The Issue Whether Oak Hill Hospital should be awarded certificate of need 6383 to add 54 additional acute care beds in Hernando County, HRS District III. PRELIMINARY STATEMENT This cause was initiated by Petition for Formal Administrative Hearing filed by Oak Hill Hospital challenging HRS' preliminary decision to deny its application for CON 6383 filed on February 7, 1991 with the HRS department clerk and referred to the Division of Administrative Hearings for assignment of a hearing officer. By Order of April 19, 1991, Hernando Healthcare Inc., d/b/a Brooksville Regional Hospital was granted intervention in the cause. At the commencement of the hearing, the parties stated that a stipulated settlement had been reached, but a short additional period of time was needed to reduce the stipulated facts to writing and present same to the Hearing Officer. Accordingly, the hearing was adjourned, and the parties subsequently submitted a proposed recommended order signed by all parties. Based upon the stipulated facts the following is submitted.
Findings Of Fact On August 10, 1990, HRS published in Volume 16, Number 32 edition, of the Florida Administrative Weekly, a fixed need pool of zero needed acute care hospital beds for HRS District III, Subdistrict VI, Hernando County. Thereafter, Oak Hill Hospital timely and properly filed a letter of intent requesting the addition of 56 acute care beds in Hernando County District III. The letter of intent was followed by a timely filed application to add 54 acute care beds at Oak Hill Hospital at a project cost of $4,498,690. The addition of 54 acute care beds will be accomplished by the addition of a fifth floor of 19,800 gross square feet to the existing hospital. The application was properly deemed complete effective November 13, 1990, and the application was preliminarily denied on January 11, 1991. Oak Hill Hospital is a 150 bed acute care hospital located in Hernando County, Florida, HRS District III. There are three existing acute care facilities in Hernando County. In addition to Oak Hill Hospital, Hernando Healthcare, Inc., operates Brooksville Regional Hospital and its Satellite facility, Springhill Hospital, with 166 combined licensed beds. Pursuant to the bed need formula in the Acute Care Rule, the projected need for acute care beds in the relevant horizon is 4,785 beds in District III. Because the base period occupancy rate for the district was less than 75 percent, the net need for acute care beds defaulted to zero in accordance with the terms of the rule. During the base period, calendar year 1989, Oak Hill Hospital experienced a 93.87 percent occupancy rate. This occupancy level would allow the facility to seek beds pursuant to the provisions of Rule 10-5.038(7)(e), Florida Administrative Code. Oak Hill Hospital has demonstrated a need for an additional 54 acute care beds. Oak Hill Hospital is JCAHO accredited. It provides quality care at its facility. Likewise, Brooksville Regional Medical Center and its satellite facility provide quality of care in those facilities. The proposed costs and methods of construction contained in the application are reasonable. Oak Hill Hospital can properly equip its proposal for the amount contained in the application. Oak Hill Hospital's proposal is financially feasible in both the short and the long term. Oak Hill Hospital can achieve the utilization level it projects in its application, which is reasonable. Oak Hill Hospital has committed to provide a minimum of 1.5 percent of total annual patient days to Medicaid patients and a minimum of 1.0 percent of total annual patient days to indigent patients.
Recommendation It is recommended that CON 6383 be issued to Oak Hill Hospital to construct and operate an additional 54 acute care beds at a cost of $4,498,690 by the addition of a fifth floor of 19,800 gross square feet to the existing hospital in Hernando County, Florida. It is further recommended that the CON be conditioned upon the requirement of a minimum of 1.5 percent total annual Medicaid patient days and a minimum of 1 percent total annual charity patient days, as reported to the Health Care Cost Containment Board. RECOMMENDED this 7th day of November, 1991, in Tallahassee, Florida. K. N. AYERS 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 7th day of November, 1991. COPIES FURNISHED: Robert S. Cohen, Esquire 306 North Monroe Street Tallahassee, FL 32301 Leslie Mendelson, Esquire 2727 Mahan Drive Tallahassee, FL 32308 Stephen Ecenia, Esquire Post Office Box 1877 Tallahassee, FL 32302 Sam Power Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Linda Harris General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700
The Issue Whether CON 8241, Palm Beach Regional's application to convert its 200 bed acute care hospital to a 60 bed long-term care hospital should be granted or denied?
Findings Of Fact The Parties The applicant in this case is The Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital. A subsidiary of Columbia Hospital Corporation, ("Columbia,") Palm Beach Regional is a licensed general acute care hospital with 200 beds located in Palm Beach County, AHCA District 9. Palm Beach Regional's license is issued pursuant to Chapter 395, Florida Statutes, the chapter of the Florida Statutes entitled, "Hospital Licensing and Regulation." The agency is "designated as the single state agency to issue ... or deny certificates of need ... in accordance with the district plans, the statewide health plan, and present and future federal and state statutes." Section 408.034(1), F. S. Integrated is a licensed 120-bed skilled nursing facility, also known as a long-term care facility, located in Palm Beach County, AHCA District 9. Its license is issued pursuant to Chapter 400, Florida Statutes, the statute entitled "Nursing Homes and Related Health Care Facilities." Columbia Hospital Corporation The parent company of petitioner, Columbia has a stock market capitalization of between $15 and $20 billion and enjoys a profitability of over $1 billion per year. It owns approximately 340 hospitals, well over 100 ambulatory surgical centers, and an extensive number of home health agencies. As to be expected of a Fortune 500 company, Columbia generates substantial annual revenues. In 1994, for example, the annual revenues generated by Columbia exceeded $17 billion. Columbia also lays claim to being the largest hospital system in the state. It has five divisions with approximately 60 hospitals in its "Florida Group," the organizational title for its Florida operations. The net revenues of the Columbia Florida Group is approximately $4.5 billion. One of five divisions of Columbia's Florida Group, the South Florida Division is a $1.2 billion operation. The division encompasses Dade, Broward and Palm Beach Counties and consists of 15 hospitals, six surgery centers, and one dozen home health agencies. The South Florida Division, of course, includes Palm Beach Regional. Background to the Application Palm Beach Regional was purchased by Columbia shortly after Columbia had purchased JFK Hospital, a 300-bed tertiary hospital approximately three miles from Palm Beach Regional. In August of 1995, as a business decision, Columbia consolidated the operations of the two facilities. The consolidation resulted in a patient census drop at Palm Beach Regional. Shortly thereafter, with the permission of the agency, Palm Beach Regional ceased operations at its emergency room. The result of the consolidation and limitation of the services offered was that it cost only about $100,000 a month to keep Palm Beach Regional running with its small census. Even with the small census, and the relatively low monthly operational expense, the operational expense was more than $1 million per year. In June of 1996, Palm Beach Regional and the agency entered a stipulation which authorized the hospital to suspend the acute care operations in contemplation of this proceeding. Palm Beach Regional's hospital-based skilled nursing unit has since been transferred. Palm Beach Regional is now closed and empty. The reason Palm Beach Regional had been kept operating at all after the consolidation with JFK was to preserve the opportunity to convert the license as proposed in the application. The Application Certified for accuracy on September 18, 1995, under the signature of its authorized representative, Robert L. Newman, CEO of Columbia/HCA, South Florida Division, the application was submitted to the agency bearing a date of September 20, 1995. The application describes what it seeks in the section titled "Project Summary" as follows: Hospital Corporation of Lake Worth (Palm Beach Regional) proposes in this Certificate of Need Application to convert 60 acute care hospital beds to 60 long-term acute care hospital beds and to delicense 128 existing acute care beds. (At a later date the existing 12 skilled nursing beds will be located to another Columbia/HCA hospital in District IX.) Palm Beach Regional Exhibit No. 1, AHCA Form 1455A, Oct 92, AHCA 4600-0005 Aug 93. The transfer of the 12 skilled nursing beds has already occurred and therefore is not at issue in this proceeding. Nor is the delicensure of the 128 beds really at the heart of the agency's denial and Integrated's opposition. In contrast, what is contested is the conversion of the 60 acute care hospital beds to 60 long- term acute care hospital beds. Such a conversion would make Palm Beach Regional a long-term acute care hospital. Long-term Acute Care Hospitals Referring to a hospital as both "long-term" and "acute," is confusing. The two terms have divergent meanings both in terms of average length of stay and the traits of the illness suffered by the acute and the long-term patient. In the context of hospitals, "long-term" refers to a patient with an average length of stay of greater than 25 days. By comparison, the acute patient's stay is typically much less than 25 days, with the average length of stay being between 5 and 6 days. As is the patient in need of acute care, the typical long-term hospital patient is very ill. The difference in the type of illness suffered by the acute care patient as opposed to the long-term patient, however, lies in other characteristics. Unlike the acute care patient, the long-term patient is not in the urgent, emergent or desperately critical state of patients in the acute care setting. The two terms, "long-term" and "acute" have been used together with reference to the type of hospital to which Palm Beach Regional proposes to convert because of the history of the long- term care hospital’s development. Originally in Florida, long-term hospitals were licensed as acute care hospitals and were referred to, therefore, as "long-term acute," hence the combination of terms with disparate meanings. In the context of a study conducted by the Hospital Cost Containment Board, however, the agency examined the issue of whether long-term hospitals should be subject to CON review as long-term hospitals apart from other acute hospitals. As a result, long-term hospitals came to be reviewed in their own separate category under certificate of need review, subject to the same licensure requirements as a specialty acute care hospital. Because they had been licensed earlier as acute care hospitals, the term "acute" was carried over into the new category. At present, there is a recommendation to refer to long-term acute care hospitals simply as "long-term hospitals" to clear up any confusion caused by the terminology. This recommendation will be followed for the most part in the remainder of this order when reference is made to acute and long-term facilities and acute and long-term care. Long-term Care Hospital-based long-term care is a distinction established in federal Medicare regulations that describes a hospital with patients having an average length of stay of greater than 25 days. The distinction allows an exclusion from the Medicare prospective payment system so that reimbursement is received by the long-term hospital on the basis of cost. The distinction is of great import financially because of the distinction between "cost-based" Medicaid and Medicare reimbursement systems and another payment system used by Medicaid and Medicare: the prospective payment system. Before the prospective payment system was instituted, hospitals generally were well utilized, in fact, “filled to the brim.” The high utilization was due to the "cost-based" reimbursement system which contained a financial incentive for the hospital to keep patients in the hospital. Under the cost-based system, the more a hospital spent, the more reimbursement it would receive from Medicare and Medicaid. The prospective payment system was instituted to save taxpayers the high cost of the cost-based reimbursement system. Under the prospective payment system, the hospital receives a flat fee for Medicare and Medicaid patients depending on the diagnostic category, or diagnostic-related group, ("DRG,") into which falls the illness treated. The flat fee is figured on the basis of average length of stay for that diagnostic category. Under this system, unlike the cost-reimbursed system, the hospital receives the same reimbursement for Medicare and Medicaid patients who stay for less than the average length of stay assigned to the patient's DRG as for those who stay longer. With regard to a patient who stays in the hospital longer than the average length of stay for the patient's DRG, the hospital, in many cases, not only profits less the longer the patient stays but begins to lose money at some point in the stay. If the average length of stay for an appendicitis patient is four days, for example, then the hospital profits more in the case of an appendicitis patient who stays only two days because it has incurred only two days of costs instead of the expected four days of costs. In the case of another appendicitis patient, who stays longer than the average length of stay, the hospital makes less money and reaches the point eventually in some cases where the hospital actually loses money for treating the patient if the patient stays long enough. Medicare provides additional payments for both "day-outliers" and "cost-outliers," but not enough to prevent financial pressure on hospitals to discharge acute patients as soon as possible. The prospective payment system has succeeded in forcing hospitals to operate more efficiently; the average utilization of hospitals has declined dramatically. Today, about half of the hospital beds in Florida on any given day go unused. The system does not have the same effect on long-term hospitals; they are exempt from the prospective payment system. Instead, long-term care hospitals are reimbursed under a cost-based system. A long-term hospital well located geographically is particularly attractive to a large hospital system, such as Columbia. Not only will it likely be a financial success in its own right but it will assist Columbia’s sister acute care hospitals in relieving them of patients too sick to be discharged to a subacute setting yet finished with the acute episode which required the acute care hospital’s service in the first place. Development of Long-term Care Hospitals in Florida The first long-term care hospital was instituted in Florida in the 1980's. Fairly soon thereafter there were three long-term care hospitals in Florida, but then there was a lull in the attempt to establish long-term care hospitals. With the advent of the prospective payment system, however, there eventually came the closing of a number of small hospitals in Florida because of their inability to continue to operate in sound financial condition. At the same time, four or five applications for the conversion of small hospitals to long- term care hospitals were filed with the agency. In the early part of the present decade the agency conducted a study of long-term hospital care. The study took place within a larger study by the Hospital Cost Containment Board. Ultimately, it was recommended that long-term care hospitals be regulated separately from acute care hospitals and that they be subject to separate certificate of need review. The recommendation was made for a number of reasons. First, long-term hospitals were viewed by the agency as very different from acute care hospitals because of the patients' average lengths of stay. Second, long-term care hospitals were found to be expensive for the type of care given in them which was of great concern to the state since cost control is an objective of the certificate of need program. Third, long-term hospitals were found to experience high mortality rates. As the result of the study and recommendation, the agency made the creation or conversion of hospitals into long-term hospitals subject to certificate of need review. Admission Criteria In the study, the agency also found that there are no clear admission criteria for long-term hospitals. To date, neither the Health Care Finance Administration (“HCFA”), nor the Joint Commission on Accreditation of Hospital Organizations ("JCAHO,") or any of its sub-organizations have developed any criteria to define a long-term care hospital. It is not clear, therefore, exactly what type of patients are suitable for care in a long-term hospital. Sub-acute Care The parties are in agreement that sub-acute care is a level of care that is below acute care. Palm Beach Regional claims, however, that the care provided by long-term care hospitals is not subacute but rather falls into a category of care between acute and sub-acute. An understanding of this claim requires some discussion. Unlike other classes of hospitals which are exempt from the prospective payment system, like cancer, children's or psychiatric hospitals, patients in long-term care hospitals do not have a specific type of illness nor are they limited to serving a specific age group. Generally, however, they are patients who have had an acute episode, whose program of care has been identified and who need a longer term of care to recover or to be rehabilitated because of an acute illness or surgical procedure. And, although they are not limited to a specific age group, the experience of long-term care hospitals is that a major part of their patient population is elderly, virtually all of whom are covered by Medicare. In these respects, long-term care hospital patients are not much different from patients in other "subacute" settings: comprehensive rehabilitation hospitals, acute care hospital skilled nursing units, skilled nursing facilities in free-standing nursing homes, and, even, in some cases, home health care, assisted living and outpatient services for the elderly. If there is a difference between the long-term hospital patient and patients in other subacute settings, it is that the long-term hospital patient has more at-risk types of physical problems, is more likely to be medically unstable or is, in fact, medically unstable. But this difference is not strictly observed because of the financial pressure on hospitals to discharge patients from the acute setting into a subacute setting. Medically unstable patients, therefore, are found in subacute settings such as skilled nursing facilities whether hospital-based or in free- standing nursing homes. In contrast to what has become commonplace practice, Dr. Kathleen Griffin, an expert in health care planning with a specialty in long-term acute care and subacute care, testified that it would not be appropriate for a medically unstable patient to be transferred to a skilled nursing bed. In her opinion it would be best for a medically unstable patient about to be discharged from acute care to be admitted instead to a long-term care hospital. Despite the reality that there are no admission criteria for long-term care hospitals, Dr. Griffin maintains that if a hospital discharge planner believes through information gathered from the medical and nursing staffs that the patient "is highly acute and at risk, and there is a long-term care acute hospital available, then that would be the placement of choice." (Tr. 523.) If a long-term care hospital is not available, however, the alternative is to keep the at-risk, medically unstable patient in the acute care hospital rather than discharge the patient into a nursing facility. Dr. Griffin's opinion is shared by the physician practicing in long-term hospitals. Representative of such a physician is Dr. Wendell Williams, presently the Medical Director of a long-term care hospital, Specialty Hospital of Jacksonville. Dr. Williams sees a distinction between long-term acute care and subacute care. Long-term hospital care is acute care without the need for "highly technical diagnostic capabilities," and "high surgical capabilities," but still care in the "medically complex case that requires frequent physician direction [and] high skill level of caregivers." (Petitioner's Ex. No. 16, pg. 13.) In Dr. Williams view, long-term hospital care occupies a level of care between acute and subacute care. The views of Dr. Griffin and Dr. Williams find support in analyses of nursing hours per patient. In a typical nursing home, the number of hours per patient is about 4.5 hours per day, while in a long-term care hospital, the number is around 6.5 hours per patient day. At Specialty Hospital of Jacksonville, the nursing hours per patient day for non-ventilator patients is 6.75 hours, and for ventilator patients is 10 hours. In contrast, Integrated, a nursing home, provided nursing hours per patient day in its "med-surg unit" at 4.34 hours in March of 1996, 4.60 hours in April and 4.52 hours in May although at times Integrated's nursing hours per patient day have reached as high as 6 hours. The opinions of Dr. Griffin and Dr. Williams have not yet been generally accepted. Following the agency's study in the earlier part of the 1990's, the federal government, under the auspices of HCFA, launched a major study that addresses what AHCA viewed as the "whole gamut of what is marketed as subacute care," (Tr. 272). The study included long-term care hospitals, as well as those settings which the parties all agree are clearly in the category of "subacute": hospital-based skilled nursing facilities, free-standing nursing homes, comprehensive rehab hospitals and home health care. The report was issued in November of 1995. It confirmed that there was a great deal of overlap among the settings studied including between the long-term care hospital and other settings unquestionably subacute. Moreover, it confirmed that many of the services are "primarily driven by reimbursement," (Tr. 275), and not by which provides the best or most cost-effective health care for the very ill, elderly patient no longer in need of acute care. In other words, the financial pressure on hospitals to discharge patients from the acute care setting was what accounted for the tremendous growth of subacute services and the move toward more long-term care hospitals rather than what is actually best for the patient or the health care system. The study concluded that there is insufficient data to determine the cost effectiveness of subacute care as defined in the study. As for overlap in the various settings, the extent of overlap was not precisely determined. But just as long-term care hospitals provide ventilator treatment, skilled nursing units specialize in ventilator patients. Nursing home subacute units specialize in wound care, infectious disease programs and IV antibiotic therapy programs, as well, just as would Palm Beach Regional if approved. The HCFA study also confirmed that the cost of care and mortality rates at long-term care hospitals are high, $2,000 per day and 40 percent, respectively. The average cost per discharge at a long-term care facility was between $150,000 and $250,000. Despite the long-term hospital's recognition by the federal government, the presence in Florida for more than eight years, and separate CON regulation for the last several years, it remain unsettled which patients should be treated and cared for in long-term hospitals. While for some, such as Dr. Griffin and Dr. Williams, the question is one which discharge planners, after consultation with nursing and medical staff, ably make, it is not generally accepted that it is clear which patients should be cared for in long-term care hospitals. It is not generally accepted as evidenced by the wont of admission criteria for long-term hospitals. Furthermore, it is not clear whether long-term hospitals represent the best means or the most cost-effective way of treating patients ready for discharge from an acute care setting. Specialty Hospital of Jacksonville: the Model The Palm Beach Regional proposal to convert to a long- term care hospital is modeled after another Columbia long-term care hospital, Specialty Hospital of Jacksonville, the hospital of which Dr. Williams is the medical director. Opened in 1992, Specialty offers four major program areas: ventilator and other respiratory complications, infectious diseases, wound management and complex medical and rehabilitative services. The typical ventilator patient is quite ill; often with other attendant system breakdown such as cardiac or renal failure. The goal is to free the patient from ventilator dependence. If the patient is judged to be a lifetime custodial ventilator patient, the patient would not be appropriate for Specialty. A variety of infections are treated in the infectious disease program. Often the primary antibiotic treatment has failed and there may be other conditions attendant. The typical wound care patient admitted to Specialty has severe wounds that may derive from circulatory problems. Often admission is from a hospital or nursing home. The patient may be diabetic, paraplegic or quadriplegic. The patient may have experienced a surgical intervention which has not healed. Or the patient may have a distressed digestive system which inhibits the body's ability to absorb the proper nutrients to support the healing process. The typical complex medical and rehab patient includes the spinal cord injured patient and the multiple system failure patient. The patients at Specialty are under the management of an attending physician but typically four or five different specialties are involved in each patient's care. Specialty Hospital has experienced approximately five percent Medicaid and one percent charity care. A representative patient at Specialty Hospital has an average length of stay of 23 days. The representative patient in the infectious diseases program would experience an average length of 18, 20 days in the pulmonary program, 29 days in the ventilator program, 36 days in the wound program, 18 days in the physical medicine and rehabilitation program and 26 days in the medicine program. These lengths of stay resemble acute or Medicare certified skilled nursing bed lengths of stay more than the historical 90 day lengths of stay experienced in Florida at long- term care hospitals. A representative patient at Specialty Hospital will experience an average daily charge of $1,122 and an average charge per case of $25,810, the highest averages incurred by the ventilator program at $1,848 per day and $52,781 per case. From a medical standpoint, all of the patients treated at Specialty Hospital could be treated in an acute care hospital. There is one difference between Specialty's patient profile and the one expected at Palm Beach Regional. The approach proposed by the applicant will include patients with greater levels of instability. Whereas Specialty has taken the approach that patients at the intensive care level should be in a general acute care hospital, Palm Beach Regional expects to treat patients in need of services from an intensive care unit. Palm Beach Regional, therefore, has planned for an intensive care unit at the facility should its CON application be approved. Integrated's Existing Programs Sixty of Integrated 120 beds are dedicated to meet the needs of patients requiring subacute care. Although they may differ slightly in intensity of application because of slightly lower acuity levels of the patients, the programs offered in this sixty-bed skilled nursing unit encompass the four programs proposed for Palm Beach Regional's long-term care hospital: ventilator and respiratory complications; infectious disease; wound management; and complex medical and rehabilitation service program. Integrated uses its own method to measure the acuity of its patients. Within this method, two of the levels require active treatment of co-morbidities, multiple diseases which complicate the primary diagnoses. By whatever means acuity is measured, it is reasonable to expect that the average level of acuity would be somewhat higher among patients treated at a Palm Beach Regional long-term care facility. (Although without criteria to measure acuity for admission or to know for sure what patients are actually being treated at long-term hospitals, this is not certain.) Nonetheless, considering both diagnosis and treatment, Integrated's patients at Integrated's two highest levels of acuity, even if not at quite as high an acuity level on average, would be similar to the patients Palm Beach Regional might serve if its application were granted. Patients at a Palm Beach Regional's long-term care facility who would exceed the highest level of acuity of those patients at Integrated are patients appropriate for treatment in an acute care hospital. Ventilator Care at Integrated Ventilator patients are treated in skilled nursing facilities both in hospitals and in free-standing nursing homes like Integrated. Some skilled nursing units even specialize in ventilator care. There is clearly overlap between ventilator services in skilled nursing facilities and long-term care hospitals. The precise extent of the overlap is not clear. While the overlap may not be 100%, it is certainly significant. Twenty of Integrated's 60 subacute beds are capable of assisting ventilator patients. Within this 20 bed unit, Integrated provides oxygen, air, and wall suctioning just like in a hospital setting. Additionally, Integrated can provide respiratory services outside of its specific unit by using portable suction machines and oxygen concentrators. The ventilator patients treated at Integrated are similar to the ventilator patient treated in intensive care units in hospitals. Some of Integrated ventilator patients are in need of acute care. All are hemodynamically stable but some are medically unstable. Nonetheless, there are patients who would be too unstable to allow them to be suitable for admission into Integrated's respiratory unit. Patients who would need to remain in acute care in the hospital would be patients who, for example, were bleeding or having trouble with a post-surgical trach placement. The medical director at Integrated is a pulmonologist. Integrated has a 24-hour respiratory staff. The ventilator program at Integrated meets the description in the application of the proposed ventilator program at Palm Beach Regional. Comparison of the respiratory services offered at Integrated to the services proposed to be offered in Palm Beach Regional's ventilator program reveals significant overlap between the two. Integrated primarily uses a Bear 3 Ventilator. Other equipment used by Integrated includes pulse oximeters and pneumatic blood pressure cuffs to provide hemodynamic monitoring. The respiratory unit is able to obtain an assessment of the patient's arterial blood gases within two hours through an arrangement with a courier service and nearby JFK Hospital. On average the blood work results are received within an hour of the blood being drawn from the patient. An interdisciplinary team of therapists, including respiratory therapists, physical therapists, occupational therapists and speech therapists, work together on the plan of care and recovery of the ventilator patient including weaning the patient from the ventilator. Of those ventilator patients determined to be weanable, 75% are actually weaned from the machines. Ninety-two percent of the tracheotomy patients achieve decannulation. The average length of stay in the respiratory unit for Integrated's ventilator patients is 37 days, an average length of stay that meets that which defines the long-term care hospital patient, that is, in excess of 25 days. Infectious Disease Treatment at Integrated Just as long-term care hospitals, nursing homes offer infectious disease programs employing IV anti-biotic therapies. Integrated provides its patients with multiple antibiotic therapies. Among the IV anti-biotic therapies used at Integrated are cepo, fortaz and vancomycin. Integrated treats patients with pulmonary edema, pleural affusion, pulmonary embolus and pulmonary infarcts and patients with bi-lobar and multi-lobar pneumonia. Patients are treated with intravenous cortico steroids, intravenous bronchodilators, intraveous diuretics and intramuscular antimedics. Wound Care at Integrated Nursing homes offer wound management programs. There is significant overlap between patients treated for wounds at nursing homes and at long-term care hospitals. Limitations in care of the wound patient are similar as well. Just as a patient in need of surgical intervention for wound care, for example, would be discharged to an acute care hospital from a nursing home so would that patient be discharged to an acute care hospital from Specialty Hospital of Jacksonville, the model hospital for Palm Beach Regional's long-term care facility. Integrated offers wound and skin management treatment of the type described by Palm Beach Regional's proposal. Many of Integrated's patients recieve wound care upon admission. For instance, respiratory patients who have tracheotomies receive care for their wounds throughout the day. Integrated treats all levels of decubitous ulcers, including the most severe, Stage III and IV ulcers, as required by law in order to qualify for Medicare Certification. Complex Medical and Rehabilitative Care Integrated offers radiology and other imaging services on campus: mobile chest x-rays, normal x-rays, and video flouroscopy as well as an in-house staff of rehabilitation professionals: physical and registered occupational therapists and registered speech therapists. The rehabilitation programs proposed by Palm Beach Regional and those programs of other long-term care hospitals overlap significantly with those programs already offered at Integrated. The difference between the complex medical and rehabilitative care offered at Integrated and that proposed for Palm Beach Regional lies in the expected acuity of the patients. One would reasonably expect the patients to be slightly higher in acuity at Palm Beach Regional if approved than as are presently at Integrated. Nonetheless, the patients at Integrated are similar to those Palm Beach Regional would care for, in that Integrated treats patients with co-morbidities, including combinations of congestive heart failure, post-open heart surgery, arteriosclerotic heart disease and renal failure. Integrated's Services in General On an average month, Integrated offered 7.28 hours per day of nursing and respiratory, physical and occupational therapy care per day to the patients within its subacute unit. Forty percent of Integrated's subacute nursing hours are provided by registered nurses, 20% by licensed practical nurses, and the remaining 40% by certified nurse aides. A sample of Integrated's admissions noted numerous patients admitted with cardiopulmonary vent and ventilator needs. Integrated also maintains a large number of orthopedic patients in need of complex rehabilitation. Integrated treats patients with congestive heart failures, patients recovering from recent open- heart surgery, patients requiring specialized wound care, patients with post-operative cranial head injuries, and patients requiring tube feedings, IVS, ventilator and tracheostomy care. Integrated offers the equipment that is listed in the application as equipment to be purchased by Palm Beach Regional if approved. Integrated accepts patients who are medically unstable. These include patients admitted to Integrated's cardiopulmonary unit, patients with recent tracheostomies, patients on ventilators, patients with hemodialysis and peritoneal dialysis who have co- morbidities. Palm Beach Regional's application lists diagnoses of patients to be treated through long-term care which it claims are not appropriate for skilled nursing facilities. The application alludes to various types of comprehensive therapies, care and resources available for these patients. Yet, despite the application's claim that care of these patients is not appropriate for the skilled nursing facility, present at Integrated for the benefit of patients with the same diagnoses are very nearly all, if not all, of these therapies, care and resources. These include: IV antibiotic therapy, IV drips, plasma pheresis, management of severe decubitus ulcers, tracheotomy care with hourly suction, treatment with chest tubes and PCA pumps, cardiac monitoring, dialysis and an on-site pharmacy. Moreover, Integrated's roster of consulting physicians credentialed at the facility included the range of specialists listed in Palm Beach Regional's application. Integrated's roster of physician ranges from family practitioners to practitioners specializing in internal medicine, dermatology, neurology, and infectious disease control, to orthopedic specialists, physiatrists and psychiatrists, nearly the "full gamut" of specialties in medicine. Adverse Impact There will be adverse impact on Integrated if Palm Beach Regional's proposal is approved. The impact occurs as the result of a combination of significant overlap of services offered by Integrated and proposed for Palm Beach Regional and the likely loss of admissions to Integrated's subacute unit generated by patients discharged from JFK Hospital. JFK Hospital and Palm Beach Regional are each approximately 2 miles from Integrated. Approximately 85% of Integrated's subacute admissions come from JFK. A good estimate of how many patients JFK refers to Integrated's subacute unit on an annual basis is 460. It is reasonable to assume that many of these patients would be referred to Palm Beach Regional by its sister Columbia Hospital, JFK, if the application were approved. If only two-thirds of these patients were lost to Palm Beach Regional, using a conservative figure for contribution margin of $100 per patient day, the loss to Integrated would be about $1 million in contribution margin per year. Furthermore, if the application is approved, Integrated will also have to either raise salaries to keep qualified staff for ancillary staff or risk losing them because Palm Beach Regional proposes to offer ancillary staff salaries higher than those paid by Integrated. Certificate of Need Criteria The criteria to be used in evaluating the application are found in statutes, and in rules of the agency which implement these statutes. Section 408.035(1)Health Plans Neither the District 9 Treasure Coast Health Plan nor the State Health Plan contain any mention of long-term acute care beds. Both plans were written before there were any CON requirements for this type of bed. (b) Availability, Quality of Care, Efficiency,Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Services There is no agency rule regarding need determination for long-term acute care beds. Neither is long-term hospital care defined by agency rule as a referral service, one dependent upon other hospitals to refer patients. The service area for a referral hospital is larger than just one district. Patients are referred from districts 9 and 11 to the long-term care hospitals in District 10. This is certainly not surprising for patients in district 9 since there is no long- term hospital in the district and referrals are the common way for long-term hospitals to gain patients. Patients are referred from Districts 3, 5, 6 and 8 to the long-term care facility in Tampa. With the exception of the long-term care hospital in District 11 where the largest proportion of patients came from within the District 11, all of the long-term hospitals in the state, "had referrals from all over the place." (Tr. 288.) Palm Beach Regional itself proposes to serve patients from Districts 7 and 10. The reality is that long-term care hospitals are primarily referral hospitals. Nonetheless, since there is no agency rule defining long-term care hospitals as referral hospitals and since there is no agency rule defining the service area of a long-term care hospital, District 9 may be the appropriate service area for the health planning purposes of Palm Beach Regional's application. In order for the district to be the appropriate service area, however, the application must demonstrate that there is a need for a certain number of beds based on the data collected from District 9. Since there is no need methodology applicable to long- term care acute beds, Palm Beach Regional developed three different methodologies for the agency's consideration. The agency found the "components," (Tr. 910,) of the methodologies to be reasonable. Indeed, the agency never offered any other need methodology which it claimed was superior to those offered by the agency. Instead the agency criticizes the methodologies for failing to take into consideration the availability of like and existing services and alternative to the proposed services. Patients who will be served in the proposed facility are currently being served in either the short-term acute hospitals or skilled nursing facilities in nursing homes such as Integrated, both of which are less costly alternatives to this proposal. Palm Beach Regional anticipates referrals from other Columbia Hospitals in the districts; however, six of the eight Columbia Hospitals have skilled nursing units which propose to treat the same patients and conditions the applicant proposes to treat. Furthermore, at the time of hearing, five Columbia hospitals in the districts had 56 approved skilled nursing beds not then operational. Included among the 56 were the 12 skilled nursing unit beds transferred from Palm Beach Regional. Palm Beach Regional's presents arguments in favor of improved quality of care to the patient in need of care following stabilization of an acute episode. There is, however, no data to support a conclusion that outcomes are better in long-term care hospitals. As for the applicant’s ability and record to provide quality of care, there is little doubt. The testimony of Dr. Ron Luke as to the high quality of care to be provided by Palm Beach Regional was not challenged. The patients proposed to be served by the applicant are currently being served in hospitals, subacute units at nursing homes or hospitals, or in rehabilitation facilities. Some may even be in home health with high technology equipment. Transferring these patients to a long-term care facility has significant financial implications costly to the health care system. The 60 beds proposed in the application will, in all likelihood, be adequately utilized. In the case of long-term care hospitals, demand follows the supply because of the strong financial incentive to fill the beds. There is nothing to indicate, however, that acute care beds are not an alternative to long-term hospital beds. There are plenty of empty beds in acute care hospitals to be filled by patients who would be treated by the applicant. That these patients proposed to be treated by Palm Beach Regional might receive treatment, if the application is denied, in hospital-based skilled beds or, perhaps inappropriately at times, in nursing home skilled nursing units is not due to lack of alternatives. Rather, it is the product of financial pressure on the acute care hospitals to discharge patients from the acute setting. Effective utilization of at least 85 percent of cost- based services such as long-term services is an important consideration because fixed costs can be spread over more patient days, thereby decreasing the costs per patient day. The average utilization rate in Florida for long-term care beds is 66 percent. The most recent occupancy rate for Specialty Hospital is only 41 percent. The record of long-term care hospitals would indicate that the utilization projections by Palm Beach Regional are unreasonable. But, there was nothing established that indicated the three methodologies used by Dr. Luke were unreasonable in any way. Given that Palm Beach Regional will be able to draw patients from its sister Columbia acute care hospitals, all of whom will be anxious to provide patients to this long-term hospital, and given that long-term hospital care is a kind of care for which demand follows the supply, it is likely that utilization at Palm Beach Regional, if approved, will be strong. Despite the record of other long-term care hospitals, Palm Beach Regional’s utilization projections are reasonable. Need for Research and Educational Facilities There are no plans to provide research or education at this facility. Availability of Manpower, Management Personnel and Funds for Capital and Operating Expenditures The State Agency Action Report shows that the agency believes that there will be adequate levels of staffing available. The adequacy of the staffing levels was confirmed by the administrator of Specialty Hospital of Jacksonville. Palm Beach Regional will be able to adequately staff the hospital at the salary levels proposed in the application. Long-term acute care hospitals treat the very old. Since almost all of these people have Medicare coverage, economic access is not a problem for the individuals the applicant proposes to serve. The applicant has a 1% indigent commitment and a 5% projected Medicaid utilization. Geographic access is also served well by this facility. The facility is located where the population base of the elderly population is in District 9. Financial Feasibility The immediate financial feasibility of Palm Beach Regional is evident from its ability to open and operate for the first two years with a positive cash flow with a financing letter in the amount of $407,000 from Columbia. Palm Beach Regional, in its pro formas and the analysis underlying its pro formas concluded that it would be under the prospective payment system for six months before it could transer to a facility exempt from the prospective payment system. This conclusion is reasonable. Palm Beach Regional has two months to get the necessary certification changed prior to the end of its fiscal year. Palm Beach Regional will be able to institute the necessary six month evaluation, within CON constraints, when it chooses. Furthermore, Palm Beach Regional could change the end of its fiscal year so that the six-month time period could be accommodated. Finally, short-term financial feasibility was demonstrated by the pro forma which properly shows reimbursement levels for patients who were treated in the first six months, and who were discharged after the first six months. Under Medicare regulations, the hospital would be reimbursed on a cost basis for these patients. Palm Beach Regional projected an occupancy level of 85% in the first year of operation and 87% in the second year of operation. Neither Specialty Hospital of Jacksonville, the model for Palm Beach Regional, nor the other long-term care hospitals in Florida have occupancy levels that high. Comparison, however, is not valid. The long-term care hospitals that converted from acute care facilities converted their entire complement of beds which resulted in overbedding. In contrast, Palm Beach Regional seeks to convert only 60 of its 200 beds. The situation of Specialty is very different. It is a converted 105 bed facility which was in bankruptcy when it first started, limiting its ability to attract patients. Within its district, Specialty competes with Vencor of North Florida, a 60 bed facility. Not only does Palm Beach Regional not have any in-district competition, but it will benefit greatly from being a member of the Columbia system. Palm Beach Regional's application demonstrates financial feasibility, both immediate and long-term. Special Needs and Circumstances of HMOs Whether the facility provides an additional level in the continuum of care available to HMO patients is uncertain. It is not generally accepted that the level of care Palm Beach Regional argues it will provide, that is, a level between acute care and subacute care, even exists let alone whether such a level of care is necessary, cost-effective or the best means of treating patients. Needs and Circumstances of Entities Providing Substantial Portion of Services to Individuals Residing Outside the District There are no facilities in the district which provide a substantial portion of its service to individuals residing outside the district. Probable Impact on Costs of Providing Health Services Total property costs for Palm Beach Regional amount to $3.572 million per year, or approximately $250,000 per month. This includes depreciation, interest, insurance and all other property costs. Because Palm Beach Regional would enjoy cost- reimbursement from Medicare instead of being paid on the basis of the prospective payment system, Medicare would pay as much as $190 per patient day for simple property costs and not for patient care, if Palm Beach Regional's utilization projections prove true. Were Palm Beach Regional's utilization projections to turn out to be incorrect and Palm Beach Regional's occupancies were more in the range of other long-term care facilities, (50% the first year and 60% the second), the cost would be "into the $3-400 a day cost range for the cost of [the] ... property allocated per patient day, which would be picked up in their entirety or close to their entirety [by Medicare.]" (Tr. 782.) Either way, the high property costs of Palm Beach Regional would result, should the application be approved, in shifting a huge financial burden to Medicare. The result would be to "wind up costing the Federal government, the Medicare program, multiples of what it now cost[s] ... to treat those same patients in acute care hospitals." (Tr. 792). The Applicant's Past and Proposed Provision of Services to Medicaid and the Medically Indigent Palm Beach Regional projected a 5% Medicaid utilization but its commitment is to indigent care only and that being a mere 1%. The commitment to indigent care (as opposed to the projection for Medicaid care) is meager. Furthermore, Palm Beach Regional has little established pattern accepting patients in these payor classes. Given the savings to Columbia acute care hospitals which would feed patients to Palm Beach Regional, and ultimately, the profit to be enjoyed by the applicant, a commitment of 1% is lacking. That recognized, it must be said that the modesty of the commitment is consistent with the advantage Medicare's cost- reimbursement system provides long-term care hospitals. It is not to be expected that there will be many Medicaid or indigent patients utilizing long-term care hospitals. "The vast majority of the population utilizing the facility will be the elderly, virtually all of whom are covered by Medicare." (Palm Beach Regional's Proposed Recommended Order, p. 23, Tr. 339.) Still, a greater commitment, more along the lines of the commitment provided by St. Petersburg Health Care Management, Inc., with which Palm Beach Regional has drawn comparison, (See Findings of Fact, 123- 128, below,) would lend this criterion to favor the application rather than disfavor it. The Applicant's Past and Proposed Provision of Services Which Promotes a Continuum of Care There is no long-term hospital available in District 9. But whether that means Palm Beach Regional is adding a level to the continuum of care available for patients in the district is uncertain. There is no data to support the conclusion that long- term care hospitals provide a level of care between that of acute and subacute. Despite the earnestness with which Dr. Griffin and Dr. Williams hold their opinions to the contrary, their opinions are simply not yet accepted widely enough at this point to support such a conclusion. That Less Costly, More Efficient, or More Appropriate Alternatives to Such Inpatient Services are not Available Long-term care hospitals have existed for years by Act of Congress. "[W]hile there has been an active discussion of alternatives, so far they have not come up with one which has been moved into rule or legislation." (Tr. 421). Certainly keeping long-term care hospital patients covered by Medicare in acute care hospitals would be a less costly alternative. Whether caring for these patients in one facility or another is more cost-efficient, however, is unknown. At bottom, there is no determinative data on the issue of cost-efficiency. As for more appropriate alternatives, there is a group of long-term care hospital patients for whom it is less appropriate to be in a free-standing skilled nursing unit. But, the size of this group is uncertain. Certainly, from the point of view of care to the patient, it is at least equally appropriate for all long- term care patients to remain in acute care hospitals rather than be discharged to long-term care. Alternatives to New Construction As the result of renovations, the facility requires little capital to convert it to a 60 bed long-term care hospital. The capital outlay of $500,000 is an indication of how little actual construction is necessary to complete the project. Problems in Obtaining the Proposed Inpatient Care in the Absence of the Proposed New Service With the exception of inappropriately premature discharges of patients from the acute care hospital's acute care setting, there are beds available for appropriate care in the absence of approval of the application. There is an abundance of beds in acute care hospitals available to patients who might otherwise be discharged to the long-term care hospital. As for the patient for whom discharge from the acute care setting is appropriate who might be admitted to a long-term care hospital, there are available for inpatient care skilled nursing beds in one type of facility or another. Administrative Due Process Palm Beach Regional contends that it has been treated differently by the agency, without reasonable explanation, from St. Petersburg Health Care Management, Inc., a successful applicant for the conversion of a general acute care hospital to a long-term care hospital in another district. Initially approved by the agency, the "St. Petersburg" application, CON 8213, was not subjected to the scrutiny of a formal administrative hearing at the Division of Administrative Hearings. Nonetheless, in support of its claim of unfair treatment, portions of the St. Petersburg application and omissions response for Certificate of Need number 8213 were introduced into evidence by petitioner as well as the State Agency Action Report. There are similarities between the two applications. For example, both proposed conversion of underutilized facilities to long-term acute care beds, as well as reduction of the hospitals' complements of 200 acute care beds to 60 long-term care beds. But there are differences as well. The St. Petersburg commitment to indigent and Medicaid care is 500% of the commitment by Palm Beach Regional. St. Petersburg's commitment is a combined 5%: 2% to indigent and 3% to Medicaid. In contrast, Palm Beach Regional's commitment is 1%, to indigent care only. Palm Beach Regional stated in its application that "[p]atients classified as Medicaid payers are projected to equal 5.0% of total patient days in 1999, 2000, and 2001." Petitioner's Ex. No. 1, p. 79. As reasonable as this projection may be, it is just that: a projection, nothing more and a projection is a far cry from a commitment. There is another difference between the two applications. While the facilities from which Palm Beach Regional's application received letters of support were limited to Columbia's affiliated facilities, St. Petersburg received letters of support from three disproportionate share providers as well as numerous unaffiliated hospitals and nursing homes in the Pinellas and Pasco County areas. The difference is critical to an understanding of the likelihood that the facility will, in fact, meet its commitment to the historically underserved. As Ms. Elizabeth Dudek, Chief of the Certificate of Need and Budget Review Office at the Agency for Health Care Administration testified, "You have, in the case of having the support of all the disproportionate share providers ... more of an assurance that the historically underserved, the Medicaid and the indigent patients, will be served and get access to the service." (Tr. 902). Such an assurance is omitted unfortunately from Palm Regional’s application.
Recommendation ACCORDINGLY, it is recommended that the application of Palm Beach Regional to establish a long-term acute care hospital by delicensing 128 beds and converting 60 acute care beds to 60 long- term acute care beds be denied.DONE AND ORDERED this 24th day of March, 1997, in Tallahassee, Florida. DAVID MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 COPIES FURNISHED: Eric Tilton, Esquire Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1997. Gustafson, Tilton & Henning, P.A. 204 South Monroe Street, Suite 200 Tallahassee, Florida 32301 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Thomas F. Panza, Esquire Seann M. Frazier, Esquire Panza, Maurer, Maynard & Neel, P.A. 3600 North Federal Highway Fort Lauderdale, Florida 33308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403
Findings Of Fact Petitioner, OMCO, is a corporation formed by Basic American Medical, Inc.(BAMI), to apply for a certificate of need (CON) to construct and operate a 120-bed acute care osteopathic hospital in Ocala, Florida. Petitioner is incorporated with 1,000 authorized shares with a par value of $1.00 per share. All shares of OMCO are controlled by BAMI pending issue. To obtain local support for the application, BAMI has offered local investors, principally doctors, the opportunity to purchase ten shares each at par value conditioned upon the issuance of a CON to OMCO. Up to 20 percent of the stock is proposed to be issued to 20 such investors (Exhibit 3). At the time of the hearing 10 percent of the stock had been issued to ten doctors, each of whom paid BAMI $10.00. Financing of the project is to be arranged by BAMI and, although BAMI is prepared to provide in excess of $1 million for initial construction and $1 million for start-up operating expenses, the entire cost of the project is intended to be funded with long-term financing. Arrangements for this financing is to be handled by Century Mortgage Corp., a wholly owned subsidiary of BAMI. Century Mortgage Corp. offered to provide $9 million at 12.5 percent for 25 years and $3.6 million at 13.5 percent for 8 years, for equipment, but proposes to serve only as a broker between OMCO and the investors who advance the money. BAMI corporate officers testified that Marion County was selected as the site for the proposed hospital because the state acute care bed methodology rule indicates there is a need for additional acute care beds in Marion County. No need for osteopathic hospital beds was determined but the application was submitted for an osteopathic hospital because, under Florida law, it was believed easier to get a CON for an osteopathic hospital than for an allopathic hospital. One of these investors, Sheldon Katanick, D.O., is a resident of Michigan who is contemplating a move to the Ocala area. Dr. Katanick is a radiologist but is currently on the staff at no hospital. He would prefer to practice at an osteopathic hospital rather than at an allopathic hospital because "There are procedures I might want that wouldn't be carried out at an allopathic hospital." No further identification of these procedures was given. As a radiologist Dr. Katanick would admit fewer patients than he would if he were in general practice. He estimates that he would admit five to ten patients per month if the application is approved and he moves to Ocala and establishes a practice. Arthur Paraiso, M.D., lives in Bellview, some ten miles south of Ocala, and is also an investor in OMCO. He has never served on the staff of an osteopathic hospital but would have no objection to serving on such a staff and will serve if the hospital is built. Paraiso is currently on the staff of no hospital. He recently resigned from the staff of Munroe Regional Medical Center because he "didn't like the atmosphere." He was told to resign from the staff of another hospital which was not identified. He has approximately 1,000 active patients but has no idea how many of these patients he would admit to the proposed hospital. Ronald E. Shelley, D.O., has operated the Bellview Medical Center for 16 years as sole practitioner. Although he has served on the staff of allopathic hospitals in the past, he is currently on the staff of no hospital. He considers the commuting from Bellview to Ocala (ten miles) to be difficult and prefers to refer his patients needing hospitalization to a doctor admitted to the staff at one of the Ocala hospitals. Also, he considers it difficult for a sole practitioner to serve on the staff of a hospital without being covered by another practitioner in his office. Shelley sees up to 60 patients per day in the winter season and approximately 40 patients per day during the summer. Most of the patients he has hospitalized go to an Ocala hospital but occasionally he sends patients to an osteopathic hospital in Orlando. Dr. Shelley is also a stockholder in OMCO and is on the board of directors. He is president of District Twelve Osteopathy Group, which has 25 members located throughout District Three, the health planning district in which Marion County is located. Robert M. Corbett, D.O., supports the application to construct an osteophathic hospital at Ocala. He operates two emergency walk-in clinics, one at Crystal River, Florida, and one at Ocala, Florida. He holds staff privileges at Seven Rivers Community Hospital in Crystal River and consulting privileges at Marion Community Hospital, which authorizes him to admit a limited number of patients to this hospital each year. Emergency clinics are staffed with four DO's and two MD's. Generally, the clinics treat emergency patients, and if one of these patients needs to be hospitalized the clinic refers the patient to a doctor on the staff of the appropriate hospital for admission. Dr. Corbett and the other doctors manning the emergency walk-in clinics do not have time to run the clinics and monitor patients in the hospital at the same time; hence, the referrals to another doctor for admission. Dr. Corbett did not testify he would change his mode of operation of referring patients for hospitalization and personally admit patients if an osteophathic hospital opened in Ocala. Robert Panzer, D.O., testified by deposition submitted after the final hearing date. Dr. Panzer has been practicing osteopathy in the Ocala area for approximately eight years and has about 5,000 active patients, of which six to ten are normally hospitalized. He admits all of his patients through M.D. specialists. He applied for and was accepted on the staff of Munroe Regional Medical Center, but never exercised the privileges granted. Panzer testified that he was told by a staff member at an Ocala hospital that he could not do manipulation of patients in the hospital; but, on cross-examination, he could not recall who told him that.; Dr. Panzer also has patients from outside Marion County. If this osteophathic hospital is authorized, Fanzer would join the staff and admit patients. He is one of the ten local investors and has been elected to the board of directors of the proposed hospital by the other investors. Other than the testimony of Dr. Panzer that he could not practice manipulation at a local hospital, no testimony was presented that any osteopathic patient is unable to obtain adequate treatment at existing facilities in Marion County, that existing hospitals refuse to admit osteopathic physicians to their staffs, or that there is any unmet need for osteophathic treatment in Marion County. There is no osteopathic hospital in District Three, which includes Marion County and 15 other surrounding counties. In District Three there are approximately 25 osteopathic physicians; in Marion County there are eight, of which only two, including Panzer, have applied for staff privileges at a Marion County hospital. Considerable testimony was presented that once an osteopathic hospital is built additional osteopathic physicians will move to the area, will build up practices, and utilize the facilities provided. Only general historical data from other counties was presented to support this position. In those counties cited the population is more urban than is Marion County and District Three population. Except for one hospital in Palm Beach County, osteopathic hospitals in Florida have a lower occupancy rate than do allopathic hospitals. Most DO witnesses emphasize the holistic approach to the patient taken by the osteophathic physician in his treatment as compared to the treatment of the specific illness used by an allopathic physician and to the fact that greater use of manipulative therapy is used in the practice of osteopathic medicine than in the practice of allopathic medicine. Otherwise, all witnesses generally agreed that the physical facilities provided at an acute care hospital are identical at allopathic and osteopathic hospitals. A bed in an allopathic hospital is indistinguishable from a bed in an osteopathic hospital and the primary difference between the two practices results from the philosophical approach to medicine each takes. As a result, patients of osteopathic physicians receive more physical therapy treatment than do patients of allopathic physicians albeit by use of identical equipment. Plans and cost estimates for the proposed hospital, including equipment, are taken largely from an allopathic hospital recently opened by BAMI at Kissimmee, Florida. The implementation of the Diagnostic Related Groups (DRG's) by the Federal Government for Medicare patients and greater emphasis and growth of Health Maintenance Organizations (HMO's) and Preferred provider Organizations (PPO's) which have occurred during the past year have coincided with a major reduction in the usage rate of hospital beds in the subdistrict of Marion County as well as throughout the State of Florida and the United States. For reasons generally attributed to actions intended to reduce the cost of medical treatment, patient days and hospital occupancy rates have been materially reduced and if current trends continue substantial rate increases will be needed to keep many hospitals solvent. This factor is affecting the existing 15 osteopathic hospitals in Florida at the same or greater rate than it is affecting the allopathic hospitals. Although Gulf Coast Hospital v. DHRS, 420 So.2d 86 (Fla. 1st DCA 1982), indicates the acute care bed need rule, 10 5.11(23), F.A.C., is not applicable to determining need for osteopathic hospital beds, Petitioner uses this rule to show a need for acute care beds exists in Marion County. Because the acute care bed rule is partly based on a 1978 statewide use rate to determine need, the methodology overstates the need for new beds. Since 1978 the use rate has decreased throughout the state but the rule has not been modified to reflect this reduction in use rate. District Three, the 16-county area including Marion County, has a need for acute care beds in 1990 (the target year for this application) of 191. Using the 1984 use rate, Marion County will have a need for 87 acute care beds in 1990. The Health Planning council for District Three has recommended that 15 percent of the district bed need should be set aside for Levy, Dixie, and Gilchrist Counties, which have been determined to be underserved. This reduces the potential allocation of beds to Marion County to 74. As a general rule CON's for less than 100 bed hospitals are not granted because those hospitals tend to be less cost-effective than are larger hospitals offering the same services. Absent a bed need methodology for osteopathic hospitals, DHRS developed two methodologies to determine need for osteopathic hospital beds. The first methodology divides the number of admissions to osteopathic hospitals in each county in 1984 by the number of doctors of osteopathy in the county to arrive at an admission rate per DO. This is multiplied by the average length of stay (ALOS) to arrive at the number of patient days per DO. Averaging the patient days per 1,000 population for these osteopathic hospitals in the southern Florida counties in which osteopathic hospitals are located gives an average of 63.3 patient days per 1,000 population in these counties. Applying this figure to the population of Marion County in 1990, the five year planning horizon used to determine the hospital bed need, shows approximately 41 osteopathic beds will be needed in Marion County in 1990 (Exhibit 9). The second approach which is not really a bed need methodology as much as a check on the requested beds is to determine from the same historical data the number of DO's needed to support a 120-bed hospital. That figure is calculated to be 91 (Exhibit 9). Methodologies proposed by OMCO's expert witnesses rely heavily on the acute care bed need methodology established by Rule 10-5.11(23), F.A.C. although the courts have held that this methodology is not applicable to osteopathic hospitals because of the language of Section 381.494(2), Florida Statutes, which requires "The need for such facilities shall be determined on the basis of the need for and the availability of osteopathic services and facilities in the community." Further, Petitioner attempts to justify the need for an osteopathic facility in District Three, which has no osteopathic hospital, on the basis of the population of the district as a whole despite the long distances involved in this 16-county area. Obviously, people in the extreme northwestern part of this district are unlikely to use the proposed facility in Ocala in view of much nearer acute care hospital beds. Only a hospital offering those services provided by a regional medical center can expect to have a districtwide service area. Here, OMCO proposes to provide only basic acute care facilities and few patients could be expected from beyond the primary service area of Marion County. With the current decline in hospital occupancy rate, the introduction of a new hospital in Marion County will have an adverse impact on existing hospitals since patients that would be admitted at OMCO would generally come from those patients that otherwise would use MCH or MRMC. This would serve to reduce even further those hospital occupancy rates and adversely affect the ability of MRMC to serve indigent patients. Because of the declining occupancy rates in all hospitals and the generally lower occupancy rates at osteopathic hospitals in Florida, the financial feasibility of the project is questionable despite OMCO's witnesses who attested to the financial feasibility of the project. The estimates on which these opinions of financial feasibility are based are not realistic and do not incorporate the latest data on occupancy rates for the calendar year 1984 which were available, albeit not in final published form, at the time of the hearing. Evidence presented for those completed months of 1985 indicates the occupancy rates are further declining in the Marion County hospitals in 1985. OMCO proposes to serve as a teaching hospital and presented witnesses who so testified. Before a hospital can serve as a teaching hospital, it must meet certain qualifications, such as having as heads of all departments DO's who meet specific requirements, and thereafter be certified as a teaching hospital by the American Osteopathic Association. While it is certainly possible for OMCO to meet these requirements and be so certified, it is speculative to say at the present time that such certification will be obtained. Evidence of need for additional teaching hospitals was submitted only by objected-to hearsay testimony not corroborated by admissible evidence. Accordingly, need for additional osteopathic teaching hospitals was not shown. None of the other criteria of Section 381.494(6)(c)1 13, Florida Statutes, are of sufficient comport to justify denial of this application if a need for the proposed facility had been demonstrated. Absent a showing of need, further discussion of these criteria is not deemed warranted or necessary to the findings.
The Issue Whether an application for a new hospital to be constructed in Agency for Health Care Administration Planning District 9, Subdistrict 2, should be approved.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily approved Martin's CON application No. 9981. The Petitioners are existing providers who oppose the approval of the subject CON. St. Lucie is a 194-bed acute care hospital located on U. S. Highway 1 in Port St. Lucie, Florida, that opened in 1983. Included in the bed count are 17 obstetric beds and 18 intensive care beds. St. Lucie utilizes 7 operating rooms and provides a varied list of surgical services. Although St. Lucie does not provide tertiary services, it offers an impressive array of medical options including general and vascular surgery, orthopedics, spine surgery, neurosurgery, and gynecology. Furthermore, St. Lucie is a designated stroke center and it is fully accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The JCAHO mission is to improve the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations. St. Lucie uses a hospitalist program 7 days per week, 12 hours per day. The hospitalist program is a group of physicians who are employed by the hospital to manage the care of its patients. St. Lucie believes the hospitalist program moves patient cases more quickly and efficiently. St. Lucie has committed financial resources to its hospitalist program and hopes to expand its use in the future. The emergency department (ED) at St. Lucie handles approximately 42,000 visits per year. The ED has 24 beds comprised of 16 regular beds and 8 "fast track" beds. All areas are either curtained or separated by dividers to provide for patient privacy. Historically, St. Lucie has expanded the ED to provide for additional space for emergent patients. One of the strategies it has used includes the installation of special chairs in a waiting triaged area. The other Petitioner, Lawnwood, is located in Ft. Pierce, Florida, near I-95 and the Florida Turnpike. Lawnwood has 341 beds and, in additional to traditional medical/surgical options, provides tertiary services such as neurosurgery and open heart. Lawnwood also provides Level II neonatal intensive care services. Like St. Lucie, Lawnwood is fully accredited by JCAHO. Lawnwood has provided quality health care services to its region for over 30 years. The Lawnwood ED handles approximately 40,000 visits per year in a 28-bed unit. At its current location Lawnwood can expand its facilities should it desire to do so. At the current time, however, it has no plans for expansion of its main campus. It does plan to initiate an expansion of its intensive care unit. Financing for that expansion was anticipated to become more definite in 2009. In furtherance of its efforts to promote itself as a regional provider of quality medical services, Lawnwood has begun the arduous process of becoming a Level I trauma program for a multi-county area. In this regard, Lawnwood asserts that its service area for trauma patients encompasses Indian River County, St. Lucie County, parts of Okeechobee County, and portions of Martin County, Florida. Lawnwood has invested in the capital improvements needed to fully implement this program. The Petitioners are owned and operated by Hospital Corporation of America (HCA), a for-profit corporation headquartered in Nashville, Tennessee. HCA has input into the decisions affecting Petitioners and can influence when the improvements they hope to implement will be finalized. In addition to the Petitioners, other providers in the district include Indian River Hospital located in Vero Beach, Florida, and Martin Memorial Medical Center, Inc. with two hospitals in Martin County, Florida. It is the latter competitor that seeks to establish a new hospital in the western portion of St. Lucie County, Florida. Martin is a private, not-for-profit Florida corporation licensed to operate Martin Memorial Hospital North, in Stuart, Florida, and Martin Memorial Hospital South, in Port Salerno, Florida. The northern facility has 244 licensed beds; the southern hospital has 100 licensed beds. The northern hospital is the older provider and has served patients from St. Lucie and Martin Counties for over 70 years. Like Lawnwood, Martin offers a broad range of acute care hospital services including tertiary services. The options available at Martin include open-heart surgery, complex wound care, oncology, obstetrics, neonatal intensive care, pediatrics, and orthopedics. Martin provides high-quality medical services to its patients in both outpatient and inpatient venues. To that end Martin has been active in the western portion of St. Lucie County for a number of years and has solidified relationships with physicians in that area of the district. In this regard, Martin established an urgent care center in Port St. Lucie back in 1984. Since that time it has repeatedly sought to expand its provision of medical care to the residents of St. Lucie County. Martin constructed a physicians complex that employs and provides offices for physicians most of whom are on staff at St. Lucie. Over 80 percent of the patients from the Martin physician complex get admitted to St. Lucie. Martin also established a second outpatient facility in the western portion of St. Lucie County. This 70,000 square foot center provides 500-600 treatments per month to its patients. Among the services provided at this facility include a broad range of diagnostic and laboratory services, radiation therapy, rehabilitation therapy, and pediatric medicine. Finally, Martin also intends to establish a freestanding ED in the western portion of St. Lucie County in 2009. This facility will provide another access point for patients in the western portion of the county to facilitate a quicker response for patients who seek emergency care. Martin views this proposed freestanding ED as an interim measure and will convert it to an urgent care or other non-acute use if the proposed hospital it seeks to construct is approved. The Proposal Martin seeks to construct a general acute care hospital consisting of 80 beds, with intensive care, an ED, telemetry, and obstetrics. It will not offer tertiary services. The site for the proposed hospital is in an area known as "Tradition," a planned community in the western portion of St. Lucie County. The City of Port St. Lucie has annexed the geographical area into what residents consider "West Port St. Lucie" and have designated an area of Tradition to promote the life sciences industry. Accordingly, Tradition has areas reserved for medical office buildings, research facilities, as well as the hospital site to be used by Martin. Martin's proposed site is adjacent to the Torrey Pines Molecular Research Institute. The entire Tradition and West Port St. Lucie area is within AHCA's District 9, Subdistrict 2. By locating the new hospital in the western portion of the county, Martin maintains it will promote and enhance access for current and future residents of the developing area without adversely impacting St. Lucie and Lawnwood. Another advantage to a hospital in the western portion of the county is the option of having a haven in the event of a hurricane or natural disaster in the eastern portion of the county. Since the site is located to the west of the coastline, storm surges would not likely impact the facility or dictate evacuation. Further, the site provides excellent geographic access for traffic and the population of the expanding western portions of the county. Like other geographical areas, the coastal portion of the county faces “build out” that will limit the population expansion anticipated in that area. The proposed area has yet to face any limitation in that regard. It is the most likely geographic area that will expand as the population grows. HCA also recognized the benefits of the western area for future expansion of its medical facilities. It unsuccessfully negotiated to acquire a hospital site at or near the proposed location. In relation to the other parties, the proposed site is north and west of the Martin hospitals in Martin County, west of St. Lucie, and south and west of Lawnwood. The size of the parcel is adequate to construct the hospital. In reaching its decision to seek the approval of the new hospital, Martin considered input from many sources, including, but not limited to: physicians who practice in the vicinity of the proposed hospital; emergency response personnel who transport patients to the various district hospitals; medical researchers who have located to or are locating to the proposed area; elected officials familiar with the medical needs of the community; and health care planning professionals. The St. Lucie River divides St. Lucie County east to west. Only the areas west of the river have been designated as the primary service area for the proposed hospital. The primary service area comprises the land within zip codes 34983, 34984, 34986, 34953, 34987, and 34988. The secondary service area comprises those lands encompassed by zip codes 34981, 34982, 34952, and 34957. These primary and secondary service areas have been reasonably determined to project admissions and other relevant use data. As is later addressed in more detail, the population projected for the service area will reasonably support the utilization required to make the proposed hospital financially feasible. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. In this case, the parties have identified the provisions of law that pertain to this matter. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to Martin, "need" is evidenced by a large current and projected growing population in the proposed service area (PSA), sustained population growth that exceeds the district and state averages, capacity constraints at the existing providers, geographic access barriers including traffic congestion and the St. Lucie River, the need for improved access for emergency medical services, enhanced geographic and financial access to obstetrical services for residents of the western portion of the county, growth to offset impact on existing providers, and the financial health of existing providers. As previously stated, St. Lucie County is divided by the St. Lucie River. The river is crossed west-to-east by a limited number of bridges that can back up and delay the traffic utilizing them for access to St. Lucie. The county is traveled north to south by two major roadways: U.S. Highway 1 and I-95. To travel from the western portions of the county and the Tradition community, vehicles cross I-95, the river, and travel U.S. Highway 1 to St. Lucie. The PSA is the fastest growing portion of the county. The older areas to the east are not growing at the rate associated with the development of Tradition and other communities to the west. Some of the coastal areas to the east have become "saturated." That is to say, building and growth restrictions along the coast have limited the population in those areas. The western portion of the county is one of the most rapidly growing communities in the state and has become one of the focal areas of growth for the region. Although the rate of growth has slowed in the recent economic decline, the St. Lucie County area is still predicted to grow at an increased pace in the near future. Population projections prepared by the Bureau of Economics and Business Research at the University of Florida demonstrate that the growth reasonably expected for the PSA is fairly dramatic. According to Dr. Smith, whose testimony has been credited, the primary service area population is expected to reach or exceed 180,977 by 2015. If underestimated (as is typical of these types of projections), the growth could easily exceed that projection. The projection was based upon the most currently available data and has not been contradicted by more reliable data. Claritas data also suggested that the projections produced by Dr. Smith's work were reasonable. The projected growth rate in the primary service area exceeds the projected growth rate of the district as well as for Florida for the period 2007-2015. This finding is supported by the credible weight of the data admitted into evidence. Although the population growth has slowed due to economic conditions, the county will experience renewed growth in the PSA with the projected reversal of slowing trends. Development in the PSA continues to be the most likely geographic area that will be improved first and faster than other areas of the county. Looking at the age component of the population projected for the PSA, the age 65 and over cohort is the fastest growing segment of the population; the second is the 45-64 population segment. These segments are the majority of the acute care hospital utilization. Additionally, females ages 15- 44 also reflect a high rate of growth for the primary service area. This latter statistic supports the notion that a demand for obstetrics is likely. Acute care hospital utilization in the subdistrict increased from 2003 through June 2008. The non-tertiary discharges within the primary service area increased by 42 percent for the period 2003 to 2007. Birth volume in the primary service area increased for the same period and doubled the number of obstetric admissions for the time noted. This increase in utilization supports the likelihood that population growth for the area will further increase the utilizations expected for the PSA. Historically, St. Lucie has observed this utilization and growth of demand for its services. St. Lucie has responded by adding beds to its ED but the projections would suggest that past and future growth will result in capacity constraints for St. Lucie. Demand for intensive care, medical surgical beds, and progressive care beds at St. Lucie has been high. The ICU occupancy rate at St. Lucie in particular has been at or above 85 percent capacity a significant portion of the time. Capacity issues are more pronounced during the months from November through May of each year. The subdistrict enjoys a strong seasonal influx of residents who require all the amenities of a community including medical care. In this regard, St. Lucie has seen a "bed crunch" in order to accommodate the seasonal patients. This crunch results in longer ED waits, longer waits for admissions for those requiring acute care, longer waits for those seeking elective admissions, and longer waits for some services such as blood transfusions. Although hospitals are not intended to be like fast food restaurants (providing all services on a expedited basis), extended waits for bed placement can place waiting patients on gurneys in less than optimal conditions. This scenario does not promote efficient or the most effective form of providing health care services to those in need. The bed crunch at St. Lucie is expected to continue due to increasing demand for acute care hospital services in the county. Capacity constraints are similarly demonstrated at Lawnwood and Martin. Like St. Lucie, Lawnwood and Martin experience the seasonal crunch associated with the increased population during the winter months. In Lawnwood's case, the ED has delays through out the year. This means that patients wait for a bed assignment in the ED until a suitable room placement can be made. Additionally, the intensive care unit at Lawnwood experiences high occupancy. As Lawnwood transitions to a trauma center, the demand for acute care beds will also increase. Lawnwood will be the sole trauma center for the region and will likely receive an increase in utilization from that patient source. Martin also has experienced high utilization and has operated at or near capacity for extended periods during the season. Further, the birth volume growth for Martin supports the conclusion that additional obstetric beds are needed for the subdistrict. The majority of Martin's increased birth volume has come from the PSA. Martin has also established that obstetrics patients travel from areas closer to Lawnwood or St. Lucie to seek services at Martin. This demand for obstetrical services in the PSA also suggests that the proposed hospital would enhance access to obstetrics in the subdistrict. Patients who might be induced (as the mother is past her due date) for labor must, at times, wait for a delivery bed. Additionally, patients who present in labor do not always have a labor bed. The new facility would ease these constraints. The location of the hospital at Tradition will also improve geographic access to medical facilities. The traffic and natural barriers to health care services (limited west to east roadways and the river) would be eliminated by the proposed facility. Additionally, during periods of storm events, residents throughout the subdistrict would have access to an acute care hospital without driving to the coastal area. The demand for emergency medical response and transport in St. Lucie County has increased dramatically. The St. Lucie County Fire Department transports all patients requiring advanced life support services in the county. When traveling from the western portions of the county, the emergency transports use the same roadways to cross the river as the general population. Delays are common. Even after delivering a patient to the St. Lucie ED, the transport must return west from its point of origin in order to return to service. The delays in traversing the county result in delays for the unit to be able to respond to the next call. Although it is impractical to have a hospital on every corner, the establishment of a hospital at Tradition would greatly enhance the response times for emergency vehicles and enhance their ability to return to service more quickly. To respond to the increased population and need in the Tradition community, the county has established two new fire stations in the area. The primary service area has the greatest need for additional fire and emergency services according to Chief Parrish. To help address the problem of having rescue units out of service for extended periods of time while transporting patients to an existing hospital east of the river (or while they are returning west to their service area), the Fire Department has doubled rescue trucks and paramedics at two stations in the western portion of the county. This duplication of manpower and equipment increases emergency costs for the county. Although there are plans for the construction of another bridge across the river that would ease some of the congestion in crossing the county, it is unknown when that bridge will be funded and constructed. City personnel do not expect the bridge to be started prior to 2017. The proposed hospital will provide improved access for emergency medical services. The proposed hospital will provide enhanced access to obstetrical services for the residents of the PSA. With regard to financial access, the weight of the credible evidence supports the finding that residents of the PSA are able to adequately access medical services. Existing providers are meeting the needs of the needy and those without ability to pay. Although the new hospital would provide a closer point of service for the indigent or Medicaid recipients who may lack transportation advantages of the more affluent, the needy are currently being served by existing providers. The existing providers are financially healthy and are well able to meet the needs of the indigent. Should the new hospital siphon off the more desirable patients (ie. the insured, Medicare, self-pay, etc.), the existing providers should be able to continue to provide the indigent care needed by the subdistrict. Additionally, the new hospital would also be expected to accept Medicaid or indigent patients. Travel times within the subdistrict further suggest that the addition of a new hospital would reduce the time for all residents to arrive at an acute care hospital. Although the travel times currently suggest that patients could access an existing provider within 40 minutes, the addition of the new facility would ensure that during crunch times or times of traffic congestion or other times when factors extend the time for access to service, any patient from the PSA can be assured of prompt medical care. Establishment of the new hospital will also improve access in the event of a catastrophe or disaster. Given the recent history of hurricanes in the state, improved access to medical facilities in times of crisis can be critical to the patient as well as the emergency crews working during such events. To the extent that any existing provider loses admissions to the new hospital, the growth in population and projected admissions will adequately offset the loss of admissions. Further, the utilization expected by all providers will adequately assure their financial stability as the new provider achieves or exceeds its projected goals. Martin has demonstrated a strong financial position for a number of years. The establishment of the new hospital will not compromise Martin's financial strength or detract from its provision of services at the two hospital campuses it currently utilizes. The new, third campus will complement and enhance the Martin Health Care System. Martin has demonstrated the project is financially feasible both in the short and long term. Martin's past financial performance and continued strong financial position assure that it will be able to obtain financing for the proposed hospital construction and start up. Moreover, the projected patient days to be captured by the new hospital will assure that the hospital will achieve its "break even" financial point at a reasonable future date. The project should achieve revenues in excess of expenses by its third year of operation. The projections for utilization are reasonable and are based upon reasonable assumptions including the premise that Martin will redirect admissions from its southern facilities to services more geographically accessible at the new hospital. Martin has an established presence in the PSA and should be able to achieve its expected admissions without adversely impacting St. Lucie or Lawnwood. The revenue projections for the new hospital are reasonable and should be achieved. Martin has the resources, the workforce, and physician coverage to provide for the new hospital. Additionally, it is expected that new physicians will seek privileges at the new hospital and will provide emergency on-call coverage as may be needed. St. Lucie and Lawnwood have coverage for the medical specialties and ED departments at their facilities. Martin has a low vacancy and turnover rate for both nursing and non-nursing personnel. It partners with the community to sponsor initiatives that promote continued success in these areas. It is a favored employer among those in Martin County. The staffing projections for nursing and clinical support for the new hospital are reasonable. The projected salaries are also in line with those currently offered and should be reasonable and easily achieved. In short, the applicant has demonstrated that Schedule 6A of the application is supported by the record in this cause. Martin has demonstrated it is able to implement the project and to staff its needs at the levels projected by the application. St. Lucie County will grow at a sufficient rate to assure that all providers, including the proposed hospital, will have admissions to meet the financial needs of the institutions. Moreover, the growth anticipated is sufficient to fund the future improvements or expansions that may be required by the providers. Essentially, when considered as a whole, west to east, the county has sufficient growth potential to support the additional acute care hospital beds proposed by the applicant. Competition for the future beds will be enhanced by the additional provider. St. Lucie and Lawnwood will continue to perform well in the market. St. Lucie will continue to achieve the lion's portion of the market east of the river while Lawnwood will continue to serve the region as it has with tertiary and the newly added trauma services. If anything, Martin will take the largest hit from the establishment of the new hospital as it will seek to allow its patients from the PSA that currently travel south and east to Martin hospitals to remain in their community at the new facility. Acting as the "mother ship," Martin is willing to promote the new hospital so that the stresses it has at the Martin County hospitals may be alleviated. The Martin system as a whole will continue to grow and benefit from the addition of the new hospital. Martin is the chief initiator of medical services to the western St. Lucie County community. No HCA hospital has attempted to establish a presence in the Tradition area that matches or exceeds the commitment Martin has made to the residents of western St. Lucie County. St. Lucie and Lawnwood will continue to provide quality care to their patients and will continue to be financially strong should the new hospital come on line. The adverse impact suggested by the HCA hospitals is not supported by the weight of the credible evidence in this cause. In short, the market projections are adequate to assure all providers will continue to share a significant portion of the health care pie. The growth in population, growth in admissions and utilization, the demographics of the population, and the reputation of all providers to provide quality care support the long term success of all providers in the subdistrict. The establishment of the new hospital will also promote competition as medical and clinical research also come into play. Should the new hospital located near the research facilities promote clinical trials, all providers in the subdistrict would benefit from any successful achievements. Martin has agreed to the following conditions for the CON: Martin will partner with Torrey Pines Institute for Molecular Studies for the provision of resources associated with clinical trials and life science research. Martin will continue to support the Volunteers in Medicine program with free inpatient and outpatient hospital services, outpatient laboratory, diagnostic and treatment services at a value of not less than $750,000 of charges per year for the next 10 years. Martin will support other community social services organizations in the form of cash, goods and services valued at not less than $75,000 annually for the next 10 years. This represents a commitment of $750,000 to support organizations such as Meals on Wheels, American Cancer Society, American Heart Association, etc. Martin will support Florida Atlantic University Nursing School, Indian River Community College and other area nursing and allied health schools with at least $75,000 per year in services or goods for the next 10 years to help ensure an adequate supply of well-trained health care professionals. Martin will establish a volunteers program (based on its current successful program in Martin County) in Port St. Lucie area to involve local high schools in encouraging teens to volunteer in health care settings and to encourage health care careers. Martin will partner with the St. Lucie school system in the development of a High School Medical Academy. Martin will make the West Port St. Lucie Hospital available as a training site for area nursing and allied health schools and for the Florida State University physician training program. Martin will locate the new hospital south of Tradition Parkway, east of Village Parkway, adjacent to the Torrey Pines headquarters and the I-95 Gatlin Boulevard exit. Martin will provide a minimum of 11.1 percent of its total annual patient days in the new hospital to Medicaid and Medicaid HMO patients. Martin will also provide a minimum of $250,000 per year for Medicaid and/or charity outreach programs within the western Port St. Lucie area for the first five years of operation. This is not the first CON application submitted by Martin to establish a hospital in the western portion of St. Lucie County. The current application differs from others in that the updated population and utilization data more clearly establish that the projected growth for the subdistrict will support the new facility without unduly impacting the existing providers. The planning horizon for the instant application and the pertinent data show that the western portion of the county more closely resembles areas that have been granted satellite or new hospital facilities in other areas of the state. The growth projected for the county mandates additional healthcare resources be devoted to the PSA. Additionally, similar to its commitment to the Martin County residents, the applicant has demonstrated it will partner with the St. Lucie County resources to establish the same programs that have benefited other areas of the subdistrict. Finally, while the Torrey Pines affiliation was represented in prior applications, that facility is now a reality and operational. The benefits of having the Martin hospital adjacent to its facility is no longer speculative. Torrey Pines is a nationally recognized research entity. The State of Florida and St. Lucie County governmental entities have pursued this type of research facility for location to the state and this area. According to the Torrey Pines leadership, the location of the Martin hospital in proximity to its facility would enhance their efforts. The architectural schematics, project completion schedule, design narratives, and code compliance information set fort in Martin's application are reasonable. The site preparation and construction costs set forth on Schedule 9 are reasonable for the project proposed. Additionally, the equipment costs are reasonable. There is no financial barrier to access hospital services by the residents of the PSA. The quality of care rendered by all hospitals in the subdistrict is excellent. Although there may be some impact on the admissions and utilization at St. Lucie, the impact is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. The impact expected at Lawnwood should be less than St. Lucie, nevertheless, it too is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. Section 408.035(2), Florida Statutes (2007), specifies that the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district must be considered. As noted above, there is no barrier to services in the subdistrict. Nevertheless, Martin has demonstrated that access to additional services will be enhanced by the establishment of the new hospital in the western area of the county. Additionally, delays in admissions and capacity constraints at the existing hospitals although not chronic or at a critical juncture are evidenced in the record. Section 408.035(3), Florida Statutes (2007), requires the consideration of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. This criterion is not in dispute in this cause. Section 408.035(4), Florida Statutes (2007), requires the review of the availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. In this regard, Martin has established that it is able to provide the resources necessary for this project. Additionally, it has shown that projected salaries for the nurses (as depicted on Schedule 6A) are reasonable and within the general guidelines of Martin's provision of those services at its other hospitals. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require that a CON applicant demonstrate that the existing acute care providers within the PSA are failing in order to approve a new hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a hospital would be appropriate or inappropriate. In fact, AHCA has approved hospitals when residents of the PSA live within twenty minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case, the proposed hospital will provide a convenience to residents of western St. Lucie County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the hospital. Patients who would not benefit from the convenience of the proposed hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C-1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of the subdistrict will continue to use the existing providers who offer those services. The new hospital will not compete for those services. Lawnwood will continue to provide tertiary services to the PSA and will continue to be a strong candidate for any patient in the PSA requiring trauma services when that service comes on line. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The new Martin hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider or entity an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. This subdistrict enjoys a varied range of healthcare providers. All demonstrate strong financial stability and utilization. A new hospital will promote continued quality and cost-effectiveness. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. No more effective method of construction has been proposed. The financial soundness of the proposal should cover the actual costs associated with the construction of the project. Additionally, the free-standing ED that Martin is constructing will be transitioned to a urgent care clinic or some other health care facility, it will not continue to provide emergent services when the new hospital is on line. Therefore, it should not be considered a less costly alternative for ED services. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. Martin has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The new hospital would be expected to continue this tradition. Moreover, this criterion is adequately addressed by the proposed conditions to the CON approval. Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Agency's Rationale The SAAR set forth the Agency's rationale for the proposed approval of the CON application. The SAAR acknowledged that the proposal received varied support from numerous sources. Further, the SAAR acknowledged that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the applicant meets its projected occupancy levels; that the project would have a positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule is reasonable. The SAAR also recognized the improved access for obstetrical services for residents of the growing western St. Lucie County. This also reinforced the generally recognized improvements to access geographically given the limitations in east-west traffic access. Finally, the SAAR recognized that Martin is the provider that has invested in the western portion of the subdistrict by establishing clinics and physician networks to provide care to the residents of the PSA. Opponents to the new hospital have not similarly committed to the residents of western St. Lucie County. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9981 with the conditions noted in the SAAR. DONE AND ENTERED this 31st day of July, 2009, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2009. COPIES FURNISHED: Paul H. Amundsen, Esquire Julie Smith, Esquire Amundsen & Smith 502 East Park Avenue Post Office Drawer 1759 Tallahassee, Florida 32302 Karin M. Byrne, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire J. Stephen Menton, Esquire David Prescott, Esquire Rutledge, Ecenia, & Purnell 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Holly Benson, Secretary Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308-5403
The Issue The parties have stipulated that these cases are properly before the Division of Administrative Hearings for de novo review of the Petitioners' applications for a certificate of need and that this action is controlled by the provisions of Chapters 120 and 381, Florida Statutes, and Chapters 10-5 and 28- 5, F.A.C. The parties have further stipulated that portions of Section 481.494(6)(c), Florida Statutes (1984 Suppl.), and its counterparts under Section 10-5.11, F.A.C., have either been met or are not applicable. The portions of Section 381.494(6)(c), Florida Statutes (1984 Suppl.), which the parties have stipulated have been met or do not apply and the parties' summary of the content of those subsections are as follows: (3) both applicants have the ability to manage and operate facilities such as those applied for; (6) need in the services district for special equipment and services not reasonably and economically accessible in adjoining areas; (7) need for research and training programs; (8) health and management manpower and personnel only. The remaining parts of (8) remain in issue; (10) special needs and circumstances of health maintenance organizations; (11) needs and circumstances of those entities which provide a special portion of their services or resources, or both, to individuals not residing in the service district. The parties stipulated that the remaining portions of Section 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), remain in issue. Based upon the stipulations of the parties, the following issues require resolution: Is there a need for a 100-bed acute care hospital in Orange County, Florida? Do the Petitioners' proposals meet the criteria of Sections 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), which have not been stipulated to as having been met or as not being applicable? If a need exists for only one proposal and both Petitioners meet the appropriate criteria, which of the Petitioners should be granted a certificate of need? Should a certificate of need for a computerized axial tomography scanner (hereinafter referred to as a "CAT Scanner") be issued to AMI? Does Florida Hospital and/or OGH have the requisite standing to take part as parties in these proceedings?
Findings Of Fact AMI is a publicly traded for-profit Delaware corporation which owned, managed or operated 103 hospitals in the United States and 29 hospitals outside the United States as of January, 1985. AMI also owns, manages or operates a number of other health care facilities, i.e., psychiatric care facilities and freestanding outpatient surgery centers. AMI also owns a number of subsidiary corporations which provide a variety of technologies and services in support of its hospitals. In Florida, AMI owns 100 percent or a majority interest of 9 hospitals. In its proposed findings of fact AMI has indicated that it "operates" these 9 hospitals. The record supports this finding, although the record also supports a finding that the 9 hospitals are separate legal entities. AMI initially filed a letter of intent to file a certificate of need application with the Department for a 175-bed hospital in Orange County, Florida, for review in the August 15, 1983, batching cycle. The letter of intent was rejected because it had not been timely submitted to the local health council. On October 12, 1983, AMI filed a second letter of intent with the Department in which it informed the Department that AMI "or a to-be-formed wholly-owned subsidiary of AMI intends to file a Certificate of Need application for a 175-bed hospital to be located along Highway 50 in the vicinity of the University of Central Florida in Orange County, Florida." On October 19, 1983, seven days after the letter of intent was filed, Articles of Incorporation were filed for University Community Hospital of Orlando, Inc. (hereinafter referred to as "UCH, Inc."). UCH, Inc., is a for-profit Florida corporation. It currently owns no assets. AMI's application, which was reviewed in the November 15, 1983, batching cycle, was denied by the Department. AMI subsequently reduced the number of beds it had requested in its application from 175 to 100 beds. No change in the application with regard to the services to be provided has been made by AMI. Based upon its amended application AMI has proposed to construct and operate a 100-bed "full-service" acute care hospital to be located in Orange County, Florida. The proposed 100 beds will consist of 84 medical/surgical beds, 8 obstetric beds and 8 ICU/CCU beds. The proposed hospital will include a separate outpatient unit, an on-site stationary CAT Scanner, a 24-hour a day emergency room and birthing rooms and will provide therapeutic and diagnostic inpatient services, and community outreach and wellness programs. Tertiary care services will not be provided at the proposed hospital but AMI intends to contract with existing providers of tertiary care services to provide those services to its patients. AMI has projected that the total cost of its proposal will be $19,698,831.00. This figure includes $566,700.00 for architectural and engineering fees, $6,268,747.00 for equipment, $1,025,000.00 for the acquisition of land, $10,095,000.00 for construction, $250,000.00 for start-up costs and $1,285,385.00 for capitalized interest. The proposed AMI facility will include separate entrances for outpatient surgery and the emergency room. The facility has been designed to take into account the trend in health care to provide outpatient and ambulatory services. Two of the four proposed operating rooms in the facility will be used primarily for outpatient surgery. The 8 birthing rooms to be included in the facility are designed in recognition of the trend in health care to provide a room in which the family can participate in the birthing process. A delivery room will also be provided. Finally, classroom space will be provided in the facility for allied health services training and continuing education. Winter Park. Winter Park Memorial Hospital Association, Inc., is a not for-profit Florida corporation. It operates Winter Park, a 301 bed hospital in Winter Park, Orange County, Florida. The hospital provides a full range of medical services including a full-body CAT Scanner. Winter Park Memorial Hospital Association, Inc., qualifies for exemption from federal income tax under Section 501(a) of the Internal Revenue Code of 1954, as amended (hereinafter referred to as the "Code"), because it is an organization designated in Section 501(c)(3) of the Code. On October 31, 1983, Winter Park filed its letter of intent to file an application for a certificate of need with the Department in the same batching cycle as AMI. In its application Winter Park proposed to build a 100-bed acute care hospital in Orange County, Florida. The proposed 100 beds will consist of 84 medical/surgical beds, 8 obstetric beds and 8 ICU/CCU beds. The proposal does not include a CAT Scanner. Winter Park has projected that the total cost of its proposed facility will be $16,015,000.00. This amount includes $75,000.00 for project development, $50,000.00 for financing, $685,000.00 for professional services, $10,395,900.00 for construction, $4,457,700.00 for equipment and $351,400.00 for other related cost. Florida Hospital Florida Hospital is a not-for-project hospital owned by Adventist Health Systems Sunbelt, a division of the Adventist Church. Florida Hospital presently consists of 3 campuses: the main campus in Orlando and satellite campuses in Altamonte Springs, Seminole County, Florida and Apopka, Orange County, Florida. In the 75 years since the hospital was begun it has grown from a 20 bed hospital to its present size of 959 beds. Florida Hospital is a tertiary acute care hospital providing a full range of services including ambulatory surgery, a stationary full-body CAT Scanner, general inpatient medical and surgical services, obstetrics, pediatrics, psychiatric services, substance abuse treatment, open heart surgery, oncology and other services. Florida Hospital is involved in a number of teaching programs and internship programs. It is a teaching hospital with a number of positions dedicated to teaching, including a director of education. Florida Hospital would be substantially affected if a certificate of need is granted to either Petitioner. Florida Hospital has standing to intervene. OGH OGH is a not-for-profit 171-bed hospital located in Orlando, Orange County, Florida. It was founded in 1941 and has operated as a not-for-profit facility since 1945. OGH is licensed by the State of Florida as an acute care general hospital. The services provided by OGH include obstetrics, outpatient services, general inpatient medical and surgical services, pediatrics, a mobile CAT Scanner and other services. OGH would be substantially affected if a certificate of need is issued to either Petitioner. OGH has standing to intervene. THE NEED FOR ACUTE CARE HOSPITAL BEDS. Section 10-5.11(23), F.A.C. Pursuant to Section 381.494(6)(c), Florida Statutes (1984 Suppl.), the Department is responsible for determining whether health care facilities and services are needed in the State of Florida. To fulfill its responsibility with regard to acute care hospital beds, the Department has promulgated Section 10 5.11(23), F.A.C. Section 10-5.11(23)(b), F.A.C., provides the following Department goal: The Department will consider applications for acute care hospital beds in context with all applicable statutory and rule criteria. The Department will not normally approve applications for new or additional acute care hospital beds in any departmental service district if approval of an application would cause the number of beds in that district to exceed the number of beds calculated to be needed according to the methodology included in paragraphs (f),(g) and (h) below. A favorable Certificate of Need determination may be made when the criteria, other than bed need, as provided for in Section 381.494(6)(c), Florida Statutes, demonstrate need. An unfavorable Certificate of Need determination may be made when a calculated bed need exists but other criteria specified in Section 381.494(6)(c), Florida Statutes, are not met. Based upon this Department goal, the need for acute care hospital beds is first determined by service district based upon the methodology included in Section 10-5.11(23)(f)-(h), F.A.C. (Hereinafter referred to as the "Formula"). For purposes of the Formula, acute care beds include general medical and surgical, intensive care, pediatric and obstetrical beds. Section 10 5.11(23)(c), F.A.C. The Petitioners are proposing to build a hospital with general medical and surgical, intensive care and obstetrical beds. Therefore, the Formula must be applied to determine if there is a need for their proposed hospitals. Under the Formula, acute care bed need is to be determined five years in the future: 1990 in these cases. Generally, acute care bed need is determined under the Formula based upon two age cohort population projections, statewide service-specific discharge rates, statewide service-specific lengths of stay, statewide service-specific occupancy standards and patient flow adjustments. See Section 10-5.11(23)(f), F.A.C. The bed need for the service district determined in accordance with Section 10-5.11(23)(f), F.A.C., is adjusted based upon the service district's historical use rate and projected occupancy rate. Section 10-5.11(23)(g), F.A.C. The historical use rate to be used under the Formula is for the three most recent years and is based upon utilization of hospitals located in the service district. After applying the adjustment of Section 10-5.11(23)(g), F.A.C., one final adjustment is required to complete the determination of acute care bed need under the Formula. Section 10-5.11(23)(h), F.A.C. provides for an adjustment to reflect peak demand in the service district. Based upon the evidence presented at the final hearing of these cases, application of the Formula results in a net acute care bed need of 89 beds or 146 beds, or an excess of 464 beds. These projections are all for the Department's District 7, which consists of Orange, Seminole, Osceola and Brevard Counties, The Petitioners are proposing to build new hospitals in Orange County. The Formula projection of a net acute care bed need in District 7 of 89 beds is an outdated Department application of the Formula. The 146 net acute care bed need projection for District 7 is the Department's most current application of the Formula, dated March 12, 1985. The Department's most recent application of the Formula is not based upon a proper application of the adjustment for the District 7 projected occupancy rate and historical use rate under Section 10-5.11(23)(g), F.A.C. In making this adjustment, the Department relied upon utilization data in determining the District 7 historical use rate from 1981, 1982 and 1983. Section 10-5.11(23)(g), F.A.C., requires that the historical use rate be based upon the most recent three years available. In these cases 1982, 1983 and 1984 utilization data was available to the Department. The fact that incorrect utilization data was used in determining the District 7 historical use rate was confirmed by Mr. Eugene Nelson, the Director of the Office of Community Medical Facilities of the Department, Mr. Steve Windham, the Executive Director of the Local Health Council of East Central Florida, Inc., and Mr. Lawrence W. Margolis, an expert health planner. Mr. Nelson also indicated that if 1982, 1983 and 1984 utilization data had been used by the Department in applying the Formula a more "contemporary picture of what's actually happening" would have be given. Mr. Margolis did apply the Formula using the most current utilization data to calculate the historical use rate of District 7. Based upon the data used by the Department in its most recent projection of acute care bed need for District 7, but substituting the current utilization data of 1982, 1983 and 1984, an application of the Formula results in a projected total acute care bed need in 1989 for District 7 of 4,416 beds. There are currently 4,880 licensed and approved beds in District 7. Therefore, a proper application of the Formula based upon the most current data indicates that District 7 will have an excess of 464 acute care beds in 1989. A finding that District 7 will have an excess of acute care beds in 1989 is supported by the trend toward reduced utilization of hospitals in District 7. This reduction in hospital utilization, which began in 1982, has been evidenced by reductions in occupancy rates, average lengths of stay and admissions. This trend is likely to continue for an additional two to four years. The trend is sufficient to cause an excess in acute care beds despite increases in population. To add another 100 acute care hospital beds to Orange County would further reduce utilization. The reduced utilization of hospitals could become worse when new hospital beds are opened by Florida Hospital (210 beds) and Holmes Regional Medical Center in Brevard County (81 beds). The opening of these beds could create a further excess of beds in District 7. There are a number of factors which have contributed to the decline in the use of hospitals: (1) there has been an increase in the use of health maintenance organizations and preferred provider organizations; (2) the introduction of Diagnostic Related Groups, a method of reimbursement now being used by Medicare; and (3) there has been an increase in the use of outpatient medical services. Health maintenance organizations in Orange County alone could decrease patient days in hospitals from 800 days per 1,000 population to 350 days per 1,000 population. Because of the introduction of Diagnostic Related Groups by Medicare, hospitals are trying to discharge patients as quickly as possible. Finally, there are 8 to 10 freestanding ambulatory surgery centers approved for Orange County which are, or will be, providing outpatient medical services. All of these factors have reduced hospital utilization in District 7. The current trend of reduced utilization of hospitals was recognized by Mr. Mark Richardson, AMI's expert in health planning. Mr. Richardson therefore recommended that AMI reduce its application for a certificate of need to construct and operate a hospital in Orange County from 175 acute care beds to 100 beds, which AMI did. Based upon the foregoing, it is concluded that District 7 will have an excess of at least 464 acute care beds in 1989 according to a proper application of the Formula of Section 10 5.11(23), F.A.C. Although insufficient evidence was presented at the final hearing to forecast the exact acute care bed need for District 7 under the Formula for 1990, it does not appear that there will be any need for acute care beds in District 7 in 1990 in light of the fact that the trend toward decreased utilization of hospitals will probably continue for 2 to 4 more years. In fact, the evidence supports the conclusion that District 7 will continue to have an excess of beds in 1990. AMI has proposed findings of fact to the effect that there has been too much concern with "over-bedding" based upon computations such as those provided in the Formula. AMI further proposed findings of fact to the effect that a more rational approach to health planning "should be assuming adequate supply as opposed to considering a negative approach." These proposed findings of fact are rejected. The Department's rules and in particular, the Formula, are the law and will be followed in these cases. Whether "over-bedding" is over emphasized, the Formula clearly indicates that District 7 will be greatly overbedding in 1990. In addition to requiring an application of the Formula to determine acute care bed need for each Department service district, Section 10-5.11(23), F.A.C., requires that local health councils adopt acute care service subdistricts as an element of their local health plans. Section 10-5.11(23)(d), F.A.C. District 7 has been divided along county lines into four subdistricts: Orange, Seminole, Osceola and Brevard Counties. Section 10-17.008, F.A.C. Prior to this proceeding AMI challenged the validity of Section 10- 17.008, F.A.C., the rule establishing subdistricts along county lines in District 7. The rule was upheld as valid in American Medical International, Inc. v. Department of Health and Rehabilitative Services, DOAH Case No. 83- 3092R, September 28, 1984. Therefore, Orange, Seminole, Brevard and Osceola Counties constitute the only recognized subdistricts in District 7 for purposes of allocating acute care bed need in District 7. Section 10-5.11(23)(e), F.A.C., further provides that the district acute care bed need as determined by application of the Formula is to be allocated to each subdistrict established pursuant to Section 10-5.11(23)(d), F.A.C. This allocation of acute care bed need to the subdistricts is to be made consistent with Section 381.494(7)(b), Florida Statutes (1984 Suppl.), which provides that the local health council is to develop a district health plan and submit it to the Department. Elements of the district health plan necessary in the Department's review of certificate of need applications are required to be adopted by the Department as a part of its rules. Section 381.494(7)(b), Florida Statutes (1984 Suppl.). The Local Health Council of East Central Florida, Incorporated (hereinafter referred to as the "Council"), has developed a district health plan which includes the methodology it employs to allocate the District 7 acute care bed need to the subdistricts of District 7. That plan has also been submitted to the Department. The Department, however, has not adopted the district health plan for District 7 in its rules. This does not mean, however, that evidence pertaining to the Council's method of allocation is not relevant to, or should be ignored for purposes of, this proceeding. Based upon the evidence presented at the final hearing, Orange County has an excess of acute care beds. This is true even if it is assumed that the Department's determination under the Formula that there is a need for 89 or 146 acute care beds in District 7 is correct. According to Mr. Windham, application of the Council's subdistrict allocation methodology to the Department's determination under the Formula that there is a need in District 7 for 89 acute care beds indicates that Orange County ",4 will have an excess of 81 acute care beds and that Seminole County will have an excess of 36 acute care beds. Mr. Windham's application of the Council's methodology for allocating bed need to the subdistricts of District 7 was based upon the Department's application of the Formula without the benefit of the more current utilization data. Therefore, if the most current data had been used, the projected excess beds for Orange County would be even greater. In light of the foregoing, it is clear that the Petitioners have failed to prove that there is any need under Section 10-5.11(23), F.A.C., for additional acute care beds in District 7 or in Orange or Seminole Counties. In fact, under Section 10- 5.11(23), F.A.C., there is a significant excess of acute care beds projected for Orange and Seminole Counties and District 7 as a whole. Winter Park has conceded this conclusion. AMI has in essence argued that any evidence as to the application of the Formula based upon the most current utilization data should be ignored because the Department has not yet officially applied the Formula based upon such data. Mr. Margolis, an expert in health planning, was clearly capable of applying the Formula based upon the most current information. His conclusions were also supported by Mr. Nelson's and Mr. Windham's testimony. AMI has in essence also argued that any evidence as to how acute care bed need in District 7 under the Formula should be allocated to the properly designated subdistricts should be ignored because the Council's methods of allocation have not been adopted as part of the Department's rules. Mr. Windham's unrebutted testimony, however, supports a finding that the Council's method of allocating the District 7 acute care bed need to the subdistricts is a reasonable method for health planning purposes. The determination that there is no need for additional acute care beds in Orange County does not necessarily preclude the issuance of a certificate of need for a new hospital to either or both of the Petitioners. Section 10- 5.11(23)(b), F.A.C., provides that the Department will "not normally" approve an application if such an approval would result in acute care beds in excess of those needed as determined under the Formula. The rule goes on to provide that an application may be approved "when the criteria, other than bed need, as provided in Section 381.494(6)(c), Florida Statutes, demonstrate need." Bed Need Based upon the Petitioner's Alternative to the Formula. AMI has suggested in its proposed recommended order that there is a need for 146 acute care beds in District 7 based upon an application of the Formula. That finding of fact has been rejected, supra, because it was based upon the use of outdated utilization data. The Petitioner also failed to prove that there is a need for beds in Orange County based upon an application of the Formula. Winter Park's position throughout this proceeding and AMI's alternative position has been essentially that the population of east Orange County where the Petitioners propose to locate their facilities and parts of Seminole County do not have adequate accessibility to acute care hospital beds. In determining whether an application for a certificate of need should be issued for acute care hospital beds, Section 381.484(6)(c)2, Florida Statutes (1984 Suppl.), provides that the accessibility . . of like and existing health care services and hospitals in the service district of the applicant" should be considered. The Petitioners have attempted to prove that like and existing health care services are not accessible in portions of Orange and Seminole Counties and therefore there is a need for their proposed hospitals. The Petitioners' Medical Service Areas. AMI has identified and proposed to serve portions of Orange and Seminole Counties which purportedly have an access problem which it has designated as a "medical service area." AMI projects that the majority of its patients will be attracted from its medical service area (hereinafter referred to as an MSA) AMI's MSA consists of most of east Orange County and southeastern Seminole County. Generally, the MSA boundary runs south along most of the western shore of Lake Jessup in Seminole County, to and along Tuscawilla Road (Seminole and Orange County), to and along Highway 436 in Orange County, south to the Bee Line Expressway, east along the Bee Line Expressway to Highway 15, south along Highway 15 to the Orange-Osceola County line, east and then north along the Orange County line to the Seminole County line and along the Seminole County line north and then west to Lake Jessup. Winter Park has also identified and proposed to serve a MSA very similar to, although a little smaller than, AMI's MSA. The difference in size amounts to only a difference of 1000 less population in Winter Park's MSA. The portion of east Orange County included in the MSAs represents a distinct geopolitical and economic base. Each of the Petitioners and Florida Hospital presented testimony by experts in the field of demographics. Frederick A. Raffa, Ph.D., for AMI, William J. Serow, Ph.D, for Winter Park and Stanley Smith, Ph.D., for Florida Hospital. Based upon their testimony, it is clear that the MSAs have experienced a great deal of population and economic growth since 1970 and that this growth will probably continue through 1990. During the period 1980 to 1985, the rate of population growth for Orange and Seminole Counties was 16 percent (23 percent for Seminole County alone). The rate of growth in Winter Park's MSA during this same period was 32 percent. For the period 1985 through 1990 the projected rate of growth for Orange County is 12 percent. The projected rate of growth from 1985 through 1990 for Winter Park's MSA is 23.3 percent. These figures indicate that the rate of growth for Orange County and the MSAs is slowing down. The figures also show that the MSA rate of growth is twice that of Orange and Seminole Counties. Looking at only the rate of growth of an area can be misleading. For example, a 50 percent rate of growth may not be as significant when applied to a population base of 10 as when applied to a larger population base. In terms of actual growth, the evidence proves that Orange County's population growth in terms of additional people is greater than the population growth of the MSAs. The evidence also establishes that population growth in the MSAs is projected to be greater for young adults and women of child bearing age (15 to 44 years of age), that there will be larger families and a greater number of children under 18 years of age in the MSAs than in Orange County as a whole and that the projected population of the MSAs will be newer to the area and generally more mobile than Orange County as a whole. Florida Hospital has suggested that "logic" leads to the conclusion that some of these projected trends will cause a decrease in utilization. No evidence was presented at the hearing to support such a finding of fact. The evidence clearly establishes that population growth in the MSAs will be concentrated between the western boundary of the MSAs at Highway 436 and Alafaya Trail (Highway 419), which is located in the western portion of the MSAs, during the next five years. In fact, more than half of the projected growth of east Orange County will occur in a one and a half mile corridor between Highway 436 and Goldenrod. It will be 5 to 10 years before population growth will begin to expand into any area east of Highway 419. Accessibility under Section 10-5.11(23)(i), F.A.C. The Department has promulgated Section 10-5.11(23)(i)1 and 2, F.A.C., for purposes of determining accessibility: Acute care hospital beds should be available and accessible within an automobile travel time of 30 minutes under average travel conditions to at least 90 percent of the population in an urban area subdistrict. Acute care hospital beds should be available and accessible within a maximum automobile travel time of 45 minutes under average travel conditions to at least 90 percent of the population residing in a rural area subdistrict. The terms "urban area" and "rural area" are defined in Section 10- 5.11(23)(a)4 and 5, F.A.C., as follows: Urban Area. Urban area means a county designated as all or part of a Standard Metropolitan Statistical Area, as determined by the United States Bureau of the Census, and having 50,000 or more persons residing in one or more incorporated areas. Rural Area. Rural area means a county not designated as all or part of a Standard Metropolitan Statistical Area, as determined by the United States Bureau of the Census, or a county so designated but having fewer than 50,000 persons residing in one or more incorporated areas. Orange County meets the definition of an "urban area." It has been designated as part of a Standard Metropolitan Statistical Area and has 50,000 or more persons residing in one or more incorporated areas. Orange County is not also a "rural area" as defined above as suggested by OGH although it does have some incorporated areas with less than 50,000 persons. AMI has suggested in its proposed recommended order that Section 10- 5.11(23)(i), F.A.C., is to be used only by local health councils in determining subdistrict allocations of acute care bed need and where a subdistrict allocation reveals a surplus of beds in a subdistrict. Although Section 10 5.11(23)(i), F.A.C., is to be used in the manner suggested by AMI, Section 10- 5.11(23)(i), F.A.C., is not clearly limited to such use. This section of the rule is titled "Geographic Accessibility Considerations." Its provisions are applicable in determining whether a geographic accessibility problem exists in District 7 or in the subdistricts of District 7. AMI, Winter Park and Florida Hospital presented testimony of expert traffic engineers: Mr. William A. Tipton for AMI, Mr. R. Sans Lassiter, P.E., for Winter Park and Mr. Sven Kansman for Florida Hospital. All three of these gentlemen based their travel studies on travel times to and from certain control points. The travel times were then averaged. Florida Hospital has suggested in its proposed recommended order that this method of determining travel times to and from control points and Mr. Tipton's testimony that "you probably wouldn't get as far in a given time going outbound [east" is significant because travel times from the MSAs west into Orlando, where the majority of the existing hospitals are presently located, would be shorter. This conclusion is reasonable. Therefore, travel times for the population of the MSAs to existing Orange County hospitals would be less than indicated by the traffic engineers. Also, the 30 minute contour lines on the traffic engineers' exhibits would extend farther into the MSAs. The studies performed by all three traffic engineers were performed in the same general manner as to the speed of the test vehicles. Test vehicle drivers were instructed to drive at average speed employing the "average car method," the "floating car technique" or the "moving car method." All three methods are essentially the same. The test runs were conducted in November and February by AMI'S expert, in the fall by Winter Park's expert and during the last two weeks of January by Florida Hospital's expert. January to March is the most congested time of the year in Orange County. Only two of the traffic engineers testified that their tests were conducted under "average travel conditions" as required by Section 10- 5.11(23)(i), F.A.C.: Winter Park's and Florida Hospital's traffic engineers. These traffic engineers properly conducted their tests during off-peak and peak hours. Mr. Tipton, AMI's traffic engineer, conducted his tests only during the peak hours of 4:00 p.m. to 6:00 p.m. and only on week days (Monday to Thursday). According to Mr. Tipton, average travel conditions "doesn't mean anything" to a traffic engineer. Average travel conditions does mean something under the rule and to the other two traffic engineers. Mr. Tipton also indicated that the peak hours he conducted his tests during would not show "average travel conditions." Mr. Tipton also admitted that he averaged what amounted to the "worst case scenario" because it represented "real world conditions." Mr. Tipton's "real world conditions," however, is not the test of Section 10-5.11(23)(i)1, F.A.C. Mr. Tipton's tests have been given little weight because of his failure to take into account average travel conditions. None of the exhibits prepared by the three traffic engineers and accepted in evidence (AMI'S composite exhibit 8, Winter Park's exhibit 11 and Florida Hospital's exhibit 10) are totally consistent with the requirements of Section 10-5.11(23)(i), F.A.C. AMI's composite exhibit 8 includes 30 minute contour lines representing Mr. Tipton's 30 minute drive times from only three hospitals in Orange County and one hospital in Seminole County and only shows the travel times to the east of those hospitals. Winter Park's exhibit 11 shows the 30 minute contour lines for seven hospitals in Orange County and two hospitals in Seminole County and generally only showns the travel times to the east. Florida Hospital's exhibit 10 shows the location of eight hospitals in Orange County, three in Seminole County and three in Brevard County but only shows the total 30 minute contour line for Florida Hospital's Orlando campus. The test under Section 10-5.11(23)(i)1, F.A.C., is whether existing acute care hospital beds are available and accessible within 30 minutes by automobile by 90 percent of the subdistrict's population. In order for AMI and Winter Park to prove that acute care hospital beds are not available and accessible within 30 minutes in Orange County, they needed to prove that more than 10 percent of the population of Orange County cannot access on existing acute care hospital bed within 30 minutes by automobile. In order to prove this crucial fact it is necessary to show the travel time based upon average travel conditions of the entire population of Orange County to all existing acute care hospitals. AMI and Winter Park have failed to do so. The evidence fails to show that more than 10 percent of Orange County's population is more than 30 minutes by automobile from existing Orange County hospitals. The evidence does not support a conclusion that there is an accessibility problem under Section 10-5.11(23)(i), F.A.C. Only 1 percent of the population of Orange County residing in the MSAs is located more than 30 minutes by automobile from existing hospitals in Orange and Seminole Counties. This is based upon the 1985 population and the projected 1990 population. In 1985 there are 4,232 people residing in the MSAs more than 30 minutes from existing Orange and Seminole County hospitals. By 1990, there will only be 5,276 people projected to live more than 30 minutes from existing hospitals. These figures are maximum numbers. As indicated, supra, the evidence with regard to population growth in the MSAs proves that the projected population growth will be concentrated in the western portion of the MSAs--the portion of the MSAs closest to where existing hospitals are located. Most of the projected population growth through 1990 in the MSAs will clearly be within 30 minutes of existing hospitals. The projected 1990 population of 5,276 people who will reside more than 30 minutes from an existing Orange County or Seminole County hospital is well below 10 percent of Orange County's total projected population of 596,713. Additionally, the people in the MSAs who reside more than 30 minutes from existing Orange and Seminole County hospitals are probably within 30 minutes of Jess Parrish Hospital in Titusville, Brevard County, Florida. There are no natural obstacles in Orange County which impede or prevent access to existing health care facilities. Well over 90 percent of Orange County's population can access a hospital within 30 minutes driving time. OGH has proposed findings of fact pertaining to the availability of motor vehicle and air ambulance services in Orange County. The accessibility test of Section 10-5.11 (23)(i), F.A.C., requires a consideration of automobile travel times under "average travel conditions," not emergency services. Therefore, these proposed findings of fact and OGH's proposed findings of fact as to the requirements of obtaining a trauma level designation are unnecessary. The evidence also clearly establishes that there are acute care hospital beds available in Orange County. The average occupancy rates in District 7, Orange County and Seminole County for 1982, 1983 and 1984 were as follows: 1982 1983 1984 District 7 71.8% 70.34% 61.71% Orange County 69.5% 68.68% 60.80% Seminole County 76.0% 74.20% 59.39% Florida Hospital and OGH have experienced similar declines in utilization similar to those evidenced by these figures. Florida Hospital's utilization rate dropped from 86.3 percent in 1982 to 78.6 percent in 1984 and OGH's rate dropped from 88.5 percent in 1982 to 44.4 percent in 1984. There are currently 4,880 licensed and approved acute care hospital beds in District 7. Based upon the 1984 utilization rate for District 7, over 1,800 acute care beds were empty on an average day in District 7 during 1984; In Orange County, approximately 1,000 acute care beds were empty on average during 1984. As indicated, supra, the decreasing acute care bed utilization rate is expected to continue for 2 to 4 years. Therefore, there are acute care hospital beds available in Orange County at existing hospitals and there will be in 1990. Additionally, new acute care hospital beds have been approved for Orange County and Seminole County which are not yet open: 134 acute care beds to be opened by Florida Hospital at its Orlando campus and 76 acute care beds to be opened by Florida Hospital at its Altamonte Springs campus. Also 81 new beds will be opened in Brevard County. These additional beds will further increase the number of available acute care hospital beds in Orange and Seminole Counties and in District 7. Based upon the foregoing and the fact that there is a large number of unoccupied acute care beds available on average in Orange County, there is no geographic accessibility problem in Orange County or Seminole County under Section 10-5.11(23)(i), F.A.C. Other Accessibility Considerations. Despite the evidence with regard to geographic accessibility under Section 10-5.11(23)(i), F.A.C., the Petitioners have argued that accessibility to acute care beds is a problem in the MSAs. Mr. Willard Wisler, Winter Park's administrator, although agreeing that "planning studies" indicated no need for additional acute care beds in Orange County, stated: But our posture has been that they have been misallocated, and that the east Orange County [sic) is a greatly underserved area on the basis of the number of hospital beds that are available to the people that live there. The evidence does establish that the majority of the hospitals in Orange County are located in the center of the County, in the City of Orlando, where the majority of the population is located and that there is only one hospital currently located in the MSAs. Currently, 6 percent of Orange County's acute care hospital beds are located in the MSAs at OGH while 19 percent of Orange County's population is located in the MSAs. The Petitioners have characterized this geographic distribution of acute care beds and population as a "maldistribution" of acute care beds. The disparity between the precentage of population and acute care beds in the MSAs will increase in the future because the projected rate of growth in the MSAs is greater than that of Orange County. It is projected that by 1990 22 percent of the Orange County population will be located in the MSAs. The centralization of acute care beds in Orange County, according to Mr. Van Talbert, Winter Park's expert health planner, constitutes irresponsible health planning: "It tends to perpetuate the old patterns of centralization, and I think that is inconsistent with contemporary thought in American society." Mr. Talbert also testified that the MSAs and particularly east Orange County, are greatly underserved based upon the number of hospital beds conveniently available to the people who live there. Even if Mr. Talbert's conclusions are correct and even if there is a "maldistribution" of acute care beds as defined by the Petitioners, this does not mean there is an accessibility problem in the MSAs sufficient to conclude that additional acute care beds are needed in District 7, Orange County or the MSAs. The fact that 22 percent of the population of Orange County may reside in the MSAs by 1990 with only 6 percent of the County's acute care beds is not the test. Even if it is true that "contemporary planning may indicate that centralization of acute care beds is poor planning," the pertinent statutes and rules only require a determination of whether acute care beds are available and accessible. The evidence in these cases clearly indicates that the population of the MSAs can access available acute care hospital beds in District 7. All the Petitioners have shown is that some residents of the MSAs "will be forced to make inconvenient drives to downtown hospitals," as stated in Winter Park's proposed recommended order. Likewise, AMI's proposed finding of fact that ",the realities of the situation reveal that the residents of the MSA and their physicians perceive serious access problems due to excessive travel distance, traffic congestion, the lack of convenience for patients who have to go to hospitals for tests, and the lack of convenience for families and friends having to make several trips a day to see a person in a hospital" does not prove there is an access problem. The perception of patients and physicians as to the inconvenience in accessing acute care beds does not prove there is an access problem sufficient to warrant a new hospital. In conjunction with the Petitioners' position with regard to "maldistribution" of acute care beds, the Petitioners have proposed findings of fact to the effect that previous Department responses to shifts in population growth away from where hospitals are located have been to authorize new hospitals. New hospitals in Altamonte Springs and Longwood in Seminole County, and in southwest Orange County (Sand Lake) have been cited as examples. Although Mr. Talbert's testimony supports these proposed findings of fact to some extent, there is insufficient evidence to conclude why those hospitals were authorized by the Department. If the evidence showed that additional acute care beds were needed in Seminole and Orange Counties when those hospitals were approved it would be consistent with the Department's rules to locate the additional acute care beds where population growth had occurred. In these cases, if there was an established need for an additional acute care hospital in Orange County, the evidence would probably justify placing it in east Orange County. The facts, however, do not indicate any need for additional acute care beds in Orange County. Other MSA Considerations. It is not essential to identify a MSA for purposes of considering an application for a new acute care hospital as suggested by AMI. As discussed, infra, the designation of a MSA by an applicant may be helpful for some purposes, but not to determine whether there is a need for a new hospital. AMI has proposed a finding of fact that Orlando Regional Medical Center and Florida Hospital's Orlando campus, both of which are located in Orlando, are tertiary care facilities providing services of higher complexity for patients; they therefore attract a substantial number of referral patients in need of more extensive, complex services which are not available from primary care hospitals. The existence of these tertiary facilities has justified the allocation of more acute care beds to Orange and Seminole Counties in the past. Although these facts were proved at the hearing, the overriding fact remains clear that there is no need for additional acute care beds in Orange County. AMI attempted to prove through Mr. Mark Richardson an expert in health planning, that there is a need for acute care beds in AMI's MSA based upon the characteristics of the MSA. Mr. Richardson testified that his projections were not based or contingent on the Formula of Section 10-5.11(23), F.A.C., and acknowledged the decline in utilization of acute care hospital beds in Orange County. Mr. Richardson did state that the Department's projection of a net acute care bed need of 89 beds under the Formula supported his projections. The projection of a need for 89 beds was clearly based upon outdated data. Use of current utilization data indicates an excess of 464 acute care beds. Therefore, if application of the Formula resulting in a bed need of 89 beds supports Mr. Richardson's projections, an application of the Formula which results in an excess of 464 acute care beds must indicate that Mr. Richardson's projections are suspect. Mr. Richardson's projections were clearly based primarily on the characteristics of AMI's MSA. Because of the narrow scope of Mr. Richardson's analysis, the trend in Orange County and District 7 as to reduced occupancy rates did not affect his projections. In particular, Mr. Richardson used an 80 percent occupancy rate for all beds except obstetric beds, for which he used a 75 percent rate. These occupancy rates are excessive when compared to the occupancy rates for District 7, and Orange and Seminole Counties. Additionally, Mr. Richardson failed to consider the effect of unopened acute care beds in Orange County on occupancy rates. On average, there are over 1,800 unoccupied acute care beds in District 7 and 1,000 unoccupied beds in Orange County. This does not include 134 acute care beds to be opened at Florida Hospital's Orlando campus, 76 acute care beds to be opened at Florida Hospital's Altamonte Springs campus or 81 acute care beds to be opened at Holmes Regional Medical Center in Brevard County. When opened, these additional acute care beds will further decrease occupancy rates in Orange County and District 7. Even if Mr. Richardson's projections were totally accurate, such a finding would not be relevant to the question of whether there is a need for additional acute care beds in Orange County. That is the crucial question in these cases. Mr. Richardson and AMI have attempted to justify Mr. Richardson's projections by suggesting that the Department does not consider itself precluded from assessing the need for acute case beds on an area within a subdistrict based upon Mr. Nelson's testimony. Mr. Nelson's testimony clearly does not support the use of a MSA to determine if there is a need for additional acute care beds in Orange County. Mr. Nelson, when asked whether an applicant could determine bed need based upon the character of a part of Orange County replied: There's nothing to preclude an Applicant from doing that, from carving out what I would call an Applicant's service area, running their own calculations of bed need, and doing whatever they feel they want to do in that regard. And we're not ,precluded from looking at it, either. But our position is that that has no official basis in determinations of bed need. We do look at those subdistricts but not to determine bed need. We look at them to get a better understanding of an application, because we get a sense, from looking at the unique service areas, what they' re trying to accomplish. That would be number one. Number two, and from having worked on the private side, I know one of the reasons why this is done, this is an attempt to define a market share or market area and a percent of all the considerations of what the existing hospitals that are already in the area have in the way of markets and market shares, and so on. So on the second hand, looking at the subdistricts is very important, from the standpoint of helping us to assess the financial feasibility of these proposals, which is another criterion, of course, altogether, specifically in the longer term. Because, you know, you have to know who is getting patients from where in order to be able to fully understand that. And I think the third way in which these subdistricts, these Applicants -- pardon the expression, subdistricts, that's not what these things are -- the Applicant's medical services areas are useful is in those cases where we may have a need helping us to decide where, within, let's say a subdistrict that need should be met. For example, let's suppose in this case, we were showning a need of sufficient magnitude to approve a hospital. But instead of having two applications within a few miles of each other, we had one for east Orange County, and one in west Orange County, and portions of other counties, each of which had carved out their own service area, then it would be very important for us, in that case, to look at these things very carefully, to consider them to help us determine which location was preferable. But in terms of calculating bed need from the Department's perspective, we don't put any stock in those whatsoever from that perspective. ,Emphasis added. Based upon the above testimony, it is clear that MSAs may be looked at if an applicant uses one in order to provide a better understanding of the applicant's proposal, to assess financial feasibility and, where there is an established need for acute care beds, to decide where in the subdistrict the need is the greatest. MSAs are clearly not relied upon to determine the initial question of whether there is a need for acute care beds. To determine acute care bed need based upon a MSA without considering `the' entire subdistrict of Orange County is not appropriate. The Department, as the statute and rules require, determines need at the district level and allocates the district bed need to the subdistricts. In fact, the Department has ruled that it is improper to divide a district into subdistricts smaller than those designated by a local health council for purposes of determining need as pointed out by Winter Park in its proposed recommended order. Southeastern Palm Beach County Hospital District v. Department of Health and Rehabilitative Services, 5 F.A.L.R. 1091A (1983). For purposes of determining whether there is a need for additional acute care hospital beds in Orange County, Mr. Richardson's testimony is of very little value. STATUTORY CRITERIA. Section 10-5.11(23)(b), F.A.C., provides that a certificate of need may be issued when the criteria, other than bed need, as provided in Section 38l.494(6)(c), Florida Statutes (1984 Suppl.), demonstrate need. The Petitioners have attempted to prove that there is an accessibility problem in Orange County which demonstrates acute care bed need under Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.). The facts do not support such a conclusion as discussed, supra. This section of the Recommended Order contains findings of fact with regard to the other criteria contained in Section 381.494(6)(c) and (d) Florida Statutes (1984 Suppl.). Consistency with the State and Local Health Plan: Section 381.494(6(c)1, Florida Statutes. The applications of the Petitioners are only partly consistent with the State Health Plan and the Council's Local Health Plan. The Council's Local Health Plan establishes the following occupancy levels for acute care beds which should be met before new acute care beds are approved: TYPE OF BEDS OCCUPANCY LEVEL Medical - Surgical 80% Obstetrical 75% As already discussed, occupancy levels for acute care beds in District 7, and in Orange and Seminole Counties were below 70 percent in 1984. The declining utilization of acute care beds will continue for the next 2 to 4 years and therefore it does not appear that the occupancy level goals in the Local Health Plan will be met by either applicant. These occupancy level goals are intended to be used as checks on the bed need methodologies. The importance of existing occupancy levels in determining whether to add additional acute care beds to a district is recognized in Section 10-5.11(23)(g), F.A.C. The Petitioners have projected that they will achieve an occupancy rate of 45-50 percent after one year of operation. South Seminole Community Hospital, which was opened in May of 1984 in Longwood, Seminole County, Florida, achieved only a 27 percent occupancy rate after 8 months of operation. In light of the fact that South Seminole Community Hospital is located in Longwood, it is doubtful the Petitioners will achieve their projected occupancy rate. The Petitioners have projected that their proposed hospitals will achieve an 80 percent occupancy rate, which is an optimal occupancy rate. Their projections, based upon the findings of fact as to acute care bed need in Orange County and current occupancy levels, are highly unlikely to be reached. Especially in light of the fact that the average occupancy rate in Orange County was only 60.80 percent in 1984. The proposals are also inconsistent with the Local Health Plan goal that a proposal be consistent with the state's acute care bed need methodology. Based upon an application of the Formula, using current data, District 7 and Orange County will have an excess of acute care beds in 1990. Winter Park's proposal is consistent with several other portions of the Local Health Plan. Winter Park's facility will have an active outpatient program, its beds can be available within 24 hours and it will meet several priorities under the Local Health Plan such as being accredited and licensed, and being willing to serve indigents and other patients without regard to payment source. AMI's proposal also meets some of these goals. The Local Health Plan also contains a provision to the effect that "needed" beds should be approved at existing hospitals unless the addition of a new hospital would substantially improve access by at least 15 minutes for 25,000 or more residents. Winter Park has suggested a finding of fact that this provision has been met. If there was a need for additional acute care beds in Orange County such a finding would be appropriate. There is, however, clearly no need for additional acute care beds in Orange County. This portion of the Local Health Plan therefore does not apply. Finally, the Local Health Plan provides that applicants should be able to document community and provider support for their proposals. Community support for the proposals has been demonstrated. Provider support, however, has not been demonstrated. In fact, there is opposition from some providers to the proposed new hospitals, i.e., Florida Hospital and OGH. The proposals are also partially consistent with the State's health plan. The evidence does not clearly establish, however, that the proposals are totally consistent with the goals of the State health plan. Mr. Talbert did testify that Winter Park's proposal is consistent with the goals of the State health plan. It was not clear, however, whether all of the goals were met. Also, Mr. Talbert's testimony was inconsistent with other evidence in this proceeding in some respects. For example, Mr. Talbert testified that one goal of the State health plan is to provide adequate access to acute care resources. The evidence clearly shows that adequate access is already available in Orange County. To the extent it can be inferred that Mr. Talbert's testimony also applies to AMI's proposal, the same problems exist. The evidence does not support a finding that AMI's proposal is totally consistent with the State health plan. Based upon the foregoing, it does not appear that either proposal is totally consistent with the Local Health Plan or the State health plan. The Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Health Care Services in the Service District; Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.). Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.), requires that the availability, quality of care, efficiency, appropriateness, extent of utilization and adequacy of like and existing health care services in the service district be considered. The service district for this purpose is District 7. The designation of subdistricts in District 7 is specifically for purposes of allocating district bed need to the subdistricts. The parties, to the extent they addressed this criterion, presented evidence primarily for Orange County only, however. The availability, accessibility and extent of utilization of like and existing acute care hospitals in Orange County has been discussed and findings of fact with regard thereto have been made, supra. To summarize, like and existing services in Orange County are available and accessible and are underutilized. The Petitioners have not shown that like an existing services in District 7 do not provide quality of care or that they are not efficient, appropriate or adequate. Winter Park has argued that like and existing services are not accessible. The evidence does not support such a finding of fact. AMI has argued that there are no like and existing services accessible in the MSAs. That is not the test. The determination to made under Section 381.494(6)(c)2, Florida Statutes (1984 Suppl.), is whether there are like and existing services in the service district. The service district in these cases is all of District 7, not the MSAs. There are currently seven acute care hospitals in Orange County: Florida Hospital, OGH, Orlando Regional Medical Center, Brookwood Hospital, Humana Lucerne, Winter Park Hospital and West Orange Memorial Hospital. Additionally, Orlando Regional Medical Center - Sand Lake is expected to be opened before 1990. These district. The evidence does not support a finding that some or all of these facilities or others in District 7 are not available, providing quality of care, efficient, appropriate, accessible, over utilized or adequate. AMI and OGH spent an inordinate amount of time and effort presenting evidence on the issue of whether OGH is a like and existing service. The evidence supports a finding that OGH is a like and existing service. Even if OGH was not a like and existing service, such a conclusion would only be relevant if it were concluded that like and existing services must exist within the boundaries of the MSAs or that OGH was the only accessible acute care hospital to the residents of the MSAs. As stated, supra, the pertinent area is not the MSA but District 7 and there are clearly other acute care hospitals in District 7 and some of those hospitals are accessible. If Orange County alone is the appropriate service area for purposes of applying this criterion, the evidence clearly proves that the Petitioners do not meet the criterion. The evidence proves that there are available, quality, appropriate, efficient and adequate like and existing health care services in Orange County and District 7. The Ability of the Applicants to Provide Quality of Care; Section 381.494(6)(c)3. Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion has been meet. 113.. The Availability and Adequacy of Other Health Care Facilities and Services in the Service District which may Serve as Alternatives: Section 381.494(6)(c)4, Florida Statutes (1984 Suppl.). There are clearly other health care facilities in Orange County providing like and existing services. The evidence does not, however, establish that there are other health care facilities and services in Orange County which are alternatives to a 100 bed acute care hospital. Transferring beds from existing facilities has been suggested as an alternative to the proposed new hospitals. This suggested "alternative" could be achieved as easily by approving a new hospital and closing some existing beds. The cost would be essentially the some. Transferring beds is not an alternative. Use of existing beds which are not being occupied is not a viable alternative either, as suggested by OGH in its proposed findings of fact. Probable Economies and Improvements in Service that may be Derived from Operation of Joint, Cooperative or Shared Health Care Resources; Section 381.494(6)(c)5, Florida Statutes (1984 Suppl.). AMI's proposed facility may eventually share some services with Brookwood Community Hospital in the area of administrative management. Brookwood Community Hospital (hereinafter referred to as "Brookwood") is a 157 bed general acute care hospital owned and operated by a limited partnership. The general partner and owner of 82.5 percent of the partnership is Brookwood Medical Center of Orlando, Inc., which in turn is owned by AMI. AMI presented its proposal assuming that there would not be any shared services with Brookwood. Through AMI, UCH, Inc., can receive price discounts for its purchases, typically 15 percent to 20 percent lower than the lowest price available in the market generally. UCH, Inc., will also be able to participate in Brookwood's preferred provider organization agreement. This could result in enhanced utilization of UCH, Inc., which could result in decreased health care costs. Winter Park will share some resources with its new hospital. The resources to be shared include Winter Park's incinerator, CAT Scanner, cardiac catheterization ion laboratory, and certain personnel. Centralized accounting, centralized purchasing and some centralized management would also be employed. Both proposals will have joint, cooperative or shared health care resources which would result in probable economics and improvements in service. The Need in the Service District of the Applicant for Special Equipment and Services not Reasonably and Economically Accessible in Adjoining Areas; Section 381.494(6)(c)6, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. The Need for Research and Educational Facilities: Section 81.494(6)(c) 7, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. The Availability of Resources; the Effects on Clinical Needs of Health Professional Training Programs in the Service District: Accessibility to Schools for Health Professionals: the Availability of Alternative Uses of Resources: Extent Accessible to All Residents; Section 381.494(6)(c)8, Florida Statutes (1984 Suppl.). The parties have stipulated that Section 81.494(6)(c)8, Florida Statutes (1984 Suppl.), has been met to the extent it deals with "health and management manpower and personnel only." The other factors to be considered under this criterion were not stipulated to. The first factor to be considered is the availability of resources, including physicians and funds for capital and operating expenditures. The availability of funds will be discussed, infra. As to the availability of physicians, the weight of the evidence supports a finding that physicians are available to staff either of the proposed facilities. AMI proposed a finding of fact that ", unlike WPMH, AMI demonstrated that the major medical specialty areas will be represented by various physicians who will joint the UCH medical staff." AMI did demonstrate that various medical specialty physicians would be willing to work at UCH, Inc. It is also true that Winter Park did not demonstrate that all of the medical specialty physicians would be willing to work at its proposed facility. Despite these facts, several physicians testified that they would use Winter Park's proposed facility if it were approved instead of UCH, Inc., and Mr. Willard Wisler's unrebutted testimony establishes that Winter Park would have no difficulty staffing its proposed hospital. Both Petitioners have established that physician resources are available for project accomplishment and operation. The second and third factors to be considered are the effect the projects will have on clinical needs of health professional training programs in Orange County and, if available in a limited number of facilities, the extent to which services will be available to schools for health professionals in Orange County. The weight of the evidence does not establish that professional training programs are available in a limited number of facilities. In fact the evidence establishes that the University of Central Florida (hereinafter referred to as "UCF"), which is located in east Orange County, has fifty-two affiliation agreements with hospitals and other medical facilities. These affiliation agreements include agreements involving clinical training of radiology technicians at Florida Hospital and, in Brevard County, at Halifax Hospital. Approximately 32 radiology students are currently involved in hospital training programs. AMI presented evidence proving the existence of a proposed "affiliation agreement" between its proposed hospital and UCF. AMI and UCF have in fact entered into an Agreement of Intent. The Agreement of intent essentially provides, in relevant part, that AMI's proposed hospital, if approved, would provide clinical training to UCF radiology technician students. Approximately three to six UCF students per semester would receive training at the new hospital. The program with UCF will clearly have a positive effect on "clinical needs of health professional training programs" in Orange County. The agreement also provides for certain other benefits to UCF in the form of certain gifts. Those benefits, however, are not relevant in considering whether a certificate of need should be issued to AMI. The portion of Section 381.494(6)(c)8, Florida Statutes (1984 Suppl.), at issue in this proceeding requires only that the effect on "clinical needs of health professional training programs" be considered. AMI's gifts will not meet the "clinical needs" of health professional training programs. AMI's proposed findings of fact with regard to its gifts to UCF are unnecessary. Florida Hospital and Winter Park have proposed several findings of fact concerning AMI's motive in entering into the agreement with UCF. Those proposed findings are not supported by the evidence and are not relevant. Florida Hospital also has proposed findings of fact concerning whether a tertiary hospital would be a better facility for training, the effect of patient mix on training, the lack of any study by UCF to assess the benefits of the agreement and the fact that AMI's proposed facility will not be a teaching hospital or have full-time teachers. Those proposed findings are unnecessary. The fact is, the clinical training to be provided by AMI's facility will be a benefit to the clinical needs of health professional training programs in District 7. Because of the substantial amount of gifts to be made to UCF, which will be paid for by patients of AMI's facility, the costs of AMI's clinical program will be substantial. Winter Park is currently involved in meeting clinical needs of health professional training programs at a number of educational institutions, including UCF. Winter Park's involvement includes radiology and several other programs. Although no agreements have been entered into, programs to meet such clinical needs will be provided at Winter Park's new facility. Because Winter Park has not committed to make any gifts to educational institutions, the costs of its programs will probably be less than AMI's program. The fourth factor to be considered is the availability of alternative uses of resources for the' provision of other health services. The evidence presented at the hearing does not establish that there are not alternative uses of resources. The petitioners failed to present evidence sufficient to conclude that there are not alternative uses for available resources. Finally, the extent to which the proposed services will be accessible to all residents of the service district is to be considered. Both Petitioners are willing to accept all patients regardless of age, sex, race, color or national origin, and medically underserved groups. The Petitioners have met most, but not all, of the requirements of this criterion. Immediate and Long-Term Financial Feasibility; Section 1.494(6)(c)9. Florida Statutes (1984 Suppl.). Immediate Financial Feasibility. AMI's proposed facility will be financed by a 50 percent equity contribution from AMI to UCF, Inc., and 50 percent debt financing from AMI at a maximum interest rate of 12 percent amortized over 30 years. AMI has sufficient lines of credit to cover the amount needed for debt financing. AMI also has sufficient cash and unrestricted liquid assets (almost $300,000,000.00 by the end of its 1984 fiscal year) and generates enough capital ($300,000,000.00 to $400,000,000.00 a year) to fund its equity contribution and the debt. AMI also has sufficient funds to provide working capital needs of UCF, Inc. Exactly how Winter Park's proposed facility will be financed is less clear. Both of the Petitioners have suggested that the other has not proved that it has "committed" itself to funding their respective proposals. Although the evidence does raise questions as to whether AMI or Winter Park has finally committed the total funds necessary to complete their proposals, the weight of the evidence supports a finding that both Petitioners are committed to funding their proposals. More importantly, the test is whether the Petitioners have available financing sources. University Community Hospital, et ala v. Department of Health and Rehabilitative Services, 5 F.A.L.R. 1346-A, 1360-A (1983). AMI clearly proved that its Executive Committee had approved its proposal. One of its witnesses, however, testified that the approval of capital expenditures of over $1,000,000.00 took approval of the full AMI Board of Directors. Winter Park clearly proved that its Board of Trustees had approved only $4,000,000.00 of the costs of its facility. Despite these facts, the evidence establishes that, although final approval of all the funds necessary to fund the proposals may not have been given, the funds necessary to insure the immediate, financial feasibility of both proposals are available. Where the funds will come from in Winter Park's case and the total amount of funds needed by Winter Park is far from being crystal clear. Winter Park failed to take into account several expenses it will incur, including sewer capacity reserve fees (approximately $160,500.00), telephone lease costs ($20,000.00) and possibly some interest expenses. There may also be an underestimate of the cost of debt financing, depending upon whether tax-exempt loans are available to Winter Park. The costs of sewer capacity reserve and the telephone lease can probably be covered by the contingency funds projected by Winter Park. AMI's proposed findings of fact with regard to equipment costs underestimates are rejected as unsupported by the weight of all of the evidence. Even with the understatement of project costs, the evidence supports a conclusion that Winter Park's proposal is immediately financial feasible. Winter Park currently has set aside "over $7,000,000.00" which can be applied to fund its proposal. (Although Winter Park has certain planned or ongoing capital improvements, the evidence does not prove that these improvements will be funded out of the funds set aside for the proposed new hospital, as suggested by AMI)'. Winter Park also has lines of credit with Barnett Bank and Sun Bank of $5,000,000.00 each. Neither line of credit has been used in the past. The Sun Bank line of credit was recently renewed and is available for one year. The Barnett Bank line of credit is also good for only one year. Both lines of credit have been renewed in the past. These lines of credit will have to be renewed before construction of Winter Park's facility begins. Winter Park presented no evidence as to whether the lines of credit would be renewed by either bank, however. Therefore, the record does not contain evidence as to whether the lines of credit will be available. Winter Park is also the sole beneficiary of the Winter Park Memorial Hospital Association Foundation, a not-for-profit foundation set upon to receive donations for the support of Winter Park. The Foundation "would make funds available to it [Winter Parka when needed." (Although testimony concerning Winter Park's alleged ability to "request" funds from the Foundation was struck, the quoted testimony was not objected to). The Foundation currently has $2,000,000.00 which could be provided to Winter Park. Finally, Winter Park has a commitment from Barnett Bank for a loan of $9,181,648.00. The loan has been committed whether interest on the loan is tax- free or taxable to Barnett Banks. Whether the loan is tax-free will affect the immediate and long- term financial feasibility of the proposal. If the loan is not tax-free, additional interest expense will be incurred; instead of being financed at a 7.696 interest rate, Winter Park will be charged approximately 11.5 percent interest if the loan is not tax- free. If the loan is tax-free, Winter Park may have failed to take into account costs associated with obtaining tax-free financing, i.e., underwriter's fees. AMI has proposed a number of findings of fact concerning additional costs associated with whether the Barnett Bank loan is tax-free. Those findings of fact are not relevant, however, in determining immediate financial `feasibility of Winter Park's proposal. The evidence establishes that the funds available to Winter Park are sufficient to cover Winter Park's projected costs and the costs it failed to include in its proposal (including the $1,20 0,000.00 of working capital which will be needed by the and of 1988). Both proposals are financially feasible in the short-term. Long Term Financial Feasibility. The Petitioners have failed to prove that their proposals are financially feasible in the long run. The projections of the Petitioners with regard to expected gross revenue depends upon whether their utilization projections are correct. Based upon the conclusion that there is no need for the proprosed facilities it is unrealistic to expect the facilities to be financially feasible. AMI's projections as to gross revenue depend on Mr. Richardson's need analysis for AMI's MSA. As discussed, supra, Mr. Richardson's projections were based upon unrealistic occupancy rates. Winter Park's projected utilization is based upon Winter Park's historical experience with its MSA for 1983. Mr. Talbert's and Mr. John Winfrey's reliance on this data in light of the trend toward reduced utilization of hospitals in Orange County is misplaced. Determining utilization of Winter Park's proposed hospital in future years based on utilization of an existing hospital in light of the trend toward reduced utilization of hospitals is very suspect. The fact that east Orange County is expected to grow in terms of population does not eliminate the concern with regard to utilization. Orange County has been growing since 1980 and before. Despite that growth, hospital utilization has declined. As to the projected expenses of the proposed hospitals which effect the financial feasibility of the proposals, it appears that AMI's projections are reasonable. A number of questions concerning Winter Park's expenses were raised, however, by the evidence. The evidence supports a finding that Winter Park has failed to take into account some expenses which will affect the long term financial feasibility of its proposal. Expenses not taken into account include phone lease expenses ($15,000.00 to $20,000.00), indigent care assessments ($58,000.00 in the second year of operation) and start-up costs ($22,680.00 a year). The evidence, however, also supports a finding that Winter Park's estimate of medicare contractual allowances was $318,900.00 too high and that depreciation expense was $130,000.00 too high. These overstatements of expenses are more than sufficient to cover the understatements of expenses discussed in this paragraph. The primary problem with Winter Park's estimate of expenses is that Winter Park has projected interest expense at a tax- exempt rate of 7.6 percent. The evidence does not prove that Winter Park can, however, obtain tax-exempt financing. Winter Park only presented evidence that Barnett Bank is willing to loan funds on a tax-exempt or taxable basis. Winter Park must, however, obtain approval of its proposed tax-exempt financing from the Orange County Health Facilities Authority. See Chapter 154, Florida Statutes (1983). No evidence that such approval could be obtained was presented at the hearing. Winter has therefore failed to prove that its estimated interest expenses can be achieved. The evidence also shows that if Winter Park cannot obtain tax-exempt financing, it will have to borrow funds at an 11.5 percent interest rate. This rate of interest can be obtained, but the additional interest expense would result in a net loss for the second year of operation. Based upon the foregoing, Winter Park has failed to prove that its proposal is financially feasible in the long-term. Winter Park has proposed findings of fact to the effect that it could charge a higher rate for its services to cover understated expenses. No evidence was presented, however, that proves that Winter Park would be willing or committed to a higher charge for its services. AMI's proposed findings of fact with regard to expenses for utilities, food and drugs, other operating expenses, incinerator costs and equipment costs are rejected. AMI's proposed findings of fact with regard to the goal of Winter Park to achieve an optimum profit margin of 5 percent to 7 percent are rejected because that goal does not apply to the proposed facility. The projected profit margin of the proposed facility is only seven-tenths of one percent. AMI's proposed findings of fact as to the years projections were made for (two years instead of five), the manner of making those projections (no balance sheet, no cash flow statements and no quarterly breakdowns) and the lack of a feasibility study are not necessary. AMI's remaining proposed findings of facts concerning "soft spots" in Winter Park's projections are also rejected. Special Needs and Circumstances of Health Maintenance Organizations; Section 381.494(6)(c)10, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. Needs and Circumstances of Entities which Provide Services or Resources to Individuals not Residing in the Service District or Adjacent Service Districts; Section 381.494(6)(c)11, Florida Statutes (1984 Suppl.). The parties have stipulated that this criterion does not apply. Probable Impact of the Proposal on the Costs of Providing Health Services; Section 381.494(6)(c)12, Florida Statutes (1984 Suppl.). The weight of the evidence clearly supports a conclusion that if either of the proposed hospitals is approved, the probable impact on the costs of providing health services would be negative. The only real question raised by the evidence is the degree of the negative impact. It has already been found that there will be an excess of beds in Orange County in 1990 and that utilization rates are decreasing and will continue to do so. To add 100 acute care beds to an already over-bedded subdistrict can only further add to the number of excessive beds. Patients who would occupy 100 new acute care beds would have access to other hospitals in Orange County if a new hospital is not approved. If it is assumed that patients could be attracted to a new hospital in the MSA's it necessarily follows that those patients will not use an existing, already underutilized, hospital in Orange County, Seminole County or the rest of District 7. Additionally, the evidence clearly shows that some patients who currently use existing Orange and Seminole County hospitals would be attracted to a new hospital in the MSAs. AMI has suggested that such a loss of patients would be "minimal." Minimal or not, the loss of any number of patients would result in a loss of patient days and revenue to existing hospitals which are on average already underutilized. If patients are lost by existing hospitals, the ability to serve indigents could be adversely affected. The projected population growth for the MSA's does not solve the problem either. Orange County has been experiencing population growth during the 1980's, as well as prior to 1980. Despite this population growth, utilization rates have been decreasing. Even Mr. Richardson, AMI's expert health planner, admitted there would be an impact on existing hospitals. Mr. Richardson indicated that there would a "1.5 percent occupancy impact on the system" by 1990 based upon Mr. Margolis' analysis. Mr. Richardson indicated that such an impact would be "minimal." Whether a 1.5 percent impact is minimal is not the issue. The issue is what effect such an impact would have. The weight of the evidence clearly supports the finding that the impact would be negative and the citizens of Orange County would suffer the consequences of that "minimal" impact. Florida Hospital's expert health planner, Mr. Margolis, was the most credible witness with regard to this criterion. His testimony proves that Florida Hospital and OGH could lose 5,400 to 6,000 patient days if a new 100 acute care hospital is approved. How much the dollar loss would be as a result of such a decrease in patient days is not clear. There was testimony that OGH could lose $1,000,000.00 to $3,500,000.00 in gross revenue. AMI has again suggested that the loss in patient days and revenue to OGH would be minimal and that OGH's testimony as to the amount of loss was misleading. Mr. Patrick Deegan, who testified as an expert in finance for OGH, did fail to take into account any reduction in expenses which might be associated with a loss in revenue and also failed to take into account increases in revenue as a result of growth. Although these factors could influence the amount of projected losses in revenue, the fact remains that a new acute care hospital could and probably would have a negative impact on OGH. AMI has also suggested that OGH could and should reduce its staff. This suggestion is based upon a comparison of OGH's staffing patterns and UCH Inc's proposed staffing. The record does not support AMI's proposed findings of fact. The record does not prove that UCH, Inc's, proposed staff will be at a more appropriate staffing level. Nor does the record establish that a reduction in staff at OGH would be detrimental, as suggested by OGH. As to Florida Hospital, AMI also suggests that any impact to its campuses would be minimal, if any. It is true that there probably would be no impact on Florida Hospital's Apopka campus. Florida Hospital's Orlando campus, however, gets 20 percent of its admission from the MSAs and its Altamonte Springs campus gets 3 percent of its admissions from the MSAs, as AMI points out in its proposed findings of fact. If any of those patients utilize a new hospital in the MSAs, Florida Hospital will lose patients and will be adversely affected. AMI suggested several findings of fact with regard to the financial well-being of Florida Hospital, the addition of beds at its Altamonte Springs and Orlando campuses and its motives in intervening in these cases. These proposed facts do not support a finding that Florida Hospital would not be negatively affected by the opening of a new 100 acute care bed hospital in Orange County. Finally, Winter Park has proposed findings of fact to the effect that a new Winter Park hospital in the MSAs will foster competition and thereby lower costs in Orange County for hospital services. The record does not support these proposed findings of fact in light of the excess of beds in District 7 and the underutilization of existing beds. Based upon the foregoing, Section 381.494(6)(c)12, Florida Statutes (1984 Suppl.), has not been met by the Petitioners' proposals. Costs and Methods of Construction; Section 381.494(6)(c)13, Florida Statutes (1984 Suppl.). The Petitioners only partially proved that Section 381.494(6)(c)13, Florida Statutes (1984 Suppl.), will be met. This section requires proof as to the costs and methods of construction, including methods of energy provision and the availability of alternative, less costly or more effective methods of construction. The Petitioners only proved that the costs of construction would be reasonable. AMI's proposed facility will have 99,000 square feet. The total cost of construction will be $10,095,000.00 including $650,000.00 for site preparation, $8,161,000.00 for labor, materials, overhead and profit, $406,000.00 for contingencies and $878,000.00 for inflation. Architectural and engineering fees will cost an additional $566,700.00. AMI's costs of construction do not include the $236,800.00 cost of reserving sewage capacity or the costs of obtaining appropriate rezoning of its property. These costs will add to the total cost of construction and the total cost of the proposal. AMI's contingency funds are sufficient to cover these amounts. AMI's additional findings of fact concerning construction costs are cumulative or unnecessary for purposes of determining if this criterion has been met. Winter Parks's proposed facility will have 98,763 square feet. Total cost of construction projected by Winter Park is $10,415,000.00, consisting of $375,000.00 for site preparation, $9,000,000.00 for labor, materials, overhead and profit, $468,700.00 for contingencies and $552,200.00 for inflation. Winter Park's projections do not include the costs of reserving sewage capacity which will add approximately $150,000.00 in costs. This additional amount can be covered by the contingency amount. Although the evidence was contradictory, Winter Park did not inadvertently leave out the cost of an incinerator--there will be no incinerator at the new hospital. Although the Petitioners presented testimony to the effect that their projected costs of construction are reasonable, no consideration was given to whether the proposed facilities would be developments of regional impact (hereinafter referred to as "DRI") under Chapter 380, Florida Statutes (1983), and the costs associated with such a determination. The evidence supports conclusion that there will be some costs associated with the determination of whether the proposals are DRIs. The additional cost, however, does not appear to be significant. The Petitioners have failed to prove that the methods of construction are reasonable. They have also failed to prove that the provision of energy will be reasonable or that there are not alternative, less costly, or more efficient methods of construction available. Section 381.494(6)(d). Florida Statutes (1984 Suppl.). In addition to considering the criteria of Section 381.494(6)(c), Florida Statutes (1984 Suppl.), Section 381.494(6)(d), Florida Statutes (1984 Suppl.), requires findings of fact in cases of capital expenditure proposals for new health services to inpatients as follows: That less costly, more efficient, or more appropriate alternatives to such inpatient services are not available and the development of such alternatives has been studied and found not practicable. The existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner. In the case of new construction, that alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable. That patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service. In the case of a proposal for the addition of beds for the provision of skilled nursing or intermediate care services, that the addition will be consistent with the plans of other agencies of the state responsible for the provision and financing of long-term care, including home health services. The facts concerning the first three items quoted are favorable to the Petitioners. The last one does not apply. The fourth item has not been proved to be true in this case. Summary. In summary, the evidence proves that an application of the criteria of Section 381.494(6)(c) and (d), Florida Statutes (1984 Suppl.), does not demonstrate the need for either of the proposed facilities. The Petitioners have only proved that they can provide quality of care, that there are not alternatives to their proposals, that they will have shared resources, that personnel are available, that they have the capital to create the facilities, that they will improve the clinical needs of health professional training programs, and that their proposals are `financially feasible in the short-run. The Petitioners, however, have failed to prove any need for the facilities. Their proposals are not consistent with the local health plan or the State health plan. There are sufficient, underutilized existing hospitals to meet any need for hospital care and they will be adversely affected by the proposed facilities. The proposed facilities are not financially feasible in the long run. THE NEED FOR A CAT SCANNER AMI is also seeking a certificate of need for a CAT Scanner in this proceeding. The determination of whether such a certificate of need should be issued is governed by Section 10-5.11(13), F.A.C. In order to qualify for CAT Scanner, AMI must first obtain approval of its proposed hospital. Because it has been concluded that a certificate of need for a new hospital should not be granted, AMI should not be granted a certificate of need for a CAT Scanner; it will not qualify under Section 10- 5.11(13), F.A.C. In an abundance of caution, the following findings of fact are made as to whether a certificate of need for a CAT Scanner should be issued if AMI's application for a certificate of need for an acute care hospital is approved by the Department. Section 10-5.11(13)(b), F.A.C., provides that a favorable determination will not be given to applicants failing to meet the standards and criteria of Section 10-5.11(13)(b)1-10, F.A.C. The evidence clearly establishes that AMI's CAT Scanner application meets the standards of Sections 10- 5.11(13)(b) 1-3 and 7-9, F.A.C. Section 10-5.11(13)(b)4, F.A.C., does not apply. Section 10-5.11(13)(b)5, F.A.C., requires that an applicant document that there is a need for at least 1,800 scans to be accomplished in the first year of operation and at least 2,400 scans per year thereafter. Mr. Richardson testified that this standard is intended to apply to existing providers and that for a new hospital the need should apply to a five year horizon (1990 in this case). Mr. Richardson indicated that in 1990, this standard can be met. The language of Section 10-5.11(13(b)5, is clear; there must be a need documented for the first year of operation and each year thereafter. In this case, the first year of operation will be 1987. AMI has not documented that there is a need for 1800 scans in 1987 or 2,400 scans per year thereafter. Section 10-5.11(13)(b)6, F.A.C., requires that the applicant document that the number of scans per existing scanner exceeded 2,400 during the "preceding 12 months." The evidence establishes that during the 12 months preceding the hearing all of the fixed CAT Scanners located at hospitals except two were being used for more than 2,400 scans. Again, Mr. Richardson indicated that this standard should be applied to the 12 months preceding 1990. That is not what the rule specifies. The standard applies to the 12 months preceding the hearing. The two units that have not been used for 2,400 scans just started operation, however. Because the rule requires that in the first year of operation only 1,800 scans need to be performed, those units should not be considered in determining if AMI meets this standard. Therefore, AMI meets the requirements of Section 10-5.11(13)(b)6, F.A.C. The last standard, Section 10-5.11(13)(b)10, F.A.C., provides that extenuating circumstances pertaining to health care quality or access problems, improved cost benefit consideration or research needs may be considered. The facts do not support a finding that there are extenuating circumstances in this case. The facts do prove that any hospital such as the AMI proposed hospital should have access to a CAT Scanner. This need, however, can be met by a mobile CAT Scanner or by transferring patients to a facility with a CAT Scanner, although the latter alternative is less desirable. The evidence clearly proves that there is not access problem with regard to obtaining the services of a CAT Scanner. AMI has not met the requirements of Section 10-5.11(13)(b), F.A.C. Taking into account the factors to be considered under Section 10-5.11(13)(a)1- 8, F.A.C., also supports a finding that a certificate of need for a CAT Scanner should not be issued to AMI even if there is a need for its proposed hospital.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the certificate of need applications for a 100-bed acute care hospital and CAT Scanner filed by AMI, case number 84-1819, be denied. It is further DONE and ENTERED this 26th day of July, 1985, in Tallahassee, Florida. LARRY J. SARTIN 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 26th day of July, 1985. COPIES FURNISHED: Fred Baggett, Esquire Michael J. Cherniga, Esquire ROBERTS, BAGGETT, LaFACE & RICHARD 101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32302 Michael Von Eckhardt, Esquire American Medical International, Inc. 414 Camden Drive Beverly Hills, California 90210 Kenneth F. Hoffman, Esquire OERTEL & HOFFMAN, P.A. Suite C 2700 Blair Stone Road Tallahassee, Florida 32301 J. P. "Rusty" Carolan, III, Esquire WINDERWEEDLE, HAINES, WARD & WOODMAN, P.A. P.O. Box 880 Winter Park, Florida 32790-0880 Harden King, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, Florida 32301 E. G. "Dan" Boone, Esquire Stephen K. Boone, Esquire E.G. BOONE, P.A. P.O. Box 1596 Venice, Florida 34284 Steven R. Bechtel, Esquire Brain D. Stokes, Esquire MATEER & HARBERT, P.A. 100 East Robinson Street P.O. Box 2854 Orlando, Florida 32802 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, Florida 32301 LIST OF WITNESSES AMI NAME EXPERTISE Jim Palmer Phillip L. Coppage Hospital administration including staffing. Thomas C. Wohlford Patient group and insurance programs in the health care industry. J.D. Garland Health care facilities, including hospital construction management and budgeting and cost estimating. Manuel Viamonte, M.D. Radiology. Dick Chadbourne Manpower staffing requirements for health care facilities. Jan Stirrat Health care facility equipment planning and equipment cost budgeting. Preston Thompson Physician relations and recruiting. Joseph Akerman, M.D. Peter Hiribarnc, M.D. Louis Trefonas, Ph.D. Need, development and operation of sponsored research projects at UCF. Thomas S. Mendenhall, Ph.D. Need, development and operation of health education and affiliation programs. Alan Denner, M.D. Louis C. Murray, M.D. Joseph Sandberg, M.D. Myles Douglas, M.D. Robert D. Fennell Corporate health facilities planning, processing, implementation and development. Manuel J. Coto, M.D. Jerold J. Faden, M.D. Zivko Z. Gajk, M.D. Don Steigman Hospital operations and administration. William A. Tipton Traffic and transportation. Neal B. Hiler Civil engineering and property site analysis. Trevor Colbourn Ben E. Whisenant Frederick A. Raffa, Ph.D. Demographics and socioeconomic forecasting. Nilo Regis, M.D. Richard Pajot Mark Richardson Health planning. Richard Altman Hospital management engineering. Walter Wozniak Armond Balsano Health care facility financial feasibility and analysis and third- party reimbursements. Rick Knapp Health care facility financial feasibility and analysis, third- party reimbursement and rate-setting for health care facilities. Richard Anderson Edward E. Weller Real estate appraisal. John Winfrey Health care accounting and financial feasibility analysis. Van Talbert Health care planning. Margo Kelly Financial management, analysis and feasibility. WINTER PARK NAME EXPERTISE Katherine J. Brown Florida Hospital Cost Containment Board procedures; hospital costs and charges, data gathering and review; and hospital costs and charges comparisons. Karl Schramm, Ph.D. Hospital cost and charges and comparisons thereof and health care financing, including the impact upon the health care consumer. Willard Wisler Hospital administration including staffing and operating hospitals. John H. Roger Construction design and costs, including site preparation, and analysis thereof, in central Florida; including health care facilities construction. R. Sans Lassiter Traffic engineering, travel times and access in central Florida. Richard Anderson Sarah Mobley Equipment and cost of equipment. William J. Serow, Ph.D. Demographics. Van Talbert Health care planning. John Winfrey Health care accounting and financial feasibility analysis. Robert C. Liden Investment banking, including tax-exempt financing of health care facilities. Lewis A. Siefert Hospital accounting and Medicare Reimbursement. FLORIDA HOSPITAL NAME EXPERTISE Steven Windham Health planning. W. Eugene Nelson Health planning, CON administration and transportation planning. Ronald J. Skantz Radiology training and management. Sven Kansman Traffic engineering and travel time studies. John Crissey Stan Smith, Ph.D. Demographics. Gabriel Mayer, M.D. Physician. Larry Margolis Health care planning, hospital administration, facility planning, HMO's and PPO's. Scott Allen Miller Health care accounting and financial feasibility. OGH NAME EXPERTISE Patrick J. Carson, D.O. Medical emergencies and operation of an emergency room. Tracey Watson Michael Sherry B. Jean Martell Walter J. Wozniak Lawrence Kramer, O.D. Family practice. Patrick Deegan Accounting, hospital finance and budgeting. Andrea Walsh DEPARTMENT NAME EXPERTISE W. Eugene Nelson Health planning, CON administration and transportation planning. PUBLIC WITNESSES Mike Baumann Bob Mandell Luddy Goetz Martin Goodman Yvonne Opfell Martin Lebnick
The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
Findings Of Fact The Application West Florida Regional Medical Center is a 400-bed acute care hospital in Pensacola, Escambia County, Florida. The hospital is located in a subdistrict which has the greatest population aged 65 and over who are living in poverty. That group constitutes the population qualified for Medicare. Some 17 percent of Escambia County's population falls into the medicare category. Prior to October, 1987, HRS had determined that there was a fixed pool need in the Escambia County area for 120 nursing home or extended care beds. Several hospitals in the Escambia County area applied for the 120 nursing home beds. Those beds were granted to Advocare (60 beds) and Baptist Manor (60 beds). The award of the 120 beds to Baptist Manor and Advocare is not being challenged in this action. West Florida, likewise, filed an application for an award of nursing home beds in the same batch as Advocare and Baptist Manor. However, Petitioner's application sought to convert 8 acute care beds to nursing home or extended care beds. West Florida's claim to these beds was not based on the 120 bed need established under the fixed need pool formula. West Florida's application was based on the unavailability of appropriately designated bed space for patients who no longer required acute care, but who continued to require a high skill level of care and/or medicare patients. The whole purpose behind West Florida's CON application stems from the fact that the federal Medicare system will not reimburse a hospital beyond the amount established for acute care needs as long as that bed space is designated as acute care. However, if the patient no longer requires acute care the patient may be re-designated to a skilled care category which includes nursing home or extended care beds. If the patient is appropriately reclassified to a skilled care category, the hospital can receive additional reimbursement from Medicare above its acute care reimbursement as long as a designated ECF bed is available for the patient. Designation or re-designation of beds in a facility requires a Certificate of Need. Petitioner's application for the 8 beds was denied. When the application at issue in this proceeding was filed Petitioner's 13-bed ECF unit had been approved but not yet opened. At the time the State Agency Action Report was written, the unit had just opened. Therefore, historical data on the 13 bed unit was not available at the time the application was filed. Reasons given for denying West Florida's application was that there was low occupancy at Baptist Hospital's ECF unit, that Sacred Heart Hospital had 10 approved ECF beds and that there was no historical utilization of West Florida 13 beds. At the hearing the HRS witness, Elizabeth Dudek stated that it was assumed that Baptist Hospital and Sacred Heart Hospital beds were available for West Florida patients. In 1985 West Florida applied for a CON to establish a 21-bed ECF unit. HRS granted West Florida 13 of those 21 beds. The 8 beds being sought by West Florida in CON 5319 are the remaining beds which were not granted to West Florida in its 1985 CON application. In order to support its 1985 CON application the hospital conducted a survey of its patient records to determine an estimate of the number of patients and patient days which were non acute but still occupied acute care beds. The hospital utilized its regularly kept records of Medicare patients whose length of stay or charges exceeded the Medicare averages by at least two standard deviations for reimbursement and records of Medicare patients whose charges exceed Medicare reimbursement by at least $5,000. These excess days or charges are known as cost outliers and, if the charge exceeds the Medicare reimbursement by $5000 or more, the excess charge is additionally known as a contractual adjustment. The survey conducted by the hospital consisted of the above records for the calendar year 1986. The hospital assumed that if the charges or length of stay for patients were excessive, then there was a probability that the patient was difficult to place. The above inference is reasonable since, under the Medicare system, a hospital's records are regularly reviewed by the Professional Review Organization to determine if appropriate care is rendered. If a patient does not meet criteria for acute care, but remains in the hospital, the hospital is required to document efforts to place the patient in a nursing home. Sanctions are imposed if a hospital misuses resources by keeping patients who did not need acute care in acute care bed spaces even if the amount of reimbursement is not at issue. The hospital, therefore goes to extraordinary lengths to place patients in nursing home facilities outside the hospital. Additionally, the inference is reasonable since the review of hospital records did not capture all non-acute patient days. Only Medicare records were used. Medicare only constitutes about half of all of West Florida's admissions. Therefore, it is likely that the number of excess patient days or charges was underestimated in 1986 for the 1985 CON application. The review of the hospital's records was completed in March, 1987, and showed that 485 patients experienced an average of 10.8 excess non-acute days at the hospital for a total of 5,259 patient days. The hospital was not receiving reimbursement from Medicare for those excess days. West Florida maintained that the above numbers demonstrated a "not normal need" for 21 additional ECF beds at West Florida. However as indicated earlier, HRS agreed to certify only 13 of those beds. The 13 beds were certified in 1987. The 13-bed unit opened in February, 1988. Since West Florida had planned for 21 beds, all renovations necessary to obtain the 8-bed certification were accomplished when the 13- bed unit was certified in 1987. Therefore, no capital expenditures will be required for the additional 8 beds under review here. The space and beds are already available. The same study was submitted with the application for the additional eight beds at issue in these proceedings. In the present application it was assumed that the average length of stay in the extended care unit would be 14 days. However, since the 13 bed unit opened, the average length of stay experienced by the 13-bed unit has been approximately 15 days and corroborates the data found in the earlier records survey. Such corroboration would indicate that the study's data and assumptions are still valid in reference to the problem placements. However, the 15- day figure reflects only those patients who were appropriately placed in West Florida's ECF unit. The 15-day figure does not shed any light on those patients who have not been appropriately placed and remain in acute care beds. That light comes from two additional factors: The problems West Florida experiences in placing sub-acute, high skill, medicare patients; and the fact that West Florida continues to have a waiting list for its 13 bed unit. Problem Placements Problem placements particularly occur with Medicare patients who require a high skill level of care but who no longer require an acute level of care. The problem is created by the fact that Medicare does not reimburse medical facilities based on the costs of a particular patients level of care. Generally, the higher the level of care a patient requires the more costs a facility will incur on behalf of that patient. The higher costs in and of themselves limit some facilities in the services that facility can or is willing to offer from a profitability standpoint. Medicare exacerbates the problem since its reimbursement does not cover the cost of care. The profitability of a facility is even more affected by the number of high skill Medicare patients resident at the facility. Therefore, availability of particular services at a facility and patient mix of Medicare to other private payors becomes important considerations on whether other facilities will accept West Florida' s patients. As indicated earlier, the hospital goes to extraordinary lengths to place non- acute patients in area nursing homes, including providing nurses and covering costs at area nursing homes. Discharge planning is thorough at West Florida and begins when the patient is admitted. Only area nursing homes are used as referrals. West Florida's has attempted to place patients at Bluff's and Bay Breeze nursing homes operated by Advocare. Patients have regularly been refused admission to those facilities due to acuity level or patient mix. West Florida also has attempted to place patients at Baptist Manor and Baptist Specialty Care operated by Baptist Hospital. Patients have also been refused admission to those facilities due to acuity level and patient mix. 16 The beds originally rented to Sacred Heart Hospital have been relinquished by that hospital and apparently will not come on line. Moreover the evidence showed that these screening practices would continue into the future in regard to the 120 beds granted to Advocare and Baptist Manor. The president of Advocare testified that his new facility would accept some acute patients. However, his policies on screening would not change. Moreover, Advocare's CON proposes an 85 percent medicaid level which will not allow for reimbursement of much skilled care. The staffing ratio and charges proposed by Advocare are not at levels at which more severe sub-acute care can be provided. Baptist Manor likewise screens for acuity and does not provide treatment for extensive decubitus ulcers, or new tracheostomies, or IV feeding or therapy seven days a week. Its policies would not change with the possible exception of ventilated patients, but then, only if additional funding can be obtained. There is no requirement imposed by HRS that these applicants accept the sub-acute-patients which West Florida is unable to place. These efforts have continued subsequent to the 13-bed unit's opening. However, the evidence showed that certain types of patients could not be placed in area nursing homes. The difficulty was with those who need central lines (subclavian) for hyperalimentation; whirlpool therapy such as a Hubbard tank; physical therapy dither twice a day or seven days a week; respiratory or ventilator care; frequent suctioning for a recent tracheostomy; skeletal traction; or a Clinitron bed, either due to severe dicubiti or a recent skin graft. The 13-bed unit was used only when a patient could not be placed outside the hospital. The skill or care level in the unit at West Florida is considerably higher than that found at a nursing home. This is reflected in the staffing level and cost of operating the unit. Finally, both Advocare and Baptist Manor involve new construction and will take approximately two years to open. West Florida's special need is current and will carry into the future. The Waiting List Because of such placement problems, West Florida currently has a waiting list of approximately five patients, who are no longer acute care but who cannot be placed in a community nursing home. The 13-bed unit has operated at full occupancy for the last several months and is the placement of last resort. The evidence showed that the patients on the waiting list are actually subacute patients awaiting an ECF bed. The historical screening for acuity and patient mix along with the waiting list demonstrates that currently at least five patients currently have needs which are unmet by other facilities even though those facilities may have empty beds. West Florida has therefore demonstrated a special unmet need for five ECF beds. Moreover, the appropriate designation and placement of patients as to care level is considered by HRS to be a desirable goal when considering CON applications because the level of care provided in an ECF unit is less intense than the level of care required in an acute care unit. Thus, theoretically, better skill level placement results in more efficient bed use which results in greater cost savings to the hospital. In this case, Petitioner offers a multi-disciplinary approach to care in its ECF unit. The approach concentrates on rehabilitation and independence which is more appropriate for patients at a sub-acute level of care. For the patients on the awaiting proper placement on the waiting list quality of care would be improved by the expansion of the ECF unit by five beds. Finally, there are no capital costs associated with the conversion of these five beds and no increase in licensed bed capacity. There are approximately five patients on any given day who could be better served in an ECF unit, but who are forced to remain in an acute care unit because no space is available for them. This misallocation of resources will cost nothing to correct.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Health and Rehabilitative Services issue a CON to Petitioner for five ECF beds. DONE and ORDERED this 30th day of March, 1989, in Tallahassee, Florida. DIANE CLEAVINGER Hearing Officer Division of Administrative Hearings 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 The facts contained in paragraph 1-29 of Petitioner's proposed Findings of Fact are adopted in substance, insofar as material. The facts contained in paragraph 1, 2, 3, 4, 5, 6, 8, 12, 15, 16, 20, 27, 28, 29, 31 and 33 of Respondent's Proposed Findings of Fact are subordinate. The first sentence of paragraph 7 of Respondent's Proposed Findings of Fact was not shown to be the evidence. Strict compliance with the local health plan was not shown to be an absolute requirement for CON certification. The remainder of paragraph 7 is subordinate. The facts contained in paragraph 9, 10, 11 and 30 of Respondent's Proposed Findings of Fact were not shown by the evidence. The first part of the first sentence of paragraph 13 of Respondent's Proposed Findings of Fact before the semicolon is adopted. The remainder of the sentence and paragraph is rejected. The first sentence of paragraph 14 of Respondent's Proposed Findings of Fact was not shown by the evidence. The remainder of the paragraph is subordinate. The facts contained in paragraph 17, 26 and 32 of Respondent's Proposed Findings of Fact are adopted in substance, insofar as material. The acts contained in paragraph 18 are rejected as supportive of the conclusion contained therein. The first (4) sentences of paragraph 19 are subordinate. The remainder of the paragraph was not shown by the evidence. The first (2) sentences of paragraph 21 are adopted. The remainder of the paragraph is rejected. The facts contained in paragraph 22 of Respondent's Proposed Findings of Fact are irrelevant. The first sentence of paragraph 23 is adopted. The remainder of paragraph 23 is subordinate. The first sentence of paragraph 24 is rejected. The second, third, and fourth sentences are subordinate. The remainder of the paragraph is rejected. The first sentence of paragraph 25 is subordinate. The remainder of the paragraph is rejected. COPIES FURNISHED: Lesley Mendelson, Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, Florida 32308 Donna H. Stinson, Esquire MOYLE, FLANIGAN, KATZ, FITZGERALD & SHEEHAN, P.A. The Perkins House - Suite 100 118 North Gadsden Street Tallahassee, Florida 32301 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The petitioner Brookwood Medical Center of Lake City, Inc., d/b/a Lake City Medical Center (hereinafter referred to as LCMC) is a 75-bed acute care hospital, which presently has 65 medical/surgical beds and 10 alcohol treatment beds. Plans are under way to convert 10 of the medical/surgical beds to a psychiatric unit with 10 beds. LCMC primarily serves Columbia County, a primarily rural community with a population of 34,625, and derives 74 percent of its patients therefrom. The remaining 261 of its admissions come from the surrounding counties of Hamilton, Lafayette and Suwannee. Approximately 60 percent of its patients are sixty years of age or older. The source of reimbursement for the year 1980 was 40 percent Medicare, 8 percent Medicaid, 8 percent indigent or bad debt, and the remaining portion from other third-party payors. The current occupancy rate at LCMC is approximately 502 or 37.5 patients per day. Seasonal trends cause this figure to vary between 32 and 37.5. The daily census is expected to increase over the next year due to the planned addition of four new programs. These include the ten-bed psychiatric unit for which a Certificate of Need application is pending, an industrial medical and occupational health program which would provide on-site care to employees and their family members, the recruitment of an internist/cardiologist and the recruitment of an ophthalmologist. It is projected that the proposed new psychiatric unit will add eight patients to LCMC's daily census, the industrial health program will add 2.5 patients per day as well as outpatients, and that the internist/cardiologist will generate five patients per day. Psychiatric beds are less likely to generate intensive care patients than medical/surgical beds. It is expected that LCMC's program of expansion will change the mix of the primary and secondary service areas and will increase the average daily census to 42.5 by the end of 1981. Petitioner presently has a nursing staff of 48 and a medical staff of Of its medical staff, 13 are listed as active, 4 as courtesy, 4 as consulting and one with temporary privileges. LCMC has one operating room, no emergency room, and no intensive care/cardiac care unit (also referred to as IC/CCU). On an average basis, it is estimated that from ten to twelve surgical procedures per week are performed at LCMC. In 1980, 468 surgical procedures were performed. For the first quarter of 1981, the busiest time of the year, 156 surgical procedures were performed. Petitioner does have a step-down unit or a progressive care unit (also referred to as PCU) with four beds. The current utilization of the PCU is 2.7 patients per day, with a 50 percent medical component and a 50 percent surgical component. If petitioner's application for a Certificate of Need were granted, LCMC's PCU would be converted to an IC/CCU with invasive monitoring capabilities and patients who currently receive treatment in the PCU would be treated in the new IC/CCU. The current patient charge for the PCU is $111.00 per day. LCMC proposes an IC/CCU charge of $250.00 per day. Petitioner estimates that 8 percent of its patients would need and use an IC/CCU, and that, for the first year of operation, the IC/CCU would have a daily census of 3.5 patients. For the second year of operation, a daily patient census of 4.5 is projected. The projected daily utilization of over 50 percent is not consistent with actual utilization achieved in the IC/CCUs of other hospitals in the area. The prime concept of an IC/CCU is to provide more intensive nursing care and monitoring capabilities for unstable medical and surgical patients. The majority of admissions to an IC/CCU come from the emergency room and the second largest source is from the operating room after surgery. While some physicians feel that no physician or acute care facility should be without an IC/CCU, that all post-operative patients should be monitored in an ICU and that it is not good practice to transport an unstable patient under any circumstances, others disagree. These physicians, while agreeing that all hospitals need some form of life support capability, feel that for general routine surgery, only a very small percentage of patients are in need of an intensive care unit. It is possible to reduce the need for an intensive care unit by screening patients prior to surgery. A recovery room and/or a progressive care unit can provide the routine noninvasive monitoring and more intensive nursing care and observation needed by many medical and surgical patients. The use of a recovery room for critical care patients does pose serious problems due to the exposure to additional commotion and the potential mixing of well surgical patients with septic unstable patients. It is better medical practice to have separate personnel for infectious and noninfectious patients. The transfer of an unstable patient to another facility can pose serious risk to the patient. The intervenor Lake Shore Hospital (also referred to as LSH) is located approximately 1.5 miles from the petitioner. Lake Shore Hospital is a full- service, acute care, public hospital with 128 beds, an emergency room and a 9- bed IC/CCU. LSH has had an IC/CCU since 1970 or 1971. More than 50 percent of its intensive care patients come from its emergency room. Approximately 1600 surgical operations per year are performed at LSH. The IC/CCU at LSH provides basic noninvasive monitoring equipment connected to the patient's bedside and the nurses' stations. It does not presently have Swans-Ganz monitoring equipment, an invasive device which measures a patient's hemodynamics. The wiring and other equipment for two such monitoring capabilities are in place and, with the addition of a module and transducer for each unit, two units can be installed for a cost of approximately $4,400.00. At the present time, no one in Lake City has the extensive training required to utilize the Swans-Ganz monitoring equipment. LSH is in the recruitment process and plans to purchase and install this equipment when a cardiologist or other trained specialist is recruited. The IC/CCU at LSH experiences an occupancy rate of 3.5 patients per day, or 35 percent of its capacity. It has only achieved full capacity on two occasions in the ten years of its existence. Lake Shore Hospital presently charges $275.00 per day for the use of its IC/CCU. If it were to lose one patient per day, LSH would lose approximately $100,000.00 per year in revenue. Such a loss could result in either increased taxes or increased patient charges. In spite of the fact that several major admittors to LCMC and LSH have their offices at LCMC, It was their testimony that were a Certificate of Need granted to LCMC for an IC/CCU, they would continue to admit and refer patients to both facilities. Lake Shore Hospital has a medical staff of 22 or 23 specialists and nonspecialists. Of this number, all but one are also on the staff of Lake City Medical Center. The PCU at LCMC and the IC/CCU at LSH are presently comparable. While the nursing staff at Lake Shore's IC/CCU is better trained, at least one physician who practices at both hospitals felt that the same level of care could presently be obtained at LCMC's PCU as at LSH's IC/CCU. This is due to the fact that LSH does not now have the invasive monitoring capabilities felt to be essential to an IC/CCU. The traditional difference between a PCU and an IC/CCU is the degree of training of the nursing staff and the sophistication of the equipment. Underutilization of an IC/CCU can have an adverse effect upon the quality of care provided. One of the most important aspects of an intensive care unit is superior trained personnel. A reduction in patient use obviously reduces the personnel's exposure to complications and skills become dull. Thus, a reduction in patients reduces the quality of care. There is presently a shortage of nurses in the Lake City area. Lake Shore Hospital presently has 8 nursing vacancies and has been actively recruiting to fill those vacancies. In order to operate its proposed IC/CCU, LCMC would have to employ two full-time equivalent nurses with training in that area. The petitioner projects the cost of its requested IC/CCU to be $240,000.00. In 1979, LCMC ran a deficit of $1 million, the sixth largest loss in the State. In 1980, the deficit was $390,000.00. LCMC is presently experiencing a positive cash flow for 1981. It appears that LCMC anticipates the proposed IC/CCU to be a profit-making venture and projects that, if its presumptions are true with respect to patient use, the project will be financially feasible. At the time of the hearing, negotiations were under way for the sale of petitioner to another entity. The reviewing Health Systems Agency, the North Central Florida Health Planning Council, Inc. (NCFHPC), unanimously denied the petitioner's request for an IC/CCU at every level of the review process. The 1981-1985 Health Systems Plan for the NCFHPC contains certain criteria and standards for intensive and coronary care units which should he met within five years of operation. Two of the criteria are that an IC/CCU should have an average annual occupancy rate of 80 percent and that an IC/CCU should be available within one hour's (one-way) travel time of 95 percent of the region's residents. As noted above, LSH is approximately 1.5 miles away from LCMC. Lake City is 45 miles from Gainesville and 65 miles from Jacksonville with interstate highways connecting these cities. With an optimal utilization rate of 80 percent, it is projected that 8.5 IC/CCU beds are needed in the planning area in 1980, and, by 1985, there will be a need for 9 beds. There are presently 15 IC/CCU beds in the Level 2 planning area, which includes Lafayette, Suwannee, Hamilton and Columbia Counties. Of the licensed 212 acute care medical/surgical hospitals in Florida, 22 or 10 percent do not have intensive or coronary care units. The approximate bed size of most of these facilities is 50.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that petitioner's application for a Certificate of Need to construct and operate an intensive care/coronary care unit at Lake City Medical Center be DENIED. Respectfully submitted and entered this 7th day of August, 1981, 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 7th day of August, 1981. COPIES FURNISHED: John H. French, Jr. Messer, Rhodes and Vickers Post Office Box 1876 Tallahassee, Florida 32301 Donna H. Stinson General Counsel Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Jon Moyle and Thomas Sheehan, III Moyle, Jones and Flannagan, P.A. 707 North Flagler Drive Post Office Box 3888 West Palm Beach, Florida 33402 Honorable Alvin J. Taylor Secretary, Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301
