Findings Of Fact On April 1, 1986, a letter of intent was filed on behalf of Anthony J. Estevez to apply for a CON in the March 16, 1986, batching cycle for a 120-bed long-term psychiatric hospital in Dade County, Florida, HRS Service District XI. A long-term psychiatric hospital is defined in Rule 10-5.011(p), Florida Administrative Code, as a "category of services which provides hospital based inpatient services averaging a length of stay of 90 days." Subsequently, DHRS notified Mr. Estevez that his letter of intent was effective March 17, 1986; the application was to be filed by April 15, 1986; the application was to be completed by June 29, 1986; and the date for final department action was August 28, 1986. On April 15, 1986, Mr. Estevez filed his CON application with DHRS (designated action #4854). Anthony J. Estevez' name appeared along with Health Care Advisors Corporation on the line of the application which requested "legal name of project sponsor." Mr. Francis A. Gomez, Mr. Estevez' authorized representative, had the responsibility for the preparation and submission of the application. Mr. Estevez signed the CON application as the project sponsor. HCAC Psychiatric Hospital of Dade County was meant to be the name of the proposed facility. HCAC is an acronym for Health Care Advisors Corporation, Inc. HCAC was incorporated as of April 14, 1987, but the name had been reserved prior to that time. HCAC was initially intended to be a health care management corporation owned by Mr. Estevez. However, it is now anticipated that Flowers Management Corporation (Flowers) will manage the project under the HCAC corporate umbrella. Mr. Estevez owns 100 percent of the stock of HCAC and is also its sole director and sole shareholder. Mr. Estevez considered HCAC and himself to be one and the same for the purpose of the CON application. HCAC initially proposed to construct in Dade County, Florida, a freestanding 120-bed long-term psychiatric hospital. HCAC proposed to divide those beds into three groups: (1) 75 beds for adults; (2) 30 beds for geriatrics; and (3) 15 beds for adolescents. On May 15, 1986, DHRS requested additional information from HCAC regarding its CON application. On June 19, 1986, and June 23, 1986, HCAC in two separate filings provided DHRS with responses to its request for additional information which DHRS believed was omitted from the original application. The application was deemed complete effective June 29, 1986. On August 20, 1986, Francis Gomez, Paul McCall, a health care consultant employed by HCAC at that time, and HCAC's attorney, met with Islara Soto of DHRS regarding the CON application. At this meeting, HCAC advised DHRS of its intent to orient the facility programmatically to meet the needs of the Hispanic population of Dade and Monroe Counties. By letter dated August 29, 1986, DHRS notified Mr. Francis Gomez of its decision to deny CON application 4584. HCAC requested a formal administrative hearing to contest the denial. At the formal hearing, HCAC indicated a desire to abandon its proposal to provide 15 beds dedicated to serve adolescent patients and sought to introduce evidence relating to a down-sized 105-bed long-term psychiatric hospital serving only adult and geriatric patients. Charter renewed its prehearing motion to exclude any evidence concerning a 105-bed facility. (Approximately three or four weeks prior to the administrative hearing, HCAC had decided to go forward with a proposal for the 105-bed facility.) The undersigned ruled that HCAC would be allowed to present evidence concerning a down-sized 105-bed facility to the extent that such evidence related to a separate and identifiable portion of the original application. HCAC's Proposal The proposed building site for the facility, although not finally selected, is intended to be within the Northwest Dade Center cachement area which is in the northwest corner of Dade County. The ownership of the proposed facility will be by Mr. Estevez and/or his family or wife. The proposed area to be serviced by the facility is Dade and Monroe Counties (HRS Service District XI). HCAC proposes to offer at its facility a psychiatric inpatient unit, patient support services, diagnostic/treatment services, ambulatory care, administrative services, environmental/maintenance, educational and training services, and materials management. The HCAC facility will be managed by Flowers Management Corporation (Flowers), of which Mr. Estevez is a majority shareholder. Flowers was created approximately three and a half years ago for the purpose of providing management in the psychiatric field. Humana Hospital, a hospital chain, has selected Flowers to manage four of its facilities and is also considering Flowers for an additional two facilities. Those facilities are currently providing short-term psychiatric and substance abuse services. Nelson Rodney will be responsible for the design and implementation of the treatment programs in the HCAC facility. Rodney is employed as Regional Vice President of Flowers and is responsible for the management of the Florida hospitals affiliated with Flowers, including a chemical dependency unit at Humana-Biscayne Hospital and a psychiatric unit at Humana West Palm Beach Hospital. The HCAC facility is intended to provide specialty long-term psychiatric services for chronically mentally disturbed individuals requiring a 90-day or greater average length of stay. Many of the patients would be a danger to themselves and others and will require a very restrictive setting -- a locked facility. The programs proposed to be offered involve a range of inpatient diagnostic services, including an intensive diagnostic work-up done prior to admission for all patients. Each patient will have an individualized treatment plan updated every two weeks. The treatment program will include specialized therapy, such as art, music, milieu therapy and special education. There would also be specialized inpatient and outpatient treatment programs for family members and significant others. Discharge planning from the day of admission to assure continuity of care would be another aspect of the program. The proposed HCAC facility would offer a community-like atmosphere. It would provide both open and locked units. Flower's therapeutic model encourages patient participation in daily activities and in the many decisions of what is occurring at the hospital. One component of the project will be an initial screening process by a multi-disciplinary team who will employ a predetermined set of admissions criteria to assist in appropriate levels of care determination. The multi- disciplinary team would consist of a psychiatrist, psychologist, sometimes a neurologist, social worker, a family social assessment person, the patient, and others. The team will attempt to identify and admit only those patients who will have an expected length of stay greater than 90 days. The HCAC facility would provide seminars and workshops to practitioners in the community as well as its own staff. In-service training will also be offered. HCAC proposes to be flexible in the design of its treatment programs and allow new treatments to be utilized. A variety of therapies will be available to provide individualized treatment plans in order to optimize the chance of successful outcome in the patient's treatment. Currently, Flowers affords an in-house program of evaluation. Peer review serves this function in order to assess quality of care rendered to patients in the facility. The HCAC facility proposes to have an Hispanic emphasis. More than 50 percent of the staff will be bilingual. Upper management will consist of individuals who have an acute understanding of Hispanic culture and treatment implications of that culture. The facility will be more flexible in family visitation than is done in many facilities which is an important aspect of the Hispanic culture. The facility as managed by Flowers would have the required "patient's bill of rights" and will also seek JACH accreditation, although these items were not discussed in the application. The HCAC facility would offer each patient an attending psychiatrist who will be part of the multi-disciplinary team that will determine the individualized plan for each patient. Sufficient health manpower including management resources are available to HCAC to operate the project. Additionally, the facility will provide internships, field placements and semester rotations. PROJECT AND CONSTRUCTION COSTS HCAC's CON application, admitted into evidence as Petitioner's Exhibit 4, contains 26 tables concerning various aspects of the 120-bed project as well as Exhibit III.D.1., an operating pro forma. In response to a request for omissions by DHRS, HCAC submitted, among other things, a revised Table 7, revised Table 8, and a revised operating pro forma for the 120-bed project. The items making up HCAC's omission responses were admitted into evidence as Petitioner's Exhibit 5. In conjunction with its desire to complete a 105-bed facility only, HCAC submitted various new tables and a new operating pro forma (forecasted income statement), which were admitted into evidence as Petitioner's Exhibit 6. Table 1 - Source of Funds The estimated total project cost of the 120-bed facility would be $6,469,500. The estimated project cost of the 105-bed facility would be $5,696,940. The financing of the project is contemplated to be done through NCNB bank which has expressed its willingness to finance the project. It is reasonable to assume that HCAC would and could obtain the necessary financing for the proposed facility. Table 2 - Total Debt Table 2 for both the 120-bed project and the 105-bed project shows that 100 percent of the project costs would be financed by debt at an interest rate of 13 percent. The 13 percent interest rate was projected in 1986 and is higher than current rates. It is reasonable to assume that 100 percent of the costs can be financed at 13 percent for either the 120-bed or 105-bed project. Table 3 - New Purchase Equipment HCAC initially projected that $750,000 would be needed to equip the proposed 120-bed facility. The projected expenditure for the 105-bed facility is $500,000. The projected costs of $750,000 and $500,000 for the equipment needed for the 120-bed and 105-bed facility, respectively, are unreasonably low. For example, of the $500,000 projected for equipment costs for the 105-bed project, $80,000 is for mini-vans, $15,000 is for the security system, $40,000 is for a computerized medical records system, and $40,000 for a computerized on-line nurse care program. This would leave $325,000 for all other necessary equipment. Pharmacy, laboratory services and x-ray equipment would be on contract. The remaining $325,000 would be insufficient to equip the kitchen (which would require $80,000), furnish patient rooms (approximately $150,000) and equip the remainder of the 105-bed facility which would reasonably require housekeeping equipment, exam room equipment, chart racks for the nurses station, seclusion room beds, office furniture and equipment, laundry equipment, lockers or shelving, refrigerators, ice makers, day room furniture and lounge furniture. A more reasonable projection for equipment costs would be in the neighborhood of $850,000 to $900,000. Table 7 - Utilization by Class of Pay Tables 7 and 8 of the original application which dealt with utilization by class of pay and effect on patient charges, were revised by HCAC in their responses to DHRS' Omissions Request. Table 7 reflects estimations of the net revenues which HCAC expects to capture from specific payor mixes, namely, contract/indigent, Medicare and insurance/private pay. There is no Medicaid reimbursement available for psychiatric care rendered in a freestanding psychiatric facility. The proposed payor mix for the 120-bed facility is, in patient days, as follows: Year 1 -- Contract/Indigent 8.64 percent (1989) Medicare 26.10 percent Insurance and Private Pay 65.26 percent Year 2 -- Contract/Indigent 8.48 percent (1990) Medicare 26.15 percent Insurance and Private Pay 65.37 percent The proposed payor mix for the 105-bed facility is, in patient days, as follows: Years 1 and 2 - Medicare 3.3 percent Insurance and Private Pay 90.7 percent Indigent 6.0 percent The change in payor mix was not attributed to down-sizing of the facility, but rather was the result of HCAC's additional research and understanding of what the payor mix would most likely be. The change in payor mix does not represent a substantial change to the original application taken as a whole. Francis Gomez, who prepared the Table 7 and was designated as an expert for HCAC in the area of health care facilities management and financial and marketing operations, conceded that HCAC's Table 7 for the 120-bed facility is not reasonable. The Table 7 for the 105-bed facility is also not reasonable. HCAC's contractual allowances are not reasonable. HCAC projects 3.3 percent for Medicare and nothing for HMOs or PPOs. It is unreasonable for HCAC's proposal to make no provision for HMO and PPO type arrangements in view of its projection of 90.7 percent insurance and private pay. Because the proposed patient mix for the 105-bed project is adults and geriatrics, 20 to 25 percent would be a more reasonable Medicare projection. HCAC's projected 90.7 percent insurance and private patient days is unreasonably high in view of the project's intended emphasis of serving the Hispanic population in HRS Service District XI. In 1980, 27.8 percent of the Hispanics in Dade County had incomes less than 150 percent of the poverty level. The 1987 United States Hispanic market study establishes that 20 percent of the Hispanic adults who are heads of households are either retired, students or unemployed. These groups of individuals would not reasonably fit into the insurance and private pay category in most cases. Thus, the 90.7 percent figure for insurance and private pay would have to be reduced significantly. Table 8 - Effects on Patient Charges HCAC's revised Table 8 for the 120-bed facility lists net revenues rather than gross charges for the specific services listed. In year one (1989), the table lists the following projected charges/rates: daily room charge - $214.61; average daily ancillary charge - $25.00; contract/indigent - $125.00; and Medicare - $229.61. In year two (1990), the table lists the following projected charges: daily room charge - $223.19; average daily ancillary charge - $26.00; contract/indigent - $130.00; and Medicare - $238.79. The Table 8 for the 105-bed facility reflects an all-inclusive gross charge of $300 per day in both years (1989 and 1990) for the daily room charge, Medicaid and Medicare. The $300 per day figure would include ancillary charges but not physician fees. The projected patient charges fall within the range of charges currently in effect at psychiatric hospitals in Dade and Monroe Counties and are reasonable for both the 120-bed facility and the 105-bed project. Table 10 - Projected Utilization The financial feasibility of any proposed hospital is largely tied to the ability of the hospital to generate an adequate level of utilization. Absent an adequate level of utilization, a facility will not generate sufficient revenues to meet expenses. Table 10 for both the 120-bed facility and the 105- bed facility sets forth the projected utilization of the proposed facility, by month and year, in patient days, for the first two years of anticipated operation. Table 10 for the 120-bed facility projects the facility will exceed 80 percent occupancy for two of the last three months of the second year and be at 80 percent occupancy at the end of that year. Eighty percent occupancy of 120 beds yields an average daily census of about 96 patients. Table 10 for the 105- bed facility projects that the facility will arrive at 92 percent occupancy at the end of the first year of operation and remain at 95 percent throughout the second year. Ninety-five percent occupancy of the 105-bed facility equals an average daily census of about 99 or 100 patients. The Table 10 "fill-up" rates for both the 120-bed and 105-bed facilities are unreasonable and not practical to be achieved. There is presently an emphasis on providing psychiatric care in less restrictive settings, a trend favoring reduced lengths of stay and a trend in third-party payors to provide reimbursement for a shorter number of days. In addition, nationwide statistics show that only 4 percent of the patients admitted to psychiatric facilities require treatment longer than 90 days. Table 11 - Manpower Requirements For the 120-bed facility, HCAC projected in the Table 11 a staffing ratio of one full-time equivalent (FTE) per occupied bed of 1.625 for the first year of operation and 1.43 for the second year. For the 105-bed facility, HCAC projected in the Table 11 1.91 FTE per occupied bed ratio for the first year and 1.45 for the second year. The actual average of FTEs available for both facilities would be 1.8 to 2.0. The application figures are lower than the actual average because students and other non-paid personnel were not included. Thus, when all programmatic FTEs are included, the number of FTEs per occupied bed is higher than what is listed in the Table 11 for either project. There is a relationship between the number and quality of staff personnel and a facility's ability to provide quality psychiatric care. The industry standard for FTEs is 1.8 to 2.0 FTEs per occupied bed. HCAC's proposed staffing for both the 120-bed and 105-bed projects are reasonable. For both proposed facilities, HCAC projects 110.5 FTEs for the first year with a total annual salary of $1,932,000 which equals an average salary of approximately $17,400 per FTE. HCAC's projected total annual salary expense is unreasonably low. Specifically, the salary for the occupational therapist is too low and the nursing salaries are too low because of shortages. Table 16 - Areas and Square Feet / Table 18 - Space Requirements HCAC proposes a total 59,603 square feet of gross area for the 120-bed facility and a total of 56,050 square feet of gross area for the 105-bed facility. The decrease in size for the 105-bed facility is attributed to a reduction of the ground floor, a reduction of the second floor by removing the adolescent portion and an increase of ancillary services on the second floor for the geriatric population. HCAC projects 168 feet of net living space in the patient's bedroom for both the 120-bed facility and the 105-bed facility. HCAC's proposal of total area and square feet requirements for both the 120-bed and 105-bed facility are reasonable for the delivery of quality psychiatric care within the proposed facilities. There would be adequate land space for parking at HCAC's facility to forego the necessity of constructing a parking garage. Table 19 - Nursing Unit Area Summary HCAC proposes a total of 34,479 square feet of gross area for the nursing unit in the 120-bed facility and the 105-bed facility. The square footage figures under Table 19 for both the 120-bed facility and 105-bed facility are reasonable. Table 25 - Estimated Project Costs Project Advisors Corporation (PAC), of which Mr. Estevez is the Chief Executive Officer, will be responsible for the design and construction of the proposed facility. PAC is a design and construction company which employs a registered architect, several licensed general contractors, an engineer, two graduate architects and a registered graduate architect. The registered architect and basically 90 percent of the staff have previously been involved in the design and construction of health related facilities. HCAC's projected total cost for the 120-bed facility is $6,469,500 and the projected total costs for the 105-bed facility is $5,696,940. HCAC projected construction costs per square foot of $57.55 for the 120-bed facility and $60.00 per square foot for the 105-bed facility. Although the average construction cost of psychiatric facilities today is around $75 to $95 per square foot, HCAC's projected costs are reasonable and reflect reasonable charges given the fact that PAC, the company which would construct the facility, is controlled by Mr. Estevez. The projected costs of land acquisition are also reasonable. HCAC's projected equipment costs are contained in both Table 25 and Table 2. As previously discussed, the projected equipment costs for both projects are unreasonably low. Table 26 - Project Completion Forecast HCAC projects that construction for both the 120-bed facility and 105- bed facility would be completed approximately one year after DHRS' approval of the construction documents. The project completion forecasts for both projects are reasonable. Exhibit III.D.1.- Operating Pro Forma/Forecasted Income Statement Revised Exhibit III.D.1 sets forth the operating pro forma for the first two years of operation of the 120-bed facility (1989 and 1990). HCAC's pro forma for its 120-bed facility is not reasonable. The supplies and other expenses depicted in the pro forma (year one at $55.60 per patient day and year two at $58.10 per patient day) are unreasonably low. A more reasonable estimate would be approximately $100 per patient day. The pro forma for the 120-bed facility does not include any estimate for the Hospital Cost Containment Board (HCCB) tax. Similar facilities in Florida pay an HCCB tax which is composed of one and a half percent of net revenue. Utilizing the more reasonable estimate of $100 per patient day for supplies and other expenses, and including the appropriate HCCB tax, the total supplies and other expenses would increase approximately $1,100,000 and the HCCB tax would be approximately $85,000 in year one. Instead of showing a profit of $395,012, HCAC would potentially lose approximately $785,000 in that year. In year two, the total supplies and other expenses would increase approximately $1,400,000 and the HCCB tax would be approximately $115,000 to $117,000. Thus, in year two, instead of showing a profit of $919,036, HCAC would potentially lose approximately $617, 000. HCAC's "forecasted income statement" for the 105-bed project is also not reasonable. Specifically, the contractual allowances, the allowance for bad debt, and the salaries, wages and fringe benefits are unreasonable. Contractuals include such things as Medicare, Medicaid, HMOs and PPOs, which all generate discounts which are considered contractual allowances. HCAC estimates its bad debt factor at 1.6 percent. A more reasonable projection would be 6 to 8 percent of gross revenue. CONSISTENCY WITH THE DISTRICT XI HEALTH PLAN AND STATE MENTAL HEALTH PLAN The District XI local health council has produced the 1986 District XI Health Plan. The district plan contains the relevant policies, priorities, criteria and standards for evaluation of an application such as HCAC's. HCAC's application is consistent with some of the applicable sections of the District XI Health Plan but inconsistent with the plan taken as a whole. Policy No. 1 of the District XI health plan states that the district should direct its efforts toward a licensed bed capacity of 5.5 non-federal beds per thousand population ratio by 1989. Presently there are 11,294 beds in District XI which represents a number in excess of 5.5 non-federal beds. HCAC's application is inconsistent with this policy. Policy No. 1, Priority No. 1, states that proposals for the construction of new beds in the district should be considered only when the overall average occupancy of licensed beds exceeds 80 percent. Priority No. 1 refers to certain types of beds, specifically, acute care general beds, short- term psychiatric beds and substance abuse beds. HCAC's application is not inconsistent with this priority because long-term psychiatric beds are not mentioned. Policy No. 1, Priority No. 2 favors the encouragement of projects that meet specific district service needs through the conversion of existing beds from currently underutilized services. Because HCAC is not the operator of an existing hospital and it is not possible for HCAC to convert any beds from other services, HCAC's application is inconsistent with Policy No. 1, Priority No. 2. Policy No. 1, Priority No. 3 would only be relevant in the case of an existing hospital but not in the case of a new hospital where no comparative hearing is involved. HCAC's application is not inconsistent with Policy No. 1, Priority No. 3. Policy No. 1, Priority No. 4 allows for priority consideration for the initiation of new services for projects which have had an average occupancy rate of 80 percent for the last two years and which have a documented history of providing services to Medicaid and/or other medically indigent patients. HCAC's application is not entitled to priority consideration under Policy No. 1, Priority No. 4. Policy No. 2 is a broad policy which provides that service alternatives should be available within the district to meet the needs of community residents, while at the same time maintaining an efficient level of utilization. This policy is necessarily tied to the demonstration of overall need for the facility. If HCAC can show need for the proposed facility, its proposal would be consistent with this policy. Policy No. 2, Priority No. 1(f) (Psychiatric Bed Services) provides for priority consideration to be given to specific institutions which have achieved an 80 percent occupancy rate for the preceding year. HCAC's application is not entitled to priority consideration under Policy No. 2, Priority No. 1(f). Policy No. 2, Policy No. 3(f) states that a CON applicant should propose to provide the scope of services consistent with the level of care proposed in the application in accordance with appropriate accrediting agency standards. In the case of psychiatric bed services the appropriate accrediting agency is the Joint Commission for Accreditation of Hospitals (JCAH). Although HCAC neglected to address its ability to comply with JCAH standards in its application, it has established its intent to seek JCAH accreditation. HCAC's proposal is consistent with Policy No. 2, Priority No. 3(f). Policy No. 2, Priority No. 4 gives a preference to those applicants that propose innovative mechanisms such as various complimenting outpatient and inpatient services which are directed toward an ultimate reduction in dependency upon hospital beds. HCAC does not meet this priority because it has not proposed any mechanisms to complement outpatient services with inpatient services directed toward an ultimate reduction in the dependency on hospital beds. Policy No. 2, Priority No. 5 gives a preference to applicants who have based their project on a valid marketing research effort and have placed it in the context of a long-range plan. HCAC does not meet this priority because there was no evidence that the project was based on a valid marketing research plan or placed in the context of a long-range plan. Policy No. 2f Priority No. 6 states that existing facilities as well as applicants for new services should demonstrate a willingness to enter into cooperative planning efforts directed at establishing a system whereby duplication of specialized services is avoided while quality of such services is enhanced. HCAC presented no documentation of transfer agreements with other hospitals and did not substantiate its willingness to enter into cooperative planning efforts with letters of intent, referral agreements or memoranda of understanding. Policy No. 3 provides that services in the community should be made available to all segments of the resident population regardless of the ability to pay. HCAC's proposal is consistent with this policy because a provision for services to indigent patients has been made. Policy No. 3, Priority No. 1 provides that priority should be given to applications proposing services and facilities designed to include Medicaid (Baker Act) patients to the greatest extent possible based on documented history or proposed services. Although Medicaid does not reimburse for freestanding psychiatric services, and Baker Act is only available to short-stay facilities specifically chosen to receive a Baker Act contract, HCAC has not designed its project to include those patients to the greatest extent possible. Thus, HCAC's application is not consistent with Policy No. 3, Priority No. 1. Goal I of the 1986 District XI Goals and Policies for Mental Health and Substance Abuse Services is applicable to HCAC's application. This goal favors mental health services in the least restrictive setting possible. Long- term institutional care may be the least restrictive setting possible in the continuum of mental health care for the treatment of certain more serious types of patients. The concept of "continuum of care" means the full breadth of services available within a community, from least restrictive to most restrictive, from least intensive to most intensive. There must be settings along the full continuum of psychiatric care for patients to receive the level of care they may need. HCAC's application is not inconsistent with Goal I. Issues Relating to CON Recommendations and Priority for Inpatient Psychiatric Services (District XI Health Plan 1986, page 26). In this section of the district health plan, the Planning Advisory Committee states its recommendations and preferences for services for the comprehensive treatment of the mentally ill. The Committee recognizes that long-term hospitalization is a viable form of treatment for some mentally ill patients. However, the Committee expresses a preference for short hospital stays and applicants that project treatment modalities with an average length of stay under 20 days. In addition, the Committee emphasizes a preference for services to be obtained through the conversion of medical/surgical beds, because the district has a large surplus of such beds. Overall, HCAC's project is not consistent with the recommendations and priorities of the Planning Advisory Committee. HCAC's proposal is inconsistent with the goals, objectives and recommendations of the State Health Plan taken as a whole. The State Health Plan contains an important and significant goal that no additional long-term hospital psychiatric beds should be added in the area until the existing and approved beds in the district have achieved an 80 percent occupancy level. The existing long-term hospital psychiatric beds in the district have an occupancy level at approximately 67 percent. AVAILABILITY AND ADEQUACY OF ALTERNATIVES There are available, accessible and appropriate facilities within the service district which can be utilized for the services proposed by HCAC that are presently underutilized. Currently, there are short-term psychiatric providers, a long-term provider, residential facilities, nursing homes and adult congregate living facilities that are available as alternatives in the service district, and in many cases are significantly underutilized. Although the services to be offered by the HCAC facility would be in excess of what is provided in an adult residential treatment facility, nursing home or adult congregate living facility, those facilities could serve as viable alternatives in appropriate cases. In 1986, there were 6,513 existing nursing home beds in District XI and an additional 1,928 approved for opening. There are 24 adult congregate living facilities in District XI with 50 beds or more. The total number of beds for ACLFs in 1986 was 2,620. In addition, Grant Center Hospital has 140 existing and 20 approved long-term psychiatric beds; its occupancy rate is low. THE ABILITY OF THE APPLICANT TO PROVIDE QUALITY OF CARE AND THE APPLICANT'S RECORD OF PROVIDING QUALITY OF CARE The "Flowers Model," made a part of the application, is a description of how, from a clinical perspective, the proposal will be managed. Although Flowers does not presently operate any long-term psychiatric facilities, the Flowers Model is appropriate for a long-term psychiatric care facility. From a clinical and programmatic perspective, the HCAC facility would provide good quality of care. PROBABLE ECONOMIES AND IMPROVEMENTS IN SERVICE WHICH MAY BE DERIVED FROM OPERATION OF JOINT, COOPERATIVE OR SHARED HEALTH CARE RESOURCES HCAC has not demonstrated that there will be any improvements in service which may be derived from operation of joint, cooperative or shared health care resources. The Northwest Dade County proposed location of the HCAC facility would place the project within two hours travel of 90 percent or more of District XI population. Nevertheless, HCAC's facility would increase the number of people who would be within two hours of long-term adult psychiatric facilities by less than 1 percent. The patients in District XI will not experience serious problems in obtaining inpatient care of the type proposed in the absence of the service proposed by HCAC. There is presently adequate and accessible long-term hospital inpatient services for District XI population based on the existing and approved facilities in District X (Southwinds Hospital, Florida Medical Center) and District XI (Grant Center). There are two approved but not yet open long-term psychiatric facilities in District X, Broward County. Florida Medical Center holds a CON for 60 long-term adult psychiatric beds to be located in Lauderdale Lakes and Southwinds Hospital holds a 75-bed CON with 60 beds counted for long-term treatment of adult and geriatric patients to be located in Andy Town. In addition, there are 238 long-term state hospital beds at South Florida State Hospital in Broward County. Although the need for long-term psychiatric beds is assessed on a district-wide basis, it is reasonable to consider psychiatric beds in Broward County (District X) as an alternative to HCAC's proposal because they are within two hours access of individuals within the two counties. Likewise, it is reasonable to consider approved beds because need is projected for a future date. Not counting approved beds would overestimate need and result in duplication of services. FINANCIAL FEASIBILITY HCAC has not demonstrated that the 120-bed project or the 105-bed facility is financially feasible in the short or the long term. The projection of revenues and expenses in the pro forma (120-bed project) and the forecasted income statement (105-bed project) were flawed to such an extent that financial feasibility of the project was not shown. IMPACT ON COSTS AND COMPETITION If HCAC's project were to be built, a likely result is increased charges for the provision of services in the area. HCAC's proposed facility would negatively impact the availability of psychiatric nurses. There is a shortage of psychiatric nurses in Dade County and it is difficult to recruit and hire R.N.s with psychiatric experience. In order to hire nurses in a time of shortage, hospitals must recruit staff from other facilities. Shortages can increase the cost of recruitment and the cost of salaries. Charter is a hospital located in District XI and consists of 88 beds, 80 of which are licensed as short-term psychiatric beds and eight of which are licensed as short-term substance abuse beds. Short-term psychiatric inpatient care is defined in Rule 10-5.011(1)(o), Florida Administrative Code, as "a service not exceeding three months and averaging a length of stay of 30 days or less for adults." HCAC's proposed facility, if approved, would have a negative economic impact on Charter. It is very likely that many of the patients at the proposed HCAC facility would experience lengths of stay between 45 and 60 days. Charter treats a significant number of patients (approximately 15 percent) who stay longer than 30 days. Because of the difficulty of initially identifying patients who would require either short or long-term stays, many of Charter's patients could be lost to the HCAC project. Charter could suffer a loss of up to 657 patient days per year if HCAC's proposed facility is approved. This loss of patients would impair Charter's ability to have certain types of programs, equipment and staff. PROVISION OF HEALTH CARE SERVICES TO MEDICAID PATIENTS AND THE MEDICALLY INDIGENT HCAC's project does not propose a significant amount of indigent care and HCAC has no history of providing health care services to Medicaid patients and the medically indigent. OCCUPANCY RATE FOR EXISTING LONG-TERM HOSPITAL PSYCHIATRIC BEDS Grant Center Hospital is the only existing long-term psychiatric facility in District XI. It has 140 beds and specializes in treating children and adolescent patients. Its occupancy rate at the time of review for the preceding year was approximately 67 percent. The appropriate period to calculate occupancy rate of existing facilities in this case is July 1985 to July 1986 because this is the most recent 12-month period preceding application decision. The occupancy rate of all psychiatric beds within District XI was below 80 percent. HCAC'S PROPOSED NEED METHODOLOGY At the hearing, W. Eugene Nelson testified on behalf of HCAC on the need for the proposed long-term adult psychiatric beds. Mr. Nelson was accepted as an expert in the field of health care planning, including psychiatric bed need assessment. Mr. Nelson performed his analysis in District XI using the Graduate Medical Educational National Advisory Committee (GMENAC) methodology. The need methodology proposed by HCAC is inappropriate to adequately and accurately predict need for long-term adult psychiatric beds in District XI. The GMENAC study is a national study based on national data developed to determine physician requirements in 1990 for 23 medical specialities. GMENAC estimates the prevalence of certain psychiatric disorders among the general population and estimates the number of those persons who need care for their conditions in differing treatment settings ranging from outpatient services to 24-hour institutional care. HCAC's methodology, utilizing the GMENAC study, predicted a gross need of 895 beds in District XI in the applicable horizon (July 1991). The total number of existing long-term psychiatric beds in the entire State of Florida is only 836 beds, and the majority of those beds are experiencing occupancy levels under 65 percent. Many of these long-term facilities have been around for a period of at least three years and are still experiencing low occupancy. Therefore, the low levels are probably not based on the fact that the facilities are in a start-up mode. HCAC's bed need computation is as follows: Adult Long Term Psychiatric Bed Requirements (Excludes Alcohol, Drug Abuse, Mental Retardation, Organic Brain Syndrome and "other" Conditions) District XI: July 1991 Condition Admission Rate Schizophrenia & Other Psychoses 99 Affective Disorder Psychosis 20 Affective Disorder Neuroses 60 Neuroses and Personality Disorders 199 20 Projected 1991 Population Age 18+ 1,459,437 Total Projected Admissions 2,904 Average Length of Stay 90 Projected Patient Days Target Occupancy 80.00 261,385 percent Total Beds Required 895 Beds Currently Available 438 South Florida State Hospital (450 X .48) Residential Treatment Facilities 216 233 Net Beds Needed 496 The projected 1991 population for District XI for age 18 and above is 1,459,473. The population projections were received from the Office of the Governor. The anticipated admissions per 100,000 is calculated to be 199 for the conditions listed. The total projected admissions for 1991 is 2,904. The 2,904 projected long-term care admissions when multiplied by the average length of stay of 90 days generates 261,385 projected patient days in the 1991 horizon period in District XI. The 261,385 patient days is then divided by 365 days in the year, and then by 80 percent, the latter of which is contained in the rule as the optimum or desired occupancy for long-term psychiatric beds. This yields a total gross long-term psychiatric bed requirement for adults and geriatrics of 895 beds. In performing his analysis, Mr. Nelson used Table 4, page 22 of the GMENAC Study which lists information for mental disorders requiring care by treatment setting. The prevalence rate of 199 admissions per 100,000 population was based on the study's projection of the mental disorders listed requiring a "24-hour" treatment setting. Nelson used a projected 90-day length of stay in his computations. There is nothing in the GMENAC document that sets forth the average length of stay of persons reflected in the 24-hour column. Therefore, it is misleading to assume that persons admitted subject to the 199 per 100,000 admissions rate will actually experience an average length of stay as long as 90 days. For HCAC's admission rate to be valid, all of the facilities in District XI would have to average a 90-day length of stay. This is an unreasonable assumption. Nationwide, only a small percentage of all psychiatric admissions experience a length of stay as long as 90 days. In computing beds currently available in District XI, Mr. Nelson did not consider nursing home beds, adult congregate living facility beds, or the 135 long-term psychiatric beds that have been approved for two facilities in District X (Broward County). Nelson also did not consider whether short-term facilities were capable or willing to take additional patients for long-term treatment. Thus, the computation of beds currently available in the HCAC methodology is unreasonably low. HCAC's need methodology generated a long-term psychiatric bed to population ratio of .61 per thousand. DHRS' rule for short-term psychiatric beds was a population ratio of .35 per thousand. Short-term care facilities have admission rates two to three times greater than long-term facilities and nationwide statistics establish that only 4 percent of all psychiatric patients stay longer than 90 days. It is not reasonable for the bed rate for long-term adult psychiatric beds to be higher than the rate for short-term psychiatric beds. Mr. Nelson excluded organic brain syndrome diagnosis from his analysis and admission rate based on an assumption that many of those patients are in nursing homes. Nelson did not use nursing home beds in computing his need methodology because he believed that eliminating the organic brain syndrome category from the Table 4, page 22, 24-hour column in the GMENAC study eliminates the need for considering nursing home beds in the inventory. For that approach to be valid, the number of organic brain syndrome patients that go to long-term psychiatric facilities would need to cancel out the number of patients in other diagnostic categories who go to nursing homes. Nelson did not consult or review any data concerning the number or percentage rates of schizophrenics and other mentally ill patients in nursing homes or the number of organic brain syndrome people being treated in long-term psychiatric facilities. In addition, Nelson did not know what percentage, if any, of the GMENAC projected admissions were nursing home admissions. In computing existing beds, Nelson listed two types of facilities previously existing in District XI which were applicable to his methodology: the state hospital (216 beds) and residential treatment facilities (233 beds). The correct number of beds available for adults from District XI in the state hospital is 238. The actual number of beds for residential facilities is 335. Dr. Howard Fagin testified as an expert in health planning and feasibility analysis, including psychiatric bed need assessment and feasibility. In Dr. Fagin's opinion, Nelson's bed need methodology is incorrect and the conclusions drawn are wrong because Nelson used an inappropriate length of stay based on the GMENAC study and also incorrectly identified the applicable beds which should be considered for comparable facilities under the GMENAC study and, therefore, his total numbers in terms of gross and net beds needed are incorrect. Dr. Fagin's critique of Mr. Nelson's bed need methodology is persuasive and credible. HCAC has failed to show that its proposed need methodology could accurately project the need for long-term psychiatric beds in District XI.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that CON Application No. 4854 by Health Care Advisors Corporation, Inc. be DENIED. DONE and ORDERED this 1st day of March, 1988 in Tallahassee, Leon County, Florida. W. MATTHEW STEVENSON Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1988. COPIES FURNISHED: Lesley Mendelson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services Fort Knox Executive Center 2727 Mahan Drive, Suite 308 Tallahassee, Florida 32308 H. Darrell White, Esquire Gerald B. Sternstein, Esquire Post Office Box 2174 Tallahassee, Florida 32302 William E. Hoffman, Esquire 2500 Trust Company Tower 25 Park Place Atlanta, Georgia 30303 George N. Neros, Jr., Esquire 101 North Monroe Street Monroe-Park Tower Suite 900 Tallahassee, Florida 32301 Donna H. Stinson, Esquire The Perkins House Suite 100 118 North Gadsden Street Tallahassee, Florida 32301 R. S. Power, Esquire Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
Findings Of Fact Based on the stipulations 3/ and admissions of the parties, the exhibits received in evidence, and the testimony of the witnesses at hearing, I make the following findings of fact: FIRST HOSPITAL's address is the World Trade Center, Suite 870, Norfolk, Virginia 23510. CHARTER GLADE HOSPITAL is a freestanding psychiatric hospital located in Fort Myers, Lee County, Florida. CHARTER GLADE has (80) licensed psychiatric beds, and twenty-four (24) licensed substance-abuse beds. The service area served by CHARTER GLADE includes Collier, Lee, and Charlotte Counties. The address of HRS is 1317 Winewood Boulevard, Tallahassee, Florida 32301. HRS is responsible for the administration of the "Health Facilities and Health Services Planning Act," Section 381.493, et seq., Florida Statutes (the Act), and has implemented its provisions through the adoption of rules set forth in Chapter 10, Florida Administrative Code. FIRST HOSPITAL applied to HRS for a certificate of need (CON) for the establishment of a freestanding specialty hospital in Naples, Florida. Pursuant to the Act, a CON is required before FIRST HOSPITAL can establish its specialty hospital. FIRST HOSPITAL's application was denied by HRS. FIRST HOSPITAL appealed the denial of its application to the Division of Administrative Hearings, DOAH Case No. 84-1835. CHARTER GLADE has intervened in DOAH Case No. 84-1835. In this proceeding, Petitioner has challenged the validity of Rule 10- 5.11(25) and (26), Florida Administrative Code, asserting that the rule is arbitrary and capricious and, therefore, invalid. By virtue of the fact that CHARTER GLADE is an existing facility located in the same service area in which Petitioner proposes to construct and operate its facility, and further by virtue of its participation in DOAH Case No. 84-1835, at least in part, on the basis of the provisions of Rule 10 15.11(25) and (26), Florida Administrative Code, CHARTER GLADE is substantially affected by the issues presented for determination in this cause and should be allowed to participate as a party. The Act contemplates rule adoption by HRS of specialty bed-need methodologies for psychiatric services. See, e.g., Subsection 381.494(8)(g), Florida Statutes (1983). Toward this end, HRS has adopted Rules 10-5.11(25) and (26), Florida Administrative Code. Rule 10-5.11(25), cited as the basis for denying FIRST HOSPITAL's CON application, addresses need for short-term psychiatric beds; Rule 10-5.11(26) purports to address need for long-term psychiatric beds. FIRST HOSPITAL's substantial interest in establishing its proposed specialty hospital has been determined by both of these rules. In particular, Rule 10-5.11(25), Florida Administrative Code, was applied by HRS in the denial of FIRST HOSPITAL's CON application. In addition, FIRST HOSPITAL alleges that Rules 10-5.11(25) and (26) combined fail to assess the need for intermediate inpatient specialty psychiatric services, one of the types of psychiatric services proposed by FIRST HOSPITAL. FIRST HOSPITAL's CON application proposes intermediate inpatient specialty psychiatric services. Rules 10-5.11(25) and (26), Florida Administrative Code, were adopted in early 1983. The adoption process began in the summer of 1982 when HRS assigned to one of its employees, Elfie Stamm, the task of developing a bed-need rule for psychiatric services. Ms. Stamm, at that time, was a planner in the Office of Comprehensive Health Planning of HRS. Ms. Stamm has been a planner with HRS for several years and had been responsible for the development of the State Health Plan and for the development of various rules used in the CON process. She had also been employed in the Mental Health Program Office of HRS, where her responsibilities included the development of a state plan with regard to alcoholism and mental health. She was also responsible for monitoring statewide mental health programs. Upon being assigned the task of developing the subject rules, Ms. Stamm made a thorough review of all information available to HRS with regard to the number of existing psychiatric beds and programs throughout Florida. She also evaluated all available local health plans and spoke with various individuals who had been involved in health planning, particularly those with interest in mental health planning. Ms. Stamm surveyed the available literature on health planning emphasizing mental health planning and bed-need methodologies for psychiatric beds. Ms. Stamm wrote the initial draft of Rule 10-5.11(25) based upon her collection and evaluation of data regarding existing and approved psychiatric beds in Florida and her review of literature, both Florida specific and national. A primary feature of the drafts, as well as of the adopted version, of Rule 10-5.11(25) is a fixed bed-to-population ratio of .35/1000, meaning that normally there should be no more than .35 short-term psychiatric beds for each 1,000 persons. Ms. Stamm was instructed to develop rules to assess the need for inpatient psychiatric services. As finally adopted, short-term care is defined in Rule 10-5.11(25) as care not exceeding three months and averaging a length of stay of 30 days or less for adults and 60 days or less for children and adolescents, and long-term care is defined in Rule 10-5.11(26) as care averaging a length of stay of 90 days. Neither rule defines the term "intermediate care." The documents contained in HRS Composite Exhibit IX and reviewed by Ms. Stamm are a representative sample of the literature available in the field and the level of knowledge among health planners as of the date of the promulgation of the subject rules. The documents are a reasonable cross-section of the literature available in the area of psychiatric bed-need assessment. In terms of the literature that was available at the time of the rule adoption in the area of psychiatric bed-need assessment, there is nothing missing from these documents which would have been important to a health planner in developing a psychiatric bed-need methodology. There is discussion in those documents of all the basic methodologies for determining psychiatric bed need. After reviewing all of the available materials, the HRS established a range of from .35 to .37 beds per 1,000 population and from that point made a policy decision to establish a figure of .35 to use in the bed-need formula. In promulgating the subject rules HRS invited and received comment from a broad cross-section of the public, with particular emphasis on those persons and organizations with special knowledge and interest in the provision of mental health services and the determination of psychiatric bed need. HRS conducted a workshop to which it invited a broad cross-section of individuals and organizations with particular knowledge about psychiatric bed need, including representatives of the Florida Hospital Association, Florida Psychiatric Association, Florida Council for Community Mental Health, Florida State Association of District Mental Health Boards, Florida League of Hospitals, Florida Association of Voluntary Hospitals, and the Florida Alcohol and Drug Abuse Association. The comments and results of the workshop were considered by Ms. Stamm and HRS in the promulgation of the subject rules. In response to several requests, HRS conducted a public hearing in accordance with Section 120.54(3), Florida Statutes, to receive comments from interested persons on the subject rules. More than fifteen (15) people representing various hospitals and organizations concerned with psychiatric services entered appearances and made comments at the public hearing. In addition to the oral comment presented at the public hearing, various persons and organizations submitted numerous written comments expressing their opinion with regard to the proposed rules. The comments, both oral and written, were all considered by Ms. Stamm and HRS prior to the promulgation of the subject rules. The process engaged in by HRS, primarily through Ms. Stamm, in the development of the subject rules was extensive and reasonably calculated to invite substantive public comment and to procure the knowledge on the part of HRS necessary to write workable and rational rules concerning psychiatric bed need. The knowledge acquired by HRS through this process with regard to the assessment of psychiatric bed-need methodologies was reasonably sufficient to allow it to knowledgeably draft and promulgate the subject rules. Consideration of this substantive public comment led to several changes in the subject rules as originally drafted. As originally promulgated, Rules 10-5.11(25) and (26) were challenged pursuant to Section 120.54, Florida Statutes, in various petitions filed with the Division of Administrative Hearings. In settling these proposed rule challenges, HRS modified the rules to provide for even greater flexibility in their application. HRS Composite Exhibits I through XII constitute all written matters considered or produced by HRS in the rule adoption process with regard to the subject rules. All of those documents and papers have been maintained in the records of HRS since the promulgation of the subject rules. The statutory criteria for reviewing CON applications are set out in Sections 381.494(6)(c) and (d), Florida Statutes. Rule 10-5.11, Florida Administrative Code, sets forth the rule criteria against which CON applications are evaluated. Subsections (1) through (12) and (25) of Rule 10-5.11 are the rule criteria against which applications for CONs for short-term hospital inpatient psychiatric services are to be evaluated. Subsections (1) through and (26) of Rule 10-5.11 are rule criteria against which applications for CONs for long-term psychiatric services are to be evaluated. Rule 10-5.11(25) sets forth certain criteria specifically for the evaluation of CON applications for short term hospital inpatient psychiatric services. Short-term services are in part defined as services averaging a length of stay of thirty (30) days or less for adults and a stay of sixty (60) days or less for children and adolescents under eighteen (18) years. Rule 10- 5.11(25) in its adopted form provides in relevant part as follows: Short Term Hospital Inpatient Psychiatric Services. Short term hospital inpatient psychiatric services means a category of services which provides a 24-hour a day therapeutic milieu for persons suffering from mental health problems which are so severe and acute that they need intensive, full-time care. Acute psychiatric inpatient care is defined as a service not exceeding three months and averaging a length of stay of 30 days or less for adults and a stay of 60 days or less for children and adolescents under 18 years. Short term hospital inpatient psychiatric services may be provided in specifically designated beds in a hospital holding a general license, or in a facility holding a specialty hospital license. Applications for proposed short term hospital inpatient psychiatric services will be reviewed according to relevant statutory and rule criteria. A favorable need determination for proposed general acute care psychiatric inpatient services will not normally be given to an applicant unless a bed need exists according to paragraph (25)(d) of this rule. A favorable Certificate of Need determination may be made when the criteria, other than as specified in (25)(d), as provided for in Section 381.494(6)(c), Florida Statutes, and paragraph (25)(e) of this rule, demonstrate need. Bed allocations for acute care short term general psychiatric services shall be based on the following standards: A minimum of .15 beds per 1,000 population should be located in hospitals holding a general license to ensure access to needed services for persons with multiple health problems. These beds shall be designated as short term inpatient hospital psychiatric beds. .20 short term inpatient hospital beds per 1,000 population may be located in specialty hospitals, or hospitals holding a general license. The distribution of these beds shall be based on local need, cost effectiveness, and quality of care considerations. The short term inpatient psychiatric bed need for a Department service district five years into the future shall be calculated by subtracting the number of existing and approved beds from the number of beds calculated for year x based on a bed need ratio of .35 beds per 1,000 population projected for year and based on latest mid-range projections published by the Bureau of Economic and Business Research at the University of Florida. These beds are allocated in addition to the total number of general and acute care hospital beds allocated to each Department District established in Rule 10-5.11(23). Occupancy Standards. New facilities must be able to project an average 70 percent occupancy rate for adult psychiatric beds and 60 percent for children and adolescent beds in the second year of operation, and must be able to project an average 80 percent occupancy rate for adult beds and 70 percent for children and adolescent short term psychiatric inpatient hospital beds for the third year of operation. No additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75 percent for the preceding 12 month period. No additional beds for adolescents and children under 18 years of age shall normally be approved unless the average annual occupancy rate for all existing adolescent and children short term hospital inpatient psychiatric beds in the Department district is at or exceeds 70 percent for the preceding 12 2 month period. Hospitals seeking additional short term inpatient psychiatric beds must show evidence that the occupancy standard defined in paragraph six is met and that the number of designated short term psychiatric beds have had an occupancy rate of 75 percent or greater for the preceding year. Unit size. In order to assure specialized staff and services at a reasonable cost, short term inpatient psychiatric hospital based services should have at least 15 designated beds. Applicants proposing to build a new but separate psychiatric acute care facility and intending to apply for a specialty hospital license should have a minimum of 50 beds. Other standards and criteria to be considered in determining approval of a Certificate of Need application for short term hospital inpatient psychiatric beds are as follows: . . . . 7. Access standard. Short term inpatient hospital psychiatric services should be available within a maximum travel time of 45 minutes under average travel conditions for at least 90 percent of the service area's population. There are three basic types of methodologies generally accepted in the field of health planning as valid for determining the need for psychiatric hospital beds. The first type is a need-based methodology which evaluates the need for services. The second is a demand or utilization-based method, which utilizes current or projected utilization statistics for a particular service. The third is a fixed-ratio method which involves the use of a ratio, or rate, of service to population to determine projected need for that service in the future. All three of these methodologies are generally accepted and utilized by health planners throughout the United States. Each has its advantages and disadvantages, but all are valid. The fixed ratio methodology is that which HRS has employed in Rule 10 5.11(25). The ratio of .35 beds per thousand population is a reasonable ratio with a rational basis in fact. It is not arbitrary and capricious as a measure of short-term psychiatric bed need. The National Institute of Mental Health developed draft guidelines in the late 197Os suggesting a range of .15 beds to .40 beds per thousand population as an appropriate fixed-bed ratio program for psychiatric short-term acute-care programs. At least four other states presently or in the past have utilized a fixed bed-need ratio in planning for health care needs. They are Massachusetts, Indiana, Michigan and Georgia. Some of those states used fixed-bed ratios less than .35 per thousand. Ms. Stamm, in developing this rule methodology for HRS, considered and balanced the different approaches relating to the establishment of need. One of her concerns on behalf of HRS, in developing the methodology was to strike a proper balance between need and demand since not everyone who needs psychiatric care will choose to seek that care or can afford to seek that care. In 1982, during the time of the rule adoption process, the ratio of existing short-term psychiatric beds per thousand population in Florida was .29 per thousand. Ms. Stamm selected .35 per thousand, in part, to allow for growth in the number of psychiatric beds for reasons other than just population growth. The current rate of existing licensed short-term psychiatric beds in Florida in 1985 is .28 beds per thousand. However, the ratio for currently existing short-term psychiatric beds, plus CON approved beds not yet licensed in 1985, is .39 beds per thousand. The fact that the existing and approved inventory of psychiatric beds is greater than the .35 ratio specified in the rule demonstrates that HRS has applied Rule 10-5.11(25) in a flexible manner as envisioned by the "not normally" language in the rule. A theoretically ideal way to determine psychiatric bed need would be for HRS to go into each community and conduct epidemiological surveys to identify the people who actually need mental health care. While such a survey, properly conducted, might produce momentarily reliable date, it is not a realistic method for statewide planning purposes because of several problems attendant to such a methodology. Such a survey would be very expensive and very time-consuming and is not practical for use on a statewide basis in a state the size of Florida. Because of the time-consuming nature of such a methodology, if applied on a statewide basis, some of the data would be stale before all of the data was gathered. Further, the rapidly changing population in Florida would require that such a survey be continually updated. The allocation of short-term beds between general and specialty hospitals set forth in subsections (d)1 and 2 of Rule 10-5.11(25) has a rational basis in fact and is not arbitrary. There are many patients who simultaneously need medical as well as psychiatric care. To have those patients located in a specialty hospital, away from a general hospital, would be inappropriate. There are also patients who have acute episodes of psychiatric illness and who need to be treated very rapidly. Because there are many more general hospitals than there are freestanding psychiatric specialty hospitals, it is appropriate to ensure that psychiatric beds are available to general hospitals to fill the particular episodic acute needs. Further, there are many patients in Florida who can afford health care only through Medicaid. Because Medicaid does not provide funding of mental health inpatient services in psychiatric specialty hospitals, it is appropriate to include in the methodology an incentive for the location of some psychiatric beds in general hospitals where psychiatric services can be funded by Medicaid. The specific allocation of the .35 per thousand bed need ratio set forth in Rule 10-5.11(25)(d)(1) and (2) is that .15 beds per thousand "should" be associated with general hospitals and .20 beds per thousand "may" be associated with specialty hospitals. This allocation was designed to be flexible so that, in any given circumstance, an allocation other than the .15 and .20 guideline could be applied. The occupancy rate standards set forth in Rule 10 5.11(25) specify that normally, additional beds should not be approved unless the average occupancy of all existing beds in a service district exceeds 75 percent for adults and 70 percent for children and adolescents. The occupancy rate standards set forth in Rule 10- 5.11(25) were not arrived at in an arbitrary fashion and are reasonable in themselves. The occupancy rates are designed to ensure that a reasonable number of beds in each facility are filled. Hospitals with a substantial number of empty beds are not cost effective. Therefore, it is reasonable to project occupancy rates in the range of those projected in the subject rule. Indeed, the occupancy rates in the rule are liberal in terms of minimum occupancy levels, compared with those in the past and those recommended by others in the industry. With regard to the travel access standard in the rule, the Task Force for Institutional Care recommended a 60 minute travel standard for 90 percent of the population in the district. The 45 minute standard is reasonable. The rule does not exclude from within the travel standard area other facilities providing the same service. At the time of the final hearing, there were sixty five (65) existing hospital facilities in Florida which had psychiatric bed services. Of those sixty-five (65) facilities, sixty-one (61), or 93 percent, had more than fifteen (15) psychiatric beds, and fifty-five (55), or 84 percent, had more than twenty (20) psychiatric beds. In the exceptional event that the average occupancy rate for a particular district did not accurately reflect the availability of beds, the language of Rule 10-5.11(25)(d)5, which says that no additional beds shall "normally" be approved unless the occupancy rates are met is sufficiently flexible to account for the exceptionality. The methodology set forth in Rule 10-5.11(25) is designed to identify and express a need for short-term psychiatric inpatient beds for the overall population of Florida. The rule was intended to be sufficiently flexible that, when balanced with the other criteria set forth in Rule 10-5.11(1) through (12), it would allow substantive input from the district and community levels with regard to the need for beds by subpopulation groups such as child, adolescent, adult, and geriatric. The "national guidelines" referred to by Ms. Stamm were proposed hut never adopted. They recommended fixed bed ratios between .15/1000 and .40/1000. The guidelines were based on a 1978 survey by the National Institute of Mental Health (NIMH), which indicated that .15/1000 was the 25th percentile and .40/1000 was the 75th percentile of 1978 existing short-term psychiatric beds nationwide. The NIMH report stated that selection of an appropriate ratio for a particular state depended on the development of the state's mental health system and recognized that special consideration was necessary for traditionally underserved groups such as children, adolescents, and geriatrics. In the context of inpatient psychiatric care, there has been a trend over the last twenty years, and more particularly over the last five years, toward the development of specialty treatment programs, separately planned for children, adolescents, adults, and geriatrics. In recent years in Florida there has also been a trend toward the provision of alternatives to inpatient psychiatric services in facilities such as residential care. In 1982, Ms. Stamm considered evidence that children, adolescents, and geriatrics were not being adequately served by Florida's mental health facilities. Nevertheless, she did not plan for these subgroups in the rule because in her judgment decisions about allocation of services to subpopulation groups were best made at the district level by the local health councils.
The Issue The issue for determination is whether either applicant's request for a CON for IRTP beds should be granted. LORTC's allegation that La Amistad plagiarized portions of another PIA facility's CON application was deemed at hearing to be irrelevant. Likewise, it was determined at hearing and in a post- hearing order entered on November 1, 1988, that the sale of La Amistad to UHS of Maitland, Inc. had no material bearing on the La Amistad application under review here. In the parties' prehearing statement filed on September 26, 1988, the following were agreed: Consideration of the applications at issue is governed by the statutory criteria contained in section 381.705, Florida Statutes and Rule 10- 5.011(1)(b)(1)-(4), Florida Administrative Code. These criteria are either satisfied or are inapplicable: Section 381.705(1)(g), (h), (only as to the following clauses: "the effects the project will have on clinical needs of health professional training programs in the service district; the extent to which the services will be accessible to schools for health professions in the service district for training purposes if such services are available in a limited number of facilities"), (j), Florida Statutes (1987) As to LORTC, the parties stipulated that the criteria in Section 381.705(1)(h) as to availability of funds for capital and operating expenditures is satisfied. This is not a stipulation that the application satisfies the financial feasibility criterion contained in Section 381.705(1)(i). Rule 10-5.011(1)(b)(4)(b) , Florida Administrative Code. Each applicant argues that its application, and not that of the other, should be approved. HRS and West Lake both argue that neither application should be approved.
Findings Of Fact La Amistad is a not-for-profit corporation providing a variety of mental health services to children, adolescents and young adults on campuses in Maitland and Winter Park, Florida since 1970. At the time of hearing La Amistad operated 27 licensed IRTP beds at its Maitland campus. At the time of hearing La Amistad had a contract to sell its residential treatment program, including the beds that are the subject of this proceeding, to Universal Health Services, Inc. The contract was entered into after this CON application was filed. LORTC is a wholly owned subsidiary of PIA, Psychiatric Hospitals, Inc. (PIA), which in turn is wholly owned by NME Hospitals, Inc. PIA owns or operates approximately three residential treatment centers (RTCs) and 58 psychiatric hospitals throughout the country, including Laurel Oaks Hospital in Orange County, Florida, an 80-bed licensed hospital providing short term psychiatric and substance abuse services to children and adolescents. HRS is the state agency charged with the responsibility of implementing and enforcing the CON program, pursuant to Section 381.701-381.715, Florida Statutes. The Intervenor, West Lake, is an 80-bed licensed psychiatric hospital in Longwood, Seminole County, Florida. West Lake has allocated 16 beds to its children's program and 24 beds to its adolescent programs. West Lake is licensed for both long and short-term psychiatric beds. THE APPLICATIONS La Amistad's application requests the conversion of 13 existing beds (currently licensed as child caring beds) to licensed IRTP beds, the demolition of several old buildings and the construction of a new building which will contain a total of 16 IRTP beds. The 13 additional beds would bring La Amistad's IRTP total to 40 beds. The total project cost of La Amistad's proposal is $500,000.00 or $38,462.00 per bed. La Amistad's Maitland facility is located in a residential area and is itself designed to be residential in nature, rather than institutional. The patients prepare their own food under the supervision of a dietician and other staff. They also do their own housekeeping. La Amistad is not a "locked unit". A maximum of 16 patients reside in each "house" on the La Amistad campus. The houses are staffed on a 24-hour a day basis. Like other similar facilities, La Amistad utilizes a multi-discipline team approach to treatment. That is, psychiatrists, nurses, social workers and other staff work together. The treatment team meets weekly to discuss the program and treatment of each patient. Family members may visit and stay at the campus on weekends. Families are encouraged to participate in the treatment process. La Amistad has a full-time school on campus with teachers provided by the Orange County School System. The average length of stay for patients is in excess of Il to 12 months. This is consistent with HRS' understanding that 9-14 months is an average length of stay for an intensive residential treatment program. LORTC's application is for CON approval of a 40-bed IRTP located on the grounds of its existing freestanding psychiatric hospital, Laurel Oaks. The facility is currently under construction and will be operated as a residential treatment center if its IRTP CON is denied. LORTC anticipates serving two out of three of the following groups: adolescents who need long-term care, older children (8 years to 13 years) who need long-term care, and chemically dependent adolescents. The projected average length of stay is 120 days, which stay is consistent with that of other PIA residential treatment centers in Florida. The LORTC facility will be "locked". Meals will be prepared at Laurel Oaks Hospital and will be transported in some, as yet undetermined, manner to the separate building. The geographical area in which LORTC will be located is not residential. The capital cost of the 40 bed facility is projected at $3,291,000.00. The funds, provided by the parent company, NME, will be expended, regardless of CON approval. LORTC also uses a multi-discipline team approach to treatment. Each patient's treatment program will consist of psychiatric support services, educational services and family services. Students will attend academic classes four hours a day at the facility. THE APPLICABLE DISTRICT PLAN AND STATE HEALTH PLAN The District Seven Health Plan does not address needs, policies, or priorities for IRTP facilities for children and adolescents. The State Health Plan addresses very generally the need for mental health and substance abuse services. Goal 1 seeks to: "Ensure the availability of mental health and substance abuse services to all Florida residents in the least restrictive setting." Goal 2 seeks to: Promote the development of a continuum of high quality, cost effective private sector mental health and substance abuse treatment and preventive services". Goal 3 seeks to: "Develop a complete range of essential public mental health services in each HRS district." (Laurel Oaks Exhibit #20). The applications neither violate nor materially advance these goals. In both instances the beds will exist for the provision of mental health services, with or without the certificate of need. La Amistad's proposal clearly presents a "less restrictive alternative" to the more institutional psychiatric hospital. Laurel Oaks is also an alternative, although more institutional than homelike in character. NEED, INCLUDING THE AVAILABILITY OF LIKE OR ALTERNATIVE SERVICES AND INCREASED ACCESSIBILITY IRTP beds are a statutorily defined class of specialty hospital beds: Intensive residential treatment programs for children and adolescents means a specialty hospital accredited by the Joint Commission on Accreditation of Hospitals which provides 24-hour care and which has the primary functions of diagnosis and treatment of patients under the age of 18 having psychiatric disorders in order to restore such patients to an optimal level of functioning. Section 395.002(8), Florida Statutes. Because an IRTP is a hospital, a certificate of need is required. This alone distinguishes an IRTP from a residential treatment program (RTP). In spite of its name, HRS considers an IRTP as a service that is less intensive than a long or short term psychiatric hospital. Generally, the RTP and IRTP have a longer average length of stay than a psychiatric hospital and provide a more homelike setting. No HRS rule further defines the IRTP, and as evidenced by the La Amistad and LORTC proposals, the projected average length of stays vary widely (120 days for LORTC, versus 12-14 months for La Amistad). Long term psychiatric hospitals have an average length of stay of over 90 days. West Lake has treated adolescents in its psychiatric beds as long as a year, although this has not occurred recently. HRS has no rule methodology for calculating the need for IRTP's. However, HRS considers there is a need for at least one reasonably-sized IRTP in each HRS service district. In HRS district VII there are currently two IRTPs: Devereaux, a 100-bed facility in Melbourne, Brevard County, Florida, licensed on February 26, 1988; and La Amistad, with 27 IRTP beds in Orange County, licensed in August, 1988. Although HRS clearly does not limit its approval to only one IRTP per district, it has a policy of waiting to see what the need and demand are before it authorizes an additional program with a CON. Its deviation from this policy regarding approval of the La Amistad beds was adequately explained as a settlement based on the acknowledgment of a prior administrative error. Utilization of the Devereaux beds was not a consideration in that unique case. HRS also uses as a reasonable non-rule policy the requirement that existing programs be 80 percent occupied before additional programs are authorized. This is modeled after the promulgated rule in effect for long-term psychiatric beds. At the time the applications were considered, La Amistad was not licensed and Devereaux had a less than 50 percent occupancy. Conflicting evidence was presented with regard to the accessibility of both La Amistad's 27 beds and Devereaux' 100 beds. Devereaux is approximately one to two hours from the three counties identified as LORTC's primary service area: Seminole, Osceola and Orange. LORTC argues that families who need to actively participate in the patients' treatment are discouraged by the travel distance. However, Laurel Oak Hospital currently refers patients to its sister facilities in Manatee and Palm Beach counties, which are more distant than Devereaux. No patient origin studies of Devereaux were done and LORTC's expert in health and planning conceded that it takes a while for people to become aware of a new facility and its services, and a new facility can stimulate patient migration. The credible weight of evidence is that a travel time of two hours or less would not significantly influence decisions to use the facility. La Amistad is noted for its treatment of schizophrenics. It sponsors seminars attracting participants from a wide geographical area. It does not, however, limit its beds to patients with that diagnosis. In the past approximately 48 percent of La Amistad's beds (its entire facility, not just the IRTP beds) have been utilized by schizophrenics. This does not alone evidence non-accessibility of its IRTP beds. The statutory definition of an IRTP, cited in paragraph 17, above, is broad enough to include the type of care provided in long-term psychiatric hospitals, such as West Lake. The programs described in the applications of both LORTC and La Amistad are similar to the programs currently operated at West Lake for children and adolescents. The multi-disciplinary team monitors the patient's progress with a goal toward reintegration into the community. The patients attend school and receive a wide variety of therapies, with varying intensity: individual and group counseling, activity and occupational therapy, family therapy, vocational planning, and the like. When the patient is admitted, an evaluation is done to determine an anticipated length of stay. Some require a shorter stay, with more intensive therapy; others are more appropriately treated for a longer period, with less intensity. West Lake's program is not full. There are myriad alternative programs for the treatment of children and adolescents in the tri-county area. Seagrave House, the Charlie Program and Boystown are residential programs for children and adolescents who may have received treatment in a hospital but who are not ready to return home and could progress further in a residential program. Mainstream, a partial hospitalization program, is also available to this age group. A partial hospitalization program provides structured daytime treatment with the same therapies offered in a hospital or full residential program, but the patients are able to return home at night. Other existing facilities and programs available in the service district include Parkside Lodge, the Care Unit, the Center for Drug-free Living, Glenbeigh Hospital and Rainbow. Laurel Oaks has referred patients to Rainbow, a residential treatment program for youths with substance abuse problems. La Amistad presented anecdotal testimony from its clinical and other staff regarding the numbers of patients they could refer to La Amistad if the application were approved. In no instance did these witnesses eliminate the other available programs as appropriate alternatives. Several other witnesses testified on behalf of LORTC regarding the need for additional long-term treatment programs for children and adolescents. It is clear, however, that these individuals from the Orange County Public Defender's office, the Orange County Public Schools and the Seminole County Mental Health Center were descrying the need for services for economically disadvantaged youths and those without insurance. Neither La Amistad nor LORTC propose to materially serve that population. Medicaid funds are not available to licensed speciality hospitals and both La Amistad and LORTC will serve patients referred and paid for by HRS, with or without an IRTP CON. The projected percentage of non-pay patient days in both applications is negligible. Any consideration of alternatives in this case must consider the alternatives of the applicants themselves. In both cases, the beds will be available with or without the CON, and the treatment programs are substantially the same with or without the CON. Denial of these applications will not decrease the potential supply of beds in District VII. Indeed, LORTC candidly argues that it is asking only that HRS assist in enhancing financing access to its beds, that CON approval and subsequent licensure will provide increased access to patients with insurance which will not reimburse non- hospital based care. LORTC, and to a lesser degree, La Amistad, insist that approval will positively impact access for privately insured patients. The weight of evidence does not support that basic contention in this case. PIA's non-hospital RTCs in Palm Beach and Manatee County claim to have a 60-70 percent commercial insurance pay or mix. LORTC projects only 67 percent commercially insured patients after its first year of operation. This does not represent an increase. According to its financial experts La Amistad is not projecting any increase in insurance reimbursement because of licensure as an IRTC. Two trends in insurance reimbursement practices were described at length in this proceeding. First, companies are willing to negotiate an "out-of- contract" reimbursement when a non-covered facility is able to show that its services are more appropriate and in the long term, more cost effective than the covered services for a particular patient. Second, insurance companies are carefully scrutinizing long term treatment reimbursement and are limiting coverage in expensive residential programs. Neither trend weighs in favor of approval of these applications. AVAILABILITY OF RESOURCES Nursing costs in health care institutions usually comprise more than 50 percent of the operating costs. It is the largest single budget item in a hospital or health care facility. Throughout the country and in District VII, there is a shortage of nurses and trained allied health personnel. Although Laurel Oaks Hospital is staffed, maintaining its staff of registered nurses is a day-to-day problem. West Lake also experiences difficulty in maintaining qualified staff. No doubt LORTC, with aggressive recruitment will initially attract the personnel it needs. Financial incentives will have to be provided and West Lake's problems will be exacerbated. The additional costs will be passed on to the consumer, thus perpetuating the upward inflation spiral of health care costs. FINANCIAL FEASIBILITY AND EFFECTS ON COMPETITION La Amistad states it intends to finance $450,000.00 of its $500,000.00 total project cost through bank loans, fund raising efforts and personal commitments from board members. Its pro forma, as corrected and updated at the hearing is reasonable, based upon the facility's actual experience in staffing and filling beds. However, the ability of the applicant itself to complete construction for the replacement beds is questionable in light of an admission at hearing by Walter Muller, M.D., the founder and Medical Director of La Amistad. Dr. Muller conceded that one of the reasons for the sale to Universal Health is to obtain adequate funds for the new building. (transcript pages 271-272). LORTC contends that no capital expenditure is relevant here as the facility is being constructed as a non-hospital RTC. For the transfer to IRTC status no additional expenses will be incurred. Regardless of the validity of that contention, the parties have stipulated that funds are available for capital and operating expenditures. LORTC's pro forma is reasonable based on the extensive experience of its parent company with similar facilities, the RTCs in Manatee County and Palm Beach County, and Laurel Oaks Hospital. That experience has not been tested in an area, where, as here, there are existing unfilled IRTPs. As provided in the discussion of need, above, LORTC cannot dismiss West Lake, Devereaux, La Amistad and other facilities offering similar programs. LORTC did not establish conclusively that it could maintain its projected utilization in the face of the potential draw of those other facilities. PIA has been highly successful in marketing its services in the past. If its success prevails and LORTC proves financially feasible, there is substantial evidence that it will be at the expense of West Lake, Devereaux, and the others. There is no evidence that LORTC or La Amistad evaluated the impact of their proposals on other service providers in the area. OTHER REVIEW CRITERIA, INCLUDING QUALIFY OF CARE Both applicants enjoy a reputation for providing good quality mental health services and there is no substantial evidence that this quality will deteriorate if the applications are approved. No competent evidence was presented regarding the failure of either applicant to meet the remaining relevant criteria.
Findings Of Fact A not for profit 520-bed acute care hospital in Pensacola, Baptist primarily serves not only residents of Escambia and Santa Rosa Counties, within Florida's HRS Service District I, but also patients from Escambia and Baldwin Counties in Alabama. The other two counties in District I, Okaloosa and Walton, lie outside Baptist's primary service area, but within a secondary service area, as does Covington County, Alabama. Baptist proposes to convert twelve medical/ surgical beds to a children's psychiatric service, to complement an existing 38-bed psychiatric service housed in the Behavioral Medical Center across the street from Baptist's main campus. On average, eighty percent of Baptist's existing psychiatric beds are occupied at any one time. Of four separate, psychiatric treatment programs Baptist now offers, all accredited by the Joint Commission on Accreditation for Health Care Organizations, none is designed for children below the age of 13. Seldom, and only in an emergency, has a child below this age been accepted into Baptist's program for adolescents, which is operated separately from any adult treatment program. Baptist has treated indigent and medicaid patients in its psychiatric programs, as well as patients for whose treatment it has received greater remuneration. Hospital-wide, Baptist has had "medicaid utilization" of between six and nine percent. "Baptist was willing to do Baker Act patients." Farr deposition, p. 17. Rollins deposition, p. 30. Other Resources Pensacola and Escambia County have extensive outpatient psychiatric services for children, offering a broad range of options, short of inpatient care in a treatment facility. Rollins deposition, pp. 15-16. Lakeview Community Health Center offers outpatients treatment, as do a number of private providers. The Children's Intervention Project System conducts home visits. Day care and therapeutic foster homes are also available. Professionals distinguish between "crisis stabilization" which does not "focus on treatment" and even short-term psychiatric care. Lakeview Community Health Center has a 31-bed crisis stabilization unit, which was full as of the week before the hearing. Ten of the 31 beds are reserved for children, aged 9- 17, but children's beds are not segregated from beds for adolescents. Treating children and adolescents together (if not stabilizing their crises in the same facility) is inappropriate. They have different needs and require different structures. Adolescents require more autonomy; children need more supervision. See deposition of Cruz. Farr deposition, p. 21. Rollins deposition, p. 22. Only Harbor Oaks, a free-standing facility more than 45 minutes from Pensacola and Gulf Breeze, accepts children as psychiatric patients. Harbor Oaks has 19 children's beds but does not accept medicaid patients. The children's unit at Harbor Oaks experienced an occupancy rate of approximately 74 percent in 1988. Occasionally, girls were put on waiting lists. University hospital does not accept children as psychiatric patients. It rarely accepts adolescents. West Florida Hospital, which has a program for adolescents, refuses child psychiatric patients admission. West Florida Community Center accepts no children. Nor does Humana Hospital in Ft. Walton. Play Therapy Rather than convert a part of an existing medical or surgical ward to a children's psychiatric ward, Baptist proposes to spend $565,660 to construct a facility abutting but distinct from its Behavioral Medical Center. Lakeview Medical Health Center is nearby. Farr deposition, p. 32. The parties have stipulated that "the costs and method of proposed construction, including ... energy provision and the availability of alternative, less costly or more effective methods of construction" are not in dispute, and that "the facility design schematic is reasonable and appropriate." Baptist would hire a child psychiatrist to head up to the children's psychiatric unit. Treatment teams for existing programs also include psychologists, psychiatric social workers, occupational therapists, certified recreational therapists, and nursing staff. Dr. DeMaria recommends that "somebody in the creative arts therapy," (T.99) be hired for the children's unit, as well. The parties agree that "the availability of resources, including health manpower, management personnel, and funds ... are not at issue." The plan is to create a homelike environment where children will sleep two to a room and eat together family style in a dining room. A living room, at least one classroom, a playroom and a playground out of doors are to be the situs of art, dance, music and play therapy, individual, group, and family, all in a "therapeutic milieu." Baptist intends that the children's psychiatric unit be the least restrictive inpatient facility for children possible and has given assurances that the same rigorous review now taking place in its existing psychiatric programs would see to it that children are discharged to a still less restrictive environment as soon as their conditions permitted. In large part, Baptist is counting on medical staff at the Lakeview Community Health Center, all of whom have admitting privileges at Baptist, to identify children who will need inpatient care but cannot afford to pay. Baptist has committed to reserve two beds in the proposed unit for patients who are indigent, or eligible for medicaid benefits. Baptist has also undertaken "not [to] turn away patients," Farr deposition, p. 49, needing psychiatric care. Baptist has agreed to accept a requirement that it honor this commitment, as a condition to any certificate of need it obtains. Less than 20 percent of the children seen by 19 of the 55 child psychologists practicing within Baptist's service area who responded to a survey seemed to require inpatient care, but only 60 percent of this group actually received such care. Baptist's Exhibit No. 30. A survey of referral agencies indicated some 80 children in Baptist's service area needing inpatient psychiatric care in 1988 did not receive it. Projected daily charges of $390 in Baptist's second year of operating the children's psychiatric unit are less than the $450 a day now charged by Harbor Oaks. The parties stipulated that "the pro forma income and expense statement relating to the children's short-term psychiatric beds is reasonable and requires no further proof except for validation of the number of patients days." Assuming admission rates comparable to elsewhere in the South, children in Baptist's service area would keep ten children's psychiatric beds at 70 percent average occupancy. Baptist's Exhibit No. 26. Twelve beds would make it economically feasible to serve the medically indigent as well as other children needing inpatient care. The first seven days following a child's admission staff would devote to evaluating the child. Children not discharged to a less restrictive situation by the end of the evaluation period, Baptist projects, would have an average stay totalling 28 days, as compared to the 35- to 40-day average length of stay harbor Oaks has reported. Not Normal District I has a total of 240 short-term psychiatric beds. According to the state agency action report, short-term psychiatric bed utilization was 88.9 percent at Harbor Oaks for 1987, 73.5 percent at Ft. Walton's Humana Hospital, 59.4 percent at University Hospital and 58.1 percent at West Florida. Baptist's recent experience of psychiatric bed utilization in excess of 80 percent dates to January of 1988, and is a substantial increase over the 55.8 percent reported for the period July 1986 to June 1987. Baptist's Exhibit No. 9. Projected 1993 population for District I is 601,559. Baptist's Exhibit No. 23. The parties agree that the formula set out in Rule 10- 5.011(1)(o), Florida Administrative Code, for determining "numeric need" for acute care, short-term, general psychiatric beds does not indicate a need for additional acute care short-term general psychiatric beds in District I. But 53 percent of the District's population resides in Escambia County where no treatment facility has any children's psychiatric beds. A significant number (compare Baptist's Exhibit No. 23 with T. 133) of Baptist's psychiatric admissions are patients who reside in Alabama. Although Escambia County has 52 percent of the District I population, between ages 1-12, it has none of the children's psychiatric beds. More than half the District's population lives more than 45 minutes travel time from Harbor Oaks, complicating arrangements for family therapy, often essential in these cases, Rollins deposition, pp. 28-29, and for other conferences, including discharge conferences, where parents and community-based professionals work out details necessary to effect a smooth transition from inpatient to something less restrictive. The District I Health Plan, approved on June 1, 1988, provides: The following policies and priorities are to be used in CON review in tandem with the bed need numbers on the preceding pages. POLICIES AND PRIORITIES FOR PSYCHIATRIC AND SUBSTANCE ABUSE BEDS Psychiatric or substance abuse beds which are not used by residents of the District shall not be included in the resource inventory count of the District. [NOTE: There have in the past, been facilities in another district treating patients originating solely from outside of that district. The facility's intake policies precluded the treatment of "local" district residents. In addition, the facility's marketing effort was directed entirely out- of-state. A local marketing effort plus treatment of patients originating within the district can easily be demonstrated.] Priority will be given to applicants who can demonstrate that all existing short term inpatient psychiatric beds in the subdistrict have had an average annual occupancy rate equal to or greater than 70% for the preceding year. Priority will be given to applicants who can demonstrate that all existing short term inpatient substance abuse beds in the subdistrict have had an average annual occupancy rate equal to or greater than 80% for the preceding year. Proposals for new facilities, expansions, conversions and additional services will be given priority for applicants who agree to continue or enter into Baker Act, Medicaid, Medicare and other medically indigent contracts for the provision of services to qualifying patients. Among the goals, objectives, and recommended actions set out in the 1985-1987 State Health Plan, now expired but not replaced, is a goal that short-term inpatient hospital psychiatric beds not exceed .35 per thousand population. HRS Exhibit No. 1. In requiring that .15 (of a total of .35) short-term psychiatric beds per 1,000 population be located in general hospitals eligible for medicaid reimbursement, HRS's rules do not distinguish between children and adults. But no children's psychiatric beds in Distract I are located in a facility that accepts medicaid patients. If the ratio prescribed for psychiatric beds generally applied specifically to children's psychiatric beds, District I would already have at least eight such beds: Multiplying the 19 existing beds by .15/.35 yields 8.14. Applying the rule's .15 beds per 1,000 population methodology to the 111,211 children projected to be in District I by 1993, see Baptist's Exhibit No. 23, yields a need for 16.68 children's psychiatric beds in facilities that accept medicaid patients.
Recommendation It is, accordingly, RECOMMENDED: That HRS grant Baptist's application for certificate of need No. 5669, on condition that Baptist honor its commitments to care for medically indigent and medicaid-eligible children in need of inpatient psychiatric care. DONE and ENTERED this 2nd day of November, 1989, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 2nd day of November, 1989. APPENDIX Petitioner's proposed findings of fact Nos. 1 through 6, 8 through 21, 28 through 35, 40, 44, 45, 47 through 50, 60, 61, 64, 69, 72, 73, 75, 76, 78, 79, 81 and 82 have been adopted in substance as fare as material. With respect to petitioner's proposed finding of fact No. 7, either a music therapist or an art therapist is contemplated. With respect to petitioner's proposed finding of fact No. 22, children in Escambia and Santa Rosa counties can go to Harbor Oaks. Petitioner's proposed findings of fact Nos. 23 through 26 here not established by the evidence. With respect to petitioner's proposed finding of fact No. 27 at least one eleven-year-old was also admitted. Petitioner's proposed findings of fact Nos. 36 and 37 are immaterial. Petitioner's proposed findings of fact Nos. 37, 39, 42, 43, 46, 51 through 59, 62, 63, 65, 67, 70, 71, 74, 77 and 80 relate to subordinate matters. With respect to petitioner's proposed finding of fact No. 41, the evidence did not show that everybody living in Escambia and Santa Rosa counties was more than 45 minutes from Harbor Oaks. Petitioner's proposed finding of fact No. 66 is properly a proposed conclusion of law. Respondent's proposed findings oil fact Nos. 1, 2, 5 through 8, 11, 14 and 15 have been adopted in substance insofar as material. With respect to respondent's proposed finding of fact No. 3, the petitioner's stipulation further narrowed the issues. Respondent's proposed findings of fact Nos. 4 and 17 are properly proposed conclusions of law. Respondent's proposed findings of fact Nos. 9, 10, 21, and 23 have been reject in whole or in part as unsupported by the evidence. Respondent's proposed findings of fact Nos. 12, 13, 16, 18, 20 and 22 pertain to subordinate matters. With respect to respondent's proposed finding of fact No. 19, whether institutionalizing of children is ever a good idea is not at issue in this proceeding. The question is whether services available to others should also be available to indigent patients. COPIES FURNISHED: Sam Power Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Gregory Coler Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 John Miller General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Stephen A. Ecenia Roberts, Baggett, LaFace, and Richard 101 East College Avenue Post Office Drawer 1838 Tallahassee, FL 32302 Richard A. Patterson Assistant General Counsel Department of Health and Rehabilitative Services 2727 Mahan Drive, Suite 103 Tallahassee, FL 32308 =================================================================
The Issue In its petition, Florida Psychiatric Centers (FPC) alleges that HRS seeks to grant a CON to Florida Residential Treatment Centers, Inc. (FRTC), based on the agency's unpromulgated policy that ". . . at least one residential treatment center should be approved in each of DHRS' eleven health planning districts in Florida, regardless of the need for such facilities." (Petition, page 2, paragraph 6.) FPC argues that the policy is a "rule" and is invalid as a rule because it has not been adopted pursuant to Section 120.54, F.S., and because it conflicts with Sections 381.493, F.S., and 381.494, regarding need criteria. Further, FPC argues the "rule" is arbitrary and violates due process because the agency predetermines need regardless of the availability of like and existing services. HRS and Intervenor, FRTC, argue that the policy is incipient and needs not be promulgated. Further, the policy does not obviate a determination of need. HRS and FRTC claim that FPC lacks standing to bring this action, as its facility is a hospital and not the same as an intensive residential treatment program. HRS admits that the alleged policy has not been promulgated under Section 120.54, F.S. The issues for determination in this proceeding are summarized as follows: Whether FPC has standing to bring this action; Whether HRS has a policy regarding CON approval of intensive residential treatment programs, and whether that policy is a "rule"; and If the policy is a rule, is it an invalid rule?
Findings Of Fact FPC is a partnership which has received CON #2654 to construct a 100- bed psychiatric hospital in the Plantation/Sunrise area of West Broward County. The facility is under construction and will include 80 short-term psychiatric beds (40 geriatric, 15 adolescent, and 25 adult beds) and 20 short-term substance abuse beds. FPC anticipates an average length of stay of approximately 28 days for adults and less than 60 days for adolescents. FRTC is owned by Charter Medical Corporation. It proposes to build and operate a 60-bed intensive residential treatment program for children and adolescents in Broward County. The proposed facility will treat children and adolescents in need of psychiatric services. Its anticipated average length of stay is approximately one year. If it is awarded a certificate of need, FRTC intends to obtain licensing by HRS pursuant to Chapter 395, F.S., and Chapter 10D-28 F.A.C. No other facility licensed as an intensive residential treatment program, as defined in subsection 395.002(8), F.S. (1987), is available in Broward County. On March 11, 1987, HRS issued CON #4851 to FRTC for its 60-bed facility. A challenge to that CON is pending in DOAH consolidated cases #87- 2046/87-2400/87-2401. FPC is a petitioner in the case, with Florida Medical Center and South Broward Hospital District. Section 395.002(8), F.S., defines "Intensive Residential Treatment Programs for Children and Adolescents as: . . . a specialty hospital accredited by the Joint Commission on Accreditation of Hospitals which provides 24-hour care and which has the primary functions of diagnosis and treatment of patients under the age of 18 having psychiatric disorders in order to restore such patients to an optimal level of functioning. When completed, FPC will be accredited by the Joint Commission on Accreditation of Hospitals; it will provide 24-hour care and will have the primary function of diagnosis and treatment of patients with psychiatric disorders and problems of substance abuse. Unlike the other psychiatric hospitals in Broward County, FPC will have a campus-like setting and separate buildings for the various services. FPC will not be a locked facility. With the exception of the length of stay, the services provided by FPC for its adolescent patients will be essentially the same as an intensive residential treatment program, as defined above. Until recently, HRS has had very few CON applications for intensive residential treatment programs. HRS has considered that these programs must undergo CON review only if they seek licensure as a specialty hospital. In considering need for intensive treatment programs, HRS does not consider unlicensed residential treatment programs to be like and existing services because HRS is not required to review unlicensed facilities; HRS would not have any way of knowing all the programs in operation and would have no control over the services offered. This policy is similar to the policy HRS employed in conducting CON review of ambulatory surgery centers. In those cases, HRS did not consider the outpatient surgery being performed in physicians' offices. Because the legislature has created a special definition of intensive residential treatment facility, and because the State Health Plan seeks a continuum of mental health services, HRS presumes there is a need for a reasonably sized intensive residential treatment facility in each planning district. This presumption can be rebutted with evidence in a given case, such as the fact that the district has few children with mental illnesses, or that such programs have been tried and failed, or that parents in the area prefer to send their children outside the district. Moreover, any applicant for a CON for an intensive residential treatment facility must evidence compliance with the myriad criteria in Section 381.705, F.S. (1987), and in Chapter 10-5, F.A.C. Although there is no specific bed need methodology adopted by HRS for intensive residential treatment facilities, other psychiatric services, such as long-term psychiatric care, are also evaluated without a numeric bed need methodology. HRS has applied its presumption of need policy in intensive residential treatment program CON reviews at least since 1983. One reason why the policy has not been adopted as a rule is that there have been so few applications in that category. In the experience of Elizabeth Dudek, Health Facilities and Services Consultant Supervisor, the first level supervisor for CON review, there were merely three applications of this type prior to a recent batch of three more applications. FPC's Petition to Determine Invalidity of Agency Rule(s) alleges that HRS' policy is ". . . at least one residential treatment center should be approved in each of DHRS' eleven health planning districts in Florida, regardless of the need for such facilities." (paragraph 6) FPC further alleges that HRS construes Chapter 395 as requiring it to ". . . automatically approve at least one residential treatment center in each DHRS health planning district regardless of whether the statutory criteria for need in Section 381.494(b), F.S. [renumbered and amended as Section 381.705, F.S., in 1987] would be met by the applicant." (paragraph #7) These allegations were not proven in this proceeding and are rejected in favor of the less rigid presumption of need policy described in findings of fact #7 and #8, above.
The Issue Whether University Community Hospital should be issued Certificate of Need Number 6936 to convert 20 acute care beds to 20 comprehensive medical rehabilitation beds.
Findings Of Fact UCH is a 424 bed acute care hospital located in northern Hillsborough County. UCH is the applicant for CON Number 6936 to convert 20 medical/surgical acute care beds to 20 comprehensive medical rehabilitation ("CMR") beds. Its service area is northern Hillsborough and eastern Pasco Counties. AHCA is the successor to HRS as the designated agency to administer the CON laws. UCH currently operates 404 acute care beds and 20 skilled nursing beds. Its services include an emergency room, open heart surgery, obstetrics, and a home health agency. From 1982 to 1990, UCH operated an inpatient comprehensive rehabilitation unit, certified by HRS and recognized by the Federal Health Care Finance Administration ("HCFA") as a 9-bed unit in 1984, and as an 18-bed unit from 1985 through 1988. Substantial renovation of the unit's sixth floor south wing, in 1987 and 1988, was intended to meet the standards of the Commission on Accreditation of Rehabilitation Facilities ("CARF"). UCH was never actually CARF accredited. After the enactment of a CMR rule, HRS preliminarily determined that UCH was a "grandfathered" 9-bed provider of CMR services. That preliminary determination was successfully challenged in University Community Hospital v. Department of Health and Rehabilitative Services, 11 FALR 1150 (HRS Final Order 2/13/89), and the unit was closed in 1990. In September 1990, UCH applied for CON 6412 to convert 20 acute care beds to 20 CMR beds. That application was denied. University Community Hospital v. Department of Health and Rehabilitative Services, et al., 14 FALR 1899 (HRS Final Order 4/15/92). NEED IN RELATION TO STATE AND LOCAL HEALTH PLAN Five preferences in the 1989 Florida State Health Plan relate to CMR programs and are applicable to the review of the UCH application. The first preference relates to applicants proposing the conversion of excess acute care beds to establish a distinct rehabilitation unit within a hospital. AHCA agrees that the UCH application is consistent with this preference. The second preference, favoring applicants proposing specialty inpatient or outpatient rehabilitation services not currently offered in the district, it not met. In District VI, three CMR providers have a total of 112 licensed beds, 111 beds in operation: 59 at Tampa General Hospital in Hillsborough County, 24 at Winter Haven Hospital in Polk County, and 28 at L.W. Blake in Manatee County. The third preference applies to the teaching hospitals. UCH is not a teaching hospital although it does have contracts with teaching institutions to allow students to gain clinical experience at UCH. See, Subsection 408.035(1)(g), Fla. Stat. (1992 Supp.). The fourth preference, is for applicants with a history of providing a disproportionate share of charity care and Medicaid patient days. The preference specifically requires qualifying hospitals to meet Medicaid disproportionate share hospital criteria. UCH is not a disproportionate share provider, and does not meet this preference. The fifth preference, for applicants with an existing comprehensive outpatient rehabilitation facility ("CORF"), is met. UCH planner's testimony was not refuted and AHCA concedes that UCH offers a number of therapies to outpatients. The June 1990 District VI Allocation Factors Report, prepared by the Health Council of West Central Florida, Inc., is the local health plan applicable to the review of this application. The first preference favors disproportionate share providers, and does not support the UCH application. See, Finding of Fact 10. UCH is entitled to the second local preference for the conversion of existing medical/surgical beds. See, Finding of Fact 7. The fourth preference is for existing providers of fewer than 20 beds seeking to add more beds and is, therefore, not applicable to the UCH application. POPULATION CONDITIONS AND NEED The third local preference, for additional rehabilitation services if existing ones are not meeting community needs, is the essence of the UCH claim that its services are needed. The local factor is also directly related to the criteria of Subsection 408.035(1)(b), Florida Statutes, and Florida Administrative Code, Rule 59C-1.039(2)(b). The rule is as follows: Historic, current and projected incidence and prevalence of disabling conditions and chronic illness in the population in the Department service district by age and sex group; Trends in utilization by third party payers; Existing and projected inpatients (e.g., orthopedic, stroke and cardiac cases) in need of rehabilitation services; and The availability of specialized staff. Based on rule methodology for computing numeric need, there is zero need for additional CMR beds in District VI. That methodology is based on the assumption that there will be 3.9 CMR beds needed for every 1000 acute care discharges. In terms of population conditions, UCH has urged the consideration of the actual statewide use rate of 8.46 CMR admissions for every 1000 acute care admissions, which would equate to a need for an additional 132 beds in the District. In District VI, there are 6.67 CMR admissions for every 1000 acute care admissions which, considering projected population increases, equates to a need for 80 additional beds. According to UCH, CMR bed availability is a factor in determining utilization In District VI, there are 7 CMR beds per 100,000 people. UCH points to the actions of AHCA in approving an increase from 8 to 12 CMR beds per 100,000 people in District IX in the absence of any published numeric need. AHCA emphasizes that empty CMR beds exist in District VI, which had 1990-1991 occupancy rates of 72.07 percent, below the 85 percent minimum for approval of new beds absent not normal circumstances. Tampa General's rate was 82.77 percent, but Winter Haven's was 50.82 percent and L. W. Blake in Manatee County was 67.36 percent occupied. As AHCA also indicated, population projections and numeric need are calculated to determine future need. UCH has demonstrated that the geographic and economic accessibility of Winter Haven in Polk County is limited for patients from the UCH area. In part, the limitations result from the requirement of third party payers for CARF accredited facilities, when intense, inpatient rather than outpatient CMR services are needed. Winter Haven is not CARF accredited. In addition, during the time there was a low rate of utilization at Winter Haven, some licensed beds were not in service due to construction. Utilization in the first quarter of 1992 reached just under 80 percent at Winter Haven. UCH also claims that AHCA approved beds at Winter Haven based on the geographic inaccessibility of beds in Tampa. AHCA filed a Request for Official Recognition on February 3, 1993, which shows the award of beds to Winter Haven resulted from a stipulated settlement. UCH's Exhibit 9 does include the distance to Tampa as one of several factors considered in the agency's approval of the stipulated settlement with Winter Haven. L. W. Blake in Manatee County is also geographically inaccessible for Hillsborough County patients and their families, particularly the elderly proposed to be served by UCH. In addition, L.W. Blake's utilization increased to an average of 84 percent in the first quarter of 1992. Tampa General has 59 of its 60 CMR beds in service. All rooms at Tampa General are semi-private, necessitating same gender placements, except one isolation room. In addition, patients with similar injuries are grouped together. Tampa General is a regional referral center for vocational rehabilitation and a state designated center for head and spinal cord injuries. These factors limit the availability of Tampa General's beds to serve District VI residents, as does its occupancy rate of 85 percent. In the past, when UCH operated and then closed a CMR unit, there was no statistical impact on Tampa General. Currently, Tampa General has a waiting list and patients average a 9 day wait. For the reasons identified by UCH, including geographic and economic inaccessibility, the district incidence of CMR admissions as compared to acute care admissions, UCH has provided sufficient, credible evidence of the need for the services proposed by UCH in additional CMR beds in District VI. AHCA has amended its CMR rule to better predict need. Although it is not applicable to computing numeric need for this cycle, AHCA asserts that its new rule methodology is the alternative which should be used rather than other factors, such as the ratio of CMR beds to acute care admissions, or population. Under the new rule methodology, there is no numeric need for additional CMR beds in District VI. Assuming arguendo, that AHCA is correct, the other factors related to the accessibility and availability of services at the three existing providers could not be disregarded. PROJECT COSTS AND FINANCIAL FEASIBILITY In this application, UCH proposes to operate a 20-bed CMR unit in the renovated space of the sixth floor south wing. That space currently is being used as an overflow area for 30 medical/surgical beds. UCH estimates total project costs of $248,596, with major expenses for consulting, legal, and accounting expenses, and $67,496 of the total or $3.66 per square foot for redecorating the renovated wing. No additional construction is anticipated. AHCA acknowledges that UCH has the funds to finance the project, but asserts that the costs are understated by $150,000 due to the failure of UCH to include construction costs to bring the wing into compliance with the Americans with Disabilities ACT ("ADA"). UCH notes, and AHCA concedes, that the rule requiring compliance with ADA standards was not adopted until a year after this application was filed. In addition, ADA compliance is required for new construction, not redecorating. AHCA also criticized UCH for omiting the cost of relocating 10 medical/surgical beds, after the conversion of 20 of the existing 30 beds to CMR beds. UCH asserts that the conversion or relocation of the 10 beds is properly an expense item in the project which would utilize the 10 beds and is included in other pending CON applications for difference services. Other CON projects however, are not certain to be approved. If none are, UCH's expert planner testified that the 10 beds will be located in a general surgical area which is being redecorated. UCH also maintains that as long as it can bring the CMR beds on line within the total project costs within the application, it should be allowed to do so, even if that involves shifting amounts among the various expense items. AHCA has not estimated the cost of relocating the 10 beds, nor contradicted UCH's alternative plans for covering that cost. UCH's projected total project costs are, therefore, accepted as reasonable. AHCA agrees that UCH could profitably operate a CMR unit, particularly, as proposed to provide stroke and orthopedic services to medicare patients. When UCH operated an 18-bed unit, occupancy ranged from 77 percent to 84 percent, with 80 to 85 percent of the patients transferring from UCH acute care beds. Projected charges, deductions from revenue, payor mix, and expenses are reasonable. AHCA did not dispute UCH's assertions that its proposal is the most cost-effective alternative for increasing district CMR beds, because no other provider could initiate such services without substantial construction costs, and that utilization of CMR beds is increasing. ADDITIONAL CON CRITERIA AND CMR PROGRAM REQUIREMENTS UCH, as acknowledged by AHCA, has a history of providing quality care and is accredited by the Joint Commission on Hospital Accreditation. UCH has a staff physiatrist to serve as CMR Medical Director. The types of therapists needed to provide a coordinated multidisciplinary approach to rehabilitation are already on staff at UCH. The staffing and renovations of the wing in the late 1980's indicate that UCH will meet the requirements for CARF accreditation. UCH does not propose to offer CMR services as a joint venture with any other health care facility, nor does it propose to offer a service which is not available in adjacent districts. In fact, AHCA notes that District V providers had occupancy rates of 53.31 percent for 1990-1991. The agency's rule, however, places at issue the historic, current and projected population conditions in the Department service district by age and sex group.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered issuing Certificate of Need No. 6936 to University Community Hospital to convert 20 medical/surgical acute care beds to 20 comprehensive medical rehabilitation beds in District VI. DONE and ENTERED this 19th day of October, 1993, at Tallahassee, Florida. ELEANOR M. HUNTER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of October, 1993. APPENDIX TO CASE NO. 92-5107 University Community Hospital Accepted in Findings of Fact 1 and 3. Accepted in Finding of Fact 1. Accepted in Finding of Fact 4. Accepted in Finding of Fact 5. Accepted in Finding of Fact 5. Accepted in Finding of Fact 4. Accepted in Findings of Fact 1 and 5. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 6. Accepted in Preliminary Statement. Accepted in Preliminary Statement. Accepted in Finding of Fact 17. Accepted in Finding of Fact 18. Accepted in Finding of Fact 18. Accepted in Finding of Fact 18. Accepted in or subordinate to Finding of Fact 19. Subordinate to Finding of Fact 19. Accepted in Findings of Fact 20 through 24. Accepted in Finding of Fact 16. Subordinate to Finding of Fact 21. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 29. Accepted in part and rejected in part in Findings of Fact 6-16. Accepted in Finding of Fact 8. Accepted in Finding of Fact 20. Accepted in Finding of Fact 20. 28. Accepted in Finding of Fact 21. 29. Subordinate to Finding of Fact 21. 30. Accepted in Finding of Fact 22. 31. Accepted in Finding of Fact 22. 32. Accepted in Finding of Fact 24. 33. Subordinate to Finding of Fact 24. 34. Subordinate to Finding of Fact 24. 35. Subordinate to Finding of Fact 24. 36. Accepted in Finding of Fact 23. 37. Subordinate to Finding of Fact 23. 38. Subordinate to Finding of Fact 23. 39. Subordinate to Finding of Fact 23. 40. Subordinate to Finding of Fact 23. 41. Subordinate to Finding of Fact 23. 42. Accepted in Finding of Fact 23. 43. Subordinate to Finding of Fact 23. 44. Subordinate to Finding of Fact 23. 45. Subordinate to Finding of Fact 23. 46. Subordinate to Finding of Fact 23. 47. Subordinate to Finding of Fact 24. 48. Subordinate to Finding of Fact 24. 49. Subordinate to Finding of Fact 24. 50. Subordinate to Finding of Fact 24. Accepted in Findings of Fact 7 and 27. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 30. Accepted in Finding of Fact 27. Accepted in Findings of Fact 26 and 28. Subordinate to Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Findings of Fact 31 and 32. Subordinate to Finding of Fact 1. Accepted in Findings of Fact 27 and 32. Subordinate to Finding of Fact 27. Subordinate to Finding of Fact 30. Subordinate to Finding of Fact 30. Accepted. Accepted in Finding of Fact 32. Accepted and subordinate to Finding of Fact 1. Agency For Health Care Administration 1. Accepted in Findings of Fact 1 and 3. 2. Accepted in Findings of Fact 1 and 3. 3. Accepted in Finding of Fact 1. 4. Accepted in Finding of Fact 4. 5. Accepted in Finding of Fact 5. 6. Accepted in Finding of Fact 6. 7. Accepted in Findings of Fact 1 and 4. Accepted in Findings of Fact 26 and 28. Accepted in Finding of Fact 27. Accepted in Finding of Fact 32. Accepted in Finding of Fact 1. Accepted in Finding of Fact 29. Accepted in Finding of Fact 5. Accepted in Finding of Fact 6. Accepted in Finding of Fact 7. Accepted in Finding of Fact 8. Accepted in Finding of Fact 9. Accepted in Finding of Fact 10. Rejected in Finding of Fact 11. Accepted in Finding of Fact 12. Rejected in Finding of Fact 16. Accepted in Finding of Fact 13. Accepted in Finding of Fact 14. Rejected in Findings of Fact 20 and 22. Accepted in Finding of Fact 15. Subordinate to Finding of Fact 32. Accepted in Finding of Fact 19. Accepted in Finding of Fact 21. Rejected in Findings of Fact 20-23. Accepted in Finding of Fact 17. Accepted in Findings of Fact 8, 17 and 19. Accepted in Finding of Fact 17. Accepted in Finding of Fact 16. Accepted in Finding of Fact 16. Rejected in Findings of Fact 20-23. Rejected in Findings of Fact 20-23. Accepted in Finding of Fact 18. Rejected in Finding of Fact 24. Accepted in Finding of Fact 18. Accepted in Finding of Fact 25. Rejected in Finding of Fact 24. Accepted in Finding of Fact 16. Accepted in relevant part in Finding of Fact 21. Accepted in Finding of Fact 16. Conclusion Rejected in Findings of Fact 20-23 and 29. Accepted in Finding of Fact 16. Accepted in Finding of Fact 32. Accepted in Finding of Fact 20. Accepted in Finding of Fact 20. Rejected in Finding of Fact 29. Accepted in Findings of Fact 29 and 4. Rejected in Finding of Fact 29. Accepted in Finding of Fact 21. Subordinate to Findings of Fact 21-24. Accepted in Findings of Fact 21-24. Accepted in Findings of Fact 21-24. Subordinate to Finding of Fact 24, and Accepted in Finding of Fact 33. Accepted in Findings of Fact 4, 21 and 32. Rejected in Findings of Fact 4, 21, and 32. Subordinate to Finding of Fact 21. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 33. Accepted in Finding of Fact 33. Accepted in Finding of Fact 9. Accepted in Finding of Fact 9. Subordinate to Finding of Fact 29. Subordinate to Finding of Fact 29. Subordinate to Finding of Fact 29. Accepted in Finding of Fact 29. Rejected in relevant part in Findings of Fact 27 and 28. Rejected in Findings of Fact 27. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 23. Rejected in Finding of Fact 27. Accepted in Finding of Fact 29. Issue not reached. See Finding of Fact 27. Issue not reached. See Finding of Fact 27. Issue not reached. See Finding of Fact 27. Accepted in relevant part in Finding of Fact 28. Subordinate to Finding of Fact 29. Rejected in Findings of Fact in 21-24. Rejected in Finding of Fact 23. Accepted, except last sentence in Findings of Fact 21-24. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Cynthia S. Tunnicliff, Esquire Post Office Box 190 Tallahassee, Florida 32302
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Based upon an agreement between the petitioner and the respondent, and a later addendum, petitioner received Certificate of Need Number 1460 in February of 1981 granting the petitioner the authority to construct 126 additional general medical/surgical beds but to only license and operate 72 of such beds. The instant proceeding involves petitioner's application for a Certificate of Need to license and operate the remaining 54 beds which have been previously constructed under Certificate of Need Number 1460. St. Joseph's Hospital is a 649-bed full service major referral hospital in Hillsborough County owned and operated by the Franciscan Sisters of Allegheny. Its services include a comprehensive community mental health center, a comprehensive pediatric unit with 88 beds, a radiation therapy center, a 60- bed community cancer center, cardiac catheterization, cardiac surgery and a large and active emergency room. It serves a considerable number of indigent patients and participates in the Medicaid and Medicare programs. Petitioner is now requesting permission to license the regaining 54 beds which were authorized to be constructed pursuant to Certificate of Need Number 1460. The project involves no additional construction or renovation inasmuch as all 126 beds previously authorized have been completed. No capital expenditure will be required in order to place the 54 beds into operation. If the Certificate of Need is granted, petitioner intends to create two specialty medical/surgical units: a 32-bed cardiac surgical unit to accommodate patients from the open heart surgical program and a 22-bed medical unit for psychiatric patients requiring medical treatment. There currently are no other beds available in the hospital to convert for use for the psychiatric patient or for the cardiac surgical unit. Petitioner has been operating, on occasion, at occupancy levels in excess of 90 percent. At times, it has been necessary to place non-emergency patients in the emergency room and have them remain there until beds become available. There are sometimes up to 40 patients on the waiting list for elective surgery. Due to the shortage of empty beds, petitioner cannot now admit new members to its medical staff. Steady operation of the hospital at occupancy levels exceeding 90 percent can have an adverse effect upon the efficiency of the nursing staff and the quality of care offered to patients. Because the bulk of projected growth in Hillsborough County is expected to occur in the center and northwestern area of the county, it is anticipated that the pattern of utilization of petitioner's facility will continue. While the licensing of the 54 additional beds involves no capital expenditure on petitioner's part, it is estimated that, if petitioner is not permitted to license these beds, a total yearly loss of over $3.8 million will be experienced. This figure is the sum of lost net revenues from the beds in the amount of $87,339 and lost net ancillary revenues in the amount of $2.36 million, as well as the absorption of $232,750 in yearly depreciation costs and $1.14 million in committed indirect costs. Petitioner anticipates a loss per patient day, calculated at 100 percent occupancy, of $16.82 if the licensing of the beds is not approved. This would result in an increase of current patient charges by 9.1 percent in order to maintain petitioner's budgeted profit margin. Petitioner is located in HRS District VI which, at the time of the hearing, was composed of Hillsborough and Manatee Counties. Some 81 percent of all beds in the District are located in Hillsborough County. As of the time of the hearing, the District had 3,899 licensed acute care beds, with 606 additional beds having been approved but not yet operational. The generally accepted optimum utilization rate for acute care beds is 80 to 85 percent. For District VI, the overall utilization rate is below the optimum level. In Manatee County, utilization of acute care beds is at 78.3 percent. In Hillsborough County, the utilization level is at 77.4 percent, with the major referral hospitals experiencing a higher level of utilization than the smaller community hospitals. Rule 10-5.11(23), Florida Administrative Code, contains the governing methodology for determining acute care bed needs of the various Districts. Applications for new or additional acute care hospital beds in a District will not normally be approved if approval would cause the number of beds in that District to exceed the number of beds calculated to be needed. Application of the Rule's formula to District VI results in a total acute care bed need of 3,622 projected for the year 1988. Given the 4,505 existing and approved beds in the District, there are 883 excess beds in District VI under the Rule's formula methodology for projecting need. The 1982 Health Systems Plan adopted by the Florida Gulf Health Systems Agency makes no bed need projections for other specialty medical/surgical beds," but shows no need for medical/surgical beds. Rule 10-5.11(23), Florida Administrative Code, provides that other criteria may result in a demonstration of bed need even when the formula approach illustrates no need for beds. When additional beds are approved pursuant to other criteria, those beds are counted in the inventory of existing and approved beds in the area when applying the bed need formula to review future projects. The formula methodology does account for the inflow and outflow of patients in a specific area. While Rule 10-5.11(23) permits the Local Health Councils to adopt subdistrict bed allocations by type of service, the Council for District VI had not adopted its local health plan as of the date of the hearing in this matter. The Rule itself simply addresses the need for general acute care bed needs in the future.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of St. Joseph's Hospital, Inc. for a Certificate of Need to license 54 acute care medical/surgical beds be DENIED. Respectfully submitted and entered this 10th day of November, 1983, 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 10th day of November, 1983. COPIES FURNISHED: Ivan Wood, Esquire David Pingree Wood, Lucksinger & Epstein Secretary One Houston Center Department of Health and Suite 1600 Rehabilitative Services Houston, Texas 77010 1323 Winewood Boulevard Tallahassee, Florida 32301 Steven W. Huss, Esquire 1323 Winewood Boulevard, Suite 406 Tallahassee, Florida 32301
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: East Pasco Medical Center (EPMC) is a non-profit 85-bed acute care hospital facility located in the East Pasco subdistrict of HRS District V. There are only two hospitals in the subdistrict -- EPMC in Zephyrhills and Humana in Dade City, which is approximately ten miles north. Humana is a 120- bed acute care hospital facility. Both facilities offer the same services and share the same medical staff. On or about September 17, 1987, EPMC submitted an application for a Certificate of Need to add 35 medical/surgical beds via a fourth floor addition to its existing facility. Its existing 85 beds are located in private rooms, and it is proposed that the additional 35 beds will also be placed in separate rooms. The application submitted to the Department of Health and Rehabilitative Services (HRS) projected a total project cost of $4,531,000. This figure was revised at the hearing to a project cost of $2,302,900. With regard to acute care services, the State Health Plan seeks to assure geographic accessibility. All residents of East Pasco County currently have access to acute care hospital services within the travel times suggested by the State plan. The State Health Plan also seeks to promote the efficient utilization of acute care services by attaining an average annual occupancy rate of at least 80 percent. The District V Local Health Plan emphasizes that additions to inpatient acute care beds in a subdistrict should not be considered unless a numeric bed need is shown and certain occupancy thresholds have been met. The recommended occupancy thresholds for medical/surgical beds are 80% for the subdistrict and 90% for the facility seeking to add beds. Application of the bed need methodology contained in HRS's Rule 10- 5.011(1)(m), Florida Administrative Code, indicates a numeric need for 57 additional acute care medical/surgical beds in the East Pasco subdistrict for the planning horizon period of July, 1992. The rule provides that HRS will "not normally approve" additional beds unless average occupancy in the subdistrict is greater than 75 percent. However, the rule permits HRS to award additional beds when there is a calculated need, notwithstanding low occupancy in the subdistrict, if the applicant had a minimum of 75% average occupancy during the 12 months ending 14 months prior to the Letter of Intent. Rule 10- 5.011(1)(m)7.e., Florida Administrative Code. The rule also permits HRS to award additional beds where the calculated numeric need substantially exceeds the number of existing and approved beds in the subdistrict and there is an access problem related to travel time. For the relevant time period, the acute care occupancy rate for the East Pasco subdistrict was below 75% percent. Indeed, over the past few years, the average occupancy rate in that subdistrict has been 54 to 58 percent. Humana only operates at about a 55% occupancy. The East Pasco subdistrict does experience seasonal fluctuations in medical/surgical occupancy, with the season for high occupancy beginning in late October and ending in mid- to late April. In addition to tourists, it is expected that the revival of the citrus industry in East Pasco County will bring more migrant pickers to the area during the peak season months. The seasonal increase in occupancy directly corresponds with a large increase in seasonal population, particularly in the Zephyrhills area. The Zephyrhills area population is much older than the Dade City population and is also much older than the State average. The HRS acute care bed need rule includes considerations of seasonal peak demands. When considering both hospitals in the subdistrict, there has been a decline in peak seasonal occupancy rates over the past few years. While the population of the East Pasco subdistrict has grown, and is expected to increase by approximately 7,200 in 1992, there is a trend of declining utilization in the subdistrict. This decline is due to increased used of outpatient services and shorter lengths of hospital stay attributable to the current reimbursement system. The medical/surgical use rate fell from 454 patient days per 1,000 population in 1986 to 414 patient days per 1,000 population in 1988. There was a similar decline in the acute care use rate. Assuming a constant medical/surgical use rate, the projected demand for 1992 would be 2,980 additional medical/surgical patient days in the subdistrict according to population projections, and about 4,267 incremental patient days according to local health council projections. EPMC's Letter of Intent to add 35 additional beds was filed in mid- July, 1987. Its acute care occupancy rate for the period of April, 1986 through March, 1987 was 75.3 percent. Occupancy at EPMC from May, 1986 to April, 1987 was 73.6%; occupancy from June, 1986 through May, 1987 was 73%; and occupancy from July, 1986 to June, 1987 was 72.2 percent. EPMC does experience periods of high occupancy during the peak season months. High occupancy levels have a greater impact upon smaller hospitals due to their lesser degree of flexibility. On occasion, during the winter months, EPNC is required to refuse admittance to patients due to crowded conditions within its facility. Patients are sometimes transferred or referred to other facilities, including Humana, although the necessity for such transfers or referrals is occasionally due to a lack of intensive or critical care beds as opposed to a lack of medical/surgical beds. During the periods of time when EPMC had high occupancy levels, beds were available at Humana. EPMC's current payor mix includes a high level of Medicare (over 60%), and it is committed, through both its Christian mission and an agreement with the County, to treat indigent and Medicaid patients. The actual amount of indigent or charity care provided by EPNC was not established. In any event, EPMC desires to increase its bed size in order to help maintain a proper payor mix at the hospital so as to ensure the financial survival of the hospital. It is felt that a greater number of beds, given the rise in population, and particularly elderly population, would allow EPNC to serve a greater number of private and/or third party insurance paying patients. While the evidence demonstrates that EPMC may operate with a less favorable payor mix than Humana, the evidence was not sufficient to demonstrate that EPMC will suffer financial ruin without additional beds. Likewise, it was not established that the patients which EPNC must turn away in the winter months are consistently paying patients. Increasing the number of beds at EPNC to 120 beds does not necessarily mean that its profitability would be improved. Volume and payor mix are the most critical factors in determining whether a hospital will be profitable. There is currently a nursing shortage throughout the nation. Rural areas, such as the eastern portion of Pasco County, experience even greater difficulty in attracting nursing personnel to the area. Due to the shortage of nurses, as well as the seasonal demand, EPMC is required to use contract care nurses throughout the year. While it would prefer to employ its own nursing staff, EPMC will use contract staff due to the seasonal variations in its nursing requirements. The use of contract or registry nurses costs 50% to 60% more on a daily basis; however, lower occupancy during the off-peak months does not justify year- round employment for as large an in-house nursing staff. For its proposed 35 beds, EPMC projects nurse manpower requirements as follows: 1 nurse manager, 4.2 R.N. charge nurses, 15.1 R.N. staff and 14.1 L.P.N. staff, for a total of 34.4 full time equivalent nursing positions. The recruiting efforts of EPNC to fill these positions will include advertising, visiting nursing schools and colleges, utilizing student nurses at the hospital and use of the Adventist Health System international network. Humana currently has 15 vacancies, or 12 to 13% of its nursing staff. Humana's nursing salaries have increased 20% over the past eighteen months. As noted above, EPNC and Humana compete for the same nursing personnel. Humana's personnel director believes that if EPNC increases its nursing staff by 34 FTEs, Humana's nursing staff will be approached to fill those positions. As a consequence, Humana will experience additional nursing shortages and will be required to further increase salaries. It is proposed that the project cost of adding 35 beds to EPMC will be financed with 100% debt financing through a bond issue. The financing will be part of a much larger bond issuance intended to finance several other projects within the Adventist hospital system. No evidence was adduced that such a bond issuance had been prepared or approved, and there was no evidence concerning the other projects which would be financed in conjunction with this project. In 1987, EPNC was carrying about five million dollars of negative equity. The hospital is currently greater than 100% financed. As noted above, the original Certificate of Need application filed with HRS listed the total project cost to be $4,531,000. In its response to omissions, EPMC stated that the construction cost would be $175 per square foot. In the updates submitted at the hearing, EPNC proposed a project cost of $2,302,900, which included a construction cost of $85 per square foot. A more reasonable cost for the addition of a floor to an existing facility would be $125 per square foot, plus an inflation factor of 6% and architectural and engineering fees of 6 to 7%. The proposed equipment list submitted by EPNC fails to include major equipment items such as an overhead paging system, a nurse call system, examination room equipment, medication distribution equipment, bed curtains, shower curtains, patient and staff support lounge items, and IV pumps. EPNC's updated equipment cost budget fails to include tax, freight, contingency and installation costs. The projected equipment costs should be tripled to adequately and reasonably equip a 35-bed nursing unit. The projected utilization and pro formas submitted by EPMC are not reasonable and were not supported by competent substantial evidence. EPMC's projected utilization for the proposed 35-bed unit is 8,950 patient days in the first year of operation and 9,580 in the second year of operation. Applying the current use rate to the population projections submitted by EPMC's expert in demographics and population projections produces only about 2,980 additional patient days in the year 1992. Given the fact that EPMC's current market share is approximately 54%, there is no reason to believe that Humana would not absorb at least some of those projected additional patient days. There are many months of the year in which additional patient days could be filled within the existing complement of 85 beds at EPNC. Depending upon the ultimate cost of the project, the break even point for financial feasibility purposes would be approximately 3,500 to 4,000 patient days. The concept behind a pro forma is to develop a financial picture of what operations will be in the first two years of operation. EPMC stated its revenues and expenses in terms of 1988 dollars and used its current revenue- to-expense ratios for projecting operations four years into the future. This is improper because gross revenues are going up, reimbursement is not increasing as rapidly and expenses, particularly salaries and insurance, are increasing. In addition, EPMC's projected 1992 salaries in several categories were less than they are currently paying for such positions. EPMC currently provides good quality of care to its patients. The only future concern in this realm is the fact that in the winter months, its intensive and critical care unit beds are often full and there is no room for additional patients. Additional medical/surgical volume from the proposed 35- bed unit would lead to additional intensive and critical care bed demand.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of East Pasco Medical Center for a Certificate of Need to add 35 acute care beds to its existing facility be DENIED. Respectfully submitted and entered this 30 day of March, 1989, in Tallahassee, Florida. DIANE D. TREMOR Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of March, 1989. APPENDIX TO RECOMMENDED ORDER CASE NO. (Case No. 88-1227) The proposed findings of fact submitted by the parties have been carefully considered and are accepted, incorporated and/or summarized in this Recommended Order, with the following exceptions: Petitioner: Third sentence rejected as not established by competent, substantial evidence. Accepted, but not included as irrelevant to the ultimate resolution of the issues. Rejected. The Personnel Director of Humana presented testimony in this proceeding. Accepted as an accurate restatement of testimony, but rejected as an erroneous conclusion of law. 16. Second sentence rejected as an erroneous conclusion of law. A18. Rejected as contrary to the evidence. 20. First sentence rejected as an erroneous conclusion of law. First sentence rejected as an erroneous conclusion of law. Rejected as not supported by competent substantial evidence. 27 and 30. Accepted as an accurate restatement of testimony, but rejected as an erroneous conclusion of law. Rejected as immaterial to the issue of need in the year 1992. First sentence rejected as not established by competent substantial evidence. First and third sentences rejected as not established by competent substantial evidence. 37 and 38. Rejected as not established by competent substantial evidence. 44. Last sentence rejected as unsupported by competent substantial evidence. Accepted only if the factors of volume and payor mix are also considered. Partially rejected as speculative and not supported by competent substantial evidence. All but first two sentences rejected as unsupported by competent substantial evidence and an erroneous conclusion of law. Rejected as unsupported by competent substantial evidence and an erroneous conclusion of law. Last sentence rejected as unsupported by the evidence. Rejected as unsupported by competent substantial evidence. Second sentence rejected as contrary to the greater weight of the evidence. 58. Rejected as irrelevant and immaterial. 60. Rejected as not established by competent substantial evidence. 62 - 67. The actual figures regarding total costs, projected utilization and those figures utilized in the pro formas were not established by competent substantial evidence and, therefore, the findings regarding the financial feasibility of the project are rejected. 71. Rejected as not supported by competent substantial evidence. 74. Rejected as not supported by competent substantial evidence. 77. Rejected as an improper factual finding and contrary to the evidence. 78 and 79. Rejected as contrary to the greater weight of the evidence. First sentence rejected as unsupported by competent substantial evidence. Last sentence rejected as unsupported by the evidence. Rejected as contrary to the evidence. Respondent: 2 and 6. Partially accepted with the additional considerations of the applicant's occupancy levels and geographic accessibility. 9. Rejected as contrary to the evidence. 19(a) Interpretation of rule not sufficiently explicated at hearing. 56 - 58. Actual figures are not established by competent evidence due to the failure to establish with reliability the total costs of the project. Intervenor: Second sentence accepted with the additional considerations of the applicant's occupancy levels and geographic accessibility. Third sentence rejected. Interpretation of rule not sufficiently explicated at hearing. First sentence rejected, but this does not preclude a consideration of such a period. Third sentence rejected as not established by the greater weight of the evidence. 31. Second sentence rejected as speculative. 40 and 41. Accepted as factually correct, but not included due to the showing of unused capacity within the East Pasco subdistrict. 55 and 56. Actual figures are not established by competent evidence due to the failure to establish with reliability the total costs of the project. 63 and 72. Same as above with regard to second sentence. 92. Rejected as an overbroad statement or conclusion. 97. Second sentence rejected as overbroad and not supported by the evidence. COPIES FURNISHED: E.G. Boone and Jeffrey Boone 1001 Avenida del Circo Post Office Box 1596 Venice, Florida 34284 Stephen M. Presnell Macfarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 323a2 James C. Hauser Messer, Vickers, Caparello, French & Madsen, P.A. Post Office Box 1876 Tallahassee, Florida 32302 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, Esquire General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue Whether the Agency for Health Care Administration has a policy regarding the determination of the need for long term care beds which constitutes a rule and, if so, whether rulemaking is feasible and practicable.
Findings Of Fact Vencor Hospitals South, Inc. (Vencor), applied for a certificate of need (CON No. 8614) to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, for Fort Myers, Lee County, Florida. AHCA is the state agency authorized to administer the CON program for health care services and facilities in Florida. AHCA reviewed and preliminarily denied Vencor's application for CON No. 8614. The reasons for AHCA's actions on this or any other CON application are memorialized in documents called State Agency Action Reports (SAARs). Vencor alleges that the following statement generally describes AHCA's policy in regard to the review of CON applications for long term care hospitals: Long term care is not a separate category of health service, but is instead merely an allowable form of reimbursement pursuant to Medicare regulations. The care provided in acute care hospitals, hospital based skilled nursing beds, "subacute" care in nursing homes, and care at rehabilitation facilities, are all equivalent to the care provided at long term care hospitals. Therefore, in evaluating the need for long term care hospital beds, AHCA will assess the availability of other categories of beds and services to meet the need for the services proposed by the applicant for long term care hospital beds. Need for long term care beds is determined on a regional basis. Prior to 1994, long term care hospitals were not regulated separately and were considered comparable to general acute care hospitals. In 1994, AHCA amended the CON rules to establish long term care beds and hospitals as separate categories of health care providers. In 1994, AHCA defined and continues to the present to define long term care hospital as follows: "Long term care hospital" means a hospital licensed under Chapter 395, Part I, F.S., which meets the requirements of Part 412, subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Rule 59C-1.002(29), Florida Administrative Code. In the federal regulations referenced by the AHCA rule, long term care hospital is more specifically defined as a hospital with an independent governing structure, an average length of stay greater than 25 days, referral of at least 75 percent of total patients from separate hospitals, and which meets the requirements for Medicare participation. 42 CFR Ch. IV, Subch. B, Pt. 412, Subpt. B, s. 412.23. AHCA also distinguishes long term care in its rules governing the conversions from one type of health care provider to another. The applicable conversion rules provide: "Conversion from one type of health care facility to another" means the reclassification of one licensed facility type to another licensed facility type, including reclassification from a general acute care hospital to a long term care hospital or specialty hospital or from a long term care hospital or specialty hospital to a general acute care hospital. Rule 59C-1.002(14), Florida Administrative Code (emphasis added); and "Conversion of beds" means the reclassification of licensed beds from one category to another including, for facilities licensed under Chapter 395, F.S., conversion to or from acute care beds, neonatal intensive care beds, hospital inpatient psychiatric beds, comprehensive medical rehabilitation beds, hospital inpatient substance abuse beds, distinct part skilled nursing facility beds, or beds in a long term care hospital; and, for facilities licensed under Chapter 400, Part I, F.S., conversion to or from skilled beds and intermediate care beds in a facility that is not certified for both skilled and intermediate nursing care if such conversion effects a change in the level of care of 10 beds or 10 percent of the total bed capacity of the facility within a 2-year period, or conversion to or from sheltered beds and community beds. Rule 59C-1.002 (15), Florida Administrative Code (emphasis added). AHCA also defined "substantial change in health services" to include: The conversion of a general acute care or specialty hospital licensed under Chapter 395, Part I, F.S., to a long term care hospital. Rule 59C-1.002(41)(c), Florida Administrative Code. Taken together AHCA's rules recognize long term care hospitals or beds as a separate and distinct category. Elfie Stamm was responsible for the development of the rules and is currently the chief of the CON and Budget Review Office at AHCA. Ms. Stamm testified in a 1994 rule challenge case, when AHCA was drafting a rule with a numeric need methodology for long term care beds, that: long term care hospitals serve patients who cannot be cost effectively treated in an acute care hospital, who do not have the same needs for the same types of service; it would not be fair for an applicant for the new construction of a long term care hospital to be compared to an acute care hospital; comprehensive medical rehabilitation (CMR) services are different than services in a long term care hospital; a long term care hospital with an average length of stay of 25 days or more is different from an acute care hospital that generally has a length of stay of 5 to 6 days but provides a full range of services; the patient populations in long term care hospitals are different from those in an acute care hospital in terms of overall patient characteristics, including older than average age, higher percentage of patients with particular diagnoses, such as ventilator dependency, higher overall mortality rates than acute care hospitals, and a much higher percentage of admissions by referrals from acute care hospitals. [T. 262-283]. See also Tarpon Springs Hospital Foundation, etc. v. AHCA, et al., DOAH Case No. 94-0958RU (R.O. 8/2/94). On behalf of AHCA, Ms. Stamm testified in this proceeding that: AHCA has changed its mind on whether or not it is appropriate to leave a patient in an acute care setting rather than transfer to long term care, specifically with regard to cost-effectiveness. [T. 373]. AHCA has not changed its mind and still says acute care hospitals and long term care hospitals should be reviewed separately, because if they would be reviewed comparatively, . . . there would be no chance for any [long term] beds ever because we don't show any need for acute care beds anywhere in the state. [T. 376]. But in evaluating Vencor's application for long term care hospitals in District 8 that would be located in Lee County, the Agency viewed hospital-based skilled nursing units, community nursing home subacute beds and comprehensive medical rehab beds throughout the entire district as existing and like potential alternatives to the proposed project. [T. 389]. AHCA does not necessarily agree that CMR services are different from long term care hospital services. [T. 265]. AHCA does not have a clearly identified population group for whom long term care would be more cost-effective, or to determine a numeric need methodology. [TR. 324]. Although there is a population that does need services that exceed 25 days or prolonged ventilator service, AHCA is not sure what is the most appropriate setting for their care because of inadequate data on comparative costs and outcomes. [TR. 327-8]. AHCA attributes its change in position to the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Lewin-VHI, Inc. The document is commonly referred to as the Lewin Report. The Lewin Report concludes that long term care hospitals serve patients who are also served in other subacute settings, including CMR beds and hospitals, acute care hospital skilled nursing units, and skilled nursing units in freestanding nursing homes. As a result of the conclusions in the Lewin Report, AHCA maintains that it is unable to develop a numeric need methodology without an identifiable patient population. AHCA has not, however, repealed the rules establishing long term care as a separate type of health care service. Rather, the agency intends to wait for additional studies, including one being conducted for Vencor. The Medicare prospective payment system (PPS) for acute care hospitals created the market for subacute and long term care. Under the PPS, acute care hospitals receive a fixed payment based on the patient's diagnosis or diagnostic related group (DRG). Upon discharge to a subacute or long term setting, the patient's care is no longer reimbursed on a fixed basis, but at actual, reasonable costs. AHCA maintains that financial pressures created the current system, but without cost/benefit or outcomes analyses to demonstrate the appropriateness of using long term care hospitals. Therefore, AHCA considered the occupancy levels of acute care hospitals and available nursing home beds in determining the need for Vencor's project. AHCA has no rule defining subacute care, no inventory of subacute care units in nursing homes, and no reporting requirements from which it can determine the level of care or services provided in hospital based skilled nursing units. AHCA has no reports on specific levels or types of services provided in CMR beds. AHCA, nevertheless, presumed that the services are like those provided in long term care beds based on the Lewin Report. In rejecting Vencor's attempts to distinguish itself from other types of health care providers, AHCA relied, in part, on its finding that 1995 District 8 acute care hospital occupancy averaged 47.69 percent and peaked at 60.26 percent. By not adopting rules for determining the numeric need for long term care, AHCA also failed to establish the appropriate service area for determining need. AHCA considers the need for long term care services on a regional basis. In support of AHCA's decision to deny a long term care hospital application in District 9, Ms. Stamm's predecessor, Elizabeth Dudek, testified that long term care is a regional service. As further evidence of AHCA's position, the SAARs issued by AHCA on long term care hospital applications, have examined available services beyond the limits of the district. AHCA contends that long term care is regional, but determines its need by comparison to available hospital based skilled nursing units and subacute beds in community nursing homes, which are evaluated on a subdistrict basis, and CMR services which are tertiary but evaluated on a district-wide basis. See Finding of Fact 22. Since November 1995, AHCA has preliminarily denied all CON applications for long term care hospitals. Its policy of comparing the need for long term care to available beds in nursing homes and other types of hospitals is consistently repeated in the portions of the SAARs which address need. In analyzing the need for long term care hospitals in AHCA District 1, the SAAR dated January 10, 1997, includes the following statements: Vencor Hospitals South, Inc. defines its patient population as those currently being treated in ICUs and belonging to roughly 10 DRGs (which account for approximately 83% of Vencor patients. . . .) However these DRGs could also [be] appropriate for acute care, hospital based freestanding skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to residents of District 1. and The applicant [Baptist Health Affiliates Inc.] also discusses the differences between its proposed patient population and that of an acute care hospital, nursing home and those treated at home. However, there is no documentation provided which demonstrates the applicant's potential patients could not receive appropriate care in the District's existing rehabilitation facility, hospital based or nursing home skilled subacute nursing units. . . . Vencor Exhibit 12, pages 3-4 and 8. AHCA reviewed a CON application filed by Columbia of Pinellas County, Inc., to convert acute care beds to a long term care hospital in District 5, and concluded: The patient population represented by the DRGs listed above (by the applicant) are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 13, page 8. The SAAR issued on the Columbia of Pinellas County CON application continued with an extensive discussion of the Lewin Report. The SAAR reported AHCA's finding that CMR hospitals are alternatives since they admit patients who do not fit federal guidelines for CMR admissions (being able to tolerate three hours of therapy a day), and who might otherwise be in long term care hospitals. In the SAAR issued after the review of long term care applications for District 7, the same statement appears: The patient population represented by the DRGs listed above [by Orlando Regional Hospital] are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 14, page 11. Finally, in reviewing applications from Palm Beach County in District 9, AHCA concluded again: The applicant states that generally speaking the long term care hospital patients have respiratory complications, . . . tracheostomies, . . . chronic diseases, an infectious process requiring antibiotic therapy, . . . skin complications . . . need a combination of rehabilitation and complex medical treatment or are technology dependent individuals requiring high levels of nursing care. However, these patients could also [be] appropriate for acute care, hospital based skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to the residents of District IX. Vencor Exhibit 15, page 4. AHCA relies on the statutory review criteria in Subsection 408.035(1)(b), Florida Statutes, as authority for its consideration of all beds and facilities which may serve the same patients. That provision requires consideration of: (b) The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care facilities and health services in the service district of the applicant. The expert witness for AHCA, however, distinguished between "like and existing" services for purposes of determining numeric need and the statutory criteria. She noted that once numeric need is established and published for nursing beds or CMR beds, for example, that same category of beds outside the appropriate health service planning subdistrict or district is not considered "like and existing." Similarly, within the district or subdistrict, there is a factual issue in each case but no presumption that beds of a different category are "like and existing." AHCA contends that it has no policy related to long term care and any comparable services. Since 1995, long term care CON applicants, according to AHCA, have failed to meet the requirements of Rule 59C-1.008(e), which provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. (Emphasis added). AHCA's argument ignores the fact that its expert witness provided competent, substantial evidence that it has redefined and expanded the meaning of "like services" for purposes of demonstrating need through a needs assessment methodology. It also ignores the fact that AHCA has expanded the comparison of need beyond the geographical limits of the district. AHCA's argument that it is waiting for additional data before adopting a need methodology, including data from a Vencor study, is to no avail since AHCA has already changed its policy. After reviewing a total of eighteen CON applications for long term care hospitals, AHCA has issued two CONs, one as part of a settlement agreement and the other approving an application filed by St. Petersburg Health Care Management, Inc. (St. Petersburg), for CON 8213. The St. Petersburg application demonstrated need using an identical methodology prepared by the same health planner as Vencor in this case. Referring to CON 8213, AHCA's expert witness candidly admitted . . . "I want to make clear that particular application was actually submitted and approved prior to the Lewin study." (T. 393). Subsequent to the Lewin study, AHCA has consistently denied applications for long term care beds or hospitals.
Findings Of Fact Manatee Eye Clinic owns land adjacent to its existing offices and in close proximity to Manatee Memorial Hospital, on which it proposes to construct a freestanding ambulatory surgery center for ophthalmic surgery. On December 13, 1983, Manatee Eye Clinic filed an application for a certificate of need with the Department of Health and Rehabilitative Services (HRS) for approval of a capital expenditure in the amount of $627,640 for construction of a freestanding ambulatory surgery center for ophthalmic surgery. On April 27, 1984, Petitioner received written notice that the Department had denied the application. Manatee Eye Clinic consists of five practicing ophthalmologists in Manatee County, each of whom are [sic] duly licensed and provide quality ophthalmic care in the area. Manatee Eye Clinic, and the members thereof, have available sufficient resources, including health manpower, management personnel, as well as funds for the capital and operating expenditures for the project. Petitioner's proposed medical facility would be constructed in a sufficiently cost-effective manner and makes adequate provision for conservation of energy resources and incorporates efficient and effective methods of construction. Should this certificate of need be granted, Manatee Eye Clinic will accept Medicaid, Medicare, third-party pay, private pay, and charity care. The relevant service area for the proposed facility is Manatee County. The five ophthalmologists at MEC perform approximately 1,200 eye surgeries per year involving cataract removal and lens implant. At present all of these surgeries are performed at Manatee Memorial Hospital. The founder of MEC, Dr. Robert E. King, has twice served as chief of surgery at Manatee Memorial. He is presently a director on the board of directors of the company that recently purchased Manatee Memorial Hospital and removed it from its former status of a not-for-profit hospital to its current status as a for-profit hospital. If this application is granted, Manatee Memorial Hospital will lose all of these patients. Cataract eye surgery, as it is performed today, is ideally performed in an outpatient surgery setting. The five ophthalmologists currently perform an additional 600 outpatient surgical procedures per year in the existing clinic. These procedures would be performed in the freestanding surgery facility if this application is approved. Manatee Memorial Hospital is located one city block from MEC. L. W. Blake Memorial Hospital, some seven miles from MEC, has five operating rooms available for outpatient surgery but is not currently used by any of the doctors at MEC. Additionally, Ambulatory Surgical Center/Bradenton was licensed in December, 1982. This facility has not been used by MEC doctors. During the latest reporting period, 1983/1984, Manatee County and the Ambulatory Surgery Center performed the following procedures; Hospital Inpatient Outpatient Total L. W. Blake Memorial Hospital 8,800 2,752 11,552 Manatee Memorial Hospital 6,766 1,654 8,420 Ambulatory Surgery Center -- 1,525 1,525 TOTALS 15,566 5,931 21,497 (Exhibit 19) There is no shortage of operating rooms in Manatee County available for outpatient surgery. Petitioner's primary argument against using the operating rooms at Manatee Memorial Hospital are: operating room nurses are rotated and this results in nurses not being as well qualified as they would be if their duties were limited to ophthalmic surgery; eye surgery is generally elective and such surgery may be bumped from a scheduled operation by emergency general surgery; the patients are generally older than 65 and are less comfortable in hospital surroundings than they would be at an outpatient surgical facility; access to the ambulatory surgical center would be easier for these elderly patients than is access to the existing hospitals for the same outpatient surgery; the hospital charges for the outpatient surgery are approximately twice the charges proposed by Petitioner; and Medicare will pay 100 percent of the charges in a freestanding surgical facility (up to a maximum) but only pays 80 percent in a hospital setting, thereby making the use of a freestanding facility cheaper for the patient and for Medicare. MEC doctors currently use their own scrub nurses during eye surgeries performed at Manatee Memorial Hospital leaving only the circulating nurse to be provided by the hospital. No incident was cited wherein one of Petitioner's patients was "bumped" from a scheduled operation. The complication rate for cataract surgery has dropped from 10 percent to 0.1 percent in recent years as surgical procedures have improved. As proposed, the partnership owning MEC will erect and own the surgery center, will lease the equipment, most of which is presently owned by MEC, to the Petitioner; and the rent for the building will be a fixed amount per month plus 50 percent of the net operating profits of Petitioner. Proposed charges by the freestanding surgery center will be $904 per patient (for cataract removal and lens implant) This does not include the surgeon's fee. There are no methodology rules to determine need for a freestanding outpatient surgery facility. DHRS has consistently determined need for ambulatory surgery centers by taking the most recent number of surgical procedures performed in all inpatient and outpatient facilities in the county and dividing it by the county's base population for the latest year, here 1983. This gives the rate of surgeries per 1,000 population for the latest year for which statistics are available and is projected forward to the second year of operation (here 1987). The same is done for outpatient surgeries. DHRS uses the figure of 29 as the percentage of surgeries that can be performed in an outpatient setting to determine the need for outpatient surgery facilities in 1987. From this is subtracted the number expected to be performed in existing hospital and freestanding outpatient facilities to determine net need through 1987 for freestanding outpatient facilities. Applying this procedure, to which Petitioner generally concurs, except for the 29 percent factor, the following need is shown. The 1983 population of Manatee County is 162,997. 21,497 surgeries performed in 1983 x 1000 4 162,997 131.9 surgeries per 1000 population. The 1987 projected population of Manatee County is 182, 120. Multiplying this population by 131.9 per 1000 equals 24,061 surgeries expected to be performed in Manatee County in 1987. HRS estimates that 29 percent of these surgeries could be performed in an outpatient setting in 1987. Multiplying 24,051 by .29 equals 6,978 outpatient procedures possible. In 1983 there were 4,406 outpatient surgeries performed in a hospital setting in Manatee for a rate per thousand of 27. Multiplying this rate by the projected population for 1987 yields 4,931 outpatient surgeries that can be performed in a hospital setting in 1987. Subtracting from this number the projected outpatient surgeries to be performed in a hospital setting in 1987 (6,978 - 4,931) shows 2,047 to be performed in a freestanding facility. Ambulatory Surgery Center performed 1,525 procedures from June, 1983, to May, 1984. When this is projected to 1987, Ambulatory Surgery Center is expected to perform 1,715 surgical procedures. Substracting this from 2,047 leaves 332 procedures as a net need through 1987. This is below the pro forma break-even point of Petitioner and indicates the project is not financially possible. The 29 percent factor was obtained from American Hospital Association report of 1981. In 1981, 18 percent of the total surgeries were done on an outpatient basis while it was estimated that 20 to 40 percent of all surgeries could be performed on an outpatient basis. DHRS averaged the 18 percent and the maximum of 40 percent to arrive a mean of 29 percent to project need for outpatient surgery facilities. The latest figures from the American Hospital Association report is for 1982 and this shows the latest percentage of surgeries performed on an outpatient basis to be 20.8 percent. If this figure is averaged with 40 percent, the mean would rise to 30.4 percent. This is the percentage Petitioner contends should be used. Using this figure, the outpatient surgeries possible in 1987 would rise to 7,315 and a need for 669 procedures would exist in 1987. This would meet the higher break-even number presented by Respondent of 556 procedures for the second year of operation. It is noted that the experts' estimated surgical procedures that could be performed in an outpatient setting varied from 20 to 40 percent. In arriving at the 29 percent used DHRS averaged the latest actual percentages available in 1981 with 40 percent to obtain an arbitrary figure of 29 percent to use in calculating need for outpatient facilities. It is further noted that between June of 1983 and May Of 1984 Manatee Memorial Hospital performed 1,654 outpatient surgery procedures and 6,766 inpatient surgery procedures (Exhibit 14) and Blake Memorial Hospital performed 2,752 outpatient surgery procedures and 8,800 inpatient surgery procedures (Exhibit 15). Accordingly, 23.8 percent of Blake's surgery procedures are done as outpatient surgery and 19.6 percent of the surgeries performed at Manatee Memorial Hospital are done as outpatient surgeries. If the 1,200 outpatient surgeries per year performed at Manatee Memorial Hospital by MEC had been removed during this period, the percentage of outpatient surgery would have been reduced to 6.3 percent for Manatee Memorial Hospital. No evidence was presented regarding the number of ophthalmic surgeries that were performed at Blake Memorial Hospital during this period. Regardless of the potential loss of outpatient surgery cases at Blake if this application is granted, the percentage of outpatient surgeries performed in a hospital setting in Manatee County is, according to the latest data available, 22.1 percent (combining Blake and Manatee Memorial). Using 29 percent of the total surgeries projected for 1987 in Manatee County to obtain an estimate of the outpatient surgery that can be expected to be performed in a hospital setting in 1987 results in a much higher figure than the current growth rate in outpatient surgeries would suggest. Accordingly, I find a 29 percent factor more credible than a higher percentage would be in forecasting need for outpatient surgical facilities in 1987. This conclusion is further supported by the fact that most ophthalmic surgery today is performed in an outpatient setting. This was not true only a few years ago. Accordingly, there can be little additional growth resulting from ophthalmic surgery procedures going from inpatient to outpatient procedures. As a consequence, future growth in outpatient surgery must come from other surgical procedures.
