the subdistrict except PBGMC, because all of FRMC's inpatient admissions will come from a "redirection" of 70% of PBGMC's non-tertiary inpatients. It is unlikely that FRMC will be successful in filling its beds with patients "redirected" from PBGMC without otherwise affecting the market. The greatest factors driving inpatient admissions are patient preference and emergency admissions, not redirection from existing hospitals. There is a substantial overlap between medical staffs at PBGMC and JMC, and it is likely that many of those physicians would obtain staff privilages at FRMC. PBGMC does not control where physicians with privilages at PBGMC admit patients. For instance, PBGMC's largest admitter of patients, Dr. Baqir Murtaza Syed, while in favor of the proposed hospital, has no intention of redirecting patients from PBGMC to the proposed hospital except in cases where there is an access problem or where complex services not available at PBGMC are offered at FRMC. While sharing some administrative functions through common ownership by Tenet, FRMC is not a satellite to PBGMC. Rather, it is designed to be a stand-alone hospital offering basic, non-tertiary services duplicative and not more complex than those general acute-care services available at both PBGMC and JMC. Section 408.035(1)(e): The Extent to Which the Proposed Services Will Enhance Access11/ to Health Care for Residents of the Service District According to the CON Application, FRMC will enhance programmatic access for patients at PBGMC by decompressing PBGMC, enhance geographic and programmatic access to emergency care and basic hospital services, and enhance access to programs and resources of a teaching and research hospital affiliated with FAU and Scripps. Each of these assertions is addressed under separate headings below. 1. Programmatic Access by Decompressing PBGMC The CON Application states that approval will "[e]nhance programmatic access to inpatient and outpatient [sic] at [PBGMC] by decompressing its patient census and allowing it to re-configure the facility's existing space for modernization projects." It also states that decompression will "ease the capacity constraints and crowding that routinely occurs during the peak season months of January — April . . . ." According to FRMC, PBGMC is landlocked and cannot grow horizontally or expand vertically, has no outpatient surgery rooms, and needs to expand seven of its nine operating rooms. In addition, the CON Application complains that the current 1,291-square feet per bed at PBGMC12/ is less than half of the average 2,814-square feet per bed for new, general acute-care hospitals. As previously discussed, however, "decompression" by "redirection" is unlikely. In addition, while seasonal fluxuations may increase average occupancy levels at PBGMC during peak season, total inpatient days at PBGMC have been declining, and the evidence does not otherwise show that present utilization has interfered with recent renovations. First built in 1963, PBGMC has been renovated over time to meet its needs. In addition to its 199 licensed, acute- care beds, PBGMC has three observation beds and leases 11 of its acute-care beds to an unrelated hospice provider. Sixteen of PBGMC's 199 acute-care beds can be converted into semi-private rooms, which would give PBGMC a 218-bed capacity, not including the 11 hospice beds. In contrast to the CON Application's assertion that PBGMC cannot be expanded, in 2009, the City of Palm Beach Gardens approved a site plan ("Site Plan") authorizing PBGMC to expand its emergency department by 10,000-square feet; expand its surgical suite by 3,800-square feet; add 5,000-square feet of storage; add 300 additional acute-care beds; increase its parking; and construct a new 50,000-square-foot medical office building up to 46-feet in height. PBGMC completed the 10,000- square-foot emergency department expansion in 2010, but has not pursued the other authorized Site Plan expansions. PBGMC is currently undergoing renovations to accommodate a nuclear camera and combine two operating rooms. There is no evidence that those renovations, or the 10,000- square-foot emergency department expansion, were hindered by current utilization. In addition, PBGC has not utilized potential additional excess capacity by, for instance, converting the 16 beds that can be converted to semi-private rooms. PBGMC, like JMC, experiences higher occupancy levels during "peak season" each year from January through March. Evidence indicates that, during peak season, PBGMC's overall occupancy levels approach 80%, with even higher utilization in some specialty units such as surgical and cardio intensive care units.13/ As all beds at PBGMC are private, however, this seasonal influx does not present gender or clinical conflicts. The CON Application asserts an even higher utilization for PBGMC during peak season using a formula to derive what FRMC describes as PBGMC's "functional occupancy." FRMC's formula for "functional occupancy," however, is not reliable. It only considers PBGMC's licensed beds and observation beds, without considering emergency room bays or other available areas. In addition, the data utilized in the formula was defective because it does not reflect the number of outpatients and observation patients on any given day, but rather only reflects the day of the month on which hospital services were billed. While maintaining that renovations are cost prohibitive, PBGMC has yet to develop a formal plan of renovation that would "modernize" PBGMC in the manner suggested by the CON Application. In fact, Tenet has not engaged architects or planners to come up with conceptual documents for such a project, and such renovations have not been discussed between Tenet and PBGMC's board of directors. On the other hand, in addition to evidence of unused, excess-bed capacity and the previously approved Site Plan, evidence at the final hearing reasonably suggested that the Site Plan could be modified to permit additional expansion and improvements. PBGMC has been designated as a Planned Unit Development and, as such, has greater planning and renovation flexibility. The evidence showed that the City of Palm Beach Gardens has been supportive of renovations at PBGMC in the past and would likely continue that support in the future. Further, at the final hearing, FRMC's statement that vertical expansion of PBGMC would be cost prohibitive was shown to be premised on a misinterpretation of the Florida Building Code. The misinterpretation erroneously concluded that provisions of the Florida Building Code, Existing would require the entire hospital to be brought up to new code standards if certain vertical and lateral load thresholds were exceeded. Those provisions, however, do not apply to hospitals and other state-licensed facilities, as clarified by the scoping provisions found at section 419 of the Florida Building Code/Building. 2. Geographic and Programmatic Access to Emergency & Basic Hospital Services According to FRMC, the project will make emergency department services more convenient to residents of the area and enhance geographic access to basic hospital services within the immediate vicinity of the proposed hospital. The proposed hospital, however, is only six miles from PBGMC's recently expanded emergency department and less than four miles from JMC. The emergency department at JMC includes 26 treatment bays with an adjacent 10-bed, clinical-decision unit available to handle any temporary emergency department overflow. These factors, together with evidence of existing available acute-care beds and services available within the proposed service area, do not support a finding that the proposed hospital will appreciably enhance access to emergency department or basic hospital services. 3. Access to Programs and Resources of a Teaching and Research Hospital The CON Application states that "[t]he vision for FRMC is to expand the opportunities for clinical research, graduate medical education and medical surgical services while providing even better access to state-of-the-art medical care." It further states: The location of a medical center next to the Scripps Florida Research Institute and FAU's MacArthur campus will foster the positive relationship between science and medicine. Academic medical centers play a pivotal role in the effort to expand access to undergraduate and graduate medical education in the state that benefits students, faculty, and patients. Florida Regional Medical Center will be one of the clinical training sites for FAU's medical students and residents. Thus, programmatic access will be further enhanced by the opportunities to improve the health of the area's residents as well as to train the next generation of physicians and scientists. The CON Application further observes that "District 9 is one of the five districts in Florida without a statutory teaching hospital." Aside from the fact that the need for research and educational facilities has been removed from CON review criteria, and notwithstanding FRMC's acknowledgement that consideration of bed need beyond its immediate plans for an 80- bed, general acute-care hospital is "speculative," the evidence was insufficient to show that FRMC could reach its suggested goals with regard to research and education. Although the CON Application discusses Florida's nine statutory teaching hospitals, FRMC is not envisioned as a statutory teaching hospital. Rather, discussion of the statutory teaching hospitals was included in the application because data from those facilities were used as "parameters" in evaluating the need for FRMC's 20-year vision of a 200-bed facility. With regard to clinical research, the Proposal states that it will establish a clinical research program that will provide a crucial link to Scripps' research efforts. There is an apparent discrepancy, however, between FRMC's concept of the proposed program and Scripps' expectations. The Proposal only commits to the hiring of one full- time equivalent employee as a "research program coordinator." According to Tenet's chief executive officer over Florida Special Projects, the coordinator would be responsible for "setting up the programs" and assisting with the "enrollment of patients, collection of data, completion of reports and compliance with regulations pertaining to clinical research." In contrast, Scripps envisions the proposed research program coordinator as one who would serve a more general role geared toward learning about Scripps "and to know what the hospital is doing and to connect researchers for potential research topics." Scripps believes, and the evidence shows, that clinical studies are complex activities with multiple phases that require a number of staff to coordinate enrollment, interaction with institutional review boards, and protocol compliance.14/ Tenet hospitals in Palm Beach County, however, have no special expertise in enrolling patients and managing clinical research activities. FRMC did not otherwise provide evidence detailing the clinical research program or programs contemplated by the Proposal. In sum, evidence of FRMC's commitment to provide a crucial link to Scripps' research efforts is lacking. Evidence adduced at the final hearing casts doubt on FRMC's ability to become, in the foreseeable future, "one of the clinical training sites for FAU's medical students and residents." While FRMC and FAU have entered into a memorandum of understanding (MOU) which recites FAU's intention to sponsor graduate medical education (GME) and FRMC's intention to accept FAU medical students, FRMC's ability to do so is dependent upon it joining or affiliating with other entities under the FAU College of Medicine GME Consortium Agreement that exists to coordinate and promote the development and implementation of GME in South Florida (the GME Consortium Agreement). FAU is a party to the GME Consortium Agreement, along with Bethesda Memorial Hospital, Boca Raton Regional Hospital, and three Tenet hospitals, which include Delray Medical Center, West Boca Medical Center, and St. Mary's Medical Center. Paragraph B.2. of the MOU provides: GME: Pursuant to the agreement governing the GME Consortium, the admission of additional member institutions to the GME Consortium, as well as the addition of other hospitals and participating sites that may affiliate with the GME Consortium, is subject to the unanimous vote of all members of the GME Consortium, in each member's sole and absolute discretion. FRMC will submit a request to join the GME Consortium and obtain full consideration by the GME Consortium before offering any GME program(s) independently or in concert with any other entity. FRMC will also submit a request to the GME Consortium to be a rotational or participating site for FAU's Residents, as further described in subsequent master affiliation agreements or program letters of agreement as required by the ACGME [Accreditation Council for Graduate Medical Education]. At least one party to the GME Consortium Agreement, Boca Raton Regional Hospital, would not vote in favor of admitting FRMC as a member or participant under the GME Consortium Agreement.15/ The GME Consortium Agreement has a five-year term ending December 1, 2016, with automatic one-year renewals thereafter. The American Association of Medical Colleges (AAMC) is a national association representing medical schools and major teaching hospitals in the United States. Although not defined under Florida Law, the term "academic medical center" is understood by AAMC to refer to large hospitals, generally offering tertiary and more complex services, which are affiliated with and often on the same campus as a medical school. The size of the proposed hospital and complexity of the medical services proposed to be offered by FRMC are less than typical for an academic medical center as recognized by AAMC. FRMC does not even have a target date as to when it may offer services other than the general, non-tertiary hospital services that form the basis of the CON application. Section 408.035(1)(g): The Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost- Effectiveness Tenet is currently the dominant provider in the proposed service area, with five hospitals in Palm Beach County, including three hospitals located in AHCA sub-district 9-4 with 854 acute-care beds between them, including PBGMC, St. Mary’s, and Good Samaritan. Rather than increasing competition, the addition of FRMC would likely further Tenet’s dominance, thereby decreasing competition. As a large hospital system, Tenet has an advantage over non-affiliated hospitals, such as JMC, in negotiating favorable reimbursement rates with commercial insurers, including managed-care plans. The ability to negotiate favorable rates translates into a better “payor mix” with richer reimbursement from private insurance and less from fixed rate, non-negotiable, governmental programs such as Medicaid and Medicare. Rather than showing that approval of FRMC would promote cost effectiveness, the evidence indicates that another Tenet facility within sub-district 9-4 could further boost Tenet’s negotiating leverage, resulting in a higher payment structure16/ within the area for FRMC’s services reimbursed by private insurance. These factors, together with the fact that the CON Application was submitted for approval of a facility with a focus on non-tertiary acute-care services amply available in the area, do not support a finding that the proposed hospital will foster competition that promotes quality and cost-effectiveness. Moreover, as further discussed under the heading "Adverse Impact," below, approval of the proposed hospital would have a negative impact on both JMC and West Palm. Section 408.035(1)(i): The Applicant’s Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent As noted in the CON Application, “[FRMC] is newly incorporated and not an existing healthcare provider with a historical track record of utilization.” As a Proposed CON Condition, FRMC states that it “will provide a minimum of 4% of its total annual patient days to a combination of Medicaid, Medicaid HMO, and Charity patients.” In 2010, 6.3% of the total combined patient days in the proposed service area for non-tertiary, non-OB, adult services were Medicaid, Medicaid HMO, and charity patient days. As FRMC’s proposed 4% condition is less than the 6.3% actually served in the proposed service area in 2010, based on patient days, the evidence does not support a finding that the proposed hospital will enhance access for the medically indigent or underserved. Adverse Impact FRMC contends that there will be no adverse impact from the proposed hospital because its patients will come from a 70% “redirection” of PBGMC’s patients. As previously discussed, however, PBGMC does not have the ability to direct where patients are admitted for hospital care. As FRMC's success in redirection without affecting the market is unlikely, its assumption that neither JMC nor West Palm will lose patients to FRMC is unreasonable.17/ JMC JMC has a good reputation in its community and enjoys strong patient satisfaction and loyalty. As part of its mission to care for the health and welfare of its community, some of the needed services which JMC offers are not profitable for JMC, including obstetric services. No other hospital in north Palm Beach County provides obstetric services. JMC also provides benefits beyond the direct provision of hospital services. In 2011, JMC provided $3 million in charity care, $3.5 million in Medicaid underfunding, plus uncompensated services valued at $1.3 million through the operation of specialty healthcare clinics, including a diabetes clinic and oncology services clinics. JMC also expends approximately $300,000 each year for health education programs and community health screenings. In addition, JMC provides support to the Jupiter Volunteer Health Clinic, a free clinic established through collaboration with the Town of Jupiter, local physicians, Palm Beach County, and the community volunteer organization known as "El Sol." Despite the affluence in northern Palm Beach County, there is also a substantial population of poor without health insurance. The clinic is particularly important because there are no primary care doctors in northern Palm Beach County who accept Medicaid patients in their practice. Patients are often lined up outside the clinic before it opens. Clinic patients that require hospital admission are admitted to JMC. Even though JMC has a reputation for community service and patient loyalty, the establishment of FRMC would have a material effect on JMC’s operations. Proximity of a proposed facility to an existing hospital significantly affects the potential for adverse impact. JMC is the closest hospital to FRMC’s proposed site. The likelihood that JMC will lose patients to FRMC is increased by the fact that FRMC proposes to offer the same services, with the exception of obstetrics, as currently offered by JMC. In addition, there is currently substantial overlap between the medical staffs of JMC and PBGMC. FRMC anticipates that it will be staffed primarily by physicians who now practice both at JMC and PBGMC. The overlap of the medical staffs is yet another factor demonstrating the potential adverse impact on JMC, as many physicians who currently practice at PBGMC and JMC are likely to obtain medical staff privileges and admit a substantial number of their patients to FRMC, including patients they would otherwise admit to JMC. As an independent, not-for-profit, community provider, JMC's operating margins are very thin at 1.5% to 2% annually. JMC would lose a substantial number of inpatient admissions if the proposed hospital is approved. JMC reasonably anticipates the loss of 1,533 cases to FRMC in the first year of operation of the new hospital. There is insufficient population growth in FRMC's proposed service area to offset this adverse impact. Applying JMC's current contribution margin to JMC's projected lost patient volume results in a projected adverse impact to JMC of $11,254,000 in combined inpatient and outpatient lost contribution margin, including a projected loss of up to $5,000,000 of inpatient contribution margin, in the first year of operation of FRMC. While the ability to negotiate favorable payment rates is critical to the financial viability of all hospitals, it is particularly crucial for small, stand-alone, community hospitals like JMC. As the only hospital in its primary service area, JMC presently enjoys some leverage in negotiating terms with private insurers and managed care companies. The establishment of FRMC will eliminate JMC’s geographic advantage and erode JMC's ability to achieve favorable payment rates. The anticipated adverse financial impact on JMC will interfere with JMC's ability to invest in technology and human resources, and will threaten the viability of the Jupiter Volunteer Health Clinic. The evidence is insufficient to show that approval of FRMC will bring countervailing benefits to the community that would offset the adverse impacts on JMC. WEST PALM Although West Palm stands to lose fewer cases than JMC if FRMC is approved, the adverse impact on West Palm is substantial, especially considering its current financial condition. West Palm incurred a bottom line net loss of $7,502,651 in 2011, with a negative operating margin of $14,002,922. If FRMC is approved, a reasonable estimate of lost cases shows that West Palm will lose 118 discharges to FRMC in 2014, 120 discharges in 2015, and 122 in 2016. The 122 lost cases in 2016 amount to 466 patient days. For 466 lost patient days, West Palm’s combined lost contribution margin is estimated at $886,377.18/
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency for Health Care Administration issue a Final Order denying CON Application No. 10130. DONE AND ENTERED this 30th day of April, 2013, in Tallahassee, Leon County, Florida. S JAMES H. PETERSON, III Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2013.
The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
