The Issue Whether the Petitioner committed the violations alleged in the Administrative Complaint, and, if so, the penalty that should be imposed.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: The Department of Health is the state agency responsible for certifying and regulating basic X-ray machine operators in Florida. Sections 468.3001-.312, Florida Statutes. On March 30, 1993, Paul Butler was issued Basic X-ray Machine Operator Certificate Number 7729. The certificate expired December 31, 1994, and Mr. Butler requested renewal by submitting a renewal form and the required fee to the Department on December 20, 1996. Mr. Butler admitted that he knew his certificate expired December 31, 1994, but that he nonetheless took numerous X-rays subsequent to that date. On January 4, 1996, Mr. Butler prepared and submitted an application for employment to Kristie Green, office manager for South Dade Orthopedic Associates. In that application, Mr. Butler signed his name and appended to his name the designation "RMA, CRT." Ms. Green interviewed Mr. Butler, and he provided her with a copy of his certificate that showed an expiration date of December 31, 1995. Ms. Green noted that his certificate had expired four days previously, and Mr. Butler told her he was short of funds and would send in his renewal application when he received his first paycheck. Ms. Green hired Mr. Butler as an X- ray technician and medical assistant. After Mr. Butler repeatedly assured her that he had sent his renewal application to the Department, Ms. Green fired Mr. Butler on June 20, 1996, because he had not obtained a current Basic X-ray Machine Operator certificate. The evidence presented by the Department is sufficient to establish that Mr. Butler took X-rays without having an active certificate, and that he identified himself in his employment application to South Dade Orthopedic Associates as a Certified Radiologic Technologist by using the letters "CRT" after his signature. The evidence presented is also sufficient to permit the inference that Mr. Butler altered his basic X-ray Machine Operator certificate by changing the expiration date from December 31, 1994, to December 31, 1995.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health issue a final order finding that Paul Butler violated Section 468.3101(h), Florida Statutes, by violating Section 468.302(1) and (2) and that he violated Section 468.3101(f). Based on the violations, the Department of Health should impose the following penalties: Suspend Mr. Butler's Basic X-ray Machine Operator certificate for a period of six (6) months; Impose an administrative fine in the amount of Six hundred twenty-five dollars ($625.00); and Condition the reinstatement of Mr. Butler's certificate on his having completed thirty (30) hours of continuing education. DONE AND ENTERED this 12th day of January, 1998, in Tallahassee, Leon County, Florida. PATRICIA HART MALONO 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 Filed with the Clerk of the Division of Administrative Hearings this 12th day of January, 1998. COPIES FURNISHED: Morton Laitner, Esquire Department of Health 401 Northwest 2nd Avenue Suite N-1014 Miami, Florida 33128 Paul Butler, pro se 30525 Southwest 149th Court Leisure City, Florida 33033 Angela T. Hall, Agency Clerk Department of Health 1317 Winewood Boulevard Building 6 Tallahassee, Florida 32399-0700 Pete Peterson, General Counsel Department of Health 1317 Winewood Boulevard Building 6, Room 102-E Tallahassee, Florida 32399-0700
Findings Of Fact The Respondent, Wayne A. Bryan, is a chiropractic physician holding license number 0001861 issued by the Board of Chiropractic Examiners. At all times pertinent to the allegations contained in the Administrative Complaint, the Respondent engaged in the practice of chiropractic at the Bryan Chiropractic Clinic, 155 Ridgeway Drive, Sebring, Florida. On April 24, 1981, Jeanne Speight went to the Respondent's office for treatment of low back pain, which she attributed to work in her garden. Upon her arrival at the Respondent's office, Mrs. Speight was advised by an unknown female office employee that she would have to be "X-rayed before she was seen by the Respondent. A total of ten x-rays were taken of Mrs. Speight by an unknown employee before she was seen by the Respondent. After a physical examination, the Respondent told Mrs. Speight to return the next day with her husband because she had a serious, life-threatening problem. On the following day, Mrs. Speight returned to the Respondent's office with her husband. The Respondent spoke with the Speights and advised them that Mrs. Speight required an intensive treatment program consisting of four treatments per week over a three-month period with complete x-ray work-up each month during the treatment. When Mr. Speight questioned the necessity of so many x-rays and suggested they obtain a second opinion, the Respondent became angry and predicted that Mrs. Speight would lose 99 percent of the use of her legs and be paralyzed if she did not take his treatment. After her visits with the Respondent, Mrs. Speight sought treatment from another chiropractic physician, Dr. O. A. Speigel. Dr. Speigel requested Mrs. Speight's x-rays from the Respondent; however, the Respondent did not provide the x-rays, but furnished Dr. Speigel with a full report of the Respondent's findings, which Dr. Speigel described as excellent. Mrs. Speight's records and x-rays were later examined by Dr. Richard Carr, a chiropractic physician. According to Drs. Speigel and Carr, Respondent's diagnosis concerning Mrs. Speight's condition was consistent with the x-rays and reports. Further, did Respondent's prognosis as stated to the Speights that Mrs. Speight would lose 99 percent of the use of her legs was inconsistent with his diagnosis. On January 6, 1981, J. C. Hickman sought chiropractic treatment from the Respondent for a muscle spasm in his leg. Upon Hickman's arrival at the Respondent's office, prior to being seen by him but after a medical history was taken, Hickman had a series of spinal x- rays taken by Barbara Bryan, the wife of the Respondent. Mrs. Bryan was not licensed as a radiologic technologist in the State of Florida until February 12, 1982. During Hickman's first visit, an unknown female employee of Respondent's demanded and obtained a sample of Hickman's hair without explaining the purpose for obtaining this sample. Hickman was examined by the Respondent, who advised him that he had serious problems and proposed a series of chiropractic treatments. The Respondent told Hickman that he did not use his hands directly on a patient in rendering treatment. According to Hickman, the Respondent had him lie on the examining table in a prone position, and while he was in this position he received a mechanized blow or thrust to his chest. This description by Hickman of his treatment is not rejected but given less weight than his testimony on other aspects of his treatment with which Hickman was more familiar than the nature of Respondent's manner and method of treatment. The Respondent advised Hickman to return the following day in order to receive the same treatment for his leg. At no time did the Respondent examine or touch Hickman's leg. On or about July 11, 1980, Don Payne sought chiropractic treatment from the Respondent. Prior to examination by the Respondent, his wife, Barbara Bryan, took a series of x-rays of Payne. As stated above, Mrs. Bryan was not licensed as a radiologic technologist in the State of Florida until February 12, 1982. Thereafter, without explaining the purpose of it, Mrs. Bryan demanded a sample of hair from Payne. The manner in which the sample of hair was demanded annoyed Payne, who, although he permitted her to take the sample, did not advise Mrs. Bryan that he wore a full hairpiece from which the sample was taken. The medical records of Mary Scofield were received into the record as Petitioner's Exhibit 4. The only other evidence presented concerning Ms. Scofield was the deposition of Dr. Richard Carr based upon his examination of her medical records. Dr. Carr could not conclude from the records that the Respondent's diagnosis and treatment of Ms. Scofield were improper. Based upon their medical records, Dr. Carr opined whether hair analysis was proper with regard to the Respondent's patients. Dr. Carr based his opinion of the appropriateness of using this technique upon whether heavy metal poisoning was indicated in these patients. Because the test is recognized but controversial with regard to testing for vitamin deficiency, Dr. Carr's opinion is appropriately qualified. Mrs. Speight did not testify to any hair analysis performed. Hickman and Payne stated, and it is found that Respondent performed hair analysis.
Recommendation Having found the Respondent, Wayne A. Bryan, guilty of the allegations contained in Count Three, Count Six, Count Seven, and Count Ten of the Administrative Complaint, it is recommended that the Board of Chiropractic Examiners revoke the license of Respondent. DONE and RECOMMENDED this day of December, 1983, in Tallahassee, Leon County, Florida. STEPHEN F. DEAN, 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 14th day of December, 1983. COPIES FURNISHED: Diane F. Kiesling, Esquire Department of Professional Regulation 130 North Nonroe Street Tallahassee, Florida 32301 Wayne A. Bryan 12837 Township Road, 168-RR3 Findlay, Ohio 45840 Frederick Roche, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Jane Raker, Executive Director Board of Chiropractic Examiners 130 North Monroe Street Tallahassee, Florida 32301 =================================================================
The Issue Whether the Certificate of Need (CON) Application No. 9610, filed by St. Joseph's Hospital to establish a new 76-bed acute care satellite hospital in Hillsborough County, through the transfer of 76 acute care beds from the existing St. Joseph's Hospital, should be approved.
Findings Of Fact Agency for Health Care Administration AHCA is the single state agency responsible for administration of the CON program in Florida, pursuant to Section 408.034, Florida Statutes (2003). AHCA reviewed SJH's application to build a new, 76-bed, satellite hospital and preliminarily approved it. St. Joseph's Hospital, Inc. SJH is a Florida not-for-profit corporation, licensed to operate three existing hospitals on a single urban campus in District 6 including St. Joseph's Hospital, St. Joseph's Women's Hospital, and Tampa Children's Hospital. Although SJH has unused bed capacity, it is licensed to operate 883 beds distributed among its three hospitals and is one of Florida's largest acute care, safety-net providers. SJH has approximately 1,200 physicians on its active or senior active medical staff. The main adult SJH facility offers a full range of adult medical and surgical specialties and subspecialties, including adult open heart surgery, comprehensive oncology treatment and therapy, interventional radiology, inpatient psychiatric services, comprehensive neurological and orthopedic services, pulmonary rehabilitation, and hyper-baric services, including wound care. It is accredited by the Joint Commission of Health Care Organizations (JCAHO). St. Joseph's Women's Hospital is the only free-standing women's hospital in Florida, and is comprised of 234 acute care beds. It offers a comprehensive array of women's acute care medical and surgical services, including obstetrics, and Level II and Level III Neonatal Intensive Care Unit (NICU) services. St. Joseph's Women's Hospital provides the highest number of births among all District 6 obstetrics providers, with over 6,000 births in 2001. Tampa Children's Hospital is comprised of 111 medical/surgical pediatric rooms, and offers comprehensive pediatric and pediatric specialty services, including pediatric intensive care and pediatric open heart surgery. Tampa Children's Hospital's medical staff includes over 80 pediatric specialists practicing in 20 specialties and sub-specialties. SJH is a member of BayCare Health System which operates seven independent, affiliated hospitals in the Tampa Bay area. BayCare Health System coordinates quality standards among its member hospitals, promotes community access to health care, and facilitates joint operating efficiencies through combined purchasing, economies of scale, and consolidation of duplicative, non-patient-care services, such as administration, human resources, information management, and financial services. SJH is affiliated with and jointly manages South Florida Baptist Hospital (SFBH), a 147-bed primary acute care hospital in Plant City, Florida, in eastern Hillsborough County. SFBH provides Level I obstetrics services. SJH and SFBH operate under a single chief medical officer and board of directors, and utilizes similar policies and procedures. SFBH is accredited by JCAHO with high standing, and is certified by the Medicare and Medicaid programs. University Community Hospital, Inc. University Community Hospital, Inc., is another hospital provider in District 6. It is a not-for-profit entity licensed to operate UCH Fletcher and UCH Carrollwood. UCH Fletcher is a 431-bed Class I general hospital that provides a full range of acute care hospital services, including open heart surgery, obstetrics, and Level II and Level III NICU services. It is located in the southeastern portion of the SJH satellite proposed service area and has unused bed capacity. UCH Carrollwood is a 120-bed primary acute care hospital located in North Tampa. It provides ICU and medical/surgical services, but not obstetrics. It too has unused bed capacity. Tampa General Hospital TGH is an 846-bed Class I general hospital located in South Tampa on Davis Island. It is a not-for-profit hospital that provides a comprehensive range of services, including general acute care, organ transplant, open heart surgery, and NICU care. It is a designated teaching hospital and a Level I trauma and burn treatment center. TGH is an important safety- net hospital and a large provider of Medicaid and indigent care. SJH Proposal SJH proposes to establish a 76-bed, acute care satellite hospital in North Hillsborough County on a site acquired twenty years ago. It seeks to transfer 76 acute care beds from the SJH Main urban campus to the new suburban hospital site. The proposed location is in an area of rapid population growth where SJH annually draws 8,000 admissions. The SJH satellite will be integrated with and function as a satellite of SJH Main. It will incorporate state-of-the art technology, including the Path Speed Picture Archive & Communications System (PACS) that is currently in use at SJH enabling physicians at the satellite facility to simultaneously review digital diagnostic images and medical records with physicians at SJH Main. The SJH satellite will be a primary acute care facility with obstetrics, and will not duplicate the tertiary or other specialized services provided at SJH Main. Since acquiring the site for the proposed satellite, SJH has established several outpatient, primary care, and home health services in the satellite proposed service area. HealthPoint Medical Group, a physician group affiliated with and managed by SJH, and comprised of approximately 56 physicians, currently has three offices in the proposed service area and plans to expand. SJH also operates two outpatient imaging centers in the area. The SJH proposal seeks to enhance access to acute care and emergency medical services for SJH's existing patients residing in the proposed service area and serve future population growth in the rapidly developing northwest Hillsborough County area. It seeks to alleviate some of the volume in the SJH Main ER, allow for conversion of semi-private rooms to private rooms, and mitigate parking congestion. Relevant Statutory Criteria Section 408.035(1), Florida Statutes (2003). The need for SJH proposed satellite hospital project in relation to the applicable district health plan. The review of SJH's proposal does not involve the traditional calculation and determination of need for the 76 beds proposed at the satellite since the applicant intends to transfer existing beds within the sub-district. The Agency's fixed need pool determination does not apply to SJH's proposal, nor is SJH required to demonstrate "not-normal" circumstances for approval. However, need is reviewed in relation to the local district health plan. The District 6 Local Health Plan (LHP) identifies six factors applicable to proposed bed transfers. First, the plan considers whether a transfer will help indigent patients. Although the transfer may slightly enhance access to the poor, there is minimal access problems for indigent patients. Second, the plan considers whether a bed transfer is needed so an existing hospital can meet licensure standards. SJH is not seeking to meet any new licensure standards. The third factor is whether a bed transfer includes a proposed reduction in excess bed capacity. SJH is reducing excess bed capacity in the downtown area of Tampa and transferring beds to a growing area with increasing demand. The fourth factor considered in the LHP is whether a bed transfer adversely impacts a disproportionate provider of Medicaid/indigent care by taking away paying patients. While the transfer may reduce, to some degree, paying patient volume at TGH, the transfer will increase the volume at SJH, another safety net provider. The fifth factor is whether the proposed bed transfer will improve the existing hospital's physical plant. SJH Main, and its patients will benefit from the ultimate renovation, increased space and single patient rooms. Finally, the plan considers whether the bed transfer is more cost-efficient than improving the existing hospital. The options are incomparable. SJH is seeking to construct a satellite hospital and expand its market area, not merely transfer beds to an existing facility. It is unknown and virtually incalculable whether the proposed satellite facility will be more cost-efficient than an improvement to the existing hospital. Section 408.035(2), Florida Statutes. The availability, quality of care, accessibility and extent of utilization of existing facilities and health services in the service district. Undoubtedly, health services exist and are available in the service district. In fact, nearly all of the residents of SJH's proposed service area live within 45 minutes of an existing hospital. However, Northwest Hillsborough County is experiencing rapid growth. Many of its major roads and arteries are already congested and overcapacity. The expected growth in the proposed service area will inevitably aggravate the problem. More importantly, despite the fact that virtually all of the residents in the proposed service area live within 45 minutes of an existing hospital, the population growth is affecting health care delivery. Hospital departments, including many of the emergency rooms, are experiencing similar congestion and acute care patients often wait several hours for treatment upon arrival. UCH is experiencing capacity constraints. The demand for general acute care and emergency room services in the area is high and reasonably expected to increase throughout the foreseeable future. UCH Fletcher has experienced significant growth in utilization since 1999, and UCH Carrollwood has experienced consistent gains over the same time period. During the first four months of 2003, UCH Fletcher operated near 75 percent capacity overall, and 85 percent capacity in its general medical/surgical beds. Moreover, the hospital ER was at or near capacity. UCH Fletcher's ER, which is comprised of 39 beds, experienced 65,000 patient visits in 2002 and exceeded 70,000 visits in 2003. During peak periods, Fletcher ER patients have often been required to wait in the ER six to eight hours for an inpatient bed. UCH's birth volume has also increased with the rapid population growth in the service area and is less affected by seasonal residents. In fact, UCH recently built a new women's center and expanded its obstetrics capacity to accommodate between 3,000 and 3,500 births annually and projects it will achieve 3,100 births by the end of 2004, and operate at 90 percent of capacity. SJH also experiences capacity issues. SJH Main is completely comprised of semi-private rooms. It's composition makes it less attractive and competitive in the market and less able to maximize its utilization of existing acute care beds. However, SJH Main experiences a huge demand for emergency services at its urban campus. The emergency department is one of the busiest in Florida and increasing each year. In 2002, SJH treated 104,000 ER patients, approximately 300 each day, and nearly 18,000 of those treated originated from the satellite hospital's proposed service area. SJH's emergency department is a large, urban ER with 58 beds. It is organized into separate patient treatment areas, including a 23-bed adult treatment area, an eight-bed pediatric treatment area with a separate ER entrance, a four-bed adult psychiatric emergency treatment area, a 13-bed First Care unit, and a ten-bed Clinical Decision Unit. While SJH historically has provided excellent quality of care in its ER, its increasing volumes often result in patients receiving or waiting for treatment in corridors while more critical patients occupy the ER treatment rooms. In peak season, hallways are temporarily used for patient care. SJH has actively sought to improve the delivery of emergency care. It invested substantial capital towards improvements and expansion of its existing ER. It established a unique service known as "First Care," that provides quick emergency care to less critical ER patients, such as patients with sore throats, sprains, and simple lacerations. It created a ten-bed Clinical Decision Unit to supplement the existing ER by converting hospital space adjacent to the ER into a permanent nursing unit. In addition, it increased ER staffing and physician coverage, and implemented protocols to improve the ER receiving and treatment processes. Despite its efforts, the SJH ER continues to experience difficulties with extremely high patient volume. In addition to the capacity constraints at UCH and in SJH's ER, ER bypass in Hillsborough County presents additional problems for emergency personnel, providers, and patients. Hospital bypass or diversion occurs when a hospital requests that emergency medical transport teams bypass the hospital's ER because the hospital lacks capacity to treat additional patients or categories of emergency patients. In response to the increasing problems associated with hospital ER bypass, the Hillsborough County Trauma Agency established a committee to analyze the situation, establish protocols, and recommend solutions. In addition, Hillsborough County implemented an Internet-based system whereby hospitals electronically place themselves on and off bypass without a dispatcher. Hospital ER bypass adversely impacts the availability and accessibility of acute care services, particularly emergency services in Northwest Hillsborough County. The credible evidence demonstrates that hospitals in Hillsborough County go on bypass as often as every day during peak season, and frequently several hospitals are concurrently on bypass. Of the hospitals in Northwest Hillsborough County, UCH Fletcher and UCH Carrollwood together had the highest incidence of hospital bypass in the first six months of 2003. In an effort to minimize the problems associated with transport, Hillsborough County Fire Rescue (HCFR) tracks all of its calls. It provides all Advanced Life Support emergency transport services in the county and responds to approximately 55,000 emergency calls annually, or about 4,300 calls each month. Approximately half, or 27,000 calls annually, originate in HCFR's Northwest Hillsborough County area and nearly 10,000 of those calls result in transport of a patient to an acute care facility. HCFR currently has 12 stations in Northwest Hillsborough County and is scheduled to open four additional stations in the northwest area in the near future. Hospital ER bypass is an obstacle for HCFR that causes delays in transport, emergency care, and return to service. The applicant's proposed satellite facility will improve access to patients in need of emergency services in Northwest Hillsborough County and alleviate some of the capacity problems at UCH and SJH, as well as problems caused by frequent or extended periods of hospital ER bypass. Section 408.035(3), Florida Statutes. The ability of SJH to provide quality of care and its record of quality of care. Pursuant to the parties' stipulation, SJH's record of providing quality of care at its existing hospital is applicable, but not in dispute. SJH's ability to provide quality of care at the proposed new satellite hospital is in dispute. In general, SJH has consistently provided excellent quality of care in the provision of a sophisticated range of services. It is accredited by JCAHO and certified by the Medicare and Medicaid programs. It has received consistent recognition for its provision of high quality of care and has been awarded the Consumer Choice Award in health care in Tampa for eight consecutive years. SJH's proposed satellite hospital will be able to provide excellent quality of care and serve the vast majority of patients seeking acute care and emergency services. SJH's proposed satellite hospital will enhance access and quality of care for residents of the Northwest Hillsborough County area. Although it will not provide tertiary services, emergency patients will receive immediate, high-quality care at the facility. In addition, the smaller subset of emergency patients requiring immediate tertiary-level services will continue to have access to the tertiary hospital providers. In fact, HCFR has developed sophisticated transport protocols designed to ensure that all patients are safely delivered to the appropriate facility as efficiently as possible, and HCFR paramedics are highly skilled and trained to assess the condition of each patient. In addition, the evidence indicates that SJH will provide high-quality Level I obstetrics services at its satellite facility. While the opponents assert that the proposed program will not match the quality or scope of obstetric services provided at SJH and UCH, the evidence indicates that the SJH obstetrical program will not be sub-par or beneath the standard of care in the area. While an on-site NICU program is clearly preferable, the need for quality Level I obstetric providers is not obviated. SJH will provide quality obstetrical care. Moreover, SJH's existing quality management policies, protocols, and processes will be instituted at the satellite hospital. It will be operated under the same quality management personnel team currently responsible for quality at SJH Main. Section 408.035(4), Florida Statutes. The need in the service district for special health care services reasonably and economically accessible in adjoining areas. AHCA and SJH demonstrated that that the proposed satellite does not intend to offer nor impact special health care services that may be reasonably and economically accessible in adjoining areas. The criterion is not applicable. Section 408.035(5), Florida Statutes. The needs of research and educational facilities, including, but not limited to, facilities with institutional training programs and community training programs of health care practitioners and for doctors of osteopathic medicine and medicine at the student, internship, and residency training levels. This criterion is not applicable. Section 408.035(6), Florida Statutes. The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures for project accomplishment and operation. The evidence demonstrates that SJH has the necessary resources and experience to provide quality health and management personnel to the satellite hospital. While there is some shortage of available nurses in Florida, including the Tampa area, the vacancy rate at SJH, including RNs and staff positions, is consistently below the state average. SJH has a well-developed nurse recruitment and retention program and has achieved steady increases in the retention rate of its RNs. Management has developed a flexible pool of employed nurses enabling it to maintain appropriate and cost-effective staffing based on patient day levels. In addition, SJH has successfully recruited and retained an enormous number of recent nurse graduates as well as experienced nurses without resorting to the use of agency or contract nurses. It is also working closely with several local colleges to increase nursing enrollment. SJH will develop, recruit, and retain necessary staff to implement its proposal. While SJH competes with other hospitals for nursing personnel, the proposed satellite will have little impact on competing hospitals. UCH and TGH have consistently been able to obtain sufficient nursing staff to provide high-quality care at their facilities. UCH and TGH have impressive R.N. retention rates and are well below the state and national averages. Finally, SJH has sufficient funds for capital and operating expenditures to complete and operate the proposed satellite hospital. SJH will provide half of the $75 million project cost and finance the balance through the BayCare system. Section 408.035(7), Florida Statutes. The extent to which the proposed services will enhance access to health care for residents of the service district. In many ways, the SJH satellite hospital will enhance access to acute care and emergency services for the vast majority of patients residing in its proposed service area. First, commuting time will significantly decrease. Annually, the satellite's proposed service area supplies SJH Main with over 8,000 admissions from residents who endure significant traffic congestion and lengthy delays. Commuting time from the residential neighborhoods in the proposed service area to SJH Main has nearly doubled over the past ten years and is currently 45 minutes to an hour. The reliable travel time evidence demonstrates that the SJH satellite will significantly reduce travel times to acute care services for residents in Northwest Hillsborough County, including those in the Cheval, Northdale, Ehrlich Road, Lutz, and Lake Magdelane residential areas. Second, SJH's satellite hospital will significantly enhance patient access to emergency care and relieve pressure on the UCH Fletcher and SJH Main ERs. The SJH Main ER annually treats nearly 18,000 patients who originate from the satellite's proposed service area. It is reasonable to expect many of those patients to be redirected to the SJH satellite. Third, the SJH satellite proposal will provide another point of delivery access to HCFR and facilitate faster service to ER patients and improve "back-in-service" times for HCFR. Fourth, the availability of another ER in Northwest Hillsborough County will minimize the adverse effects of hospital bypass, and likely reduce the frequency of bypass by diverting volume from existing ERs. Fifth, the relocation of 76 acute care beds from SJH Main to the satellite will enable SJH to convert many of its underutilized, semi-private rooms into more usable, attractive, private rooms. Finally, redirection of volume from the urban SJH Main campus to a satellite campus in a high-growth, suburban area will reduce traffic congestion, minimize parking problems, save time, and save lives. Section 408.035(8), Florida Statutes. The immediate and long-term financial feasibility of the proposal. With respect to the project's short-term financial feasibility, SJH demonstrated that it can immediately finance the construction and implementation of the proposed satellite hospital project and meet its existing capital obligations. The satellite proposal is immediately financially feasible. With respect to the satellite's long-term financial feasibility, while the opponents argue that SJH's projected volumes, revenues, and expenses are inaccurate and unreasonable, SJH, on balance, sufficiently proved that the proposed satellite is financially feasible. Specifically, SJH's utilization projections are reasonable. As its basis for the projections, SJH relied on the expected population growth in the proposed service area and its historic levels of similar service in that area. Without doubt, the satellite's proposed service area, located in the northwest sector of Hillsborough County, is a region of rapid population growth and development. The population in the proposed service area has increased by 35 percent over the past ten years and is projected to grow much faster over the next three years. The area is being invaded by young adults, and the demand for obstetric services is dramatically increasing. SJH's historic levels of similar service in the area are persuasive. According to the un-refuted evidence, nearly 8,000 patient admissions, or 20 percent of SJH's existing inpatient volume, originated from the SJH satellite proposed service area, and 18,000 ER patient visits, or 17 percent of the entire SJH Main ER volume, derived from the proposed service area in 2002. In addition, SJH's strong presence in the proposed service area has enabled it to capture 32 percent of the patient days originating in the proposed service area. Given the existing patient days and expected population growth in the area, after culling out the tertiary and dissimilar services that the satellite will not provide, it is reasonable to expect that there will be over 121,000 available patient days in the proposed service area in 2007. The evidence also demonstrates that it is reasonable to expect the new satellite hospital to capture 40 percent of the patient days otherwise served at SJH Main. Moreover, given its market position, it is not unreasonable to expect the satellite to capture 15 percent of the available pool of non- tertiary patient days in the proposed service area by the second year of operation. In addition, SJH can expect 7.5 percent of the satellite patient days to originate from outside the service area thereby providing it with a reasonable projected utilization of nearly 20,000 patient days. Although the opponents argue otherwise, the evidence demonstrates that SJH's projected revenues are also reasonable. Again, SJH based the satellite's projected revenues, with some minor errors, on historic revenues for non-tertiary, non- specialty patients at SJH Main and conservatively assumed that it will achieve 90 percent of the 19,688 patient day utilization projections, or 17,800 patient days. After multiplying the financial-class-specific patient revenue per patient day by the financial-class-specific incremental patient days at the satellite facility, and applying a three percent annual inflation factor, the satellite reasonably expects approximately $1,604 in net revenue per adjusted patient day. The figure is consistent with the projected net revenue per adjusted patient day of $1,832 at SJH Main, $1,672 at UCH Fletcher, $1,432 at UCH Carrollwood and $1,408 at SFBH. SJH's projected expenses for its satellite hospital are also reasonable. SJH modeled its projections on similar historical expenses and determined that it will incur fewer maintenance expenses at the new hospital facility. Its pro forma allowances for plant operations and non-labor expenses per adjusted patient day are reasonable and consistent with the actual experience of UCH, UCH Carrollwood, Helen Ellis, Suncoast, SFBH, and Tampa General hospitals. SJH's staffing projection for new FTEs is also reasonable. The redirection of patient volume from SJH Main to the satellite will enable SJH to transfer some of its experienced FTEs to the satellite. New FTEs will be hired at the 2001 area market average salary rate for new registered nurses annually inflated by three percent. With respect to the reasonableness and appropriateness of SJH's pro forma, the opponents also argue that SJH fatally failed to include financial projections for the satellite on a stand-alone basis and, thereby, made it impossible to determine its long-term financial feasibility. The opponents assertions, while interesting, are not persuasive. AHCA's CON application forms require applicants to demonstrate the financial impact of the proposed project on the CON applicant. Within Schedules 7a and 8a of its application, SJH reasonably demonstrated the satellite's effect on SJH. Specifically, the first presented set of Schedules 7a and 8a entitled "Main" demonstrates SJH without the satellite hospital and provides a clear current baseline financial position for SJH. The second presented set of Schedules 7a and 8a, entitled "Satellite Hospital," demonstrates the projected financial benefit to SJH and the incremental increase in patient days when the satellite hospital is operational. SJH appropriately demonstrated the incremental financial benefit of the proposed project to the applicant, SJH. Furthermore, SJH's pro forma illustrate that even with an immediate loss in revenues to SJH arising from the transfer of patient days from SJH Main to the satellite, the project will generate revenues in excess of expenses in the long term. Logically, and obviously understood in the application pro forma, had SJH included a third pro forma showing the positive financial gain to the satellite relating to the additional revenues from the cannibalized patient days, the overall project would have shown even greater profitability. SJH's pro forma include and account for all revenues and expenses associated with implementation and operation of the satellite hospital. Moreover, AHCA supports SJH's method of presentation of the financial pro forma information in its CON application, and argues that it meets the Agency's requirements and is consistent with the method employed by other approved CON applicants. In light of the evidence, SJH's proposed satellite hospital project will achieve long-term financial feasibility. Section 408.035(9), Florida Statutes. The extent to which the project will foster competition that promotes quality and cost effectiveness. SJH's proposed satellite hospital will foster competition that promotes quality and cost effectiveness without significantly adversely affecting existing providers. The evidence demonstrates that the opponents will remain strongly competitive. Specifically, TGH is financially secure and will not be placed at material risk by the satellite hospital. While TGH is a safety-net provider and relies, in-part, on government funding, it achieved a net profit of $10.8 million in 2001, $56.2 million in 2002, and $25.7 million through May 2003, annualized to approximately $40 million. It also increased its admissions 10 percent from 2000 to 2002 and expects further gains. Furthermore, TGH marginally serves the rapidly developing area where the satellite will draw most of its patients. In fact, TGH receives less than one percent of its non-tertiary admissions in six of the nine ZIP codes which comprise SJH's proposed service area. TGH's projected adverse impact by the satellite hospital is overstated and unreliable. It is based on a contribution margin of $5,997 per adjusted admission and is completely inconsistent with SJH's margin for 2001 of $2,664, UCH Fletcher's contribution margin of $2,367, and UCH Carrollwood's contribution margin of $2,622. Similarly, UCH will experience only minor adverse effect from the satellite. UCH is financially strong and has limited capacity to absorb the anticipated growth in demand for acute care services. Although UCH's net profit numbers have fluctuated from 2001 through the second quarter of 2002, UCH is expecting a net profit greater than $5 million in 2003 and a net profit of $7.3 million in 2004. In addition, its inpatient admissions increased seven percent from 2000 to 2002. UCH's loss projections are patently overstated. It erroneously used a 4.2 average length of stay and exaggerated its projected lost admissions by nearly 20 percent. It admitted that the satellite would have its lowest admissions in the service area in the ZIP codes proximate to UCH, yet argued the satellite would draw admissions equally from all zip codes in the proposed service area including those immediately adjacent to UCH. It admitted that its obstetrical program will remain near capacity when the satellite is actually constructed, but argued that the satellite will substantially drain obstetric patients away. Although the satellite will inevitably draw some admissions away from UCH and TGH, the projected growth in patient days in the service area will offset any potential material adverse impact. The satellite will foster healthy competition, promote cost effectiveness, and provide faster quality health care in the area. Section 408.035(10), Florida Statutes. 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. On balance, the proposed costs and methods of construction are reasonable. The construction of the proposed satellite facility is projected to cost $49,560,000, or $652,105 per bed, which includes a 15 percent construction contingency. The satellite is expected to cost $175 per gross square foot and is reasonable, given the existing range in the area. While the total per bed "project cost" is nearly $1 million, as shown in Schedule 9, Line S, the figure is misleading. It includes nearly $20 million in equipment and other expensive, non-construction cost items. SJH also plans to construct a medical office building and imaging center prior to construction of the hospital. Upon completion of the hospital, a portion of the square footage of the imaging center will be integrated with the hospital, at minimal cost, and serve as the inpatient radiology department. SJH has committed to construct the building and has obtained the necessary permits. Although it is not CON reviewable, the construction cost for the facility, approximately $155 per square foot, is reasonable. Finally, the proposed architectural design for the satellite hospital is reasonable and satisfies applicable building codes. It consists of three medical-surgical pods of 16 beds each, one 14-bed intensive care pod, one 14-bed obstetrics pod, and one 16-bed observation pod. While the non- integrated, designed facility is rather large given its bed capacity, approximately 211,000 gross square feet, the satellite will consist of all private rooms and allow for future addition of licensed beds without major expansion or new construction. The design provides easy access and convenient parking. Notwithstanding the reasonableness of the construction costs and design, the opponents argue that there are less costly alternatives. First, the project could be rejected and the community could resort to the status quo. Given the evidence, including emergency data, denial is unreasonable. Second, the applicant could build a freestanding ER and/or an additional non-urgent care facility and minimize some of the existing problems. Given the evidence, including population trends and existing providers, the limited approach is unreasonable. Third, the applicant could be approved to build a scaled down version of its proposal. Although the facility is appropriate and reasonable as proposed in the application, a scaled down facility is clearly a less costly method of construction. However, there is insufficient evidence to determine whether a smaller version is a reasonable alternative. Section 408.035(11), Florida Statutes. The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. SJH has an impressive record of service to Medicaid patients and the medically indigent. It has long been recognized as a "safety net" provider of acute care services. In 2002, nearly 19 percent of SJH's total patient days were rendered to Medicaid-eligible patients. SJH also provides $40 million each year in uncompensated services to the community. It is a voluntary participant in the Hillsborough County Health Plan that provides funding for medically indigent or uninsured patients who do not qualify for Medicaid benefits. Consistent with its commitment to the community, SJH has conditioned approval of its CON on providing at least 15.6 percent of the satellite patient days to Medicaid and charity patients. Section 408.035(12), Florida Statutes. The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility. This criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued to approve the application. DONE AND ENTERED this 20th day of July, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER 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 20th day of July, 2004. COPIES FURNISHED: Lori C. Desnick, Esquire Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. Post Office Box 10909 Tallahassee, Florida 32302 Elizabeth McArthur, Esquire Radey, Thomas, Yon & Clark, P.A. 313 North Monroe Street, Second Floor Post Office Box 10967 Tallahassee, Florida 32301 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Kenneth W. Gieseking, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issue is whether the Agency should approve the Certificate of Need applications filed by Bethesda and/or JFK, each of which proposes to establish an 80-bed satellite hospital in the West Boynton area of Acute Care Subdistrict 9-5.
Findings Of Fact The Parties (1) Bethesda Bethesda operates Bethesda Memorial, which is a 362-bed not-for-profit hospital in Boynton Beach. Bethesda also operates Bethesda Health City, which is a “medical mall” located in the West Boynton area of South Palm Beach County. As a not-for-profit community-based health care organization, Bethesda’s mission is to provide quality health care services to the residents of South Palm Beach County that it serves regardless of their ability to pay. Bethesda Memorial opened in 1959 as a public hospital under the ownership of Palm Beach County’s former hospital taxing district. Bethesda Memorial was reorganized in 1984 as a private not-for-profit hospital owned by Bethesda. Bethesda Memorial provides tertiary-level care. Bethesda Memorial’s 362 licensed beds include 347 general medical-surgical (med-surg) acute care beds and a 15-bed Level II and Level III neonatal intensive care unit (NICU). A 28-bed comprehensive medical rehabilitation (CMR) unit will open at Bethesda Memorial in 2005, increasing the hospital’s licensed capacity to 390 beds. Not all of Bethesda Memorial’s licensed beds are available for general patient use; 14 of the beds are leased to a hospice program and 14 of the beds are operated under contract as a special care unit (SCU). The hospice lease and the SCU contract run through 2005. Even though the hospice lease and SCU contract have been profitable ventures for Bethesda, several Bethesda witnesses testified that those agreements would not be renewed if Bethesda Memorial needs those 28 beds to accommodate its general patients after its capacity is reduced through the transfer of 80 beds to its proposed satellite hospital; however, as of the date of the hearing, Bethesda had not taken any formal steps to terminate those agreements. It is unclear how the patients that are currently being served in the hospice unit and SCU would be served in the community if Bethesda terminates the agreements. Bethesda Memorial also has a 10-bed “VIP” unit that is generally available only to patients that have contributed at least $50,000 to Bethesda’s charitable foundation and are willing to pay an up-front $750.00 per day charge for the room; however, the beds in the VIP unit can be and have been utilized by other patients when all of the other beds in the hospital are full. Bethesda Memorial has a high-volume obstetrics (OB) program and an active emergency department (ED). Bethesda Memorial also offers a number of specialized programs including a comprehensive cancer program, a pediatrics program, a diagnostic cardiac catheterization program, and a wide variety of outpatient services. Bethesda Memorial is a well-utilized facility; its overall occupancy rate was 73.25 percent from July 2001 though June 2002. Bethesda Memorial does not currently offer interventional cardiology services or open heart surgery, but it has been attempting to get CON or legislative approval to offer those services for the past several years because of their profitable nature. Bethesda Memorial has designated, shelled-in space in its hospital for those services if it ever gets the necessary approvals. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at Bethesda Memorial or that would make such expansions cost-prohibitive. Bethesda recently purchased property adjacent to Bethesda Memorial and was able to get that property rezoned from residential to hospital use. It is unclear how large that property is and what use, if any, Bethesda has planned for that property. Bethesda also owns 1.4 acres of vacant property that is several blocks from Bethesda Memorial. The property is not currently zoned for hospital use, and because it is somewhat isolated from Bethesda Memorial, Bethesda intends to sell the property rather than develop it. Bethesda Memorial is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Bethesda Health City is a 135,000 square foot “medical mall” or “hospital without beds” that opened in 1995. The facility is located in the West Boynton area at the intersection of Hagan Ranch Road and Boynton Beach Boulevard, just east of the Florida Turnpike. Bethesda Health City offers services such as diagnostic imaging, outpatient rehabilitation, radiation therapy, and a woman’s center. The facility has offices for approximately 20 physician groups, and it also provides community outreach services targeted to the large senior population in the West Boynton area. Bethesda Health City was established to help Bethesda Memorial capture patients from the growing West Boynton area, and it has done so. There is capacity to add an additional 30,000 to 40,000 square feet of space to Bethesda Health City, and Bethesda intends to expand the facility whether or not its proposed satellite hospital is approved. Bethesda Health City provides Bethesda a significant physical presence in the West Boynton area. The facility has contributed to Bethesda Memorial’s significant and stable market share in the West Boynton area. In addition to Bethesda Memorial and Bethesda Health City, Bethesda administers a charitable foundation whose primary purpose is to fund Bethesda Memorial’s capital acquisitions and improvements. The foundation has considerable assets and is in the midst of a $100 million capital campaign through which it has already raised approximately $37 million. Bethesda Memorial experienced considerable and constant growth in its admissions and patient days between 1997 and 2003; its admissions grew by 45 percent and its patients days grew by 44 percent over that period. Bethesda Memorial is financially sound. It has substantial cash reserves and it is well-rated by the financial markets. The evidence was not persuasive that Bethesda’s current or long-term financial situation is distressed. Unlike other not-for-profit hospitals in District 9, Bethesda Memorial is a profitable hospital. Between 1997 and 2002, Bethesda Memorial’s operating income averaged approximately $5.5 million and in 2003, its operating income was approximately $7 million. In each of those years, the hospital also had significant non-operating revenues such that its total revenues over expenses during that period averaged approximately $10 million. The Bethesda system as a whole is also profitable. It had operating income of $2.4 million in 2002 and $2.1 million in 2001. Bethesda Memorial and the Bethesda system did not perform as well financially as JFK, Delray, or Wellington between 1997 and 2002; each of those hospitals had higher returns on assets, returns on equity, and total margin over that period than did Bethesda Memorial and Bethesda, and JFK and Delray had considerably more operating income over that period than did Bethesda Memorial. Bethesda Memorial’s CMR unit is projected to have a positive financial impact on Bethesda starting in 2005, and if approved, Bethesda Memorial’s open heart surgery program is also projected to have a positive impact on Bethesda’s long-term financial condition. (2) JFK JFK is owned by HCA, Inc. (HCA). HCA is nationwide, for-profit hospital chain. JFK is a 424-bed for-profit hospital in Atlantis, which is a small municipality in the Lake Worth area. JFK provides tertiary-level care. JFK is the most highly utilized hospital in District 9, and one of the most highly utilized hospitals in the state. JFK’s annual occupancy rate was 89.96 percent between July 2001 and June 2002, JFK is one of thee HCA hospitals in Palm Beach County. The others are Columbia and Palms West, both of which are in North Palm Beach County, Subdistrict 9-4. JFK operated as a not-for-profit hospital for approximately 30 years until it was purchased by HCA in 1996. Approximately $120 million of the purchase price paid by HCA was used to establish a charitable foundation, the Quantum Foundation, which funds a variety of health-related projects in the South Palm Beach County area. The services provided at JFK include orthopedics, cancer services, interventional cardiology and open heart surgery, neurologic services, and internal medicine. JFK does not offer pediatric or OB services. HCA has made significant capital improvements at JFK since it acquired the hospital. The community image of the hospital and the morale of its employees has significantly improved since the acquisition by HCA. JFK is accredited by JCAHO. JFK recently received a CON to add 36 beds, which will increase its licensed capacity to 460 beds. The beds will be located in shelled-in space on the fifth floor of JFK’s south tower, but they have not yet been brought on-line. JFK’s recently-constructed northwest tower was engineered so that an additional two floors can be added to that tower in the future, which would allow JFK to add 36 more beds. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at JFK beyond the 72 beds identified above. JFK is attempting to acquire a long-term lease for 19 acres across the street from its hospital that would be used for parking and medical office buildings. If that property is leased and developed, JFK may be able to free-up additional space for future bed expansions; however, the record does not establish the likelihood of the lease being consummated, the amount of space that might be freed-up if that property was developed, or any of the costs associated therewith. JFK recently constructed a medical office building in the West Boynton area that includes a wound care center and a diabetes center. That facility is on Jog Road, north of Boynton Beach Boulevard. Aside from the medical office building, JFK had not formally targeted the West Boynton area for expansion; its most recent strategic plan did not mention the prospect of locating a satellite hospital in that area. (3) Delray Delray is owned by Tenet Healthcare Corporation (Tenet). Tenet is a nationwide, for-profit hospital chain. Tenet operates four hospitals in Palm Beach County in addition to Delray, including West Boca Medical Center (West Boca) in South Palm Beach County, and Good Samaritan, St. Mary’s, and Palm Beach Gardens in North Palm Beach County. Delray is a 372-bed for-profit hospital in Delray Beach. Delray is located approximately 2.5 miles south of Atlantic Boulevard. Delray is in zip code 33484, but it is near the eastern boundary of zip code 33446. Delray opened in 1982, and is accredited by JACHO. Delray provides tertiary-level care. Delray is located on a “campus” that includes the hospital building, a 53-bed in-patient psychiatric facility known as Fair Oaks Pavillion (Fair Oaks), and a 90-bed CMR facility known as Pinecrest Rehabilitation Hospital. There is a separately-licensed 120-bed nursing home located adjacent to the campus. Delray’s 372 licensed beds include the 53 in-patient psychiatric beds at Fair Oaks, which is approximately 200 yards from Delray’s main hospital. Delray has added 108 beds to its hospital since 1996. Even with those bed additions, Delray remains a very highly utilized facility; its annual occupancy rate between July 2001 and June 2002 was 82.32 percent. Delray shelled-in space for an additional 31 beds as part of a recent expansion of its ED and ambulatory care unit. Delray intends to put those beds into service as soon as it can. Delray has the ability to further expand its hospital beyond the 31 beds planned for the shelled-in space. It already has local government approval for a total of 616 beds on its campus. The services provided at Delray include general medical and surgery services, trauma, interventional cardiology, open heart surgery, in-patient psychiatric services, orthopedics, and neurosurgery, with a special focus on chronically-ill elderly patients. Delray does not provide OB services. Delray has been the only provider of in-patient psychiatric services in South Palm Beach County since October 2001 when Bethesda Memorial discontinued its program. Delray has been a state-designated Level II trauma center since 1991, which requires it to have a neurosurgeon, trauma surgeon, and other specialists and specialized equipment available at all times. Delray receives funding from the local health district to help offset a large portion of the costs associated with providing its trauma services. Delray leases space in a medical office building in the West Boynton area where it provides diagnostic imaging, mammography, and laboratory services. Delray’s service area includes zip codes 33437, 33446, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Delray is currently, and historically has been a very profitable hospital. It reported a “total margin” of approximately $32.9 million on its May 2002 “Prior Year Report” filed with the Agency,4 and it reported operating income of $40.5 million in its audited financial statements for fiscal year 2003. (4) Wellington Wellington is owned by Universal Health System (Universal). Universal is a nationwide, for-profit hospital chain. Wellington is a 121-bed for-profit hospital in the northwestern portion of South Palm Beach County. Wellington is located in zip code 33414, approximately 2.5 miles south of Southern Boulevard at the intersection of State Road 7 (also known as U.S. Highway 441) and Forest Hill Boulevard. Wellington opened in 1986 as an osteopathic hospital, and approximately 25 percent of its current medical staff is osteopathic physicians. Wellington is accredited by JCAHO and the American Osteopathic Association. Wellington provides tertiary-level care. Wellington is easily accessible from Forest Hill Boulevard and State Road 7, and the hospital is served by the Palm Beach County bus system, which has a stop in Wellington’s parking lot. Wellington has made substantial capital improvements to its hospital over the past five years. Those improvements were designed to enhance the hospital’s efficiency in serving its current patients and also to anticipate future patient demand. Wellington owns 29 acres of property adjacent to the 26-acre site on which the hospital is located. The adjacent property is currently undeveloped and it is available for future expansions of Wellington. Wellington’s chief executive officer (CEO) testified that Wellington has a site plan approved for its undeveloped property and that it has “vested concurrency” for the future development of that property; however, that testimony was not corroborated (as was the case with Delray’s approved master plan) and therefore is not persuasive. The services at Wellington include an ED, an OB program, general medical and surgical care, an orthopedic unit, a comprehensive cancer center, a wound care center, a cardiology program with a dedicated cardiovascular intensive care unit, and an outpatient diagnostic center. Wellington’s OB program includes 18 labor rooms, 19 post-partum rooms and a 10-bed Level II NICU. Wellington delivers approximately six babies per day and has the capacity to deliver up to 15 babies per day. Wellington’s utilization has steadily grown over the years, but it is still one of the lowest utilized facilities in South Palm Beach County; its annual occupancy rate was 64.27 percent between July 2001 and June 2002. Wellington derives approximately 90 percent of its patients from a geographic area bounded by Military Trail on the east, the Loxahatchee National Wildlife Refuge on the west, Okeechobee Boulevard to the north, and Boynton Beach Boulevard to the south. That area includes zip codes 33414, 33437, 33463, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Wellington has teaching and training programs for physician assistants and certified nurse anesthetists under contracts with Florida International University and Florida Atlantic University. Wellington also has a family practice residency/internship teaching program for osteopathic doctors that is affiliated with Lake Erie School of Osteopathic Medicine, and a three-year dermatology teaching program. When Wellington was established in 1986, there was very little population in the western portion of South Palm Beach County to support the hospital. As a result, the hospital was unprofitable in its early years, and by 2000, it had accumulated a deficit of $22 million. Wellington’s financial performance has improved significantly in the past several years, but it still has a large accumulated deficit. Wellington is relying on its ability to retain or increase its market share in the growing West Boynton area in order to remain profitable and eliminate its accumulated deficit. (5) Agency The Agency is the state agency responsible for administering the CON program and licensing hospitals and other health care facilities. Application Submittal and Review and Preliminary Agency Action Bethesda and JFK each filed CON applications with the Agency in the first “hospital beds and facilities” batching cycle of 2003. Each application sought to establish a new 80- bed satellite hospital in the West Boynton area of South Palm Beach County, Subdistrict 9-5. The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero acute care beds in Subdistrict 9-5. There were no challenges to the published fixed need pool. The letters of intent and CON applications filed by Bethesda and JFK for their respective satellite hospitals were timely filed and complied with all of the technical submittal requirements in the governing statutes and rules. JFK’s letter of intent was filed within the “grace period” (see Florida Administrative Code Rule 59C-1.008(1)(d)2.) in direct response to Bethesda’s earlier-filed letter of intent. There is nothing inherently improper about a “grace period” letter of intent, and very little significance has been given to the responsive nature of JFK’s proposal in the comparative evaluation of the CON applications. A public hearing was held on the applications by the local health council on April 24, 2003.5 Presentations were made at the public hearing in support of and in opposition to the applications. The opposition came primarily from a representative of Delray; the support came from representatives of Bethesda and JFK and several residents of the West Boynton area. The reasons offered by the speakers for their opposition or support of the applications were essentially the same as those presented at the hearing, and no independent significance has been given to the testimony and “evidence” presented at the public hearing. Bethesda’s and JFK’s applications were comparatively reviewed by the Agency in accordance with the Agency’s rules and standard procedures. On June 13, 2003, the Agency issued its State Agency Action Report (SAAR) based upon its comparative review of the applications. The SAAR recommended approval of Bethesda’s application and denial of JFK’s application. The Agency’s published notice of intent to approve Bethesda’s application and to deny JFK’s application in the June 27, 2003, edition of the Florida Administrative Weekly as required by statute and Agency rule. The Agency reaffirmed its preliminary decisions on the applications through the hearing testimony of Jeffrey Gregg, the Bureau Chief of the Agency’s CON program. The petitions for administrative hearing challenging the Agency’s preliminary decisions on the CON applications at issue in this proceeding were all timely filed. Acute Care Subdistricts 9-4 and 9-5 The Agency calculates the inventory of acute care beds on a subdistrict basis, and it considers CON applications for additional acute care beds on a subdistrict basis. Palm Beach County is in District 9, which is divided into five subdistricts. Only two of the subdistricts, 9-4 and 9-5, are relevant in this case. Subdistrict 9-4 is North Palm Beach County, and Subdistrict 9-5 is South Palm Beach County. The dividing line between the two subdistricts is Southern Boulevard. There are six existing acute care hospitals in Subdistrict 9-5: Bethesda Memorial, JFK, Delray, Wellington, West Boca, and Boca Raton Community Hospital (Boca Community). Boca Community and Bethesda are the only not-for- profit hospitals in Subdistrict 9-5; the others are for-profit hospitals. The service area of Palms West, which is located on Southern Boulevard in Subdistrict 9-4, includes portions of Subdistrict 9-5 and the West Boynton area. The utilization of hospital services in Subdistrict 9- 5 has historically been higher than the utilization of hospital services in Subdistrict 9-4. In calendar year 2002, for example, the average occupancy rate of the Subdistrict 9-5 hospitals was 78.2 percent as compared to 55.6 percent for the Subdistrict 9-4 hospitals; and during the “peak season” of January through March 2002, the average occupancy rates were 88.4 percent in Subdistrict 9-5 and 62 percent in Subdistrict 9-4. The West Boynton Area The West Boynton area is an unincorporated area of South Palm Beach County. Its approximate boundaries are Congress avenue on the east, the Loxahatchee National Wildlife Reserve on the west, the L-30 canal (which is several miles north of Atlantic Avenue) on the south, and Hypoluxo Road on the north. The West Boynton area roughly corresponds to the geographic area that is included in zip codes 33436, 33437, 33463, and 33467. The Florida Turnpike, which runs north-south, roughly bisects the West Boynton area. The Turnpike is not a geographic barrier between the east and west portions of the West Boynton area, but it served as the de facto boundary of the urban service area until approximately 10 years ago when significant amounts of development began to “jump” the Turnpike. Boynton Beach Boulevard is the primary east-west road in the West Boynton area, although there are several other east- west arterial roads within the area including Lantana Road and Hypoluxo Road. Other major east-west roads in close proximity to the West Boynton area are Forest Hill Boulevard, Lake Worth Road, and Atlantic Avenue. There are several major north-south roads in the West Boynton area in addition to the Turnpike, including Jog Road, Hagen Ranch Road, and State Road 7. State Road 7 is the westernmost major north-south road in South Palm Beach County. As a result of local zoning restrictions, very little development in the West Boynton area is or will be west of State Road 7. The 2002 population of the West Boynton area, as defined by the four zip codes identified above, was approximately 156,000. There are seasonal variations in the population, but they are not as significant as the seasonal variations in the population of the more easterly portions of Palm Beach County. The population of the West Boynton area is projected to grow to approximately 181,000 by 2007, which corresponds to an annual growth rate of approximately 3.1 percent per year. That growth rate is higher than the annual growth rate projected over that period for the state as a whole (1.6 percent), Palm Beach County (two percent), and District 9 (1.9 percent). Approximately 89 percent of the 2003 population of the West Boynton area was located to the east of the Turnpike. The portion of the West Boynton area to the west of the Turnpike is projected to grow at a considerably faster rate through 2008 than the area to the east of the Turnpike, which is consistent with the extensive amount of residential development that is underway or approved in the West Boynton area west of the Turnpike. In 2002, approximately 28.6 percent of the residents of the West Boynton area were in the age 65 and older (“65+”) age cohort. That percentage is higher than the percentages in that age cohort for the state as a whole (17.5 percent), Palm Beach County (22.5 percent), or District 9 (22.5 percent). The 65+ age cohort is projected to remain the largest segment of the West Boynton area population through 2008. A large number of the existing residential communities and the communities under development in the West Boynton area are retirement communities that are deed-restricted to persons over the age of 55, which contributes to the higher percentage of the population in the 65+ age cohort currently and projected in the future. The West Boynton area is more affluent than and offers a better payer-mix than the existing service areas of Bethesda Memorial and JFK. As compared to the existing service areas of those hospitals, the West Boynton area has a lower percentage of uninsured residents, a higher percentage of Medicare and insured residents, a lower percentage of households with annual incomes below $20,000, and a higher percentage of households with annual incomes above $60,000. There is currently healthy competition in the West Boynton area for acute care services. That competition includes each of the four hospital parties in this case as well as several other hospitals. JFK, Bethesda, Wellington, and Delray, collectively accounted for approximately 72 percent of the discharges from the West Boynton area in calendar years 2000, 2001, and 2002. The percentage of the West Boynton area discharges attributable to each of those hospitals or, stated another way, the hospitals' market shares in the West Boynton area over that period are as follows6: JFK Bethesda Delray Wellington 2000 31.7% 23.2% 10.6% 6.1% 2001 30.1% 24.0% 11.2% 6.9% 2002 28.8% 23.9% 11.4% 7.7% There is no credible evidence that there will be any significant changes in those relative market shares over the five-year planning horizon applicable to the applications at issue in this case if a new hospital is not approved in the West Boynton area. Stated another way, the competitive balance that currently exists in the West Boynton market is expected to continue unless something disrupts that balance, such as the approval of a new hospital in the area. As discussed below, if either of the proposed satellite hospitals are approved, the market share of the approved hospital will increase to the detriment of the other hospitals. There is considerable community support for a new hospital in the West Boynton area from the residents of that area, as reflected in the letters of support included in the CON applications, the testimony at the local public hearing on the applications, and the deposition testimony from area residents and the related exhibits introduced at the hearing. The community support is not, on balance, directed to the approval of Bethesda's proposed satellite hospital over JFK’s proposed satellite hospital, or vice versa; it is simply for the expeditious approval of a hospital. Need for OB Services in the South Palm Beach County and/or the West Boynton Area There are currently four OB programs in Subdistrict 9-5. The programs are at Bethesda Memorial, Wellington, West Boca, and Boca Community. The evidence is not persuasive that an additional OB program is needed in Subdistrict 9-5. Indeed, Dr. Samuel Kaufman, an OB/GYN who has practiced in the area for many years, testified credibly that the four existing OB programs in the subdistrict are just now beginning to do enough deliveries to be efficient. There was no persuasive evidence that there are accessibility problems at the existing OB programs because of their utilization rates. Indeed, the OB unit at Wellington has the capacity to handle up to an additional nine deliveries per day. Each of the existing OB programs offers Level II and/or Level III NICU services, which is typically referred to as “NICU backup.” It is not feasible to provide NICU backup at a low-volume OB program such as the 10-bed OB unit proposed in JFK’s satellite hospital. It is important to have NICU backup because it is not uncommon for high-risk OB patients to unexpectedly present to the hospital and, in such circumstances, it is better for the child to have NICU services at the hospital where he or she is delivered rather than having to be transferred to another hospital. The standard of care in South Palm Beach County requires NICU backup and, based upon malpractice liability concerns, some OB/GYNs will not deliver babies at a hospital that does not have NICU backup. OB is among the top ten discharges in the proposed service area of JFK’s satellite hospital, which is not uncommon around the state; however, because of the lower average length of stay (ALOS) associated with an OB admission, the high number of discharges does not correlate to a large number of patient days in the service area. The population group that is most likely to utilize OB services is females between the ages of 15 and 44 (hereafter “the Female 15-44 age cohort”). Only 16 percent of the 2002 population of the West Boynton area was in the Female 15-44 age cohort, and that cohort is projected to grow at a slower annual rate (2.3 percent) than the population of the West Boynton area as a whole (3.1 percent) through 2007.7 The relatively small portion of the population in the Female 15-44 age cohort is consistent with the data showing the highest percentage of the population in the West Boynton area in the 65+ age cohort. It is also consistent with the testimony and evidence regarding the number of existing and planned deed- restricted retirement communities in the West Boynton area. The logic of including an OB unit in the proposed JFK satellite hospital is undercut by the recent closure of the OB unit at Columbia. According to Columbia’s CEO, Columbia’s OB unit was closed in 2002 because it “was a small unit” with a low volume, because the service area from which Columbia was drawing its patients was predominately elderly, and because there were several other hospitals within close proximity to Columbia that had larger OB units with NICU backup. Based upon those factors, Columbia’s CEO concluded that “there was no real community need to do OB” and that “it just didn’t make sense” to do OB. The same factors exist in the West Boynton area and, as a result, the comments of Columbia’s CEO are equally applicable to the inclusion of an OB unit in the proposed JFK satellite hospital. The Proposed Satellite Hospitals (1) Bethesda West Bethesda’s application, CON 9659, proposes to establish an 80-bed satellite hospital in the West Boynton area by de-licensing 80 beds at Bethesda Memorial and then transferring those beds to the proposed satellite hospital. The transfer of beds proposed in Bethesda’s application will not increase the inventory of acute care beds in either District 9 or Subdistrict 9-5. The 80-bed increase at Bethesda West will be offset by the 80-bed decrease at Bethesda Memorial, both of which are in Subdistrict 9-5. The beds transferred to Bethesda West will come from double-occupancy rooms, thereby allowing Bethesda Memorial to convert those rooms to private rooms. The conversion to private rooms will create efficiencies at Bethesda Memorial by eliminating gender-based or disease-based conflicts between patients that often arise with double-occupancy rooms. The transfer of 80 beds to Bethesda West will reduce Bethesda Memorial’s licensed capacity to 282 beds. That figure includes the 15 NICU beds, the 14 hospice beds, and the 14-bed SCU; therefore, after the bed transfer, Bethesda Memorial will have only 239 beds available for general patient use. Bethesda Memorial is projected to have 80,630 patient days (excluding NICU and CMR patient days) in Bethesda West’s second year of operation.8 That equates to an ADC of 221 patients and an occupancy rate of 92.4 percent for the 239 beds available for general patient use. If the hospice lease and the SCU contract are not renewed in 2005, then Bethesda Memorial would have 267 beds available for general patient use and its occupancy rate would be 82.7 percent. The non-renewal of the hospice lease and the SCU contract would not add new acute care beds to Subdistrict 9- 5 because those beds are still considered to be acute care beds for purposes of the Agency's bed inventory for the subdistrict, even though they are currently designated for specific purposes. With an annual occupancy rate of 92.4 percent or even 82.7 percent, there would likely be days on which Bethesda Memorial’s occupancy rate would exceed 100 percent. This is not an uncommon occurrence at the hospitals in Subdistrict 9-5, particularly during the “peak season” of January through March. Bethesda Memorial could operate efficiently and provide high quality care with an occupancy rate of 82.7 percent or 92.4 percent without adding new beds. Indeed, JFK and Delray each have similar occupancy rates (and even higher occupancy rates during the “peak season”), and it is undisputed that they provide high quality care. Because the addition of new acute care beds at an existing hospital is no longer linked to the hospital’s occupancy rate, Bethesda Memorial (like any other existing hospital) is free to add new acute care beds whenever it chooses to do so; however, the evidence was not persuasive that Bethesda will, in fact, add new beds at Bethesda Memorial after the bed transfer to Bethesda West notwithstanding the resulting high utilization rate at Bethesda Memorial.9 Bethesda West will include 68 general med-surg beds, 12 critical care beds, a full service ED, and related ambulatory and outpatient services. All of the beds at Bethesda West will be in private rooms. Bethesda West will not offer OB services or dedicated pediatric services, and it will not include a cardiac catheterization lab. Bethesda West will be in a new 190,130 square foot building. The space plan for Bethesda West is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of Bethesda West is also reasonable. Bethesda West will be located at the intersection of Boynton Beach Boulevard and State Road 7, which is approximately two miles west of the Turnpike. That location is three miles from Bethesda Health City, eight to nine miles from Wellington, and ten to 11 miles from Delray, JFK, and Bethesda Memorial. Bethesda West could not be collocated with Bethesda Health City because there is not enough property at that location to construct a satellite hospital with the necessary parking facilities. Bethesda has contracted to purchase 54 acres of property at the intersection of Boynton Beach Boulevard and State Road 7 known as the “Amestoy Property.” The purchase price of the Amestoy Property was $110,000 per acre. Bethesda intends to develop Bethesda West on approximately 30 acres of the Amestoy Property and then lease or sell the remainder of the property for the development of medical office buildings. A 30-acre site is adequate for the proposed 80-bed satellite hospital, although it may inhibit future expansion. Bethesda West intends to utilize the same medical staff as Bethesda Memorial; however, Bethesda has not discussed the issue with its medical staff as a whole10 nor has it developed specific plans to implement its dual-staffing approach. Bethesda West will share management and administrative support services with Bethesda Memorial rather than duplicating those services. The total cost of Bethesda West is $73.8 million. The primary service area (PSA) for Bethesda West consists of zip codes 33436, 33437, 33463, and 33467, which roughly correspond to the boundaries of the West Boynton area. The hospital’s secondary service area (SSA) includes zip codes 33414 and 33446. There is significant overlap in the proposed service area of Bethesda West and the current service area of Bethesda Memorial; four of the six zip codes in Bethesda West’s service area are in Bethesda Memorial’s service area. There is also significant overlap between the proposed service area of Bethesda West and the service areas of Delray, Wellington, and JFK; each of the zip codes in Bethesda West’s proposed service area is also within the service area of at least two of those hospitals. Bethesda West is projected to have 10,430 patient days in its first year of operation and 14,570 patient days in its second year of operation. Those patient days equate to ADCs of 29 and 40, and occupancy rates of 35.7 percent and 49.9 percent in the first and second years of operations. By the fourth year of operation, Bethesda West is projected to have an ADC of 56, which equates to an occupancy rate of 65.2 percent. These occupancy rates are reasonable, as is the “ramp up” concept on which they are based. The projected utilization at Bethesda West is based upon an ALOS of 4.6 days. That ALOS was derived from information in the Agency’s in-patient database for residents of the West Boynton area who received in-patient services of the kind that would be offered at Bethesda West. It is a reasonable ALOS.11 The projected utilization assumes that Bethesda West will have an overall market share of 7.5 percent in its service area in the first year of operation, and that Bethesda West’s overall market share will increase to 13.5 percent by its fourth year of operation. Bethesda West is not projected to have a market share of greater than 15 percent in any individual zip code until its third year of operation. The utilization and market shares projected for Bethesda West are reasonable and attainable based upon the demographics and projected population growth in the West Boynton area. Bethesda West is projected to take patients from the hospitals that currently serve the West Boynton area, including Bethesda Memorial. Bethesda's application projects that 3,040 patients from Bethesda Memorial will be “redistributed” to, or “cannibalized” by Bethesda West in Bethesda West’s first year of operation and that the number will increase to 4,530 patients in Bethesda West's second year of operation. The remainder of Bethesda West’s projected patient days – 7,390 in its first year of operation and 10,040 in its second year of operation – will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to these projected in-patient admissions, Bethesda West is projected to have outpatient registrations ranging from 22,440 (first year of operation) to 46,310 (fourth year of operation) and ED visits ranging from 8,990 (first year of operation) to 19,720 (fourth year of operation). The projected outpatient registrations and ED visits are reasonable and attainable. Some of the outpatient registrations at Bethesda West will come at the expense of Bethesda Health City because it is currently providing some of the same outpatient services that are proposed for Bethesda West. There is no persuasive evidence quantifying the number of Bethesda West’s outpatient registrations that would have otherwise gone to Bethesda Health City, nor is there any persuasive evidence quantifying the financial impact of the redistribution of those outpatients. (2) Proposed JFK Satellite Hospital JFK’s application, CON 9660, proposes to establish an 80-bed satellite hospital in the West Boynton area by de- licensing 80 beds at Columbia and then transferring those beds to the proposed JFK satellite hospital. Columbia is located in Subdistrict 9-4 and, like JFK, it is an HCA hospital. The bed transfer proposed by JFK will increase the inventory of acute care beds in Subdistrict 9-5 by 80 beds, but the bed inventory in District 9 will remain the same; the 80-bed increase in Subdistrict 9-5 at JFK’s proposed satellite hospital will be offset by an 80-bed decrease in Subdistrict 9-4 at Columbia. Columbia has 250 licensed beds, of which 150 are acute care beds, 12 are skilled nursing beds, and 88 are psychiatric beds. Columbia’s acute care beds include a 20-bed intensive care unit/critical care unit (ICU/CCU), but only 10 of those beds are currently being used. The 12-bed skilled nursing unit is not currently being used. The acute care beds at Columbia are not well- utilized. In calendar year 2002, the utilization rate for Columbia’s 150 acute care beds was only 40 percent and during the “peak season” in 2002, the utilization rate of those beds was only 47.6 percent. The proposed bed transfer would enable Columbia to convert its existing semi-private rooms to private rooms, but according to Columbia’s CEO, to do so Columbia would also need to convert its 12 skilled nursing beds to acute care beds. JFK’s CON application did not make reference to that necessary bed conversion. The conversion of the 12 skilled nursing beds to acute care beds may require Agency approval, which Columbia had not requested as of the date of the hearing. If the bed conversions described by Columbia’s CEO did not occur, the utilization rate of the 70 remaining acute care beds at Columbia after the transfer will likely exceed 80 percent on an annual basis and, during the “peak season,” the occupancy rate will likely exceed 100 percent. Indeed, applying the number of patient days at Columbia in calendar year 2002 to 70 beds results in an annual occupancy rate of 85.7 percent and an occupancy rate of 102 percent in the “peak season.” Under the pre-2004 law, those occupancy rates would allow Columbia to add beds without CON review, and Columbia’s CEO testified that she would take steps to add beds at Columbia if necessary based upon the facility’s occupancy rates after the bed transfer. There is no credible evidence that JFK planned to construct a satellite hospital in the West Boynton area prior to February 2003. The proposal was not included in any of JFK’s strategic or business plans prior to that date. There is also no credible evidence that the Columbia planned to de-license any beds at its facility prior to the CON application at issue in this proceeding; Columbia’s long-term business plan includes the beds that are being transferred to JFK’s proposed satellite hospital. The decision to de-license and transfer 80 beds from Columbia was made by HCA officials, not Columbia’s management team. The proposed JFK satellite hospital will include 60 general med-surg beds, a 10-bed OB unit, a 10-bed ICU/CCU, a full-service ED, and surgical suites. The hospital will provide radiation oncology services, diagnostic cardiac catheterization services, and outpatient psychiatric services, and all of its beds will be in private rooms. In addition to the 80 beds described above, the proposed JFK satellite hospital will have a 12 “observation” beds in private rooms. The observation beds will be sized and equipped in the same manner as the general med-surg beds. As a result, the proposed JFK satellite hospital will effectively have 92 beds even though it will only be licensed for 80 beds. The proposed JFK satellite hospital will be in a new 195,195 square foot building. The space plan for the hospital is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of the hospital is also reasonable. The proposed JFK satellite hospital will be located at the intersection of Boynton Beach Boulevard and the Turnpike on a 50-plus acre site known as the “Mazzoni Property.” That location is eight to nine miles from Delray and Bethesda Memorial, and 11 to 12 miles from Wellington and JFK. JFK has offered to purchase the Mazzoni Property for $130,000 per acre, but as of the date of the hearing, it had not entered into a contract to purchase the property. Bethesda had been in negotiations for the purchase of the Mazzoni Property at a similar price before it settled on, and entered into a contract to purchase the Amestoy Property. Like Bethesda, JFK intends to develop medical office buildings on its site in addition to the proposed satellite hospital. The size of the Mazzoni Property is adequate for those purposes. JFK intends to utilize its medical staff to cover the proposed satellite hospital; however, there is no credible evidence in the record detailing how the dual-staffing would work. The proposed JFK satellite hospital will share some of its management and administrative support services with JFK, but not to the same extent as those services are shared between Bethesda West and Bethesda Memorial. Indeed, the proposed JFK satellite hospital was planned and staffed as a “stand alone economic entity.” The total cost of the proposed JFK satellite hospital is approximately $109.8 million. The service area of JFK’s proposed satellite hospital is considerably larger than the service are of Bethesda West. The PSA consists of zip codes 33437, 33467, 33446, and 33484; the SSA consists of zip codes 33436, 33463, 33414, 33413, 33445, 33496, and 33498. There is significant overlap between the service area of the proposed JFK satellite hospital and the existing service areas of Bethesda, Delray, Wellington, and JFK; each of the zip codes in the proposed service area is within the service area of at least two of those hospitals. Zip codes 33437 and 33467 are expected to generate over 92 percent of the patients for the proposed JFK satellite hospital. The inordinately high number of patients that these two zip codes are expected to generate calls into question the reasonableness of service area defined by JFK, or at least the relevance of the SSA. The proposed JFK satellite hospital is projected to have 20,851 patient days in its first year of operation and 21,576 patient days in its second year of operation, which equate to ADCs of 57 and 59 and occupancy rates of 71.4 percent and 73.7 percent. By the fifth year of operation, the proposed JFK satellite hospital is projected to have an occupancy rate of percent. The projected utilization of the proposed JFK satellite hospital was based on an ALOS of 3.9 days. That figure is reasonable. See Endnote 11. To achieve the projected utilization, the proposed JFK satellite hospital will have to immediately achieve inordinately high market shares in its two primary zip codes, 33437 and 33467. Indeed, the CON application projects that the proposed JFK satellite hospital will have a 27 percent market share in zip code 33437 and a 24 percent market share in zip code 33467. It is unreasonable to expect that a new, start-up hospital will be able achieve the market share or utilization rates projected by JFK for its proposed satellite hospital even though it will be affiliated with JFK, which has an established market reputation in the area. Instead, similar to other new hospitals, the proposed JFK satellite hospital will likely have a “ramp up” period before it achieves its target market penetration and/or utilization. The 10-bed OB unit at the proposed JFK satellite hospital is projected to have an ADC of 6 in each of the first two years of operation, and approximately one half of the admissions are projected to come from zip code 33467. That zip code has fewer residents in the Female 15-44 age cohort than does zip code 33463, which is in the West Boynton area but is in the SSA of the proposed JFK satellite hospital. The utilization of the OB unit assumes market shares of 65 percent in zip code 33437, which is the zip code where the proposed JFK satellite hospital will be located (i.e., its “home zip code”), and 60 percent in the adjacent zip code 33467. Those market shares are not inherently unreasonable for OB services since OB patients are more likely to utilize a facility closer to their home; however, the market shares are materially higher than the market shares that the established programs at Palms West (45 percent) and Wellington (41 percent) have in their home zip codes. The market shares proposed for the other zip codes in the proposed JFK satellite hospital’s service area are also somewhat higher than would be expected, particularly for a start-up OB program, but they are not inherently unreasonable. Even though the OB market shares assumed by JFK are not inherently unreasonable, they are unrealistic under the circumstances of this case because the OB unit at the proposed JFK satellite hospital will not have NICU backup, which is the standard of care in South Palm Beach County, and it is unlikely that obstetricians will refer their patients to the proposed satellite hospital when other hospitals with NICU backup (e.g., Wellington and Bethesda Memorial) are available in close proximity to the West Boynton area. The patient days for the OB unit were projected based upon a population-based use rate rather than based upon a fertility rate applied to the Female 15-44 age cohort. Because the Female 15-44 age cohort is growing at a slower rate than the population as a whole, JFK’s methodology had the effect of overstating the OB patient days and the ADC of the OB unit. The fertility rate methodology is a more reasonable approach under the circumstances of this case. That methodology results in an ADC of only two to four patients in the OB unit at the proposed JFK satellite hospital, which is a more reasonable projection and is more consistent with the largely elderly demographic of the West Boynton area. In sum, the projected utilization of the proposed JFK satellite hospital is overstated, particularly in the first two years of operation, as a result of the unrealistic market shares projected for the hospital’s two primary zip codes and the overstated projection of OB patient days in the West Boynton area. The proposed JFK satellite hospital is projected to take patients from the hospitals that currently serve the West Boynton area, including JFK. JFK projects that approximately 40 percent of its patients will be “cannibalized” by the proposed JFK satellite hospital, which is a materially higher percentage than that projected for Bethesda West in its first (29.1 percent) and second (31.1 percent) years of operation. The remainder of the proposed JFK satellite hospital’s admissions will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to the projected in-patient admissions discussed above, the proposed JFK satellite hospital is expected to have outpatient registrations and ED visits; however, the number of registrations and visits is not expressly projected in the application. Accordingly, it cannot be determined whether those projections are reasonable or not.12 Institution-specific Justifications for the Proposed Satellite Hospitals Other than the prospect of enhancing access to acute care services for residents of the West Boynton area (see Part I(1)(b) below), the primary justifications offered by Bethesda and JFK for their respective satellite hospitals were institution-specific. The primary justification offered by Bethesda for the establishment of Bethesda West was its need to maintain or increase its market share of the favorable payer-mix in the West Boynton area in order to ensure its long-term financial viability. Although the evidence establishes that the West Boynton area has a more favorable payer-mix than Bethesda Memorial’s current service area, the evidence was not persuasive that Bethesda’s long-term financial viability is at risk or that it is at risk of losing market share in the West Boynton area if it is not allowed to construct Bethesda West. Bethesda also presented evidence regarding its inability to add new beds at Bethesda Memorial because of physical and/or cost constraints, but that evidence was not persuasive. The primary justification offered by JFK for the establishment of its proposed satellite hospital was its inability to expand its current facility to accommodate patients coming from the West Boynton area or elsewhere; however, the preponderance of the evidence fails to support that claim because, as of the date of the hearing, JFK still had the ability to add at least 72 more beds to its existing facility, including 36 beds without any additional construction. Impact of the Proposed Satellite Hospitals on the Existing Hospitals in Subdistrict 9-5 The evidence is not persuasive that Bethesda West or the proposed JFK satellite hospital can achieve their in-patient utilization projections through population growth in their projected service areas alone. Instead, the evidence establishes that the proposed satellite hospitals will achieve their projected utilization primarily by taking patients who are currently being served by, or would otherwise be served by one of the existing hospitals in Subdistrict 9-5. Bethesda West and the proposed JFK satellite hospital are each projected to “cannibalize” patients from Bethesda Memorial and JFK, respectively; however, they will also take patients “out of the hide” of Delray, Wellington, and each other. The projected growth in the West Boynton area will result in the existing hospitals having more patient days in the future than they currently have, whether or not either of the satellite hospitals is approved; however, the approval of either of the proposed satellite hospitals will result in the existing hospitals losing some of the growth-related admissions that they would have otherwise captured. It is appropriate to consider the loss of those growth-related admissions as part of the impact analysis because the market shares in the West Boynton area and the service areas of the proposed satellite hospitals have been relatively stable over the past several years, and it is reasonable to expect that absent a significant change of circumstances (such as the approval of a satellite hospital in the area) the existing hospitals would continue to maintain their respective market shares into the future.13 The most persuasive analysis of the impact on the existing providers of the approval of the proposed satellite hospitals is that prepared by Wellington’s health planner, Thomas Davidson (Exhibit W-4). Based upon Mr. Davidson’s analysis, the number of admissions that the existing providers would lose because of Bethesda West in its first two years of operation are as follows: Year 1 Year 2 Delray 377 512 Wellington 138 187 JFK 554 752 Based upon Mr. Davidson’s analysis, the number of patient days that the existing providers would lose because of the proposed JFK satellite hospital in its first two years of operation are as follows: Year 1 Year 2 Delray 1,035 663 Wellington 735 615 Bethesda 1,638 1,178 These lost admissions and patient days constitute a substantial adverse impact on the existing hospitals, as does the loss of income resulting from the lost admissions and patient days. The proposed JFK satellite hospital will have a slightly greater adverse financial impact on Wellington than will Bethesda West, primarily because of the OB program and larger service proposed for the JFK satellite hospital; the proposed JFK satellite hospital and Bethesda West will have materially similar adverse financial impacts on Delray. The overall effect of the lost admissions, patient days, and the resulting loss of income is greater on Wellington than it is on any of the other hospitals because Wellington has historically been less profitable than the other hospitals. There are other adverse impacts on the existing providers, including the increases in costs and/or potential impacts to quality of care resulting from the exacerbation of the emergency room (ER) call shortage of specialty physicians discussed below; however, there is no persuasive evidence quantifying those impacts. Comparative Evaluation of the CON Applications Based Upon the Applicable Statutory and Rule Criteria There is no credible evidence to justify the approval of two 80-bed hospitals in the West Boynton area. As a result, if either of the proposed satellite hospitals is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria. Statutory Criteria – Section 408.035, Florida Statutes (2003)14 Subsection (1): Need in Relation to the District Health Plan15 The applicable provisions of the Local Health Plan for District 9 are as follows: Priority shall be given to area hospitals, which can show a commitment to, or historical record of service to Medicaid/indigent, handicapped and underserved population groups. Priority shall be given to applicants who can document cost containment practices in their facilities. Cost containment practices, such as sharing services with other area hospitals, enhances efficient resource utilization and assists in avoiding duplication of services. Priority shall be given to an applicant who proposes to use existing space rather than new construction, including space created by previous voluntary de- licensure of underutilized or unused beds and/or through transfer of beds within a subdistrict. As more fully discussed below in connection with Section 408.035(11), Florida Statutes, the first preference weighs in favor of Bethesda based upon its historical record of service to Medicaid and charity patients, which is marginally better than JFK’s record, and its commitment to provide five percent of the patient days at Bethesda West to Medicaid and charity patients, which is more realistic than JFK’s 10 percent commitment; however, the weight associated with this preference is minimal in light of the demographics of the West Boynton area, which is generally more wealthy and, hence, less likely to generate significant Medicaid or charity care patient days. As to the second preference, the record does not “document” any material cost containment practices at JFK or Bethesda Memorial. JFK and Bethesda each intend to use their existing medical staffs to cover their proposed satellite hospitals as a cost-containment effort; however, Bethesda has proposed a greater degree of integration (and, hence, less duplication) in the administrative functions at Bethesda West and Bethesda Memorial than did JFK at is proposed satellite hospital. Thus, the second preference also marginally weighs in favor of Bethesda. As to the third preference, both applicants are proposing new construction rather than the use of existing space. Although JFK is proposing the de-licensure of underutilized beds at Columbia, it is not using the space created by those beds for its proposed satellite hospital as the rule preference contemplates. The beds that Bethesda is transferring to Bethesda West are not underutilized and they are being transferred to a new to-be-constructed facility rather than to existing space. In sum, the local health plan preferences marginally weigh in favor of the approval of Bethesda’s application over JFK’s application. Subsections (2) and (7): Availability, Quality of Care, etc. of Existing Facilities and Enhancing Access The primary justification offered by the applicants for their respective proposed satellite hospitals (other than the hospital-specific issues discussed above) is that the facility will "enhance access" to acute care services for residents of the West Boynton area. More specifically, the applicants contend that the establishment of a new hospital in the West Boynton area will address an “access” problem that exists or soon will exist in the area. As discussed below, this contention is not supported by the preponderance of the evidence. In the CON context, “access” is typically evaluated from the vantage points of programmatic, financial, cultural, and geographic access. “Programmatic access” refers to the adequacy of the programs and services provided at existing facilities in relation to the specific health care needs of the persons served by those facilities. Programmatic access concerns arise when specific programs or services are not available for patients that need them, or when the quality of care provided in the existing programs is inadequate. The evidence was not persuasive that there are any programmatic access problems in Subdistrict 9-5 and, in any event, neither of the proposed satellite hospitals would enhance programmatic access in the subdistrict because they will not offer any programs or services that are not already offered at one or more of the tertiary hospitals in the subdistrict that currently serve the West Boynton area. Indeed, the proposed satellite hospitals will offer a more narrow range of services than the existing tertiary hospitals presently serving the area. This is significant because the elderly, who make of a large portion of the West Boynton area and who are more likely to have co-morbidities or more complex medical needs, are generally better served in a hospital offering tertiary services and more complete care. Similarly, it is reasonable to expect that many physicians will continue to admit their patients to the larger tertiary hospitals rather than shifting those patients to a satellite hospital that provides a more narrow range of services. “Financial access” refers to the extent to which persons have access to health care services without regard to their ability to pay. The evidence was not persuasive that there are any financial access problems in Subdistrict 9-5 or the West Boynton area that the proposed satellite hospitals will address. None of the existing hospitals that serve the West Boynton area have policies or practices that discourage indigent patients from seeking care at their facilities and, in any event, the low- income population makes up a relatively small portion of the West Boynton area. Cultural access” refers to the extent to which certain persons cannot or do not access the existing facilities due to cultural factors such as race, ethnicity, and national origin. Cultural access was not advanced by Bethesda or JFK as a basis for the approval or their respective applications. “Geographic access” refers to the physical accessibility of the existing facilities or services in a subdistrict taking into account population density, distance and time of travel, and geographic barriers or other impediments to access. Geographic access has been referred to as a “foundation of health planning.” Bethesda and JFK focus primarily on the projected growth of the West Boynton area and the road congestion that comes with that growth as the basis for their contention that there is, or soon will be a access problem for residents of the West Boynton area; Bethesda states in its PRO (at page 29) that "[g]eographic access is at the heart of [its] proposal." A reasonable geographic access standard for persons living in an urban area is a drive time of 30 to 40 minutes to an acute care hospital. Under that standard, there is currently no geographic access problem for residents of the West Boynton area. Indeed, there are as many as 12 hospitals within a 30-minute drive of the West Boynton area, and a “fair number” of residents have access to four hospitals -– Bethesda, JFK, Wellington, and Delray -- within a 15 to 20-minute drive time.16 All of the hospitals within the 30-minute drive time offer tertiary-level care, and a number of them offer OB services. There are no physical geographic barriers that limit access to the existing hospitals by residents of the West Boynton area. Indeed, there are a number of different major north-south and east-west roads that residents have to chose from when accessing the existing hospitals, and most of those roads have at least four lanes. The major roads in the West Boynton area have expanded along with growth of the population in the area, and they are expected to continue to do so. The infrastructure plan adopted by Palm Beach County includes continued road expansions and improvements over the planning horizon applicable to this case, and developers are often required to widen or otherwise improve the roads as a condition of the approval of new development. There is insufficient evidence that the current travel times are significantly different for the elderly population in the area. The anecdotal testimony offered by various Bethesda witnesses was not persuasive. The evidence was not persuasive that the travel times will be materially higher over the applicable five-year planning horizon. The analysis and opinion presented by Bethesda’s traffic engineer on this issue was not persuasive.17 The concurrency analysis performed by Bethesda’s traffic engineer only assessed Boynton Beach Boulevard; it did not assess any of the other major roads between the West Boynton area and the existing hospitals. Moreover, the analysis focused on the level of service (LOS) on various segments of Boynton Beach Boulevard, as measured by the projected number of trips on those segments in 2007; it did not quantify the increase in travel time along that road, if any, resulting from the reduction in the LOS which the analysis showed. The hospitals in Subdistrict 9-5 are some of the most highly-utilized hospitals in the state; however, the evidence was not persuasive that the high utilization at these hospitals has caused any access problems for residents of the West Boynton area, either for general acute care services or for OB services. The existing hospitals in Subdistrict 9-5 have been able to meet the needs of the subdistrict by incrementally expanding their facilities when the need arises. An additional 67 beds can be added to the bed inventory of Subdistrict 9-5 without any additional construction; JFK has shelled-in space for 36 new beds and Delray has shelled-in space for 31 new beds. Additionally, Delray has a master plan that has been approved by Palm Beach County that will allow it to add as many as 123 more beds on its current campus as needed, and Wellington also has plenty of space on the undeveloped property adjacent to its hospital to add more beds as needed. Having a hospital in the West Boynton area might be more convenient for residents of that area west of the Turnpike, at least in those instances where the patient is able to receive all of the necessary care at that hospital; however, convenience alone is not valid basis for the approval of a new hospital, particularly where there are as many as 12 tertiary-level hospitals within a 30-minute drive of the West Boynton area. In sum and on balance, the criteria in Subsections 408.035(2) and (7), Florida Statutes, weigh strongly against approval of either application. Indeed, despite the relatively high utilization rates at the existing hospitals in Subdistrict 9-5, the preponderance of the evidence fails to establish that there currently are, or that over the applicable planning horizon there will be any material deficiencies in the availability, quality of care, or accessibility of the existing hospitals in the subdistrict that would warrant the approval of a new hospital in the West Boynton area at this time. Subsection (3): Ability of Applicant to Provide Quality of Care The parties do not dispute the quality of care provided at any of the existing hospitals in Subdistrict 9-5, and the evidence affirmatively demonstrates that a high quality of care is currently provided at Bethesda Memorial, JFK, Delray, and Wellington. Bethesda and JFK each intend to rely on their existing medical staff, at least in part, to staff their respective satellite hospitals. As a result, the quality of care provided at the satellite hospitals will also be good, but it will be less than ideal in several respects. First, neither satellite hospital will offer interventional cardiology services, which is, or is becoming the standard of care for treating heart attack patients that present to the hospital’s ED. Second, JFK’s proposed satellite will offer OB services without NICU backup, which is below the standard of care in South Palm Beach County. Accordingly, the criterion in Section 408.035(3), Florida Statutes, weighs against the approval of either application. Subsection (4): Special Health Care Services The parties stipulated that this criterion is inapplicable, and in any event, the criterion was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004. Subsection (5): Educational Facilities and Training Programs18 Neither JFK nor Bethesda Memorial is a teaching hospital, and neither is proposing educational or training programs at its proposed satellite hospital. The evidence was not persuasive that Wellington’s teaching programs will be adversely affected by the approval of either of the proposed satellite hospitals. The criterion in Section 408.035(5), Florida Statutes, does not materially weigh in favor of or against the approval of either of the applications. Subsection (6): Availability of Resources and Personnel for Operations The parties stipulated that Bethesda and JFK each have the ability to fund the capital and operating expenditures for their proposed satellite hospitals. The reasonableness of the financing-related costs proposed by Bethesda and JFK in their respective applications is also not in dispute. Delray and Wellington argue that neither Bethesda nor JFK will be able to adequately staff their proposed satellite hospitals due to physician and nurse shortages in South Palm Beach County and/or that the staffing of the proposed satellite hospitals will make it more difficult and costly for the existing hospitals in Subdistrict 9-5 to staff certain programs. Bethesda and JFK challenge the adequacy of each other’s staffing projections. As more fully discussed below, the evidence is not persuasive that the staffing projected for either of the proposed satellite programs is inadequate; however, the evidence establishes that the approval of either program would exacerbate physician shortages in Subdistrict 9-5 in certain specialties. Bethesda West’s staffing projections include 242.8 full-time equivalents (FTEs) in the first year of operation and 294.5 FTEs in the second year of operation. The staffing projections for the proposed JFK satellite hospital include FTEs in the first year of operation and 448.5 FTEs in the second year of operation. The disparity in the staffing levels primarily results from the higher occupancy rate projected at the proposed JFK satellite hospital, which is projected to be 71.4 percent in the first year of operation. By contrast, the occupancy rate at Bethesda West is projected be 35.7 percent in the first year of operation and then “ramp up” to approximately 69 percent by the fourth year of operation. The staffing levels at each of the proposed satellite hospitals are reasonable based upon the ADCs projected and the services to be provided at each hospital. Indeed, the staffing levels are comparable when viewed as a ratio of staff to projected ADC; the ratios at Bethesda West are 8.37 and 7.36 in the first two years of operation, and the ratios at the proposed JFK satellite hospital for its first two years of operation are 7.74 and 7.60. The evidence is not persuasive that Bethesda West’s staffing projections are understated or that they fail to include nursing and other positions necessary to ensure high quality care is provided. Nor is the evidence persuasive that the salaries projected for Bethesda West’s staff are understated. The evidence is not persuasive that the staffing projections for the proposed JFK satellite hospital are inherently unreliable based upon the manner in which they were prepared or as a result of the proxy that was used as a basis of the projections. There is a nursing shortage statewide and in South Palm Beach County, but it is not as severe as it has been in the past. Indeed, it is significant that despite the large number of beds added over the past five years at the various hospitals in South Palm Beach County, those beds have been adequately staffed with nurses and ancillary clinical personnel. JFK and Bethesda Memorial have each been successful in recruiting nursing staff despite the nursing shortage. They each have implemented innovative programs to aid in their recruiting efforts and to reduce their turnover and vacancy rates, and those programs are expected to be utilized at the proposed satellite hospitals. JFK and Bethesda Memorial each use “traveler” and per-diem nurses to supplement their full time nursing staffs, which is not uncommon in South Palm Beach County. Typically, a physician who has privileges at a hospital is required to be on ER call on a rotational basis. Many physicians have privileges at more than one hospital in South Palm Beach County, which means that they are responsible for providing ER call coverage at more than one hospital. Because of malpractice and other concerns, it is becoming increasingly difficult for hospitals to attract physicians who are willing to take ER calls. The Palm Beach County Medical Society and the CEOs of the existing hospitals in the county met as recently as December 2003 to discuss the problems related to ER call coverage; however, as of the date of the hearing, the problem still existed and was severe. It is possible for a physician to be providing ER calls to more than one hospital at the same time. This can become a serious problem if the physician is attending to a patient at one hospital when he or she is called to the ER at another hospital. The problem of ER call coverage is most significant in specialties such as neurosurgery, hand surgery, urology, OB, and ear/nose/throat. Several of the hospitals in South Palm Beach County, including Wellington and Delray, have begun to pay physicians, and particularly specialty physicians to take ER call. Adding a new hospital in South Palm Beach County will exacerbate this problem in several respects. First, it will add another hospital to the ER call rotations of the physicians who chose to obtain privileges at the satellite hospitals, thereby increasing the prospect of a physician being on call at more than one hospital at the same time. Second, it will make it even more difficult or costly for existing hospitals to obtain call coverage by the specialty physicians that are already in short supply. It is unlikely that OB/GYNs will admit their patients to the small OB unit at the proposed JFK satellite hospital. OB/GYNs typically try to keep all of their patients in one hospital because it makes it easier on them to do rounds and to respond quickly to emergency situations, and because the OB unit at the proposed JFK satellite hospital will not have NICU backup, it is unlikely that many OB/GYNs will choose that hospital as the one where they admit the bulk of their patients. In sum, the staffing levels for each of the proposed satellite hospitals are reasonable and appropriate for the services being offered at the hospitals, the projected staffing costs at each of the proposed satellite hospitals are also reasonable and appropriate, and JFK and Bethesda will be able to staff their respective satellite hospitals at the levels projected; however, the proposed satellite hospitals will exacerbate the shortage of specialty physicians in South Palm Beach County and will make it more difficult for the existing hospitals to get specialty physicians for ER call coverage. Accordingly, the criterion in Section 408.035(6), Florida Statutes, weighs against the approval of either application, and between the competing applications, this criterion does not materially weigh in favor of either application over the other. Subsection (8): Financial Feasibility The parties did not seriously contest the short-term financial feasibility of either of the proposed satellite hospitals, and the preponderance of the evidence establishes that both of the proposed satellite hospitals are financially feasible in the short-term; both applicants have the ability to fund the construction and initial capital needs of their respective projects in conjunction with the other capital projects listed on Schedule 2 of their respective CON applications. The long-term financial feasibility of each of the proposed satellite hospitals is in dispute. The general rule for assessing the long-term financial feasibility of a CON project is if the project will at least break even by the end of the second year of operation, then the project is financially feasible in the long-term; if, however, the project continues to show a loss in the second year of operations and it is not demonstrated that the project will reach a break-even point within a reasonable period of time, then the project is not financially feasible in the long-term. As more fully discussed below, Bethesda West is financially feasible in the long-term, but the proposed JFK satellite hospital is not. Accordingly, the criterion in Section 408.035(8), Florida Statutes, weighs in favor of approval of Bethesda’s application over JFK’s application. Bethesda West Schedule 8A of Bethesda's application projects that Bethesda West will generate a net loss of $3.7 million in its first year of operation and a net profit of $1.7 million in its second year of operation. The financial projections for Bethesda West were based upon conservative utilization projections, which leads a reasonable projection of operating income. The financial projections for Bethesda West are not defective based upon an overstatement of the “other operating revenue” or an understatement of the depreciation expense projected by Bethesda. The testimony of Bethesda’s expert financial witnesses is accepted over the testimony of the other financial experts on these issues. The financial projections for Bethesda West are not defective based upon understatements in land costs, construction costs, equipment costs of staffing projections. The testimony of Bethesda’s experts related to these issues is accepted over the testimony of the other experts. As discussed above, Bethesda West will “cannibalize” 3,040 and 4,530 patient days from Bethesda Memorial in its first and second years of operation. The financial impact of this “cannibalization” on Bethesda Memorial is a loss of $1.4 million and $2.1 million in the first and second years of Bethesda West’s operation. The income loss from “cannibalization” is not accounted for on Schedule 8A. Although the patient days used to calculate the “per patient day” figures in the middle two columns of that schedule take into account the “cannibalized” patient days, the dollar amounts shown in those columns do not. On this issue, the testimony of Delray’s financial expert is more logical and persuasive than the testimony of Bethesda’s financial expert. When the losses from “cannibalization” are taken into account, the approval of Bethesda West will have a negative impact on the Bethesda system of $5.1 million in its first year of operation and $400,000 in its second year of operation, which are consistent with the figures shown in Exhibit B-2 (pages 48 and 54). Even so, the system will show a net income of $300,000 and $5.6 million in the first two years of Bethesda West’s operation. The impact of the “cannibalization” on Bethesda Memorial is projected to decrease as Bethesda West becomes more established. At the same time, the profitability of Bethesda West is projected to increase as its census grows. Thus, by the third year of its operation, Bethesda West is projected to have a positive impact on the Bethesda system of $2.2 million (i.e., $4.1 million in net income at Bethesda West less $1.9 million in “cannibalization” from Bethesda Memorial). Bethesda West will not have a negative impact on Bethesda’s cash flow after its first year of operation. On this issue, the testimony of Bethesda’s expert is more persuasive than the testimony of the other financial experts. Accordingly, Bethesda West is financially feasible in the long-term. Proposed JFK Satellite Hospital Schedule 8A of JFK's application projects that its proposed satellite hospital would generate a net loss of $1.2 million in its first year of operation and a net loss of $392,000 in its second year of operation. Over the next three years, however, JFK projects its satellite hospital to generate net income from operations of $509,000, $1.5 million, and $2.5 million. The financial projections in JFK’s application were based upon overly-aggressive occupancy rates, both in the facility as a whole and in the small OB unit without NICU backup. As a result, the resulting financial projections are not reasonable. JFK’s application does not include any analysis of the financial impact on Columbia of the transfer of 80 beds to the satellite hospital, nor does it include any analysis of the impact of the “cannibalization” of JFK’s patient days that would necessarily occur if JFK’s proposed satellite was approved. As a result, the financial impact of JFK’s proposed satellite hospital, in the words of one of JFK’s financial experts, is “probably incomplete.” As a result of the unreasonable utilization projections and the incomplete presentation of the financial impact of the “cannibalization” of JFK’s patient days, JFK failed to establish that its proposed satellite hospital is financially feasible in the long-term. Subsection (9): Fostering Competition that Promotes Cost-effectiveness Neither of the proposed satellite hospitals will foster competition that proposes cost-effectiveness. The West Boynton market currently has healthy competition for the acute services proposed for the satellite hospitals, and there is no dominant provider of those services. Locating a new hospital in the West Boynton area will have the long-term effect of increasing the market share of the provider that operates the new hospital to the detriment of the other providers that are currently competing in that market. In this regard, the approval of a new hospital in the West Boynton area would adversely affect the competitive balance that currently exists in that area and which is projected to continue over the planning horizon. The approval of either of the proposed satellite hospitals would also adversely affect cost-effectiveness by exacerbating the shortage of specialty physicians and other qualified staff in the subdistrict, which in turn would require existing hospitals to raise salaries, benefits and other expenses in order to remain competitive. The approval of Bethesda West would have less of an adverse impact on competition and cost-effectiveness than would the approval of JFK’s proposed satellite hospital for several reasons. First, Bethesda West does not duplicate as many administrative services as does JFK’s proposed satellite hospital. Second, JFK currently has a higher market share in the West Boynton area than does Bethesda or any other hospital, which means that the competitive balance would be tipped to a greater extent if JFK’s satellite hospital was approved. Third, the approval of the JFK satellite would give HCA four hospitals in Palm Beach County and increase its leverage in physician and staff recruitment and the negotiation of HMO contracts. Accordingly, the criterion in Section 408.035(9), Florida Statutes, weights against the approval of either application; however, on balance between the two applications, this criterion favor’s Bethesda’s application over JFK’s application. Subsection (10): Costs and Methods of Construction The costs and methods of energy provision at the proposed satellite hospitals is not in dispute. Although the proposed satellite hospitals are similar in size, the total project costs included in the CON applications are significantly different. The $73.8 million total project cost for Bethesda West equates to a cost of $922,700 per bed. The $109.8 million total project cost for JFK’s proposed satellite hospital equates to a cost of $1.37 million per bed. The portion of the total project costs for each of the proposed satellite hospitals attributable directly to “construction” is materially similar. Bethesda West’s construction costs are approximately $34.2 million, or $180 per square foot; the construction costs for the proposed JFK satellite hospital are $40.9 million, or $210 per square foot. The estimated construction costs for each of the proposed satellite hospitals are within the range of reasonableness that can be gleaned from the testimony of the various hospital construction experts. JFK’s cost is towards the higher end of the range, and Bethesda’s cost is towards the lower end of the range. The primary differences in the total project costs are in the land purchase prices, the site preparation costs, and the equipment costs. The land purchase price included in Bethesda’s application was $4.2 million, which was based upon a 30 to 40- acre site. The land purchase price included in JFK’s application was $8 million, which was based upon a 50-acre site. Bethesda acquired the 54-acre Amestoy Property for $110,000 per acre. At $110,000 per acre, the $4.2 million attributed by Bethesda to land purchase price would be sufficient to acquire 38.2 acres, which is more than adequate for the 80-bed Bethesda West facility. Consistent with the estimate in the CON application, JFK has made an offer to purchase the 50-plus acre Mazzoni Property for $130,000 per acre. The total land purchase price in each application, and the actual cost-per-acre of the Amestoy and Mazzoni Properties are reasonable. The site development costs included in Bethesda’s application were $3.75 million, or $125,000 per acre for the 30 acres on which Bethesda West will be located. The site development costs included in JFK’s application were $6.5 million, or $150,000 per acre for the 50 acres on which JFK’s proposed satellite hospital will be located. The site development costs for each project include on-site and off-site utility (e.g., water and sewer) and roadway work, geotechnical and environmental remediation costs, stormwater retention, landscaping, and concurrency impact fees. Each of the proposed sites is relatively flat and was formerly agricultural property and, as a result, there are not expected to be any unusual costs associated with the development of either site. Bethesda West will be located further west than the proposed JFK satellite hospital and, as a result, its “radius of influence” includes fewer congested roadway links than does the proposed JFK satellite hospital; but, the Amestoy Property where Bethesda West will be located is farther away from the existing utility lines than the Mazzoni Property where the proposed JFK satellite hospital will be located. Thus, even though the cost of running utilities to Bethesda West will likely be higher than the cost of running utilities to the proposed JFK satellite hospital, the currency impact fees for Bethesda West will likely be lower than the currency impact fees for the proposed JFK satellite hospital; and, on balance, the overall per-acre and total site development costs included in each of the applications are reasonable. Bethesda’s application included equipment costs of approximately $16 million, all of which was attributable to movable equipment. The cost of fixed equipment was included in the estimated construction costs as part of the building contract. JFK’s application included total equipment costs of approximately $34.2 million. That amount was broken into fixed equipment not in the building contract ($13.9 million), movable equipment ($17.8 million), and information systems ($2.4 million). Some, but not all of the difference between the equipment cost estimates are attributable to the additional services –- e.g., OB and diagnostic cardiac catheterization –- that will be provided at the proposed JFK satellite hospital but not at Bethesda West. Additionally, some of the difference are attributable to the 12 "observation" rooms at the proposed JFK satellite hospital that are being equipped in the same manner as the hospital’s general med-surg beds. When compared on an “apples to apples” basis, the total equipment costs for Bethesda West are not materially different than the total equipment costs for the proposed JFK satellite hospital. JFK is proposing to provide more specialized equipment than Bethesda in areas such as the surgical suites and the ICU/CCU and more information technology (IT) equipment; however, the evidence is not persuasive that such specialized equipment or the IT equipment is necessary to provide high quality care or that the absence of such equipment will adversely affect the quality of care at Bethesda West. The $16 million in equipment costs at Bethesda West, which equates to approximately $200,700 per bed, is reasonable for the level and type of services that will be provided at Bethesda West. The evidence is not persuasive that Bethesda’s equipment costs are understated even though its costs are considerably less than the equipment costs proposed by JFK. If anything, JFK has over-equipped its proposed satellite hospital with specialized equipment resulting in the higher equipment costs included in JFK’s CON application.19 Although the more expensive proposed JFK satellite hospital offers some benefits, such as a larger site to facilitate future expansions and more specialized equipment in some areas, those benefits are outweighed by the additional $35 million costs associated with that facility as compared to Bethesda West. This cost saving is particularly significant since each of the proposed facilities is supposed to be a satellite of a larger, tertiary hospital rather than a stand- alone community hospital. The evidence was not persuasive that Bethesda Memorial and JFK have physical constraints that will limit their ability to add beds at their existing facilities in a cost- efficient manner. Even if the construction of a satellite hospital were the most cost-efficient way for Bethesda Memorial and JFK to add beds, the evidence was not persuasive that it is the most cost-efficient way to add beds from the perspective of the entire health care system of Subdistrict 9-5. Indeed, there are less costly methods of adding new beds to the subdistrict than the construction of a new 80-bed hospital for $73.8 million or $109.8 million. For example, 36 additional beds can be added at JFK and 31 additional beds can be added at Delray in shelled-in space that has already been constructed. The incremental cost of constructing space for additional bed expansions at Delray and Wellington would also be less than the construction costs of the proposed satellite hospitals. In sum, because there are less costly ways to add beds to the subdistrict than the construction of a new hospital, the criterion in Section 408.035(10), Florida Statutes, weighs against the approval of either application; however, between the two applications, this criterion weighs in favor of the approval of Bethesda’s application over JFK’s application since its proposed satellite hospital will cost approximately $35 million less and will provide effectively the same services in similar physical space. Subsection (11): Medicaid and Indigent Care Bethesda characterizes itself as a “safety net” hospital because its Medicaid and charity care percentages typically exceed the averages for Subdistrict 9-5 and District 9 as a whole, and because Bethesda Memorial provides the largest percentage of the Medicaid and charity care provided by all of the hospitals in Subdistrict 9-5. There is no statutory or rule provision that would support Bethesda’s designation of itself as a “safety net” provider. Moreover, the significance of Bethesda’s characterization of itself as a “safety net” hospital is diminished by the fact that the Palm Beach County Health Care District (District) reimburses all hospitals in the county through an indigent care subsidy for care provided to patients that meet the District’s indigency standards. The subsidy helps to ensure that indigent patients are able to receive medical care from any hospital in the county and, to that end, provides a county-wide “safety net” for such patients. The subsidies paid by the District do not cover the full cost of indigent care provided by the hospital, nor does the total amount of subsidies received by a hospital directly correlate to the total amount of indigent care provided by the hospital. Thus, it is not dispositive that JFK received the largest amount of subsidies from the District over the past several years or that JFK received approximately $1.6 million more in subsidies from the District in 2003 than did Bethesda. JFK recently qualified as a “disproportionate share provider,” which means that at least 15 percent of its patient days are attributed to Medicaid or supplemental security income patients. As a disproportionate share provider, JFK receives incrementally larger reimbursements from Medicaid for the provision of indigent care. Bethesda is not currently a disproportionate share provider although it has been in the past. None of the hospitals in South Palm Beach County have policies or practices that discourage Medicaid or uninsured patients. Bethesda Memorial, JFK, Wellington, and Delray each accept patients without regard to their ability to pay. Bethesda and JFK conditioned the approval of their respective CON applications on the provision of a specified percentage of patient days to Medicaid and charity patients. The percentage committed to by JFK (10 percent) is higher than the percentage committed to by Bethesda (five percent). The percentages of Medicaid and charity care committed to by the applicants may be difficult to achieve as a result of the demographics of the West Boynton area. Indeed, the more favorable payer-mix in the West Boynton area was a significant factor, and in Bethesda’s case it was the primary motivating factor for the establishment a new hospital in that area. Bethesda Memorial and JFK each have a history of providing significant levels of Medicaid and charity care at their existing hospitals. The hospitals are each located in areas with large indigent populations, which significantly contribute to the high level of indigent care that they provide. Bethesda Memorial has historically provided a larger amount of Medicaid care than has JFK in terms of a percentage of patient days, e.g., 16.1 percent verses 7.3 percent in 2001. Those percentages each exceed the Subdistrict 9-5 average of 6.3 percent. Bethesda Memorial has also historically provided a larger amount of charity care than has JFK in terms of dollars (e.g., $16.2 million verses $5.2 million in 2002) and in terms of a percentage of charges (e.g., 3.7 percent verses 0.4 percent in 2001 and 2.9 percent verses 0.6 percent in 2002). The Subdistrict 9-5 average for 2001 was 1.4 percent. These comparisons are somewhat skewed because a large portion of Bethesda’s indigent care is attributable to Bethesda Memorial’s high-volume, well-established OB and neonatal programs which tend to be “magnets” for uninsured patients. When only like-services are considered, the utilization of JFK and Bethesda Memorial by Medicaid and indigent patients is similar. JFK provides a significant amount of care to “self- pay” patients (e.g., $43.5 million in 2002), which JFK attempted to equate to charity care. Although there is often overlap between self-pay and charity care patients, the evidence was not persuasive that there is a direct correlation urged by JFK in this case. For example, JFK’s internal definitions of self-pay and charity care patients are markedly different and considerably more liberal than the Agency’s definition of charity care patients for reporting purposes. Bethesda makes a $1 million per year “contribution” to the District to help fund the District’s indigent care program. That contribution was required as part of the settlement of litigation arising out of Bethesda’s conversion from a public hospital to a private not-for-profit hospital and, as a result, it cannot be fairly characterized as additional evidence of Bethesda’s commitment to serving indigent patients. Even though both applicants demonstrated a history of and commitment to serving Medicaid and indigent patients, the criterion in Section 408.035(11), Florida Statutes, weighs in favor of Bethesda because the level of Medicaid and charity care historically provided by Bethesda Memorial is higher than that provided by JFK. On balance with the other statutory and rule criteria, the criterion in Section 408.035(11), Florida Statutes, is not given significant weight because Bethesda has committed to providing a lower percentage of Medicaid and charity care patient days at Bethesda West than JFK committed to at its proposed satellite hospital, and because the demographics of the West Boynton area make it unlikely that a significant level of indigent care will be provided at either of the proposed satellite hospitals. Subsection (12): Designation as a Gold Seal Nursing Facility The parties stipulated that this criterion is inapplicable because neither applicant is proposing additional nursing home beds. (2) Rule Criteria – Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038(6) The criteria in Florida Administrative Code Rule 59C- 1.030(2) are subsumed in the statutory criteria discussed above related to the accessibility (or not) of existing acute care services in Subdistrict 9-5 and the need (or not) for new acute care beds in the West Boynton area. For the same reasons that the CON applications do not satisfy those statutory criteria, they do not satisfy the related criteria in Florida Administrative Code Rule 59C-1.030(2). Under Florida Administrative Code Rule 59C- 1.038(6)(a), priority is given to applicants with “a documented history of providing services to medically indigent patients or a commitment to do so.” This priority weighs in favor of Bethesda for the reasons discussed above in connection with Section 408.035(11), Florida Statutes. Under Florida Administrative Code Rule 59C- 1.038(6)(b), priority is given to applications that “meet the need for additional acute care beds in a particular service through the conversion of existing underutilized beds.” This priority does not materially weigh in favor either application over the other; the underutilized beds at Columbia that JFK proposes to transfer to its satellite hospital are in a different subdistrict, and the beds that Bethesda proposes to transfer from Bethesda Memorial to its proposed satellite hospital are not underutilized beds in light of the historical occupancy rate at Bethesda Memorial.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Bethesda’s CON application No. 9659 and also denying JFK’s CON application No. 9660. DONE AND ENTERED this 29th day of September, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 29th day of September, 2004.
The Issue This is a proceeding under Section 408.7056, Florida Statutes (2002), in which the issue is whether the denial by Health Options, Inc. (the Petitioner), of a request that it cover additional lymphedema outpatient therapy after a mastectomy to treat C.B. (the Subscriber),1 is consistent or inconsistent with the rules and laws that regulate managed care entities.2
Findings Of Fact The following facts were stipulated to at hearing by the Petitioner and AHCA: Effective April 1, 2002, the Subscriber in question was enrolled as a participant in a group HMO plan issued by the Petitioner to the Subscriber’s employer for the benefit of its employees and their eligible dependents. This plan constitutes an “employee welfare benefit plan” pursuant to the Employee Retirement Income Security Act of 1974 (ERISA). As a result of breast cancer, the Subscriber had a partial mastectomy of her left breast. Subsequent to her surgery, she required decongestic therapy due to lymphedema. The Petitioner authorized and provided coverage for decongestic physical therapy benefits for the Subscriber for services rendered from a participating provider for the authorized period of August 9, 2001, through October 18, 2001. The Petitioner denied coverage for additional decongestic physical therapy beyond the authorized period of August 9, 2001, through October 18, 2001, on the grounds that the Subscriber’s benefit had been exhausted under the terms of the Member Handbook. The Member Handbook for the Subscriber's HMO, signed by Robert I. Lufrano, M.D., the president of the Petitioner’s company, establishes the description of the rights and obligations of the Subscriber and the Petitioner with respect to the coverage and/or benefits to be provided by the Petitioner. Pages 20-23 of the Member Handbook requires the preparation and review every 30 days of a treatment plan as recommended by the Subscriber’s primary care physician or authorized provider. Further, provisions of the Member Handbook document the Petitioner's obligation to comply with state and federal laws and regulations and states that the terms of the agreement shall be interpreted to comply with those laws. Joel Mattison, M.D., is board-certified in plastic and reconstructive surgery. He holds a license in Florida and in North Carolina to practice medicine and surgery. Dr. Mattison has a specialty in plastic surgery and tropical diseases. Dr. Mattison's testimony establishes that the most common treatment form for lymphedema is a method of massage known as decongestic therapy. Lymphedema is the type of problem that will reoccur and no current treatment permanently eliminates the problem. If treatment is not received, the patient will suffer swelling of the body part located near the problem area causing trauma and infection with fungi and bacteria. The decongestic therapy is outpatient post-surgical follow-up care in keeping with the prevailing medical standard. As established by Dr. Mattison's testimony, the massage, which is the prevailing medical standard of care for lymphedemas, could be needed in excess of 62 days. Included in the therapy is the education of the patient to perform self-massage. The instruction in self-massage, however, is only part of the therapy and the other massage should not be discontinued. The evidence does not establish that the Subscriber received any instruction in self-massage or her ability to perform this function. In addition, Dr. Mattison testified that lymphedemas as a result of reconstruction and as a result of mastectomy, are indistinguishable without other indication, such as scars or patient history. Dr. Mattison testified that lymphedema pumps are available to assist in treatment. While it is hoped that the patient will learn how to use the pump, patients cannot always be depended on to learn to use them. The evidence fails to establish that the patient was offered a lymphedema pump or that using the lymphedema pump constitutes the prevailing medical standard.
The Issue The issue is whether Petitioner’s application for a Certificate of Need to establish a new 84-bed acute care hospital in Viera should be approved.
Findings Of Fact Parties Holmes and the Health First System Holmes, the applicant for the CON at issue in this case, is a not-for-profit corporation that operates two acute care hospitals in Brevard County: Holmes Regional Medical Center (HRMC) in Melbourne and Palm Bay Community Hospital (PBCH) in Palm Bay. HRMC opened in 1962. It is a 514-bed acute care hospital, with 504 acute care beds and 10 Level II neonatal intensive care (NICU) beds. HRMC provides tertiary-level services, including adult open-heart surgery, and it is the designated trauma center for Brevard County. HRMC has been recognized as one of the top 100 cardiovascular hospitals in the country, and it has received other recognitions for the high quality of care that it provides. PBCH opened in 1992. It is a 60-bed acute care hospital. PBCH does not provide tertiary-level services, and it does not provide obstetrical (OB) services. Holmes’ parent company is Health First, Inc. (Health First), which is a not-for-profit corporation formed in 1995 upon the merger of Holmes and the organization that operated Cape Canaveral Hospital (Cape Hospital). Cape Hospital is a 150-bed not-for-profit acute care hospital in Cocoa Beach. The range of services that Cape Hospital provides is broader than range of services provided at PBCH, but not as broad as the range of services provided at HRMC. For example, Cape Hospital provides OB services, but it does not have any NICU beds. All of the Health First hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Health First provides a broad range of health care services in Brevard County in addition to the hospital services provided at HRMC, PBCH, and Cape Hospital. For example, it operates a hospice program, surgical center, outpatient facilities, and fitness centers. Health First also administers the Health First Health Plan (HFHP), which is the largest managed care plan in Brevard County. All of the Health First hospitals serve patients without regard to their ability to pay, and as more fully discussed in Part F(1)(g) below, Holmes provides a significant amount of care to Medicaid and charity patients at HRMC and PBCH. Holmes also provides health care services to the medically underserved through a program known as HOPE, which stands for Health, Outreach, Prevention, and Education. HOPE was established in the early 1990’s to provide free health care for at-risk children as well as free clinics (both fixed-site and mobile) for medically underserved patients throughout Brevard County. At the time of the final hearing, the free clinics operated by HOPE were being transitioned into a federally- qualified health center, the Brevard Health Alliance (BHA). After the transition, Holmes will no longer operate the clinics; however, Holmes is obligated to provide $1.3 million per year in funding to BHA and it will continue to provide services to at- risk children through the HOPE program. Health First administers a charitable foundation that raises money to support initiatives such as the cancer center at HRMC, the construction of a hospice house, and an Alzheimer’s support center. The foundation has raised approximately $7 million since its inception in October 2001. Wuesthoff Wuesthoff operates two not-for-profit acute care hospitals in Brevard County: Wuesthoff-Rockledge and Wuesthoff- Melbourne. Like Health First, Wuesthoff provides a broad range of health care services in Brevard County in addition to its acute care hospitals. The services include a nursing home, assisted living facility, clinical laboratory, hospice program, home health agency, diagnostic center, and fitness centers. Wuesthoff-Rockledge opened in 1941. It has 245 beds, including 218 acute care beds, 10 Level II NICU beds, and 17 adult inpatient psychiatric beds. Wuesthoff-Rockledge provides tertiary-level services, including adult open-heart surgery, and it is the only acute care hospital in Brevard County designated as a Baker Act receiving facility. Wuesthoff-Rockledge is in the process of adding 44 more beds, including a new 24-bed intensive care unit (ICU) that is projected to open in 2006 and 20 acute care beds. After those beds are added, Wuesthoff-Rockledge will have 289 beds. Currently, approximately 57 percent of Wuesthoff- Rockledge’s beds are in semi-private rooms and 43 percent of the beds are in private rooms. After the addition of the 44 new beds, the percentages will be 69 percent in semi-private rooms and 31 percent in private rooms. Wuesthoff-Melbourne opened in December 2002. It originally received CON approval for 50 beds in November 2000. Before it opened, it received CON approval for an additional 50 beds, which increased its licensed capacity to 100 beds. Wuesthoff-Melbourne opened with 65 beds, all of which are in private rooms. At the time of the hearing, Wuesthoff- Melbourne had that same number of beds and an occupancy rate of approximately 80 percent. In December 2004, Wuesthoff-Melbourne added an additional 50 beds. Wuesthoff was awaiting final licensure approval from the Agency for those beds at the time of the hearing. The approval will increase Wuesthoff-Melbourne’s licensed capacity to 115 beds, all of which are in private rooms. The additional 15 beds (beyond the 100 previously licensed) were added pursuant to the 2004 amendments to the CON law, which permit bed expansions at existing hospitals without CON approval. Wuesthoff-Melbourne was designed and engineered for approximately 200 beds, and it expects to have 134 beds in service in the near future. The space for the additional 19 beds (to expand from 115 to 134) has been shelled-in, and the bed expansion will likely be completed in late-2005 or early- 2006. All of those beds will be in private rooms. The expansion of Wuesthoff-Melbourne to 134 beds will occur notwithstanding the outcome of this proceeding, but the expansion of the facility to 200 beds depends in large part on the outcome of this proceeding. Wuesthoff-Melbourne provides all of the basic acute care services, including OB services. It does not provide tertiary-level services. The Wuesthoff hospitals are accredited by JCAHO. Wuesthoff has been recognized as one of the “100 Most Wired” hospitals by Hospitals & Health Networks magazine for the comprehensive information technology (IT) systems in place at its hospitals. The Wuesthoff hospitals serve all patients without regard to their ability to pay, and as discussed in Part F(1)(g) below, the Wuesthoff hospitals provide a significant amount of care to Medicaid and charity patients. Wuesthoff also provides health care services to the medically underserved through a free health clinic in Cocoa and a mobile unit that serves patients throughout Brevard County. Like Health First, Wuesthoff administers a charitable foundation that funds initiatives at the Wuesthoff hospitals and in the community. (3) Agency The Agency is the state agency that administers the CON program and is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Preliminary Agency Action Holmes filed a letter of intent and a CON application in the first batching cycle of 2004 for hospital beds and facilities. Holmes’ letter of intent and CON application were timely and properly filed. Holmes application, CON 9759, proposes the establishment of a new 84-bed acute care hospital in the Viera area of Brevard County. The proposed hospital will be known as Viera Medical Center (VMC). The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero new acute care beds in Subdistrict 7-1, which is Brevard County. There were no challenges to the published fixed need pool. The Agency comparatively reviewed Holmes’ application with the CON applications filed by Wuesthoff to add 34 beds at Wuesthoff-Melbourne (CON 9760) and to add 44 beds at Wuesthoff- Rockledge (CON 9761). On June 10, 2004, the Agency issued its State Agency Action Report (SAAR), which summarized the Agency’s findings and conclusions based upon its comparative review of the applications. The SAAR recommended denial of Holmes’ application and both of Wuesthoff's applications. After the Agency published notice of its intent to deny the applications in the Florida Administrative Weekly, Holmes timely petitioned the Agency for an administrative hearing on the denial of its application. Wuesthoff did not pursue an administrative hearing on the denial of its applications as a result of the 2004 amendments to the CON law, which became effective July 1, 2004. Under the new law, a CON is not needed to add acute care beds at an existing hospital and, as indicated above, the Wuesthoff hospitals are already in the process of adding the beds that they were seeking through CON 9760 and CON 9761. The Agency reaffirmed its opposition to Holmes’ application at the hearing through the testimony of Jeffrey Gregg, the Bureau Chief for the Agency’s CON program. Acute Care Subdistrict 7-1 / Brevard County The Agency uses a five-year planning horizon in determining the need for new acute care beds, and it calculates the inventory of acute care beds and considers CON applications for new acute care beds on a subdistrict basis. Brevard County is in Subdistrict 7-1. There are no other counties in the subdistrict. There are six existing acute care hospitals in Brevard County, all of which are not-for-profit hospitals: Parrish Medical Center (Parrish) in Titusville, Cape Hosptial, Wuesthoff-Rockledge, Wuesthoff-Melbourne, HRMC, and PBCH. Brevard County is a long, narrow county. It stretches approximately 70 miles north to south, but averages only 20 miles east to west. The county is bordered on the north by Volusia County, on the west by the St. Johns River and Osceola County, on the south by Indian River County, and on the east by the Atlantic Ocean. The major north-south arterial roads in the county are Interstate 95 (I-95) and U.S. Highway 1 (US 1). The Intracoastal Waterway also runs north and south through the eastern portion of the county. Other arterial roads in the south/central portion of the county are Murrell Road, Eau Gallie Boulevard and Wickham Road. Because of the county’s long and narrow geography, three recognized market areas for hospital services have developed in the county, i.e., northern, central, and southern. The northern area of the county, which includes the Titusville area, had approximately 63,000 residents in 2003. It is primarily served by one hospital: Parrish. The central area of the county, which includes the Rockledge and Cocoa areas, had approximately 163,000 residents in 2003. It is primarily served by two hospitals: Wuesthoff- Rockledge and Cape Hospital. The southern area of the county, which includes the Melbourne and Palm Bay areas, had approximately 276,000 residents in 2003. It is primarily served by three hospitals: HRMC, Wuesthoff-Melbourne, and Palm Bay. The Viera area, discussed below, overlaps the central and southern market areas and is primarily served by Wuesthoff- Rockledge, Wuesthoff-Melbourne, and HRMC. According to the data in Table 28 of the CON application, those hospitals together accounted for 90 percent of the patients from zip code 32940, which is the “main” Viera zip code. The evidence was not persuasive that the three market areas in Brevard County equate to “antitrust markets” from an economist’s standpoint, but it was clear that the hospitals and physicians in the county recognize the existence of the market areas. For example, there is very little overlap in the medical staffs of the hospitals in different market areas, but there is significant overlap in the medical staffs of the hospitals in the same market area, and the opening of Wuesthoff-Melbourne in south Brevard County impacted HRMC and PBCH, but had little impact on the hospitals in central Brevard County. Additionally, there is very little out-migration of patients from one area of the county to hospitals in another area. The data in Tables 18 and 19 of the CON application shows that in 2003, for example, 83.6 percent of south Brevard County adult medical/surgical patients were admitted to one of the three south Brevard County hospitals, and 79.5 percent adult medical/surgical patients in central Brevard County were admitted to one of the two hospitals in that area of the county. Viera Viera is an unincorporated area in south/central Brevard County that is being developed by The Viera Company (TVC). TVC is a for-profit land development company owned by A. Duda & Sons, Inc. (Duda). The Viera DRI Viera is being developed pursuant to a development of regional impact (DRI) development order that was first adopted by Brevard County in 1990. The original DRI included 3,000 acres east of I-95, which was developed primarily as residential subdivisions. In 1995, an additional 6,000 acres were added to the DRI west of I- 95, which is being developed as a mixed-use community. The portion of the DRI east of I-95 has effectively been built-out. The build-out date for the remainder of the DRI is 2020. The master plan for the DRI includes approximately 19,000 residential units, 3.7 million square feet (SF) of office space, 2.9 million SF of commercial space, a governmental center, six schools, parks, open space, and a 7,500-seat baseball stadium and practice facility used by the Florida Marlins. As of October 2004, over 5,800 homes and approximately 2 million SF of commercial and office space have been developed west of I-95 in addition to the governmental center, several schools, and the Florida Marlins’ facilities. There are approximately 12,000 acres of undeveloped, agricultural property adjacent to and to the west of the DRI that are owned by Duda and that, according to the chief operating officer of TVC, will likely be added to the DRI in the near future. The record does not reflect what type of uses will be developed on that property or when that development will begin. The DRI development order includes authorization for up to 470 hospital beds, with vested traffic concurrency for 150 beds. The master site plan for the DRI designates an area west of I-95 on the southwest corner of the Wickham Road/Lake Andrew Drive intersection as the “Proposed Viera Medical Park.” VMC is proposed for that location. The DRI development order provides all of the local government land use approvals, including traffic concurrency, that are necessary for VMC. TVC is developing Viera for and marketing it to retirees and younger persons, including families with children. The DRI includes age-restricted subdivisions, but it also includes amenities such as three elementary schools and a large regional park with ball fields and playgrounds. (2) Negotiations for a Hospital in Viera TVC has long wanted a hospital in Viera. Wuesthoff identified the Viera area as future growth area in the 1990’s and began establishing health care facilities in the area at that time. Wuesthoff has a diagnostic center, a lab facility, and a rehabilitation facility in the Suntree area, which is just to the east of the Viera DRI. Wuesthoff expressed interest in building a hospital in Viera in 1993 and, more recently, in 2003. In August 1993, Wuesthoff and TVC entered into an agreement that gave Wuesthoff a 10-year exclusive right to develop a hospital in Viera if certain conditions were met. However, Wuesthoff ultimately built Wuesthoff-Melborune in Melbourne (rather than in Viera), and the exclusivity provision in the August 1993 contract never went into effect. In July 2003, Wuesthoff sent a letter to TVC expressing its interest in obtaining an option to purchase 25 to acres within the Viera DRI to construct a hospital. In the letter, Wuesthoff stated that it would construct the hospital “within 10 years or when the population of Viera exceeds 40,000, whichever first occurs”; that the hospital would be “constructed similar to Wuesthoff Medical Center-Melbourne which currently encompasses 65 licensed beds in a 150,000 sq. ft. facility”; that it wanted the “sole right to build a hospital or hospital like facility in Viera . . . until 5 years after the opening of the hospital” and that it wanted TVC to “consider selling the desired land to Wuesthoff at a reduced price.” Wuesthoff’s July 2003 offer was not seriously considered by TVC because, by that time, TVC was in the process of finalizing its agreement for the sale of 50 acres to Health First for VMC. Additionally, the Health First agreement was more appealing to TVC because Health First was offering to purchase more property at a higher price than was Wuesthoff, and Health First was committed to building a hospital sooner than was Wuestoff. The contract between Health First and TVC was executed on August 5, 2003, and Health First has since closed on the purchase of the 50 acres at a cost of approximately $9 million. The Health First/TVC contract includes an exclusivity provision that prohibits the development of another hospital within the Viera DRI or on any of the lands owned by Duda until 2029 if Holmes constructs at least 70 percent of Phase I of the Viera Medical Park by August 31, 2006, and begins construction on a hospital with at least 80 beds by August 31, 2010. The contract also includes exclusivity provisions relating to the other uses being developed as part of the Viera Medical Park, but the exclusivity on those uses expires in 2010, at the latest. The exclusivity provision will be included in restrictive covenants that are recorded in the public records of Brevard County. The restrictive covenants will run with the land and will bind future purchasers of property from TVC and Duda. Exclusivity provisions are not uncommon in land- purchase contracts for large commercial projects or new hospitals. The August 1993 agreement between Wuesthoff and TVC included such a provision as did Wuestoff’s July 2003 offer. However, the length of the hospital exclusivity provision in the Health First/TVC contract and the fact that it applies to the land owned by Duda outside of the Viera DRI goes beyond what is reasonably necessary to allow the new hospital to become stabilized and has the potential to stifle competition for acute care hospital services in the Viera area for the next 25 years. Viera Medical Center (1) Generally Holmes conditioned the approval of its CON application on VMC being located at the "[i]ntersection of Lake Andrew Drive and Wickham Road, Viera, Florida." VMC was projected to open in 2008 as part of the Viera Medical Park that Health First is building on the 50 acres that it purchased from TVC at that location. VMC will be located in zip code 32940, which is the “main” Viera zip code. VMC will be built on 20 of the 50 acres purchased by Health First. The remaining 30 acres will be developed with the other health care facilities that will make up the Viera Medical Park. The development of the Viera Medical Park will be done in three phases. Phase I will include a fitness center; a medical office building; and outpatient facilities such as an urgent care center, an ambulatory surgical center, and a diagnostic imaging and rehabilitation center. Phase II will include VMC. Phase III may include a nursing home and/or assisted living facility as well as “multi-family retirement units.” VMC will be a 213,000 SF facility with 84 licensed beds, 16 “observation” beds, and a full emergency room (ER). The 84 licensed beds will consist of 72 acute care beds and a 12-bed critical care unit/ICU. All of the beds will be in private rooms. The total project cost for VMC is approximately $106 million, which will be funded primarily by tax-free bonds issued by Holmes. VMC will have a cardiac catheterization lab, but it will not provide interventional cardiology services such as angioplasty. VMC will not provide any tertiary-level services or OB services, and it will not have a dedicated pediatric unit. VMC will share management and administrative support services with HRMC so as to minimize duplication of those services and to reduce overhead costs. VMC will have an integrated IT system that will utilize electronic medical records and a computerized physician order entry system, as well as an electronic ICU (e-ICU). The e-ICU is an innovative critical care management system based upon a telemedicine platform that is in use at the existing Health First hospitals in Brevard County. Except for the e-ICU, which the Wuesthoff hospitals do not have, the IT systems at VMC will be materially the same as Wuesthoff’s award-winning IT systems. VMC will have a helipad without any weight restrictions and, as discussed in Part F(1)(a)(iv) below, VMC has been designed with hurricanes and other “contingency events” (e.g., bioterrorism) in mind. Demographics of VMC’s Proposed Service Area The primary service area (PSA) for VMC consists of zip codes 32934, 32935/36, 32940, and 32955/56; the secondary service area (SSA) consists of zip codes 32901/02/41, 32904, 32922/23/24, 32926/59, and 32927. Neither Wuesthoff nor the Agency contested the reasonableness of the PSA or the SSA. All of the zip codes targeted by VMC are within the primary service area of one or more of the existing hospitals, and there are three hospitals physically located within those zip codes. Wuesthoff-Melbourne and Wuestoff-Rockledge are located in VMC’s PSA, and HRMC is in VMC’s SSA. The 2003 population of the PSA was 108,436. In 2010, which would be VMC’s third year of operation, the PSA’s population is projected to be 128,498. The 65+ age cohort, which is the group that most heavily utilizes hospital services, is projected to make up 21.5 percent of the PSA’s population in 2010. That is a lower percentage than the projected populations of the 18-44 age cohort (29.1 percent) and the 45-65 age cohort (29.7 percent) in the PSA. VMC’s PSA has a more favorable payor-mix than the county as a whole. It has a lower percentage of Medicaid patients and a higher percentage of insured patients --i.e., commercial, HMO, PPO, workers comp, and Champus/VA patients -- than the county as a whole. Except for zip code 32935/36, each of the zip codes in VMC’s PSA has a higher median household income than Brevard County as a whole. Zip code 32935/36 is the zip code in which Wuesthoff-Melbourne is located. The zip code in which VMC will be located, 32940, has the highest median household income in Brevard County. The median household income in that zip code for 2004 was $67,000 as compared to the county-wide average of $44,000. Utilization Projections VMC was projected to open in January 2008, and Holmes' CON application contains utilization and financial projections for VMC's first three years of operation, i.e., 2008, 2009, and 2010. The utilization projections are based upon an average length of stay (ALOS) of 3.69 days, which is reasonable. The utilization projections are also based upon the assumption that by VMC’s third year of operation, it will have 26.9 percent market share in its PSA and a 7.4 percent market share in its SSA. VMC's projected market share in zip code 32940, which is its “home” zip code and the “main” Viera zip code, is projected to be 35 percent. The market share assumptions are reasonable and attainable. The utilization projections include a “ramp-up” period for VMC. Its annual occupancy rate in its first year of operation is projected to be 45.6 percent; its annual occupancy rate in its second year of operation is projected to be 65.7 percent; and in its third year of operation (2010), VMC is expected to have an annual occupancy rate of 76 percent with 6,313 discharges and 23,298 patient days. The occupancy rates, and the discharges and patient days upon which they are based, are reasonable and attainable.2 The application projects that VMC will redirect or “cannibalize” a significant percentage of its patients from the other Health First hospitals. The percentage of patients that VMC will cannibalize from the other Health First hospitals in each zip code varies from 75 percent to 45 percent, depending upon the proximity of the zip code to VMC. Overall, approximately 69.4 percent of VMC’s patients will be cannibalized patients, i.e., patients that would have otherwise gone to HRMC (66.2 percent), Cape Hosptial (3.2 percent), or PBCH (less than 0.1 percent). The remaining 30.6 percent of VMC’s patients will be patients that would have otherwise gone to Wuesthoff-Rockledge (15.8 percent) or Wuesthoff-Melbourne (14.8 percent). The record does not reflect the outpatient volume projected for VMC, but Holmes’ health planner conceded at the hearing that the projected outpatient revenues for VMC did not take into account the outpatient services that will be included in Phase I of the Viera Medical Park. As a result, the volume on which the outpatient revenues were based is overstated to some degree, but there was no credible evidence regarding the extent of the overstatement. VMC is projected to treat 15,851 patients in its ER in its first year of operation (2008), and by its third year of operation (2010), VMC is expected to treat 27,780 patients in its ER. The record does not reflect how those figures were calculated, nor does it reflect what percentage of those patients would have otherwise been treated in the ERs at HRMC, PBCH, or the Wuesthoff hospitals. However, the reasonableness of those figures was not contested by Wuesthoff or the Agency. Statutory and Rule Criteria Statutory Criteria -- Section 408.035, Florida Statutes (2004)3 Subsections (1), (2) and (5) -– Need for Proposed Services; Accessibility of Existing Services; and Enhancing Access According to the CON application (page 14), the need for VMC is justified based upon: The large population base and significant population growth projected for the [Viera] area. The need to improve access and reduce travel times for this significant population for both critical care and inpatient services. The projected need for additional acute care beds at HRMC and the benefits of delivering non-tertiary services away from [HRMC’s] campus. Additionally, the CON application (page 15) asserts that the approval of VMC will: Significantly enhance the area’s Homeland Security and disaster planning and preparedness. Enhance the quality of care delivered to area residents as a result of key design and information technology innovations planned for [VMC]. Provide access to cost-effective, quality of care for all residents of the service area, including the uninsured. In its PRO (page 19), Holmes identifies those same six issues as the “not normal” circumstances that justify approval of VMC. Holmes’ health planner conceded at the hearing that the VMC project is not intended to address any cultural, programmatic, or financial access problems, and that those potential “not normal” circumstances were not advanced in the CON application as bases for approval of VMC. Population of and Growth in the Viera Area There has been considerable growth in Viera over the past 15 years, and the demand for new homes in the Viera DRI remains strong. The projected population of the Viera DRI is expected to exceed 40,000 when the DRI is built-out in 2020, and that figure does not include the population of the Suntree area, which is outside of the Viera DRI and has a number of large residential subdivisions. Zip code 32940, which is the “main” Viera zip code, had a population of 22,940 in 2003. By 2010, that zip code is projected to have a population of 31,862. That is an increase of 38.9 percent, but only 9,000 persons. As stated above, the population of VMC's PSA is projected to increase from 108,436 (in 2003) to 128,489 (in 2010). That is an increase of 18.5 percent, but only 20,000 persons. The population of VMC’s PSA is projected to grow at a faster rate than Brevard County as a whole. Over the seven-year period used in the application (2003 to 2010), the annual growth rate for VMC’s PSA is projected to be 2.64 percent while the annual growth rate of Brevard County as a whole is projected to be 1.74 percent.4 Population growth in Florida is normal and, indeed, is expected. There is nothing extraordinary about the growth projected for zip code 32940 and/or VMC’s PSA. Accordingly, the population growth projected in the Viera area does not, in and of itself, justify the approval of VMC. Enhanced Access There are two main components to Holmes’ argument that VMC will enhance access. First, Holmes contends that VMC will reduce travel times for Viera residents and thereby enhance their access to hospital services. Second, Holmes contends that the approval of VMC will relieve pressure on the overcrowded ERs at the existing hospitals in Brevard County thereby enhancing access to ER services countywide. For Viera Residents VMC will provide more convenient access to hospital services for Viera residents (at least those in need of the basic, non-OB services that will be offered at VMC), and to that extent, VMC will enhance access for Viera residents. VMC will also provide more convenient ER access for Viera residents. Quicker access to an ER is generally beneficial to the patient, although certain heart-attack patients may benefit more by going to the ER of a hospital that can do an immediate angioplasty, such as Wuesthoff-Rockledge or HRMC. VMC will not necessarily enhance access for other residents of the PSA and SSA targeted by VMC (e.g., those outside of the Viera area) because many of those residents are closer to an existing hospital. Indeed, some of those residents would have to pass an existing hospital to get to VMC, which seems particularly unlikely for emergency patients. VMC will also not enhance access for patients in need of OB services or tertiary services that will not be offered at VMC. Convenience alone is not a basis for approving a new hospital, particularly where (as here) the evidence establishes that the residents of the area to be served by the new hospital currently have reasonable access to hospital services. VMC will be located approximately 10 miles south of Wuesthoff-Rockledge, and approximately 11 miles north of Wuesthoff-Melbourne. VMC will be approximately 15 miles northwest of HRMC. There are multiple routes from the Viera area to the Wuesthoff hospitals and HRMC. The routes are along major arterial roads, including I-95, US 1, Wickham Road, Murrell Road, Fiske Boulevard, and Eau Gallie Boulevard. All of those roads are at least four lanes wide. The travel-time studies presented by Wuesthoff show that it takes less than 15 minutes to drive from either of the Wuesthoff hospitals to the VMC site. There was anecdotal testimony suggesting longer travel times, particularly from the VMC site to Wuesthoff-Melbourne,5 but that testimony was not as persuasive as Wuesthoff’s travel-time studies. The travel-time studies presented by Wuesthoff were not without flaws. For example, the travel times were calculated by driving away from the Wuesthoff hospitals, rather than driving towards the hospitals as a potential patient from Viera would be doing. Holmes did not present its own travel- time studies, and notwithstanding the directional issue and the other unpersuasive criticisms of the study by Holmes’ traffic engineer, Wuesthoff’s studies are found to be credible and persuasive. Indeed, Holmes’ traffic engineer estimated that it would take 15 to 20 minutes to get from VMC to Wuesthoff- Melbourne using the most direct route (Transcript, at 668), which is consistent with Wuesthoff’s travel-time studies. It takes longer to drive from Viera to HRMC than it does to drive from Viera to either of the Wuesthoff hospitals. The travel-time studies did not directly address the issue, but the anecdotal testimony suggests that the travel times from Viera to HRMC are between 25 and 45 minutes depending upon the time of day and traffic conditions.6 There are several road segments on the routes between Viera and the Wuesthoff hospitals whose “v/c ratios”7 currently exceeds 1.0, which is an indication of an over-capacity road. However, there are roadway improvements planned or underway that will expand the capacity of those road segments by 2010. Indeed, a comparison of the 2003 (Exhibit H-23) and 2010 (Exhibit W-50) v/c ratios for the road segments on the routes between Viera and the Wuesthoff hospitals shows only marginal increases in the ratios, with many of the 2010 ratios projected to be lower than 0.8, which according to Holmes’ traffic engineer, indicates that the “roadway that is probably operating well within its ability to carry that traffic volume.” Holmes’ traffic engineer did not attempt to quantify the extent to which travel times would increase due to the marginal increases in the v/c ratios. Thus, his opinion that travel times would “increase significantly” and be “significantly greater” in the future is not persuasive. TVC is required to mitigate for the off-site traffic impacts generated by the development of the Viera DRI. In this regard, road improvements (e.g., additional lanes, traffic signals, etc.) will be made in the future as necessary to accommodate the additional population in the Viera DRI. In fact, there are significant road improvements currently underway that are being funded, at least in part, by TVC pursuant to the Viera DRI development order, including the six-laning of I-95 through the Viera area. In sum, the evidence establishes that persons in the PSA and SSA targeted by VMC, including residents of the Viera area, currently have reasonable access to acute care services, and the evidence was not persuasive that there will be access problems over the applicable five-year planning horizon such that a new hospital in Viera is necessary to enhance access. For ER Services in Central and South Brevard County The Brevard County government is the emergency medical services (EMS) provider for the county. Brevard County EMS responds to emergency calls throughout the county and its ambulances transport emergency patients to hospital ERs. Overcrowded ERs can adversely affect the EMS system in several ways. First, if the ER is overcrowded it can take longer for ambulances to off-load patients to the ER staff, which results a longer period of time that the ambulance is “out of service.” Second, if the closest hospital is on “diversion status” because of an overcrowded ER, ambulances will have to transport patients to a more distant hospital, which also results in the ambulance being out of service for a longer period of time. Longer out-of-service periods can, on a cumulative basis, strain the EMS system because an out-of-service ambulance is not able to respond to emergency calls in its service area and the EMS provider may have to shift other ambulances to cover the area at the risk of increasing response times for emergency calls. Brevard County EMS protocol requires ambulances to take patients to the closest hospital, unless the patient is a trauma patient or the closest hospital is on diversion status. Trauma patients are taken to HRMC, which is the designated trauma center for the county. A hospital requests diversion status from EMS when it is unable to accept additional emergency patients because its ER is overcrowded. The most common reasons that an ER is overcrowded is that it had a large number of emergency patients arrive at the same time or that there is a “bottleneck” in the ER caused by a lack of inpatient beds to move patients from the ER that need to be admitted to the hospital. If diversion status is granted, EMS will take emergency patients to another hospital, even if it is further away than the hospital on diversion. As noted above, this strains the EMS system and can result in longer response times for emergency calls, which in turn, can negatively impact patient care. If diversion status is denied, the hospital is required to continue to accept emergency patients. This can create a less than optimal setting for patient care because the hospital may not have adequate space or resources to treat the patient in a timely manner. Until recently, Brevard County EMS would not grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informed EMS that they could not take the patients. That policy recently changed, and EMS will now grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informs EMS that it can take the patients. The new EMS policy change makes it easier for hospitals in south Brevard County to be placed in diversion status. For example, under the old policy, diversion status would not be granted to HRMC if either Wuestoff-Melbourne or PBCH informed EMS that they could not take HRMC’s emergency patients, but under the new policy, diversion status will be denied to HRMC only if Wuesthoff-Melbourne and PBCH both inform EMS that they cannot take HRMC’s emergency patients. In Brevard County, having a hospital on diversion was “pretty rare” until 2002. Diversion requests have become more frequent since then, and they are no longer a seasonal phenomenon caused by the influx of “snowbirds” into the county. Diversion is a more frequent problem in south Brevard County than it is in central Brevard County, and in south Brevard County, the diversion requests have come primarily from HRMC. The evidence was not persuasive that ER overcrowding is a significant problem for the Wuesthoff hospitals or PBCH. Wuesthoff-Melbourne has not requested to go on diversion, and only one occasion was identified where HRMC’s diversion request was denied because Wuesthoff-Melbourne was unable to handle HRMC's diverted patients. That occasion occurred when Wuesthoff-Melbourne had only 65 beds and, hence, less ability than it currently has to move patients out of the ER to accommodate additional emergency patients. According to Holmes, VMC will enhance access to ER services in central and south Brevard County because it will increase the area-wide ER capacity and reduce the frequency of diversion requests, which in turn, will reduce strains on the EMS system and benefit patients. The "North Expansion" underway at HRMC (discussed below) will include a new ER that is expected to help address the overcrowding issues that have required HRMC to request diversion in the past. The new ER is designed with shelled-in space to facilitate future ER expansions as needed. In any event, the evidence was not persuasive that VMC will materially reduce the ER volume at HRMC. The record does not reflect what percentage of VMC’s projected ER patients would have otherwise been served at HRMC as compared to the Wuesthoff hospitals. Moreover, it is not likely that non-trauma emergency patients from the Viera area are contributing to the overcrowding in the ER at HRMC because, under EMS protocol, those patients currently are being taken to Wuesthoff-Melbourne or Wuesthoff-Rockledge, which are closer to Viera than is HRMC. Need to “Decompress” HRMC Holmes contends that VMC will help to “decompress” HRMC and that it is the only viable option for doing so. HRMC is a well-utilized facility. According to the SAAR, its annual occupancy rate for the 12-month period ending June 2003 was 81.22 percent. HRMC's occupancy rate tends to stay above 80 percent, and at times it is as high as 115 percent. If VMC is not approved, HRMC’s annual occupancy rate for 2008 is projected to be 83.9 percent, and by 2010, its occupancy rate is projected to increase to 90 percent. Even if VMC is approved, HRMC’s annual occupancy rate is projected to be 81.7 percent in 2010. Those figures assume that HRMC will maintain its current bed capacity and they do not take into account the impact of the expansion of the Wuesthoff hospitals. HRMC currently includes approximately 612,000 SF. It is located on 18 acres of property that is bounded by streets and developed properties. Holmes owns several parcels of land adjacent to HRMC, and it is continuing to acquire parcels as they come available. Much of the adjacent land owned by Holmes is used for parking, and notwithstanding a 500-space parking garage on the south side of HRMC, there is still a shortage of parking at HRMC. Some of its staff parks at a nearby shopping center and take a shuttle to the hospital. There is an area on the north side of HRMC identified as the site of a "future parking garage," but there are no current plans to construct that structure. The original portion of the hospital, which is referred to as the “core” area, was built in the 1960’s. The remainder of the hospital has been added over the years, which has resulted in a less than ideal facility layout and has created operating inefficiencies. Some of the hospital’s support functions and administrative offices are located off- site. HRMC has undertaken a series of construction projects in recent years to reduce inefficiencies and congestion at the hospital and to increase the percentage of private rooms at the hospital. Those projects include the construction of a new OB unit and, most significantly, the $100 million “North Expansion.” The North Expansion is an eight-story, 337,000 SF addition to the hospital that is expected to be completed by the end of 2006. It will include 144 patient rooms, a new ER with a number of new observation beds, and it will allow all of the hospital’s cardiology services to be located in contiguous space. The 144 patient rooms will include 14 cardiovascular ICU beds, 22 ICU beds, and 108 acute care beds. All of the beds will be in private rooms. The 144 beds added as part of the North Expansion will not increase the bed capacity at Holmes. The same number of existing licensed beds will be eliminated, either through the conversion of existing semi-private rooms to private rooms or because the rooms are located in space that will be demolished to construct the North Expansion. The North Expansion has been designed and engineered to withstand 200-mile per hour winds, which exceeds the applicable building code requirements for hurricane protection. The North Expansion has also been designed and engineered to accommodate future expansion at HRMC in several respects. First, it includes shelled-in space on the eighth floor for an additional 36 private patient rooms. Second, it is engineered (but not shelled-in) to allow the fourth through eighth floors to be further expanded to include up to 180 additional private patient rooms in what was referred to at the hearing as a “mirror image” of the tower being built as part of the North Expansion. Third, the ER includes shelled-in space for future expansions as well as adjacent open space into which the ER could be further expanded in the future. There is no current plan to finish the shelled-in space on the eighth floor, but Holmes’ facility manger testified that he expected that to occur as soon as funding is available, and perhaps prior to the completion of the North Expansion. The beds added on the eighth floor will not increase the licensed capacity at Holmes, but rather they will come from the conversion of 36 additional existing semi-private rooms to private rooms. There is also no current plan to construct the “mirror image” side of the fourth through eighth floors of the North Expansion. That construction will be done in conjunction with the renovation of the core area of the hospital and will initially be used to locate the services from the core area that are displaced by the renovation. After the renovation of the core area, however, the "mirror image" will be used for patient rooms. In conjunction with the construction of the North Expansion, HRMC expects to relocate some of its ancillary and support services from the core area into the space where the existing ER is located, which in turn will open up space in the core area for other purposes. The space created by the construction of the new OB unit will also be available for other uses after it is no longer needed as "swing space" during the construction of the North Expansion. Additionally, Holmes recently purchased a building directly behind HRMC into which it will likely locate other ancillary and support services. Currently, less than 40 percent of HRMC’s general acute care beds are in private rooms. After the North Expansion, almost 80 percent of those beds will be in private rooms. Ultimately, Holmes wants all of the beds at HRMC to be in private rooms. Private rooms are beneficial because they offer the patients and their families more privacy and a more restful environment, and they can also help reduce the spread of infections. However, private rooms can also create operational inefficiencies for nurses who have to visit more rooms (often on longer hallways) than they would to serve the same number of patients in semi-private rooms. High quality care can be provided in semi-private rooms, and HRMC and Wuesthoff-Rockledge each do so. Although patients may prefer private rooms and most new hospitals are being designed with only private rooms, private rooms are still best characterized as an amenity, not a necessity. As a result, and Holmes’ desire to convert all of HRMC’s semi-private rooms to private rooms does not justify the building a new hospital based upon alleged capacity constraints at HRMC. Indeed, if Holmes chose to do so, it could increase the bed capacity at HRMC with little or no additional cost by adding the 36 beds in the shelled-in eighth floor of the North Expansion and/or by not converting as many semi-private rooms into private rooms. Moreover, after the North Expansion, HRMC will have approximately 50 observation beds (as compared to 20 currently) in private rooms that can be used for inpatients as needed. Indeed, as a result of the 2004 amendments to the CON law, some of those beds could be converted to licensed acute care beds at any time without CON review. Even if the beds are not converted to licensed beds, they will still help to decompress HRMC because observation patients will not need to be placed in inpatient rooms while they are being observed and evaluated for possible admission to the hospital. Several Holmes’ witnesses testified that even if Holmes wanted to add bed capacity to HRMC by converting fewer semi-private rooms to private rooms or other means, it could not do so because of limitations on the space available to provide the support services necessary for those additional rooms. That testimony was not persuasive because the witnesses conceded that Holmes has not undertaken a thorough analysis of what it intends to do with the space created in the existing building by the relocation of services as part of the North Expansion, which as noted above, will free up additional space for support services in the core area. The evidence was also not persuasive that the alternative presented in the CON application for adding 84 beds to HRMC is realistic. That alternative, the cost of which is presented in Table 23 of the CON application, was prepared after the decision was made to seek approval of a CON for VMC; it was not an alternative actually considered by Holmes and, indeed, it was characterized by the Holmes’ witness who prepared the cost estimate as a “theoretical solution” and not a viable solution to adding beds. The cost estimate in Table 23 is based upon a plan that would require the acquisition of additional land across the street from HRMC and the construction of a new bed tower on that land and an adjacent parcel on which Holmes currently owns a medical office building. The bed tower would be connected to HRMC by a two-story bridge over the street. The plan also includes the construction of a new parking garage and an office building to replace the existing medical office building. The land and building costs of the plan were approximately $86.2 million, which is approximately $18.3 million more than the land and building costs of VMC. When the equipment costs are added, the total cost of the plan is approximately $120 million. Not only was the plan not a viable solution, its cost was clearly overstated. For example, the $450/SF cost of the new bed tower was irreconcilably higher than the $278/SF cost of VMC and the $2.5 million that Holmes represented to the Agency in October 2003 that it would cost to add 50 beds to HRMC. In sum, the evidence fails to support Holmes’ claim that the only way to add bed capacity to HRMC is through the $120 million plan presented in Table 23 of the CON application. The evidence also fails to support Holmes’ claim that VMC is the only viable option to decompress HRMC. Indeed, the evidence establishes that HRMC could be decompressed if PBCH was better utilized. Holmes contends that PBCH is too far away from Viera to be a viable alternative to HRMC for patients from the Viera area. The evidence supports that claim, but that claim ignores the fact that better utilization of PBCH by Palm Bay patients will help to decompress HRMC. PBCH is currently an underutilized facility, and it has been ever since it opened in 1992. According to the SAAR, PBCH's annual occupancy rate for the 12-month period ending June 2003 was only 51.5 percent. Its annual occupancy rate is projected to be only 60.1 percent in 2008 and 65.4 percent in 2010, which are well below the 75 to 80 percent optimum utilization level. Approximately 25 to 30 percent of HRMC’s patient volume comes from the Palm Bay zip codes. If those patients were redirected to PBCH, the utilization rate at HRMC would go down and the utilization rate at PBCH would go up. Redirecting Palm Bay patients to PBCH has the potential to decompress HRMC more than redirecting Viera patients to VMC because HRMC has approximately 7,000 admissions from the Palm Bay area, as compared to approximately 6,000 admissions from the Viera area. Holmes did not present any persuasive evidence as to why patients from the Palm Bay zip codes could not be redirected to PBCH as a means of decompressing HRMC. On this issue, there was credible evidence presented by Wuesthoff that virtually no elective cases are being done at PBCH and that PBCH is essentially being used as a triage facility for HRMC. Finally, the expansion of the Wuesthoff hospitals (particularly Wuesthoff-Melbourne) will help to decompress HRMC because the Wuesthoff hospitals will be able to serve more patients. As the Wuestoff hospitals' market share grows, HRMC’s market share (and patient volume) will decline.8 Enhanced Homeland Security and Disaster Planning Brevard County is susceptible to hurricanes because of its location on the east coast of Florida and the length of its coastline. The evidence was not persuasive that Brevard County is more susceptible to hurricanes than are the other counties on the east coast. The three major storms that affected the county in the summer of 2004 were not the norm. Brevard County has a comprehensive emergency management plan to prepare for and respond to hurricanes, as do all of the existing hospitals in the county. Those plans were tested in the summer of 2004 when the county was directly impacted by three of the four major storms that hit the state Florida. The hospitals’ hurricane plans include securing the building, discharging as many patients as possible prior to the arrival of the storm, and canceling elective surgeries scheduled around the time the storm is expected to hit the area. The plans also provide for the evacuation of some of the hospitals during particularly strong storms, i.e., Category 3 or above. Cape Hospital is particularly prone to evacuation when a strong hurricane threatens the area because it is located close to the ocean on a peninsula in the middle of the Intracoastal Waterway. Cape Hospital was evacuated twice during the summer of 2004. None of the hospitals in Brevard County were evacuated during the first storm, Hurricane Charley. Cape Hospital and Wuesthoff-Rockledge were evacuated prior to the second storm, Hurricane Francis. That was the first time that Wuesthoff-Rockledge was evacuated since it opened in 1941, and its ER remained open and staffed even though the remainder of the hospital was evacuated. Cape Hosptial’s patients were taken to HRMC, and Wuesthoff-Rockledge patients were taken to Wuesthoff-Melbourne. The evacuated patients were accompanied by physicians and nurses and were transported to the receiving hospitals by ambulance. The evacuation of Cape Hospital and Wuesthoff- Rockledge placed strains on the receiving hospitals and their staffs. At one point during the evacuation, HRMC had more than 700 patients in its 514-bed facility and Wuesthoff-Rockledge had 156 patients in its 65-bed facility. By all accounts, despite the strains placed on the receiving hospitals, the evacuations went smoothly and there were no adverse patient outcomes attributable to the evacuation. Indeed, the director of Brevard County’s Health Department testified that all of the hospitals in the county responded and performed “great” during the hurricanes, and that sentiment was echoed by physicians and administrators affiliated with both of the hospital systems involved in this case. Cape Hospital was evacuated again prior to the third storm, Hurricane Jeanne. Wuesthoff-Rockledge was not evacuated during that storm, and approximately 15 of Cape Hospital’s patients were taken to Wuesthoff-Rockledge. None of the Health First or Wuesthoff hospitals suffered any significant damage from the hurricanes. The approval of VMC will not eliminate the possibility that Cape Hospital, Wuesthoff-Rockledge, or some other hospital in Brevard County may have to evacuate during a future hurricane. VMC may provide a more convenient (or at least an additional) place to evacuate some of the patients from Cape Hospital during a future hurricane because VMC is closer to Cape Hospital than is HRMC. VMC will also be more inland than HRMC and it will be designed to withstand 165 mile per hour winds. Holmes conditioned the approval of its CON application on the inclusion of a "suitable parcel, fully equipped and designed to support temporary staging of Disaster Medical Assistance Teams (DMAT)" at VMC. A DMAT is essentially a mobile emergency room set up by the federal government after a natural disaster to help serve the medical needs of those affected by the disaster. The DMAT staging area at VMC will be an open field adjacent to the hospital that is “pre-plumbed” with water, electricity, and communication lines. In some situations, it is beneficial for a DMAT to be set up proximate to a hospital, and in that regard, VMC’s inland location and proximity to I-95 may make it an attractive location to set up a DMAT in the future. It is not necessary, however, for a DMAT to be set up proximate to a hospital. DMATs are fully self-sustaining and they can be set up anywhere, including a Wal-Mart parking lot. Indeed, in some situations, it is more beneficial for the DMAT to be located closer to the persons in need of its services than to a hospital. For example, after Hurricane Jeanne, a DMAT was set up near the Barefoot Bay community in southern Brevard County, which is miles from the closest hospital. VMC’s central-county location and proximity to I-95 would also make it a good point-of-dispensing (POD) for vaccines and medicines in the case of a severe biological emergency. However, like DMATs, PODs can be set up anywhere and it is not critical for a POD to be proximate to a hospital even though proximity might allow for greater medical oversight of the dispensing process. There are high-profile, “Tier 1” terrorist targets located in Brevard County, including Kennedy Space Center, Cape Canaveral Air Force Station, Patrick Air Force Base, and Port Canaveral. There is also a nuclear power plant in Indian River County, just south of the Brevard County line. The nature of these targets is somewhat unique because they involve the country's space program, but the presence of multiple “Tier 1” terrorist targets is not unique to Brevard County and is not, in and of itself, a special circumstance that justifies approval of a new hospital. Brevard County has developed emergency management plans in conjunction with the state and federal governments to prepare for and respond to terrorist attacks on those targets. Those plans have been in place for many years, but they have been significantly strengthened since September 11, 2001. VMC will include decontamination areas and other design features to facilitate the treatment of victims of bio- terrorism. The existing hospitals in Brevard County have similar design features as well as comprehensive plans for dealing with bio-terrorism. The evidence was not persuasive that VMC, as an 84- bed, non-tertiary satellite hospital, will materially enhance County’s ability to deal with a large-scale terrorist attack, whether biological or otherwise. Similarly, the evidence was not persuasive that Brevard County’s emergency management plans for hurricanes and/or terrorism are deficient in any way or that the approval of VMC would result in material enhancements to those plans. Any enhancements attributable to VMC would be marginal, at best. The DMAT staging area and other design elements included at VMC to facilitate the hospital’s participation in the Brevard County’s response to hurricanes, terrorist attacks, or other contingencies are positive attributes. Inclusion of those features in VMC (or any new hospital for that matter) is reasonable despite the infrequency of those contingencies, but it does not follow that VMC should be approved simply because it will include those features. IT Innovations and Design Features The evidence was not persuasive that VMC will provide a higher quality of care than is currently being provided at the existing hospitals serving central and south Brevard County as a result of the “innovative” IT systems and the other design features that will be incorporated into VMC. See Part F(1)(b) below. Accordingly, the approval of VMC is not justified on that basis. Enhanced Access to Care for the Uninsured Holmes’ contention that VMC will enhance access for the uninsured implicates the issue of “financial access.” Financial access concerns arise when there is evidence that necessary services are being denied to patients based upon their inability to pay or their uninsured status. Holmes’ health planner acknowledged at the hearing that VMC was not intended to address any financial access concerns for patients in the Viera area and, indeed, there was no credible evidence of any financial access concerns in PSA and SSA targeted by VMC. As discussed in Part E(2) above, VMC’s PSA include a higher percentage of insured patients than Brevard County as a whole, and as discussed in Part F(1)(g) below, the existing hospitals are adequately serving the medically indigent patients in central and south Brevard County, both at the hospital and through outreach efforts such as the Holmes’ HOPE program and Wuesthoff’s free clinics. Accordingly, the evidence failed to establish that VMC will enhance access to care for the uninsured, and approval of VMC is not justified on that basis. Subsection (3) -- Applicant’s Quality of Care Holmes, the applicant, provides a high quality of care at HRMC and PBCH, and it is reasonable to expect that it will provide the same high quality of care at VMC. The Wuesthoff hospitals also provide a high quality of care, and Holmes' witnesses acknowledged that VMC was not proposed to address any problem with quality of care in central or south Brevard County. The evidence was not persuasive that the quality of care at VMC will be materially better (or worse) than that provided at Wuesthoff-Melbourne, which has a similar range of services that will be provided at VMC. The award-winning IT systems in place at the Wuesthoff hospitals are materially the same as those proposed for VMC except for e-ICU at VMC. The evidence was not persuasive that the e-ICU significantly enhances quality of care, and because the e-ICU is being used at the existing Health First hospitals in Brevard County, VMC will not be providing any new technology or service that is not already available to physicians and patients in the county. Thus, the "innovative" IT systems proposed for VMC do not provide an independent basis for approving the CON application. The evidence was not persuasive that VMC would exacerbate nursing or physician shortages in Brevard County thereby negatively affecting quality of care in the county. See Part F(1)(c) below. Subsection (4) -- Availability of Personnel and Resources for Operations Holmes and Health First have the management resources necessary to establish and operate VMC. Holmes’ CON application projects that VMC will have 241.4 full-time equivalents (FTEs) in its first year of operation, and that by its third year of operation, it will have 355.7 FTEs. Nursing positions -- registered nurses, licensed practical nurses, nursing aides, and nursing directors -- account for 123.1 of the FTEs in the first year of operation, and 189.2 of the FTEs in the third year of operation. According to the CON application, a significant number of the initial FTEs at VMC are expected to be filled by persons who transfer from Holmes’ existing campuses, HRMC and PBCH. The parties stipulated that the projected number of FTEs needed by position and the projected salaries contained in Holmes’ CON application are reasonable for the census projected at VMC. However, Wuesthoff disputed whether Holmes will be able to adequately staff VMC due to nurse and physician shortages in Brevard County and/or that VMC will exacerbate those shortages and make it more difficult to staff the existing hospitals in the county. There is a nursing shortage in Brevard County, as there is around Florida and across the nation, but the situation in Brevard County is improving. Wuesthoff was able to fully staff Wuesthoff-Melbourne prior to its opening in December 2002, even though the nursing shortage was more severe at that time. Additionally, Wuesthoff is currently in the process of adding beds at Wuestoff-Melbourne and Wuesthoff-Rockledge, and it expects to be able to recruit and retain the nurses necessary to staff those additional beds despite the current state of the nursing shortage. Holmes received “magnet designation” from the American Nurses Credentialing Center, which is a recognition of its excellence in nursing. No other hospital in Brevard County has magnet designation, and that designation helps Holmes attract and retain nurses. The evidence establishes that Holmes will be able to recruit and retain the nursing and other staff needed for VMC, and the evidence was not persuasive that the staffing of VMC will exacerbate the nursing shortage or otherwise significantly impact Wuesthoff. There is a shortage of physicians in Brevard County with certain specialties, including neurosurgery, neurology, orthopedics, dermatology, and gastroenterology. Like the nursing shortage, this problem is not unique to Brevard County and it is not as severe in Brevard County as it is elsewhere in the state. The shortage of physician specialists in Brevard County is to some extent hospital-specific. For example, there is only one neurosurgeon covering Wuesthoff-Rockledge and Cape Hospital, and Wuesthoff-Melbourne only has part-time coverage neurosurgical coverage, but Holmes has several neurosurgeons. Holmes has recently had success in recruiting new physicians to Brevard County, including specialists. One of the largest multi-specialty physician groups in Brevard County, whose physicians are on staff at Holmes’ and Wuestoff's hospitals, has also been successful recently in recruiting new physicians to the area. That group, Melbourne Internal Medicine Associates, will be adding more physicians whether or not VMC is approved. The evidence establishes that Holmes will be able to attract the necessary physician staff for VMC, just as Wuesthoff-Melbourne was able to do when it opened. Indeed there are a number of physicians who have offices in the Viera area that are closer to VMC than the existing hospitals where they have privileges. Holmes and Wuesthoff require physicians with privileges at their hospitals to provide coverage for ER calls on a rotational basis. Physicians with privileges at more than one of the hospitals are required to provide ER call coverage at multiple hospitals, which can create a problem if the physician is on-call at two (or more) hospitals at the same time. Physicians who choose obtain privileges at VMC will be required to provide ER call coverage at VMC. ER call coverage is a problem in Brevard County, but the evidence was not persuasive that the problem is as significant in Brevard County as it is elsewhere in the state or that VMC would seriously exacerbate the problem. More specifically, the evidence was not persuasive regarding the extent to which VMC would cause physicians to be on call at more than one hospital at the same time. Nor was the evidence persuasive regarding the likelihood that physicians would relinquish privileges at other hospitals in Brevard County to obtain privileges at VMC in such numbers that ER call coverage problems would be created for the other hospitals. Subsection (6) -- Financial Feasibility The parties stipulated that VMC is financially feasible in the short-term and that Holmes has sufficient availability of funds for VMC's capital and operating expenses. The long-term financial feasibility of VMC is in dispute. Generally, if a CON project will at least break even in the second year of operation, it is financially feasible in the long-term. If, however, the project continues to show a loss in the second year of operation it is not financially feasible in the long-term unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. Agency precedent (e.g., Wellington, supra, at 73-74) and the evidence in this case (e.g., Exhibit W-57, at 22) establish that in the context of a satellite hospital project that is expected to “cannibalize” patients from the applicant’s existing hospital, it is important to consider the impact of the project on the entire hospital system in evaluating the long- term financial feasibility of the project. The net operating revenue projected on Schedule 7A of the CON application, which is the starting point for the net income/loss projected on Schedule 8A, is reasonable.9 On Schedule 8A of the CON application, in the column titled “VMC only,” Holmes projects that VMC will generate a net loss of $5.71 million in its first year of operation, but that it will generate net profits of $1.48 million and $5.11 million in its second and third years of operation. Thus, as a stand-alone entity, VMC is financially feasible in the long-term. However, the “VMC only” figures do not provide the complete picture of the financial feasibility of the VMC project because of the significant percentage of its patients that will be cannibalized from HRMC and PBCH. In evaluating the long-term financial feasibility of the VMC project, it is also important to consider the “incremental difference” column in Schedule 8A. That column reflects VMC’s net financial benefit (or burden) to Holmes after taking into account the patients that VMC is cannibalizing from HRMC and PBCH. The “incremental difference” column in Schedule 8A shows a net loss of $695,000 in the VMC’s first year of operation, and net profits of $605,000 and $983,000 in the second and third years of VMC’s operation. The incremental figures presented in the CON application identify the profit/loss that will be generated by the patients treated at VMC that are new to the Holmes’ system, but they do not take into account the fact that the patients treated at VMC that were cannibalized from the other Holmes’ hospitals would have generated a different profit/loss for the Holmes’ system if they were treated at one of the other Holmes’ hospitals. When incremental profit/loss associated with treating the cannibalized patients at VMC rather than HRMC or PBCH is factored in, the “incremental difference” generated by VMC will be net profits of $498,000 (year one); $720,000 (year two); and $252,000 (year three). Included in the “incremental difference” column on Schedule 8A (and embedded in the revised figures in the preceding paragraph) are negative figures on the “depreciation and amortization” line and the “interest” line. Those figures are intended to reflect the depreciation, amortization, and interest expenses that Holmes will “save” by building VMC rather than by adding 84 beds at HRMC. A critical assumption underlying the “savings” shown on those lines is that it would cost $120 million to add 84 beds to HRMC. To the extent that cost is overstated, then the depreciation, amortization, and interest expense “savings” on Schedule 8A are also overstated, as is the incremental net profit of the VMC project. The extent to which the net profit is overstated depends upon the extent to which the $120 million cost is overstated. For example, if the cost of adding 84 beds to HRMC is the same as the cost of VMC (i.e., $106 million rather than $120 million), then the depreciation, amortization, and interest expense shown in the “incremental difference” column on Schedule 8A would be $0 (rather than a negative number) because the depreciation, amortization, and interest expenses in the “with this project” and “without this project” columns would be the same. If, on the other hand, there was no cost associated with the addition of 84 beds at HRMC, then the depreciation, amortization, and interest expense shown in the “without this project” column would be $10.662 million lower in 2010 (see Endnote 10) and that amount would appear as a positive number -- i.e., expense -- rather than a negative number -- i.e., “savings” -- in the “incremental difference” column. The evidence was not persuasive that it will cost $120 million to add beds to HRMC, which is the amount underlying the projected “savings” in depreciation, amortization, and interest expense shown on Schedule 8A. Indeed, as discussed in Part F(1)(a)(iii) above, the evidence establishes that the alternative that gave rise to the $120 million cost estimate was not a viable option and that Holmes could add 84 beds at HRMC with little or no cost if it chose to do so by reducing the number of semi-private rooms that it converts to private rooms as part of the North Expansion and/or by finishing the shelled- in space on the eighth floor of the North Expansion. Accordingly, the “savings” embedded in Schedule 8A are grossly overstated as is the incremental net profit shown in that schedule. Specifically, in the third year of operation, when VMC is at a near-optimal occupancy level of 76 percent, the incremental net profit generated by VMC will be no more than $234,000 and, more likely, will be a net loss between $497,000 and $10.41 million.10 A net profit of $234,000 is a very marginal return on the $106 million cost of VMC, and is well below the three percent return that Holmes' seeks to achieve for its capital projects. However, according to Holmes' chief financial officer, the return generated by a project is not Holmes' paramount concern as a not-for profit organization, and at that level, the project would be considered financially feasible in the long-term. A $497,000 to $10.41 million incremental net loss would mean that the project is not financially feasible in the long-term. The “including this project” column on Schedule 8A projects that Holmes will have net income of approximately $31.1 million in 2010. Thus, even if VMC actually generated an incremental net loss in the range of $497,000 to $10.41 million in 2010, the Holmes' system would still be profitable. Subsection (7) -- Fostering Competition that Promotes Cost-Effectiveness Generally, competition for hospital services benefits consumers because it leads to lower prices and it creates incentives for hospitals to lower costs. It is not necessary for hospitals to be equal in size to compete, but the beneficial effects of competition will be greater if the hospitals are more equal. As explained by Dr. David Eisenstadt, Wuesthoff’s expert economist, “competitive constraints are a matter of degree” and “while it is true that a small hospital can pose some competitive constraint, it’s not correct that a small hospital can impose the same competitive constraint . . . as a large hospital could.” (Transcript at 1571-72). Holmes is, and historically has been, the dominant provider of hospital services in south Brevard County, with market shares exceeding 80 percent prior to the opening of Wuesthoff-Melbourne. Holmes still has a market share in excess of 70 percent in south Brevard County. A dominant hospital has the ability to set prices above competitive levels by commanding higher prices in negotiations with commercial payors. Holmes has done so in the past and, based upon the comparison of the commercial average net inpatient revenues reported by the Health First hospitals and the Wuesthoff hospitals in 2003 and 2004, it continues to do so. Holmes ability to set prices above competitive levels is enhanced by the fact that the largest managed care plan in Brevard County, HFHP, is operated by Health First. The original approval of the CON for Wuesthoff- Melbourne was based upon the Agency’s determinations that there was at that time a “compelling” need for competition for hospital services in south Brevard County; that the entry of a new, non-Health First provider into the market would give commercial payors and, ultimately, patients an alternative to Holmes, which because of its relationship with HFHP, had no incentive to negotiate competitive rates with other providers; and that competition would have the effect of reducing prices paid by the commercial payors to the hospitals and, ultimately, the premiums paid by patients. Wuesthoff-Melbourne’s entry into the market in December 2002 has not yet resulted in any material price reductions. Indeed, notwithstanding Wuesthoff-Melbourne’s presence in the market, HRMC increased its charges by 15 percent in 2003-04 and by an additional five percent in 2004-05. A hospital’s charges do not necessarily correspond to the prices that the hospital negotiates with commercial payors. However, in this case, there appears to be a correlation because Holmes had an 11.6 percent increase in net revenue per admission between 2003 and 2004 and it also had significant increases in the commercial average inpatient revenues per admission at HRMC and PBCH between 2003 and 2004. Moreover, the significant increase in charges at Holmes over the past two years is a strong indication that Holmes is not feeling any significant competitive pressure as a result of Wuesthoff-Melbourne’s presence in the market. Wuesthoff-Melbourne will be able to exert more competitive pressure on Holmes as its market share increases, particularly if Holmes’ market share continues to decline at the same time as is projected. As a result, Wuesthoff-Melbourne’s ability to expand and increase (or at least maintain) its market share in the growing Viera market is particularly significant to achieving price reductions (and/or minimizing price increases) in Brevard County.11 Holmes contends that even if VMC is approved, there will be sufficient competition in Viera because, according to Table 33 in the CON application, in 2010 the Health First hospitals will have a 50.5 percent market share of the PSA targeted by VMC and the Wuesthoff hospitals will have a 44.3 percent market share of the PSA. However, the approval of the VMC will have the effect of dramatically slowing the upward trend in Wuesthoff’s market share and corresponding downward trend of Health First’s market share in the PSA targeted by VMC because according to Tables 28 and 33 of the CON application, without VMC, the market share of the Wuesthoff hospitals in the PSA is projected to increase from 43.3 percent (in 2003) to 52.3 percent (in 2010), and the market share of the Health First Hospitals in the PSA is expected to decline from 51.2 percent (in 2003) to 42.5 percent (in 2010). Moreover, if VMC is approved, it is less likely that there will be sufficient need for additional acute care beds in the area to justify expanding Wuesthoff-Melbourne beyond 134 beds. That, in turn, will limit the competitive pressure that Wuesthoff-Melbourne will be able to exert on Holmes in the future. The evidence was not persuasive regarding the extent of the competitive pressure and/or price reductions that would result from the expansion of Wuesthoff-Melbourne rather than the approval of VMC.12 However, the fact remains that VMC will strengthen Holmes’ market position in central and south Brevard County, which will not foster competition that promotes cost effectiveness. Not only will the approval of VMC negatively affect the evolution of competition in south Brevard County, but it will effectively preclude the construction of another hospital in the Viera area until 2029 when the exclusivity provisions and restrictive covenants discussed in Part D(2) above expire. The evidence was not persuasive that there was an anticompetitive motivation underlying Holmes’ decision to propose VMC, but the evidence does establish that the approval of VMC will have anticompetitive effects. As a result, the criteria in Section 408.035(7), Florida Statutes, strongly weigh against the approval of Holmes’ CON application. Subsection (8) -- Costs and Methods of Construction The parties stipulated that the costs (including equipment costs), methods of construction, and energy provision for VMC are reasonable; that the architectural drawings for the VMC satisfy the applicable code requirements; and that the construction schedule for VMC is reasonable. Thus, VMC satisfies the criteria in Section 408.035(8), Florida Statutes. Subsection (9) -- Medicaid and Charity Care Holmes conditioned the approval of its application on VMC providing the following levels of Medicaid and charity care: At least 3.0 percent of inpatients at [VMC] will be covered by Medicaid and/or Medicaid HMOs. At least 2.3 percent of the gross revenues of [VMC] will be attributable to patients who meet the guidelines for charity care. The Medicaid and charity commitments are lower than the averages for Brevard County, but they are reasonable and attainable in light of the demographics of the area that will be served by VMC. Holmes has a history of providing considerable services to Medicaid and charity patients, both at its existing facilities and through community programs such as HOPE. Wuesthoff also has a history of providing considerable services to Medicaid and charity patients at its existing facilities and through community programs such as its free clinic in Cocoa. Wuesthoff-Rockledge is a Medicaid disproportionate share provider, which entitles it to a higher Medicaid reimbursement rate from the State as a “reward” for serving more than its fair share of Medicaid patients. Holmes' hospitals and Wuesthoff-Melbourne are not Medicaid disproportionate share providers. Wuesthoff-Melbourne has not been open long enough to qualify. The Wuesthoff hospitals have a contract with Well Care, which is the only Medicaid HMO in Brevard County. Holmes' hospitals do not have a contract with Well Care. On a dollar-amount basis, Holmes provides considerably more Medicaid and charity care than any other hospital in Brevard County, including the Wuesthoff hospitals. In fiscal year 2003, for example, Holmes’ Medicaid gross revenues were $53.7 million (as compared to $39.7 million for the Wuesthoff hospitals) and its charity care gross revenues were $27.8 million (as compared to $10.9 million for the Wuesthoff hospitals). The larger dollar-amount of Medicaid and charity care provided by Holmes is due, at least in part, to Holmes being almost twice the size of the Wuesthoff hospitals. On a percentage basis, Holmes provides approximately the same level of charity care as Wuesthoff-Rockledge, but it provides less Medicaid care than Wuesthoff-Rockledge. In fiscal year 2003, for example, 2.8 percent of Holmes’ gross revenue was charity care (as compared to 2.5 percent for Wuesthoff- Rockledge) and seven percent of Holmes’ patient days were attributable to Medicaid patients (as compared to 10.9 percent for Wuesthoff-Rockledge). According to Mr. Gregg, the Agency gives more weight to the percentage of Medicaid and charity care provided by a hospital than it does to the dollar amount of such services. However, Mr. Gregg acknowledged that Holmes satisfies the criteria in Section 408.035(9), Florida Statutes, based upon its history of providing services to the medically indigent and its Medicaid and charity commitments at VMC. Holmes' satisfaction of the criteria in Section 408.035(9), Florida Statutes, is not given great weight in this proceeding because the medically indigent in central and south Brevard County are currently being adequately served by the existing facilities and, more significantly, zip code 32940, in which VMC will be located and from which it is projected to draw the largest percentage of its patients, has a lower percentage of Medicaid/charity patients and a higher median household income than Brevard County as a whole. Subsection (10) -- Designation as a Gold Seal Nursing Homes The parties stipulated that Section 408.035(10), Florida Statutes, is not applicable because Holmes is not proposing the addition of any nursing home beds. Rule Criteria The Agency rules implicated in this case -- Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038 -- do not contain any review criteria that are distinct from the statutory criteria discussed above. The “health care access criteria” and “priority considerations” in those rules focus primarily on the impact of the proposed facility on the medically indigent and other underserved population groups, as well as the applicant’s history of and/or commitment to serving those groups. Holmes satisfies those rule criteria, but they are not given great weight for the reasons discussed in Part F(1)(g) above. Impact of VMC on the Wuesthoff Hospitals As discussed above, VMC is projected to take patients that are currently being served by, or would otherwise be served by one of the existing hospitals in central or south Brevard County. Approximately 30 percent of VMC’s patient volume will come at the expense of the Wuesthoff hospitals. As a result of the projected population growth in central and south Brevard County over the planning horizon, the Wuesthoff hospitals are projected to have more admissions in 2010 than they currently have, whether or not VMC is approved. However, if VMC is approved, the Wuesthoff hospitals will have fewer admissions in 2010 than they would have had without VMC. The health planners who testified at the hearing agreed that in determining the impact of VMC on the Wuesthoff hospitals it is appropriate to focus on the number of admissions that the Wuesthoff hospitals would have received but for the approval of VMC. The Agency’s precedent is in accord. See Wellington, supra, at 54, 109 n.13. Holmes’ health planner projected in the CON application that the approval of VMC will result in the Wuesthoff hospitals having 1,932 fewer admissions in 2010 than they would have had without VMC, 998 at Wuesthoff-Rockledge and 934 at Wuesthoff-Melborune. Wuesthoff’s health planner projected that the approval of VMC will result in the Wuesthoff hospitals having 2,399 fewer admissions in 2010 than they would have had without VMC, 1,541 at Wuestoff-Rockledge and 858 at Wuesthoff-Melborune. The projections of Wuesthoff’s health planner are more reasonable because they are based upon more current market share data and, as to Wuesthoff-Melbourne, the projections may even be understated because its market share is still growing in the areas targeted by VMC. On a contribution-margin basis, the lost admissions projected by Wuesthoff’s health planner translate into a loss of approximately $3.9 million of income at Wuesthoff-Rocklege and a loss of approximately $2 million of income at Wuesthoff- Melbourne. Using the lost admissions projected by Holmes’ health planner, the lost income at Wuesthoff-Rockledge would be $2.51 million and the lost income at Wuesthoff-Melbourne would be $2.15 million. Thus, impact of VMC on the Wuesthoff system would be a lost income of at least $4.66 million and, more likely, $5.9 million. A loss of income in that range would be significant and adverse to the Wuesthoff hospitals, both individually and collectively. Even though the Wuesthoff system has a net worth of approximately $70.95 million, its net income (i.e., “excess of revenues over expenses”) was only $971,000 in 2003 and $1.1 million in 2004. The system is still recovering from a “devastating” financial year in 1999 when it reported a loss of almost $12 million. Wuesthoff-Melbourne reported a $4.1 million net loss in 2003, and as of June 2004, it had yet to show a profit. The significance of the projected lost income at the Wuesthoff hospitals is tempered somewhat by the increased patient volume that the hospitals are projected to have in 2010 even if VMC is approved. However, the evidence was not persuasive that the increased patient volumes will necessarily result in greater profits at the Wuesthoff hospitals in 2010.13 The approval of VMC will also likely result in a loss of outpatient volume at the Wuesthoff hospitals. However, there is no credible evidence regarding the amount of outpatient volume that would be lost or the financial impact of the lost outpatient volume on Wuesthoff.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Holmes’ application, CON 9759. DONE AND ENTERED this 17th day of June, 2005, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 17th day of June, 2005.
Findings Of Fact The allegations against Petitioner in the underlying proceeding were all connected with his use of Grenz Ray therapy, a safe, rapid, and painless procedure for the patient. It has been used for the treatment of benign skin diseases for more than sixty years. The National Academy of Sciences in 1980 affirmed the safety factor inherent in the use of Grenz Rays and strongly endorsed the concept that it remained the prerogative of the physician to use any form of therapy in which the benefits accruing to the patient from its use are considered to outweigh the risks inherent in its use. The American Academy of Dermatology at its 1991 annual meeting offered lectures and a symposium on the beneficial use of Grenz Ray therapy. Medical schools have taught dermatologists the beneficial use of Grenz Ray therapy for many decades. Many doctors use Grenz Ray therapy as a modality of treatment. Until the underlying proceeding arose, Dr. Altman's use of Grenz Ray therapy had never been questioned by any federal or state regulatory agency. Until the underlying proceeding arose, no claim for Grenz Ray therapy rendered by Dr. Altman had ever been declined by any third-party payor, and all claims submitted by him to the Department for Grenz Ray therapy had been paid for the two years that Dr. Altman had been participating as a provider in the Florida Medicaid Program prior to the Department's Emergency Termination Order. There is no statute or rule on either the federal or the state level which prohibits the use of Grenz Ray therapy. Moreover, the Department has no policy against the use of Grenz Ray therapy. Grenz Ray therapy as utilized by Dr. Altman is conservative. The Department offered no evidence in the underlying proceeding that Grenz Ray therapy as utilized by Dr. Altman is similar to utilizing the drug Thalidomide or causing exposure to asbestos, as alleged in the Department's Administrative Complaint. No patient has complained regarding the treatment provided to that patient by Dr. Altman. The investigation into Dr. Altman's use of Grenz Ray therapy was triggered by a computer search. The matter was then assigned to an investigator who had been employed by the Department for approximately one year who held herself out to have special training in radiation therapy as a certified oncology nurse. She based her investigation upon experts that began with the use of an expert personally known to her--her own dermatologist who also uses Grenz Ray therapy. Thereafter, one expert recommended another. At about the same time, she was investigating the use of Grenz Ray therapy by another dermatologist in the Broward County area, the same area in which Petitioner practices. Related to that investigation, the investigator was presented with articles strongly advocating the use of Grenz Ray therapy authored by yet another dermatologist utilizing Grenz Ray therapy in the Broward County area. At the same time, the investigator was also provided with information showing that training in Grenz Ray therapy was a requirement for completing a medical residency in dermatology. The investigator ignored those articles presented to her and failed to even speak to the author of the articles. On the other hand, the scientific studies, medical textbook chapters, and other medical articles relied upon by the investigator to show that Dr. Altman's use of Grenz Ray therapy was excessive, inferior, or inappropriate did not support that conclusion, but rather supported the opposite conclusion. The investigator did not understand that some of the articles she was reading related to higher levels of ionizing radiation than the ultra-soft Grenz Rays. Prior to initiating the Emergency Termination Order and the Administrative Complaint, the investigator never spoke to Dr. Altman concerning the services that he was providing. Instead, she went to Dr. Altman's office, advised him that Grenz Ray therapy was an outdated and antiquated modality, and picked up his medical records for the patients in question so that she could make copies of them to have them reviewed by her experts. Although she had no preconceived list of experts when she started her investigation, the investigator spoke to no practitioner who used Grenz Ray therapy on children and contacted no professional dermatologist associations regarding the use of Grenz Ray therapy by their members. Similarly, although her own dermatologist uses Grenz Ray therapy, the investigator "built a case" which alleged, essentially, that when Dr. Altman utilized Grenz Ray therapy, it was inappropriate. The investigator specifically made no attempt to contact any expert who would be favorable to Petitioner's use of Grenz Ray therapy. The investigator formed a mental impression that Petitioner's use of Grenz Ray therapy was inappropriate for children and excessive for adults when she reviewed the computer report of Dr. Altman's claims which had, up to that moment, been paid by the Department without question. Her investigation was thereafter dictated by her personal beliefs, and she ignored all evidence to the contrary. Based upon her investigation, the Department determined that it would take action. Although it could have simply terminated its contract with Petitioner without cause, it did not do so. Similarly, the Department did not request that Petitioner reimburse the Department for claims already paid by the Department. Rather, the Department issued an Emergency Termination Order followed by an Administrative Complaint seeking to terminate Dr. Altman from the Medicaid Program for five years and seeking to fine him the amount of $20,000. Although the Department was justified in conducting its investigation, it was not substantially justified at the time that the underlying action was initiated by the issuance of its Emergency Termination Order and Administrative Complaint.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: In November of 1982, Morton Plant filed with HRS an application for a Certificate of Need to construct and operate a mental health facility containing 110 psychiatric beds. The project proposed included the construction of a multistory, freestanding facility containing 84,646 square feet at a total project cost of $15,985,000. On or about February 28, 1983, HRS gave notice of its intent to deny the project in its entirety. Morton Plant thereafter petitioned for a formal administrative hearing regarding the denial of its application (DOAH Case No. 83-1275). Horizon Hospital petitioned to intervene in opposition to the application on May 19, 1983, and this petition was granted by Order dated June 1, 1983. A motion for reconsideration of the Order allowing intervention was denied by Order dated June 23, 1983. On July 6, 1983, Medfield filed a petition to intervene in opposition to the Morton Plant application. Morton Plant opposed the petition to intervene, and a motion hearing was scheduled for 10:00 a.m. on September 6, 1983. After hearing oral argument from the parties, the Medfield petition to intervene was granted by Order dated September 6, 1983. At 3:52 p.m. on September 6, 1983, a "Stipulation for Voluntary Dismissal" dated September 6, 1983, was filed with the Division of Administrative Hearings. While the caption of the Stipulation includes Horizon as an intervenor, the Stipulation bears the signatures of representatives from only HRS and Morton Plant. The Stipulation notes that subsequent to the original denial of Morton Plant's application, HRS adopted a new psychiatric bed need rule and that the application of that rule justifies the partial granting of Morton Plant's application. HRS therefore agreed to grant Morton Plant a Certificate of Need for the construction and equipping of: "(a) psychiatric inpatient nursing facilities containing a maximum of sixty-four (64) beds including twenty-two (22) additional beds and forty-two (42) replacement beds; psychiatric outpatient treatment facilities; and psychiatric residential treatment facilities. Units (a), (b), and (c) above shall be contained within a total area of 66,246 GFT 2/ at a total project cost not to exceed $12,756,526." Morton Plant agreed to voluntarily dismiss Case No. 83-1275, and further agreed to "provide DHRS, within thirty (30) days of the effective date of these stipulations, the following information: (a) schematic drawings (minimum scale 1/16" = 1' - 0"), delineating and identifying all spaces related to the psychiatric inpatient, outpatient, and resi- dential treatment units proposed under this application, and (b) an "existing bed relo- cation schedule" identifying: the building/ wing or unit floor location, room number, present bed capacity of each room, the number of beds to be relocated, and a description of proposed use of vacated bed spaces." By Order to Show Cause dated September 8, 1983, the intervenors were informed of the Stipulation and were ordered to show cause why Case No. 83-1275 should not be dismissed. An extension of time to respond to the Order was granted and a hearing was ultimately scheduled for November 4, 1983. As a result of that hearing, the undersigned Hearing Officer ruled that Case No. 83- 1275 would not be dismissed pursuant to the Stipulation and the parties were ordered to file amended petitions with regard to the issues in dispute so that this cause could proceed to hearing. In the meantime and subsequent thereto, two further occurred. On or about September 21, 1983, HRS and Morton Plant entered into an "Amended Stipulation for Voluntary Dismissal," amending the total square footage of the facility to 84,646 and amending the total project cost to "not to exceed $15,985,000." Attached to the Amended Stipulation were schematic diagrams showing the proposed bed use plan of the Roebling Building's second and third floors, and the site plan and floor plans for the proposed new mental health facility. The proposed facility plans attached to the Amended Stipulation are identical to those contained in the original 110-bed application with respect to the number of floors, the configuration of the building and the total square footage. The ground floor remains the same. The first floor is changed from the original application's provision for "alcohol - 20 beds" and "geriatric - 20 beds" to a "day hospital." The second floor plan is changed from "adult - 30 beds" and "intake - 10 beds" to a "30 bed adult unit" and a "14 bed geriatric psychiatric unit." The third floor plans were changed from "adolescents - 20 beds" and "pediatrics - 10 beds" to "adolescent/pediatric beds (20)" and a "communicative and learning disorders department." The floor designated "Penthouse/Mechanical" contained no changes. The last procedural event occurring prior to the hearing was the issuance on December 21, 1983, of Certificate of Need Number 2438 to Morton Plant for a short-term sixty-four bed (to include 42 beds currently licensed) psychiatric hospital at a project cost of $15,985,000. The project description attached to the Certificate of Need is as follows: "construct a sixty-four bed short-term specialty psychiatric hospital to include forty-two replacement beds licensed and located in Morton F. Plant Hospital. Total construction involves 84,646 GFT 2/ also to include psychiatric outpatient treatment facilities and psychiatric residential treatment facilities. Psychiatric care will be provided to indigents." In light of the issuance of Certificate of Need Number 2438 to Morton Plant, and in order to insure that their rights to an administrative hearing were protected, both Horizon (Case No. 84 0296) and Medfield (Case No.84-0699) filed separate petitions for a formal administrative hearing, and moved to consolidate the three cases. The motions to consolidate were granted. Morton Plant, chartered in 1914, is a 745-bed not-for profit general acute care hospital composed of an 11-building campus located in Clearwater, Florida. The hospital is governed by a 16-member Board of Trustees, which is appointed by the Morton Plant Association. The Association consists of 9,000 members from the community who have donated $10 or more. The book value of its net assets are approximately $52 million, and it has in excess of $12 million in either cash or fund depreciation and less than $4 million in long-term indebtedness. Morton Plant is committed to providing a wide range of medical services to all patients of Pinellas County regardless of ability to pay. It carries the largest Medicaid and charity load of any hospital in Northern Pinellas County. According to recent Hospital Cost Containment Board reports, Morton Plant charges less per day and less per stay than any other acute medical surgical hospital in Pinellas County. There are presently 42 licensed short-term psychiatric beds at Morton Plant. These beds are currently located on two floors of the Roebling Building, and consist of a 30-bed adult unit and a 12-bed pediatric/adolescent unit. While utilization of the adult psychiatric unit has declined, the 42-bed psychiatric unit as a whole experienced an average daily census of 57 in the eight-month period preceding the hearing. Two additional beds are designated and utilized by Morton Plant in its pediatric/adolescent unit. These beds are licensed as psychiatric beds. There is often a waiting list at Morton Plant for psychiatric beds for adolescents and children, and these patients must sometimes be placed in the adult unit. In December of 1983, Morton Plant began operating a 28 bed "liaison unit" on the same floor as the pediatric/adolescent psychiatric unit. This unit shares some of its services and personnel with the psychiatric units. The "liaison unit" is a mixed medical/surgical and psychiatric unit and was established to group medical patients with psychiatric problems for treatment. Most of the patients assigned to the "liaison unit" have a primary psychiatric diagnosis. Prior to the establishment of this unit, patients with psychiatric diagnoses were placed throughout the hospital, thus creating problems of patient safety and more expensive treatment. Any medical doctor with staff privileges may admit patients to the "liaison unit" and placement there does not require a psychiatric consult, as do the adult and children's psychiatric units. The Roebling Building contains five floors and was built in 1959. It has been recommended that this building be phased out in the future. In addition to the psychiatric units and the "liaison unit" located on the top two floors, the Roebling Building presently contains rehab services in the basement, a clinical laboratory on the ground floor and obstetrical services, including labor, delivery, nursery and post partum, on the first floor. Morton Plant does not currently offer services or facilities for adolescent residential treatment or a day hospitalization program for psychiatric patients. Such programs are designed primarily to provide a transition from or an alternative to inpatient hospitalization. It is currently not the practice of HRS to require a Certificate of Need for psychiatric day hospitalization or residential treatment programs. Morton Plant currently seeks the issuance of a Certificate of Need to construct and operate a freestanding mental health facility containing 64 short- term psychiatric beds to be comprised of its existing 42 licensed beds and 22 new additional beds. The 64 beds are to be divided into units of 20 adolescent/pediatric, 30 adult and 14 geriatric. The plans for constructing this facility which were submitted in support of the issuance of a Certificate of Need indicate a four-story building (with a fifth story penthouse) consisting of 84,646 square feet. The building is to contain a kitchen, cafeteria, recreational rooms, a gymnasium and administrative offices on the ground floor, the first floor is to be utilized primarily for a day hospital, the second floor will be devoted primarily to the adult and geriatric units (44 beds), and the third floor will be utilized for the 20 adolescent and pediatric beds, as well as a 10-bed residential treatment center. Morton Plant believes that the provision of inpatient hospital beds, residential treatment center beds and a day hospital for psychiatric patients in one facility would allow for the development of a step-down program in a continuum of care. While these combined psychiatric services are to be located in a separate building on the Morton Plant campus, the facility is to be operated as an integral service component under Morton Plant's general hospital license. A patient from the psychiatric hospital requiring medical care will not be required to go through readmission procedures to the hospital. The bed need methodology for short-term psychiatric beds is contained in Rule 10-5.11(25), Florida Administrative Code. Need is calculated by subtracting the number of existing and approved short-term psychiatric beds from the number of beds calculated by applying a ratio of .35 beds per 1,000 population projected for a given year. Applying the Rule's bed-to population ratio results in a total need for 392 psychiatric beds in District 5 for the year 1988 and 400 beds for the year 1989. In order to arrive at the number of additional beds needed for those years, it is necessary to subtract the number of psychiatric beds currently in existence or approved. The inventories utilized by both HRS 1/ and the Health Council of Pasco-Pinellas, Inc. indicate that there are 372 licensed and/or approved short-term psychiatric beds in District 5. Utilizing the methodology contained in Rule 10-5.11(.25), there is a need in District 5 for 20 additional psychiatric beds in 1988 and a need for 28 such beds in 1989. Based upon historical utilization of Morton Plant's existing psychiatric service, the granting of staff privileges to three new psychiatrists and the fact that at least some of the patients currently occupying beds in the "liaison unit" will occupy psychiatric beds at the new facility, Morton Plant projects that its new 64-bed facility will achieve occupancy levels of 95.8 percent for each month in its first year of operation and 97.9 percent for each month in its second year of operation. With these utilization projections, Morton Plant predicts that it will operate at a deficit of revenues over expenses of $320,000 in its first year of operation and a profit of $59,000 in its second year. These figures include revenues derived from at least an 80 percent occupancy of its 10-bed adolescent residential treatment unit and a patient census of approximately 50 in its day hospitalization program, with a 40 day average length of stay. While the expansion of an existing facility will generally have a higher rate of utilization than a new facility, projected occupancy levels of 95.8 percent and 97.9 percent for every month of the year are unreasonably high. Such projections do not account for start-up requirements from both a clinical and support services perspective, considerations of patient mix and seasonal fluctuations in occupancy levels. At a more realistic occupancy level of 90 percent, Morton Plant's proposed mental health facility would operate at deficits of $482,000, $261,000 and $182,000, respectively, during the first three years of operation. However, if Morton Plant were to increase its projected charges by 6.4 percent for the first year, the deficit could be eliminated. The Blue Cross/Blue Shield voluntary rate increase limit for the year 1985 is 8.4 percent. When HRS examines the financial feasibility of a project proposed by an existing facility, it looks at the financial viability of the institution as a whole. Morton Plant is dedicated to the concept of providing services needed by the community and does not limit its services in terms of their individual financial feasibility. Morton Plant desires to expand its provision of psychiatric services whether or not it is profitable, and has the ability to finance the project either from cash on hand or long-term indebtedness. Though the original Morton Plant application listed and this was the figure contained in the Amended Stipulation as well as Certificate of Need No. 2438 issued on December 21, 1983, Morton Plant presented evidence at the hearing that its total project cost was $11,066,279.00, with $8,924,339.00 of that amount attributable to construction costs for the proposed 84,646 square foot building. The average cost per bed in Florida for a psychiatric hospital is between $75,000.00 and $85,000.00. Even after removing 25 percent of the total project cost as that portion being attributable to a day hospital, the average cost per bed for this facility would be over $112,000.00 if 74 beds are counted and $129,000.00 if 64 beds are counted. The average gross size of a complete psychiatric hospital is approximately 700 square feet per bed. At 64 beds, this proposal has 1,322 square feet per bed and, at 74 beds, 1,143 square feet per bed results. Even if 17,500 square feet were to be removed from the total as being that portion of the facility attributable to the day hospital, this proposal would have 1,049 square feet per bed based on 64 beds and 907 square feet per bed based on 74 beds. Morton Plant considered several alternatives to the construction of a new facility. The alternatives involved the conversion and use of existing space in the Roebling Building and several other buildings. Each of the options considered started with the assumption that a similar amount of space -- 84,646 square feet -- would be required. In other words, each option considered started with the question: what would it involve and cost to put the planned freestanding facility, including space for the day hospital and the residential treatment center, into Morton Plant's existing buildings? The options involved the renovation on five levels of four different buildings. The alternatives included both the relocation and the displacement of 100 medical/surgical beds now located in the existing buildings. The costs of the various options ranged between $9,921,963 and $13,716,187, with the low figures accounting for the displacement of the 100 medical/surgical beds. If Morton Plant were to lose 100 of its 603 medical/surgical beds, it could experience occupancy rates of 98 percent or 99 percent, at least during its peak demand seasons. This is true only if one assumes that Morton Plant's new ambulatory surgery center and the effect of DRG(s) will have no impact upon current utilization of medical/surgical beds. Many of the 100 beds located in the buildings selected for renovation are not currently being utilized by Morton Plant as medical/surgical beds. As previously found, 30 such beds are presently utilized in connection with the existing psychiatric service -- 2 in the pediatric/adolescent unit and 28 in the "liaison unit." Facilities for a day hospital and a residential treatment center can be built less expensively per square foot if not housed within a psychiatric hospital, primarily due to the more stringent building code requirements for a hospital. Neither a day hospital nor a residential treatment facility require as many square feet per patient as an inpatient bed requires per psychiatric patient. The estimated costs of construction for this proposed project, as well as the estimated costs of the alternatives considered by Morton Plant, are entirely dependent upon the plans submitted, to wit: a requirement of 84,646 square feet to house 64 psychiatric beds, a residential treatment unit containing 10 beds and a day hospital. If any part of these plans change, the construction cost estimates will change, as they were prepared based upon the number of square feet in each department or unit as depicted on the schematic plans submitted into evidence. Yet, the evidence is undisputed that the freestanding facility plans submitted into evidence in support of the issuance of a Certificate of Need will be changed by Morton Plant if a Certificate of Need is granted. The person now responsible for designing and recommending space allocations for the proposed mental health facility predicts that the shape and configuration of the building, and even the number of buildings and total square footage, will be different than the plans submitted into evidence in this proceeding. While the new plans will contain the same basic elements with respect to the number of rooms and types of rooms, a change in the actual layout of the facility will be recommended. The changed design will not have more than 84,646 square feet and the total project costs will not exceed $15,985,000.00. Morton Plant does have contingency plans to convert the space designated for the day hospital and the residential treatment program to space for additional inpatient psychiatric beds should there be a greater need for inpatient psychiatric services. In fact, Morton Plant presently has pending an application for a Certificate of Need to add 46 short-term psychiatric and substance abuse beds and to convert its approved (pending) psychiatric outpatient services to psychiatric inpatient services. Medfield Center is a 32-bed short-term specialty psychiatric hospital located about five miles from Morton Plant. It provides many of the same psychiatric services offered and proposed to be offered by Morton Plant, and the two service areas overlap. As a specialty hospital, it does not receive Medicaid reimbursement. Medfield Center does not have, within its facility, either a day hospital or a residential treatment center. Its 32-bed facility operates at utilization rates exceeding 80 percent. Horizon Hospital is a licensed 200-bed specialty psychiatric hospital 2/ located in Largo, Florida. It is the designated Baker Act receiving facility in Pinellas County, but it, too, is not eligible to receive Medicaid reimbursement payments. While its service area is predominantly southern and central Pinellas County, it does receive some patients from Morton Plant's primary service area. Horizon has experienced a decrease in occupancy rates and, for the three months prior to the hearing, its average daily census fluctuated between 110 and 130. Horizon does not provide either a day hospital or a residential treatment center within its facility. The average of the overall 1983 utilization of short term psychiatric beds in District 5 exceeds 75 percent.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of Morton F. Plant Hospital for a Certificate of Need to construct a freestanding mental health facility and to add additional short term inpatient psychiatric beds be DENIED in its entirety. Respectfully submitted and entered this 27th day of March, 1985, 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 28th day of March, 1985.
