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WUESTHOFF HOSPITAL vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 88-001220 (1988)
Division of Administrative Hearings, Florida Number: 88-001220 Latest Update: Jun. 30, 1989

Findings Of Fact Background On July 31, 1987, the Department of Health and Rehabilitative Services (HRS) published in the Florida Administrative Weekly an announcement of the fixed need pools for the subject batching cycle, which pertained to the planning horizon of July, 1992. According to the notice, the fixed need pool, which was calculated pursuant to Rules 10-5.008(6) and 10-5.011(m), (n), (o), and (q), Florida Administrative Code, was adjusted according to the occupancy rate thresholds as prescribed by said rules. The net adjusted need for short-term psychiatric beds in District 7 was zero. By letter to HRS dated August 12, 1987, the North Brevard County Hospital District, doing business as Jess Parrish Memorial Hospital (Jess Parrish), provided notice of its intent to apply for a certificate of need to convert 16 beds from medical/surgical to psychiatric. By Application for Certificate of Need dated September 14, 1987, Jess Parrish requested that HRS grant a certificate of need for the conversion of 16 medical/surgical beds to 16 adult short-term psychiatric beds at a cost of $46,100. Jess Parrish is a tax-exempt organization whose board of directors have been authorized by law to levy ad valorem taxes in a special tax district in north Brevard County for the support of the hospital. The main hospital is located at 951 North Washington Avenue in Titusville, which is in north Brevard County. Brevard County is located in HRS District 7. By letter to Jess Parrish dated October 5, 1987, HRS requested additional information. By response dated November 9, 1987, Jess Parrish supplied the requested responses to omissions. By letter dated November 18, 1987, Jess Parrish provided additional information desired by HRS. By letter dated December 22, 1987, Wuesthoff Hospital (Wuesthoff) informed HRS that it objected to the above-described application because of absence of need. The letter states that Wuesthoff maintained an occupancy rate of 74% during the past year in its 25 short-term psychiatric beds. Wuesthoff is located in Rockledge, which is in central Brevard County. By letter and State Agency Action Report dated January 25, 1988, HRS informed Jess Parrish of its intent to issue the requested certificate of need for the conversion of the 16 beds. By Petition for Formal Administrative Hearing filed February 23, 1988, Wuesthoff challenged the intent to award the certificate of need to Jess Parrish and requested a formal hearing. The Application and Approval Process The application for the certificate of need states that Jess Parrish has a total of 210 beds, consisting of 172 medical/surgical beds, 10 obstetric beds, 20 pediatric beds, and 8 intensive care unit beds. The application contains all elements required by law, including a resolution authorizing the application and financial statements. The application and omissions response state that Jess Parrish admitted about 100 psychiatric patients in fiscal year ending 1987. The omissions response adds that Jess Parrish would offer the following programs for its short-term psychiatric patients: continual evaluation, screening, and admissions; individual, family, and group therapy; occupational, recreational, and vocational therapy; psychological and psychiatric testing and evaluation; day hospital and day clinic; family and friends education and support groups; and specialized treatment programs for geriatric psychiatric patients. The omissions response reports that the only facility with adult short-term psychiatric beds within 45 minutes of Jess Parrish is Wuesthoff. The omissions response states that Wuesthoff had experienced the following occupancy rates in its adult short-term psychiatric program: 1984--59%; 1985--66%; 1986-- 7l%; and first three quarters of 1987--71%. The omissions response acknowledges that Jess Parrish and Circles of Care, Inc. (Circles of Care) had jointly prepared the application and that Jess Parrish "plans to employ by contract, Circles of Care, Inc. to operate and manage our unit" if the application is approved. The omissions response includes a letter to HRS dated November 10, 1987, from James B. Whitaker, as president of Circles of Care. The letter describes the 12-year relationship between the two parties, which began when Circles of Care leased its first 12 beds from Jess Parrish between 1974 and 1980. Mr. Whitaker states that the two parties thus "work[ed] out a management agreement; for the new sixteen bed unit that Jess Parrish has requested." In the State Agency Action Report, HRS notes that the project does not conform with Policy 4 of the applicable District 7 Local Health Plan. This policy provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rate for all existing facilities in the planning area equals or exceeds the following rates: adult--75% and adolescents/children--70%. HRS reports a similar discrepancy as to the occupancy standard in the State Health Plan, which incorporates at Objective 1.2 the same 70%/75% standards. HRS states in the State Agency Action Report that the 1986 occupancy rates for short-term psychiatric beds, which averaged 69.98% in Brevard County, were 87% at Circles of Care, 70.6% at Wuesthoff, and 14% at a new facility, C. P. C.--Palm Bay. In addition, for the first six months of 1987, the report states that the occupancy rates, which averaged 63.5% in Brevard County, were 76% at Circles of Care, 71.5% at Wuesthoff, and 43% at C. P. C.--Palm Bay. In calculating numeric need under the rule, HRS concludes that there was a net need for a total of 547 beds in the district, consisting of 312 in specialty hospitals and 235 in general hospitals. Addressing the provision of the District 7 Local Health Plan focusing upon need at the county level, HRS finds that there was a net need for a total of 38 beds. Recognizing the "sub- standard utilization" of existing short-term psychiatric beds, HRS states that the application was justified "mainly because of the enhanced access to services that the project would provide." All of the other criteria were fully satisfied with one irrelevant exception, and the State Agency Action Report concludes: Although the district and county utilization of short-term psychiatric beds falls below the 70% [sic) adult standard, this project merits a Certificate of Need because there exists numeric need in the service area and because the project affords greater access and availability to psychiatric services for underserved groups. Need District and State Health Plans Part 3 of the 1985 District 7 Local Health Plan, published by The Local Health Council of East Central Florida, Inc., sets forth policies and priorities for inpatient psychiatric services. Policy 1 establishes each of the four counties of District 7 as a subdistrict for purposes of planning inpatient psychiatric services. Policy 3 of the 1985 District 7 Local Health Plan provides a specific methodology to allocate beds when the numeric need rule methodology indicates a need for inpatient psychiatric beds. A minimum of .15 beds per 1000 projected population should be allocated to hospitals holding a general license. A total of .20 beds per 1000 projected population may be located in specialty hospitals or hospitals holding a general license. The population projections are for five years into the future. Policy 4 of the 1985 District 7 Local Health Plan provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rates for all existing facilities in the planning area equal or exceed 75% for adult facilities and 70% for adolescents/children facilities. The policy concludes: Additional beds should not be added to the health system' until the existing facilities are operating at acceptable levels of occupancy. Good utilization of existing facilities prior to adding beds aids in cost containment by preventing unnecessary duplication. The 1988 District 7 Local Health Plan, although inapplicable to the subject proceeding, refers to the pending application of Jess Parrish. The plan states: [T]he residents of District 7 appear to be well-served by the existing providers with only a few exceptions. First, residents of north Brevard County (Titusville area) currently have no access to any certified, short-term, inpatient psych services in less than 22 miles. In many driving situations this distance takes longer than 30-45 minutes to traverse. . . . If [the CON that has been tentatively approved] is sustained through litigation and the unit is finally opened availability of these 16 beds should ameliorate, to a large degree, the potential geographic access problems for north Brevard adult/geriatric patients at least. Objective 1.1 of the 1985-1987 State Health Plan states that the ratio of short-term inpatient hospital psychiatric beds to population should not exceed .35 beds to 1000 population. Objective 1.2 states that, through 1987, additional short-term psychiatric beds should not normally be approved unless the service districts has an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescents/children beds. Numeric Need Pursuant to HRS Rules Net Need Rule 10-5.011(1)(o)4., Florida Administrative Code, sets forth the HRS numeric need methodology. The rule provides that the projected number of beds shall be determined by applying the ratio of .35 beds to 1000 population to the projected population in five years, as estimated by the Executive Office of the Governor. The relevant projected population for District 7 is 1,564,098 persons. Applying the ratio, the gross number of beds needed in District 7 is 547. The total number of existing and approved short-term psychiatric beds in District 7 in 1987 was 410. There is therefore a net need for 137 short-term psychiatric beds in District 7. The relevant projected population for Brevard County is 441,593 persons. Applying the ratio, the gross number of beds needed in Brevard County is 155. The total number of existing and approved short-term psychiatric beds in Brevard County in 1987 was 117. There is therefore a net need for 38 short- term psychiatric beds in Brevard County. A minimum of .15 beds per 1000 population should be located in hospitals holding a general license, and .20 beds per 1000 population may be located in specialty hospitals or hospitals holding a general license. The calculations disclose that, for District 7, there is a net need of 73 beds in the former category and 65 beds in the latter category. As to Brevard County, the respective numbers are 41 and 4. Rule 10-5.011(1)(o)4.d., Florida Administrative Code, provides that new facilities for adults must be able to project a 70% occupancy rate for the first year and 80% occupancy rate for the third year. Jess Parrish projects that its short-term psychiatric program will experience a utilization rate of 66% at the end of the first complete year of operation and 82% at the end of the third complete year of operation. These projections are reasonable and substantially conform with the requirements of the rule. Rule 10-5.011(1)(o)4.e., Florida Administrative Code, provides that no additional short-term inpatient beds shall normally be approved unless the average annual occupancy rate for the preceding 12 months in a "service district" is at least 75% for all existing adult short-term inpatient psychiatric beds and at least 70% for all adolescents/children short-term inpatient psychiatric beds. HRS considered the 70%/75% occupancy standards in making the July, 1987, announcement of a zero fixed need pool for short-term psychiatric beds in Brevard County. The determination of zero fixed need was a reflection that, although numeric need existed, the occupancy standards had not been satisfied. The incorporation of the occupancy standard into the July, 1987, fixed need calculation represented a deviation from nonrule policy deferring computation of the occupancy levels until the application-review process. The prior announcement of a fixed need pool on February 27, 1987, stated that a number of beds were needed even though the occupancy situation in District 7 was about the same. Subsequent announcements likewise deferred consideration of the occupancy standard. HRS has explicated its nonrule policy of excluding occupancy standards from the calculation of numeric need when publishing fixed need pools. Unlike the relatively simple task of determining the relevant population projection and multiplying it by the proper ratio, application of the occupancy standards, especially at the time in question, required numerous determinations and calculations. By attempting to incorporate the occupancy standards into the calculations upon which the fixed need pool were based, HRS increased the potential for error, which occurred in this case, rather than increased the reliability of the information. Although adequate reason exists for revising the July, 1987, published fixed need pool, Rule 10-5.008(2)(a), Florida Administrative Code, prohibits revisions to a fixed need pool based upon a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. However, the revision of the July, 1987, fixed need pool does not represent a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. The revision to the fixed need pool, which did not represent a change in need methodology or underlying facts, was a result of three legitimate considerations. First, HRS revised the fixed need pool to implement its policy decision to limit the fixed need pool to the numeric need calculation and reserve the calculations of occupancy standards to the application-review process. This consideration does not involve a change in the methodology of determining numeric need or applying occupancy standards. Second, HRS revised the fixed need pool to correct earlier, erroneous calculations. This consideration does not involve a change in the underlying facts, but merely in the computations based upon the same facts. Third, HRS revised the fixed need pool to reflect developing policy in the application of the occupancy standards. HRS decided to apply the more liberal 70% occupancy standard to facilities serving both adults and adolescents/children, exclude from the determination of occupancy levels any facilities serving only age cohorts not served by the applicant, and restrict the 75% occupancy standard to facilities serving adults only. HRS made these changes, which it felt would not harm existing providers, in recognition of the failure of data provided by health-care suppliers to distinguish between adult and adolescents/children admissions and patient days. These considerations approximate a change in methodology, but the revision resulting from such considerations does not violate the rule because HRS already has shown that consideration of the occupancy standards should not take place until after publication of the fixed need pool. In the present case, two facilities in District 7 serve only adolescents/children. These facilities are C. P. C.-- Palm Bay and Laurel Oaks, which is in Orange County. Eliminating their occupancy rates, the district occupancy rate in the year ending June 30, 1987, was 71.9%. Removing the occupancy rate of C. P. C.--Palm Bay from Brevard County, the county occupancy rate during the same period was over 75%. Under the revised policies, Brevard County had a net need of 38 short- term psychiatric beds, applicable occupancy standards in the county and district were satisfied, and the July, 1987, publication of a fixed need pool of zero did not preclude the finding of need under other than "not normal" circumstances. Accessibility Financial Accessibility The primary service area of Jess Parrish is north Brevard County. A higher percentage of the population of this area lives below the poverty level than does the population of any other sub-region of Brevard County. According to the 1980 Census data, the applicable percentages of area residents living below the poverty level were 12.7% in north Brevard County, 10% in central Brevard County, 8.4% in south Brevard County, and 9.6% in Brevard County overall. Partly as a reflection of the different sub-regions and partly as a reflection of the commitment of Jess Parrish to provide access to underserved populations, Jess Parrish provides considerably more services to Medicaid patients than does either of the other major general hospitals in central and south Brevard County. In 1987, 11.5% of the admissions and 8.9% of the patient days at Jess Parrish were Medicaid. The respective numbers are 7% and 6% for Wuesthoff and 5.8% and 3.9% for Holmes Regional Medical Center, which is in Melbourne. A key component of financial accessibility is the effect of the proposed program on Circles of Care. About 55% of the patients of Circles of Care are indigent. Another 17% of its patients earn between the minimum wage and $15,000 annually. Circles of Care has participated in all phases of the application process on behalf of Jess Parrish. The approval of the new program would not have an adverse effect on Circles of Care. To the contrary, the new program at Jess Parrish would provide Circles of Care with more treatment options, especially with respect to indigent patients, whose need for short-term psychiatric services has proven at times difficult to meet. These options are especially valuable at a time when there is no net need in Brevard County for any more short-term psychiatric beds in specialty hospitals, such as Circles of Care. The 52 psychiatric beds licensed to Circles of Care are in two different units contained within a single hospital facility located in Melbourne, which is in south Brevard County. Sheridan Oaks is a 24-bed, private unit, which cannot accept many Baker Act patients without adversely affecting the other patients and the psychiatrists who refer private-pay patients to this unit. The other unit is a public Baker Act receiving facility with 28 beds, for which Circles of Care receives state funds. Unlike Sheridan Oaks, the public receiving facility employs the psychiatrists who work there. About 85-90% of all Baker Act patients in Brevard County come through this public receiving facility, whose occupancy rate was 98% in the year ending June 30, 1987. In addition to these units, Circles of Care operates a mental health outpatient clinic in Titusville, an outpatient/inpatient treatment center in the Rockledge/Cocoa area, numerous social clubs throughout Brevard County for the chronic mentally ill, and numerous public education and awareness programs concerning the treatability of mental illness. Another limitation of being a specialty hospital is that Circles of Care does not qualify for Medicaid reimbursement. Jess Parrish, as a general hospital, qualifies for such reimbursement and projects in its application that 39% of its patient days will be Medicaid and 9% of its patient days will be indigent. Geographic Access Jess Parrish is located at the north end of Brevard County, which runs about 80 miles north-south. Wuesthoff is about 25 miles south of Jess Parrish, and Titusville is about 40 miles north of Melbourne. Intercity north-south traffic uses Interstate 95, which is west of the above-described cities, and U.S. Route 1, which runs through the center of each of these cities. Rule 10-5.011(1)(o)5.g., Florida Administrative Code, provides that short-term inpatient psychiatric services should be located within a maximum travel time of 45 minutes under average travel conditions for at least 90% of the population of the service area. This criterion is presently met without the addition of short-term psychiatric beds at Jess Parrish. This factor is outweighed, however, by another factor in this case. Jess Parrish projects about half of its patients will be indigent or Medicaid, and north Brevard County has a disproportionate share of the county's impoverished residents. Average travel conditions for these persons require public transportation, which, in north Brevard County, is limited to Greyhound/Trailways and local taxi companies. Exclusive of time waiting for the bus and traveling to and from the bus stations, the time for the 25-mile trip between Titusville and Rockledge, of which there are three or four trips daily (excluding off-hour trips), ranges from 25-35 minutes. There is evidence in the record that mentally ill bus passengers do not always make it to their intended destinations by way of intercity buses. The use of available public transportation is therefore problematic, but in any event adds considerable time to the travel time to Wuesthoff for those individuals who do not own a motor vehicle. Effect on Wuesthoff The effect of the conversion of medical/surgical beds to short-term psychiatric beds will have no material effect on Wuesthoff, even though it did reduce the number of short-term psychiatric beds from 30 to 25 in 1986. The occupancy rate for Wuesthoff's short-term psychiatric unit in 1987 was 70.6%. The prime service areas of Wuesthoff and Jess Parrish as to psychiatric admissions do not substantially overlap. Although Jess Parrish may be expected to draw more patients from Wuesthoff's prime service area following commencement of the new operation, many of Jess Parrish's patients will be from the indigent and Medicaid payor classes for which the competition is not intense. The addition of a 16-bed short-term psychiatric unit at Jess Parrish will not materially influence the availability of qualified personnel for Wuesthoff. It appears that Jess Parrish will be able to staff the relatively small 16-bed unit without employing significant numbers of professional employees of Wuesthoff. Some of the relatively few patients whom Wuesthoff can be expected to lose to Jess Parrish involve referrals from Titusville-area physicians, psychiatrists, and psychologists, who will place their patients in the closer facility once it is opened. The negative impact upon Wuesthoff is outweighed in these cases by gains for the patients in continuity of care and community support. Financial Feasibility The short-term financial feasibility is good. Jess Parrish has available to it sufficient funds to undertake the relatively modest capital outlay in constructing the facility, which will consist of about 8000 square feet on an existing floor of the hospital. The long-term financial feasibility is generally good. The financial projections are based on reasonable assumptions, which are largely derived from the actual experience of Circles of Care. The projections accurately estimate revenue sources and expenses. Jess Parrish reasonably projects an adequate supply of patients from a combination of sources, including Circles of Care, existing patients whose diagnoses include psychiatric components, and numerous health-care professionals in north Brevard County. The financial projections contemplate a material contribution by Circles of Care, but project no compensating expenditures. However, this deficiency is largely offset by the likelihood that the financial participation of Circles of Care will be restricted to a share of any excess of revenues over expenses of the new project, possibly excluding reimbursement of fairly minor expenses. If that is the case, the effect of any management agreement would be only to reduce the excess of revenues over expenses enjoyed by Jess Parrish from the operation of the short-term psychiatric unit. The management agreement would not expose Jess Parrish to losses that would not have otherwise existed but for the agreement to make payments to Circles of Care. Under these circumstances, the omission of the information, although material, does not seriously cast into doubt the long-term financial feasibility of the project. Quality of Care The quality of hospital care offered by Jess Parrish is excellent. The quality of the various psychiatric services offered by Circles of Care is also excellent. Both facilities are accredited by the Joint Commission on the Accreditation of Hospitals. The issue in this case involves the quality of care to be expected in the 16-bed short-term psychiatric unit for which Jess Parrish seeks a certificate of need. Circles of Care and Jess Parrish have agreed that Circles of Care will be responsible for recruiting most of the personnel for the new program and will employ the program's medical director, who will be responsible for treatment decisions. In addition, Circles of Care will advise Jess Parrish as to the adoption of policy, which will remain ultimately the responsibility of Jess Parrish. Jess Parrish will employ the head nurse and all other full-time professional staff working in the unit. The tentativeness of the arrangement between Circles of Care and Jess Parrish is partly explained by the desire of both parties to avoid the time and expense of negotiating an agreement in every detail prior to obtaining final approval of the certificate of need. In addition, both organizations were devoting substantial time to the subject litigation, for which Circles of Care was paying a portion of the expenses. In the final analysis, the failure to work out the agreement, although not a positive feature of the application, is not a serious problem for two reasons. First, Circles of Care and Jess Parrish have a long history of mutual cooperation. The relationship began when Jess Parrish leased Circles of Care 16 hospital beds for psychiatric use. Although the arrangement ended several years ago when Circles of Care constructed its Melbourne facility, the two organizations have since cooperated in several less intensive ways. Second, although Circles of Care has superior expertise in the area of mental health, Jess Parrish qualifies by itself to operate the proposed facility. Circles of Care has already provided much of the necessary technical information required for the preparation of budgets and pro formas. Recruiting would probably take somewhat longer without Circles of Care, but the modest construction budget obviously does not involve significant debt service, so that the delay would not be costly. Perhaps the most significant loss from a quality-of-care perspective would be the medical director, whose expertise will be critical. Again, this would be largely a problem of delay only, as Jess Parrish would have to find a replacement, although it appears likely that the director may be Dr. David Greenblum, who is already a member of the active medical staff at Jess Parrish. Given the quality of care provided by Jess Parrish in the past, there is no basis for any concern that, in the unlikely event that the parties fail to negotiate an agreement, Jess Parrish would jeopardize its reputation as a quality 200-bed general hospital in order to commence prematurely a 16-bed short- term psychiatric unit. Other Factors The record does not demonstrate that there are less costly, more efficient, or more appropriate alternatives to the inpatient services proposed in the subject application. There are no crisis stabilization units or short-term residential treatment programs available in Brevard County. The proposed project will have a measurable impact only upon Circles of Care, whose existing inpatient facilities will be enhanced, and Wuesthoff, whose existing inpatient facilities will not be materially affected. In general, these existing services are being used in an appropriate and efficient manner. On the other hand, the beds that Jess Parrish seeks to convert are underutilized in their present designation. The medical/surgical beds at Jess Parrish have been utilized at a rate of less than 60% over the past three years. There are no feasible alternatives to renovation of the existing facilities. The costs and methods of proposed construction are reasonable and appropriate. The approval of the application will foster healthy competition in the area of short-term psychiatric services and promote quality assurance.

Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order granting the application of Jess Parrish for a certificate of need to convert 16 medical/surgical beds to 16 short-term adult psychiatric beds. DONE and ENTERED this 30th day of June, 1989, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1220 Treatment Accorded Proposed Findings of Jess Parrish 1-6 Adopted or adopted in substance. 7-8 Rejected as irrelevant. 9-10 Adopted or adopted in substance. 11 Rejected as recitation of testimony and subordinate. 12-13 Adopted or adopted in substance. Rejected as irrelevant. Adopted to the extent of the finding in the Recommended Order that there likely will be an agreement between Circles of Care and Jess Parrish. Rejected as unsupported by the evidence that such an agreement exists already. Also rejected as unnecessary insofar as the application can stand on its own without the participation of Circles of Care. 15a Adopted or adopted in substance. 15b-15c Rejected as irrelevant. 15d-15g Adopted in substance, although certain proposed facts rejected as subordinate. However, the first sentence of Paragraph 15f is rejected as against the greater weight of the evidence. 15h Rejected as recitation of testimony. 16-18 Adopted or adopted in substance except that all but the last sentence of Paragraph 18g. is rejected as against the greater weight of the evidence and legal argument. 19 First sentence adopted. 19 (remainder) -22. Rejected as subordinate and recitation of evidence. Generally adopted, although most of the facts are rejected as subordinate in the overall finding and cumulative. Adopted except that sixth sentence is rejected as against the greater weight of the evidence and the seventh sentence is rejected as subordinate. Adopted in substance. First sentence adopted. Remainder rejected as irrelevant. Rejected as irrelevant. Adopted. 28a Rejected as unsupported by the greater weight of the evidence. 28b-28d Adopted or adopted in substance. and 31 Rejected as subordinate. Rejected as unnecessary. 32-50 Adopted or adopted in substance. Treatment Accorded Proposed Findings of HRS 1-11 Adopted or adopted in substance. & 14 Rejected as irrelevant. & 15-16 Adopted. 17 Rejected as unnecessary. 18-74 See rulings on Paragraphs 16-50 in preceding section. Treatment Accorded Proposed Findings of Wuesthoff 1-3 Adopted or adopted in substance. Rejected as irrelevant. Rejected as against the greater weight of the evidence and legal argument. 6-10 & 12 Adopted or adopted in substance. 11 Rejected as against the greater weight of the evidence. Rejected as recitation of testimony and cumulative. Rejected as cumulative except that second sentence is adopted. Rejected as recitation of testimony. Rejected as cumulative, subordinate, and legal argument. Rejected as cumulative except that second sentence is adopted. First clause rejected as against the greater weight of the evidence. Remainder rejected as irrelevant. Rejected as cumulative and subordinate. 20-23 Rejected as irrelevant and unnecessary. Rejected as against the greater weight of the evidence. Rejected as irrelevant and unnecessary. Rejected as cumulative. 27-28 Rejected as irrelevant and unnecessary. 29 Rejected as legal argument. 30-32 Rejected as irrelevant. 33-41 Rejected as against the greater weight of the evidence and subordinate. 42 and 51 Rejected as recitation of evidence. 43-45 Rejected as against the greater weight of the evidence. 46 Rejected as legal argument. 47-50 and 52-54 Rejected as subordinate. 55 Rejected as against the greater weight of the evidence. 56-59 Rejected as irrelevant. 60-66 Rejected as subordinate and recitation of testimony. 67-69 Rejected as against the greater weight of the evidence. 70-73 Rejected as against the greater weight of the evidence and subordinate. 74-78 Adopted. 79 Rejected as against the greater weight of the evidence. 80-82 Adopted. 83-85 Rejected as against the greater weight of the evidence. 86 Rejected as subordinate and against the greater weight of the evidence. 87-91 Adopted or adopted in substance. 92 Rejected as against the greater weight of he evidence. 93-94 Rejected as subordinate. Rejected as against the greater weight of the evidence. Rejected as irrelevant. 97-98 Rejected as against the greater weight of the evidence. Rejected as irrelevant. Rejected as subordinate. 101-102 Rejected as against the greater weight of the evidence. Rejected as partly cumulative and partly legal argument. Rejected as against the greater weight of the 105 evidence Rejected and irrelevant. as against the greater weight of the 106-108 evidence. Rejected as subordinate. 109 110-113 Rejected evidence. Rejected as against the greater weight of as subordinate. the 114-117 118-120 Rejected evidence. Rejected as against the greater weight of as irrelevant and subordinate. the 121-122 Rejected as subordinate. 123 124-125 First sentence adopted in substance. Remainder rejected as subordinate. Rejected as subordinate. 126-129 Rejected as unsupported by the greater weight of evidence. the COPIES FURNISHED: Anthony Cleveland W. David Watkins Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 John Rodriguez 1323 Winewood Boulevard Building 1, Room 407 Tallahassee, Florida 32399-0700 William B. Wiley Darrell White McFarlain, Sternstein, Wiley & Cassedy, P.A. Post Office Box 2174 Tallahassee, Florida 32316-2174 Stephen M. Presnell MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================

Florida Laws (1) 120.57
# 2
HAINES CITY HMA, LLC, D/B/A HEART OF FLORIDA REGIONAL MEDICAL CENTER vs AGENCY FOR HEALTH CARE ADMINISTRATION, 13-000166CON (2013)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Jan. 14, 2013 Number: 13-000166CON Latest Update: Dec. 17, 2013

The Issue This proceeding concerns Heart of Florida’s Certificate of Need (CON) Application No. 10163 in which it seeks to add up to 14 Comprehensive Medical Rehabilitation (CMR) beds to its existing acute care hospital in Polk County (District 6), and Highlands Regional’s CON Application No. 10165 seeking to add up to seven CMR beds to its existing acute care hospital located in Highlands County (District 6). The CON Applications submitted by Heart of Florida and Highlands Regional were comparatively reviewed with the following co-batched applications to establish new inpatient CMR units in District 6: HealthSouth Rehabilitation Hospital of Polk County, LLC (CON #10162), and Lakeland Regional Medical Center, Inc. (CON #10164). On December 7, 2012, the Agency for Health Care Administration (“AHCA”) preliminarily approved CON Application No. 10164, submitted by Lakeland Regional Medical Center, Inc., and denied all other co-batched applications. Each of the denied applicants filed a Petition for Formal Administrative Hearing to contest the denial of its application. The matters were consolidated into a single proceeding at DOAH. However, the files on Lakeland Regional and HealthSouth Rehabilitation were closed as of April 8, 2013, when the present Petitioners withdrew their opposition to approval of CON 10164 and HealthSouth voluntarily dismissed its petition for formal hearing. The issues remaining in this matter are whether the CON applications filed by Heart of Florida and Highlands Regional in Agency for Health Care Administration (AHCA or the Agency) District 6, satisfy, on balance, the applicable statutory and rule review criteria sufficiently to warrant approval and, if so, whether either or both of the applications should be approved.

Findings Of Fact Stipulated Facts as set forth in PreHearing Stipulation Both Heart of Florida and Highlands Regional have the ability to provide quality of care and have a record of providing quality of care to their patients. Section 408.035(l)(c), Florida Statutes, is not in dispute and not an issue in this proceeding. (Unless specifically stated otherwise herein, all references to Florida Statutes will be to the 2013 version.) Both Heart of Florida and Highlands Regional have the resources and funds for capital and operating expenditures, for project accomplishment and operation; therefore, section 408.035(1)(d) is not in dispute and not an issue in this proceeding. While Heart of Florida and Highlands Regional's proposed salaries on schedule 6 of their respective CON Applications are appropriate and reasonable, the level of staffing necessary and required for a small unit, while still remaining financially feasible remains at issue in this proceeding. Heart of Florida and Highlands Regional's proposed facility costs and design are reasonable and not at issue in this proceeding. Both Heart of Florida and Highlands Regional are financially feasible in the short term to operate the CMR beds proposed in their respective CON Applications; therefore, section 408.035(l)(f) is not at issue with respect to short term financial feasibility. The issue of short-term financial feasibility is not in dispute and not an issue in this proceeding. Both Heart of Florida and Highlands Regional are financially feasible in the long term to operate the CMR beds proposed in their respective CON Applications in accordance with section 408.035(l)(f); however, AHCA has concerns over the appropriate staffing level for small CMR units and thus the issue of how Heart of Florida and/or Highlands Regional's long-term financial feasibility could be impacted if additional staff are required remains at issue in this proceeding. Both Heart of Florida and Highlands Regional propose appropriate costs and methods of proposed construction for their respective CMR projects, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction; therefore, section 408.035(l)(h) is not in dispute and not an issue in this proceeding. The past and proposed provision of health care services to Medicaid patients and the medically indigent by both Heart of Florida and Highlands Regional is appropriate; therefore, section 408.035(1)(o) is not in dispute and is not an issue in this proceeding. The CON Applications of both Heart of Florida and Highlands Regional contained the required application content under section 408.037. In the CMR project proposals of both Heart of Florida and Highlands Regional, CMR services will be provided in separately organized units within their respective facilities, which are both Class 1 acute care hospitals; therefore, Florida Administrative Code Rule 59C-1.039(3)(a) and (b) is not in dispute and not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to participate in the Medicare and Medicaid programs and, therefore, rule 59C-1.039(3)(e) is not in dispute and is not an issue in this proceeding. Both project proposals of Heart of Florida and Highlands Regional provide that CMR services will be provided under a medical director of rehabilitation who is a board- certified or board-eligible physiatrist and has had at least two years of experience in the medical management of inpatients requiring rehabilitation services; therefore, rule 59C- 1.039(4)(a) is not in dispute and is not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to provide the following services provided by qualified personnel: rehabilitation nursing, physical therapy, occupational therapy, speech therapy, social services, psychological services, or orthotic and prosthetic services. As such, rule 59C-1.039(4)(b) is not in dispute and is not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to serve Medicaid-eligible patients in their respective CMR programs. The proposed CMR programs of both Heart of Florida and Highlands Regional provided program descriptions for: Age groups to be served; Specialty inpatient rehabilitation services to be provided, if any; Proposed staffing, including qualifications of the medical director, a description of staffing appropriate for any specialty program, and a discussion of the training and experience requirements for all staff who will provide comprehensive medical rehabilitation inpatient services; A plan for recruiting staff, showing expected sources of staff; Expected sources of patient referrals; Projected number of CMR inpatient services patient days by payer type, including Medicare, Medicaid, private insurance, self-pay and charity care patient days for the first 2 years of operation after completion of the proposed project; Admission policies of the facility with regard to charity care patients. The Health Care Services at Issue AHCA is the state agency responsible for, inter alia, managing the certificate of need program whereby health care providers may seek approval for certain regulated health care services. One such service is comprehensive medical rehabilitation, a level of comprehensive in-patient rehabilitation for persons with certain designated diagnoses and treatments. In furtherance of its duties, AHCA develops and publishes a need for new CMR beds in each of the 11 service districts around the State. Interested applicants for new CMR beds may apply by filing a CON application in response to the published need. In the event there is no need, an applicant may seek approval for new CMR beds by way of “not normal” circumstances. As set forth in Florida Administrative Code Rule 59C- 1.002(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. . . . CMR programs are a tertiary health service. As such, CMR beds are regulated by AHCA. In order to qualify for placement in a CMR bed, a patient must require substantial rehabilitation. To ensure that CMR providers do not inappropriately admit patients that could be treated in a less acute setting, the Center for Medicare and Medicaid Services (CMS) has established eligibility criteria for CMR patients. At least 60% of all patients in a CMR unit must have a primary diagnosis within one of 13 medical conditions, often referred to as CMS-13 categories. Those conditions include active polyarticular rheumatoid arthritis, amputation, brain surgery, burns, congenital deformity, fracture of femur, hip or knee-joint disease, spinal cord injury, stroke, and systematic vasculidities with joint inflammation. Patients with those conditions very often need extensive rehabilitation before resuming normal activities of life. Patients without a CMS-13 diagnosis but having other comorbidities such as age, obesity, and/or high blood pressure may also qualify for CMR services. To be admitted to a CMR program, the patient must be sick enough to need an acute care setting, but well enough to endure three hours a day of rehabilitative therapy, including at least two types of therapy, e.g., speech, occupational, or physical. In this proceeding, there was no published need for new CMR beds in District 6 for the September 2012 batching cycle. The bed need calculation by AHCA resulted in a finding of a net need of minus 48 CMR beds, rounded up to zero. Each of the applicants attempted to prove a need for its proposed project by way of not normal circumstances. District 6 includes five counties: Hillsborough, Polk, Manatee, Highlands, and Hardee. There are almost 2.3 million residents, half of them residing in Hillsborough County. There are over 600,000 residents of Polk County, 330,000 in Manatee County, 100,000 in Highlands County, and 25,000 in Hardee County. Of those counties, Highlands, Manatee and Polk have the highest percentage of elderly. There are four existing CMR providers in District 6, accounting for 173 licensed CMR beds. Two of the providers are in Hillsborough County: Tampa General Hospital with 59 beds, and Florida Hospital Tampa with 30 beds. Blake Hospital in Manatee County has 28 beds. In Polk County there are two approved providers: Winter Haven Hospital has 24 beds currently licensed and Lakeland Regional Hospital is approved to license 32 beds. Heart of Florida Heart of Florida is a 193-bed acute care hospital located in Davenport, Polk County, Florida. It is a joint venture and is owned by Health Management Associates, Inc. and a number of physicians. The doctors own only 2.14% of the property. The hospital offers a full spectrum of healthcare services and is supported by nearly 200 specialists and subspecialists. Heart of Florida is a designated stroke center, has an accredited chest pain center, an orthopedic center, and a joint replacement program. The hospital currently provides skilled outpatient and inpatient therapy services. Heart of Florida is proposing the establishment of a 14-bed CMR unit within the hospital plant. It is the intent of the hospital to convert 14 of its existing acute care beds into CMR beds. The beds will be located on the third floor of the facility in an area which until recently housed an obstetrics unit. The project would include renovation of the unit, including: conversion of existing semiprivate rooms into private rooms; renovation of existing space into a recreation/day room and occupational therapy space; modification of patient showers to provide side approach to the water closets; and creation of a training kitchen, bathroom and bedroom. Heart of Florida set forth nine enumerated bases to establish the need for the CMR beds absent a fixed need pool. Each will be addressed below. Number 1 -- There are only 24 licensed CMR beds in the entire county of 467,045 adults, a ratio of one bed per 19,460 adult residents. No credible evidence was presented that a certain ratio of CMR beds to adult population is necessary. Rather, Heart of Florida maintains that the ratio in its county is somehow pertinent. But not all adults need CMR services, nor does the ratio alone establish a “need” which cannot be addressed by existing programs. Rehabilitation services can be met by sub- acute facilities in many instances. Where such services are provided is often a matter of patient choice and does not always involve CMR services. Number 2 -- There are no beds in Heart of Florida’s service area, i.e., the area from which most of its residents come. There are four existing and one approved provider of CMR services in District 6: Winter Haven Hospital (17 miles from Heart of Florida); Bake Medical Center (96 miles); Tampa General Hospital (62 miles); and Florida Hospital Tampa (60 miles). An approved but not yet operational CMR program at Lakeland Regional is 29 miles from Heart of Florida. Lakeland Regional is the only one of the CMR programs that will be located in Polk County. However, the need for such services is determined on a district- wide, not county, basis. The average annual occupancy rate at Winter Haven Hospital, the closest facility, is 66%. Number 3 -- Continuity of care is important. Heart of Florida would like for its physicians to be able to follow CMR patients by having them receive treatment at a unit located within the hospital. It is unlikely that physicians would travel to see their patients who go to Winter Haven or another CMR provider in the district. This desire for more continuous care, however, does not establish a need for services in the district. Number 4 -- District 6 has one of the highest CMR occupancy rates of any district in the State, and it has the single lowest CMR discharge use rate per 1,000 population age 65 and older. This naked statistic or factoid does not, in and of itself, establish a need for CMR beds at Heart of Florida. There will always be one district with the highest CMR occupancy rate. There will always be one district with the lowest CMR discharge rate per 1,000 population. Absent a clinical correlation between those two facts, they fail to establish need for the CMR program at Heart of Florida. Number 5 -- Heart of Florida is committed to fulfilling a continuum of care for its stroke patients. A CMR program on campus would help the hospital effectuate this commitment by adding CMR services to its treatment of stroke victims. However, this desire on Heart of Florida’s part does not establish a “need” for the program. Number 6 -- There is a large percentage of elderly persons in Heart of Florida’s primary service area as compared to the State average. While this may be a fact, it is not an indicator of need for new CMR beds in the district. Number 7 -- Heart of Florida would like a CMR program to complete its wide array of services available to its patients. Heart of Florida maintains that, “In light of the Affordable Care Act, the Applicant must position itself for the future where it will be able to offer a full array of services to compete effectively in providing quality services.” The hospital’s desire to be more competitive in the market does not establish need for a CMR unit. Number 8 -- Heart of Florida can support a CMR program from its own patient base. In fact, Heart of Florida fully expects that its CMR unit would be occupied by its own patients, not patients from other hospitals. That fact does not establish need in the district for a new program. In fact, its intention to serve only its own patients militates against a district-wide need for such services. Number 9 -- There are no existing CMR beds in Heart of Florida’s primary service area, i.e., in the geographic area from whence most of its patients come. This fact does not address or support the need for CMR beds in the district. The above-stated facts alleging need fall far short of establishing circumstances that warrant approval of Heart of Florida’s proposal. The facts distinguish Heart of Florida’s service area from other service areas around the State. The facts establish that Heart of Florida would enjoy having a CMR unit and that it would likely be profitable. But the facts do not establish need for a new program in the district. Heart of Florida is experiencing an average of 16% to 20% patient readmissions to the hospital. That is, that percentage of patients who are discharged after treatment are having to be readmitted for further care related to the prior treatment. The benchmark for readmissions is about 10%. Under the Affordable Care Act, hospitals which do not meet the benchmark will be assessed a penalty. The hospital’s CEO and its chief nursing officer opined that an in-house CMR unit could help to reduce the readmission rate for some CMS-13 patients. The testimony was not adequately supported and was not persuasive. Based on the total number of discharges from the hospital versus the number of rehabilitative patient discharges, it is not certain the CMR beds would have much impact on the readmission rate. And, even if the CMR unit did help Heart of Florida’s readmission experience, that does not constitute an additional need for the service in the district. Highlands Regional Highlands Regional is a 126-bed acute care hospital in Sebring, Highlands County, Florida. The hospital is owned by Health Management Associates, Inc. (HMA), which is also the primary owner of Heart of Florida. HMA is a Florida-based national operator of community hospitals and health services. It owns and operates 70 hospitals and health systems in 15 states around the country. Highlands Regional proposes the development of a 7-bed CMR unit within its existing infrastructure in Sebring. The unit would be located on the second floor of the hospital in space that was formerly utilized as a hospice. Each of the beds would be located in a private room with a private bath. Highlands Regional sets forth seven bases which it believes justifies the approval of its project by establishing a need despite no fixed need pool. Each of those will be discussed herein. Number 1 -- District 6 has one of the highest CMR occupancy rates of any district in the State, and it has the single lowest CMR discharge use rate per 1,000 population age 65 and older. As stated above in the discussion of Heart of Florida’s proposal, this statistic or factoid does not, in and of itself, establish a need for CMR beds. There will always be one district with the highest CMR occupancy rate. There will always be one district with the lowest CMR discharge rate per 1,000 population. Absent a clinical correlation between those two facts, they fail to establish need for the CMR program at Heart of Florida. Number 2 -- Existing CMR beds are from 50 to 92 miles from Highlands Regional. The hospital is located in a relatively rural area, so longer travel is to be expected for its patients as compared to urban areas. Thus, patients discharged from Highlands County would have to travel farther than patients discharged from other hospitals around the State. However, this fact only establishes that it is more inconvenient for some of Highlands Regional’s patients to get comprehensive medical rehabilitation services. Inconvenience does not establish a need for new beds. Number 3 -- A seamless, uninterrupted continuity of care from the acute care setting to the post-acute CMR setting is not available to some residents in Highlands Regional’s primary service area. While it is clear that there is not a CMR unit near the hospital, there was no evidence provided that patients were not receiving the care they need. If an “uninterrupted continuity of care” standard was applied, then essentially every hospital in the state would “need” a CMR unit. Number 4 -- There is a large percentage of elderly population in Highlands County compared to the State average. This fact does not warrant approval of a CMR unit. Number 5 -- There is a gap in Highlands Regional’s continuum of care. Highlands Regional states that, “In light of the Affordable Care Act, the Applicant must position itself for the future where it will be able to offer a full array of services to compete effectively in providing quality services.” As stated above, the hospital’s desire to be more competitive in the market does not establish need for a CMR unit. Number 6 -- Highlands Regional is able to fully support a CMR program based on its own internal volume of rehabilitation- appropriate patients. This fact does not establish the need for a new CMR unit in the district. The HealthSouth application (10162) was approved despite its contention that patients from Highlands County are in a different medical market and that it would not likely serve patients from other counties. However, CMR proposals are currently approved by AHCA on a district-wide basis despite applicants’ remonstrations to the contrary. Number 7 -- There are no existing CMR beds in Highlands County. There was no competent evidence presented to establish that every county in Florida must have a CMR program. The above-stated facts alleging need fall far short of establishing circumstances that warrant approval of Highlands Regional’s proposal. Highlands Regional is experiencing an average of 16% readmissions to the hospital. The benchmark for readmissions is about 10%. Under the Affordable Healthcare Act, hospitals which do not meet the benchmark will be assessed a penalty. The hospital has about 9,000 discharges a year. Of those, about 277 were CMS-13 discharges. It is not clear that a CMR unit, even if it allowed for fewer readmissions to CMS-13 patients, would resolve Highlands Regional’s readmission problem. Each of the applicants in this case sets forth facts showing that their patients have to travel farther than some other patients in Florida to access comprehensive medical rehabilitation in a CMR unit. Each applicant’s physicians expressed frustration that their patients could receive better care in a CMR unit, but none testified that their patients were not now receiving adequate care. Each applicant established a strong desire for its own CMR unit and showed that the unit would be financially lucrative, but that is not a basis for approving a new unit. Each applicant presented testimony from its physicians containing anecdotal hearsay from their patients concerning unwillingness to travel. There was no competent evidence that CMR services were not available, just that such services were farther away than patients were willing to travel. That inconvenience for patients does not establish a need for CMR services in the district.

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 denying the CON applications of Haines City HMA, LLOC, d/b/a Heart of Florida Regional Medical Center (No. 10163), and Sebring Hospital Management Associates, LLC, d/b/a Highlands Regional Medical Center (No. 10165). DONE AND ENTERED this 29th day of October, 2013, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of October, 2013. COPIES FURNISHED: Lorraine M. Novak, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Geoffrey D. Smith, Esquire Susan C. Smith, Esquire Smith and Associates Suite 201 2834 Remington Green Circle Tallahassee, Florida 32308 Richard J. Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Elizabeth Dudek, Secretary Agency for Health Care Administration Fort Knox Building III, Mail Stop 1 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Stuart Williams, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308

Florida Laws (5) 120.569120.57408.035408.037408.039
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UNIVERSITY COMMUNITY HOSPITAL vs AGENCY FOR HEALTH CARE ADMINISTRATION, 92-005107CON (1992)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Aug. 25, 1992 Number: 92-005107CON Latest Update: Dec. 27, 1993

The Issue Whether University Community Hospital should be issued Certificate of Need Number 6936 to convert 20 acute care beds to 20 comprehensive medical rehabilitation beds.

Findings Of Fact UCH is a 424 bed acute care hospital located in northern Hillsborough County. UCH is the applicant for CON Number 6936 to convert 20 medical/surgical acute care beds to 20 comprehensive medical rehabilitation ("CMR") beds. Its service area is northern Hillsborough and eastern Pasco Counties. AHCA is the successor to HRS as the designated agency to administer the CON laws. UCH currently operates 404 acute care beds and 20 skilled nursing beds. Its services include an emergency room, open heart surgery, obstetrics, and a home health agency. From 1982 to 1990, UCH operated an inpatient comprehensive rehabilitation unit, certified by HRS and recognized by the Federal Health Care Finance Administration ("HCFA") as a 9-bed unit in 1984, and as an 18-bed unit from 1985 through 1988. Substantial renovation of the unit's sixth floor south wing, in 1987 and 1988, was intended to meet the standards of the Commission on Accreditation of Rehabilitation Facilities ("CARF"). UCH was never actually CARF accredited. After the enactment of a CMR rule, HRS preliminarily determined that UCH was a "grandfathered" 9-bed provider of CMR services. That preliminary determination was successfully challenged in University Community Hospital v. Department of Health and Rehabilitative Services, 11 FALR 1150 (HRS Final Order 2/13/89), and the unit was closed in 1990. In September 1990, UCH applied for CON 6412 to convert 20 acute care beds to 20 CMR beds. That application was denied. University Community Hospital v. Department of Health and Rehabilitative Services, et al., 14 FALR 1899 (HRS Final Order 4/15/92). NEED IN RELATION TO STATE AND LOCAL HEALTH PLAN Five preferences in the 1989 Florida State Health Plan relate to CMR programs and are applicable to the review of the UCH application. The first preference relates to applicants proposing the conversion of excess acute care beds to establish a distinct rehabilitation unit within a hospital. AHCA agrees that the UCH application is consistent with this preference. The second preference, favoring applicants proposing specialty inpatient or outpatient rehabilitation services not currently offered in the district, it not met. In District VI, three CMR providers have a total of 112 licensed beds, 111 beds in operation: 59 at Tampa General Hospital in Hillsborough County, 24 at Winter Haven Hospital in Polk County, and 28 at L.W. Blake in Manatee County. The third preference applies to the teaching hospitals. UCH is not a teaching hospital although it does have contracts with teaching institutions to allow students to gain clinical experience at UCH. See, Subsection 408.035(1)(g), Fla. Stat. (1992 Supp.). The fourth preference, is for applicants with a history of providing a disproportionate share of charity care and Medicaid patient days. The preference specifically requires qualifying hospitals to meet Medicaid disproportionate share hospital criteria. UCH is not a disproportionate share provider, and does not meet this preference. The fifth preference, for applicants with an existing comprehensive outpatient rehabilitation facility ("CORF"), is met. UCH planner's testimony was not refuted and AHCA concedes that UCH offers a number of therapies to outpatients. The June 1990 District VI Allocation Factors Report, prepared by the Health Council of West Central Florida, Inc., is the local health plan applicable to the review of this application. The first preference favors disproportionate share providers, and does not support the UCH application. See, Finding of Fact 10. UCH is entitled to the second local preference for the conversion of existing medical/surgical beds. See, Finding of Fact 7. The fourth preference is for existing providers of fewer than 20 beds seeking to add more beds and is, therefore, not applicable to the UCH application. POPULATION CONDITIONS AND NEED The third local preference, for additional rehabilitation services if existing ones are not meeting community needs, is the essence of the UCH claim that its services are needed. The local factor is also directly related to the criteria of Subsection 408.035(1)(b), Florida Statutes, and Florida Administrative Code, Rule 59C-1.039(2)(b). The rule is as follows: Historic, current and projected incidence and prevalence of disabling conditions and chronic illness in the population in the Department service district by age and sex group; Trends in utilization by third party payers; Existing and projected inpatients (e.g., orthopedic, stroke and cardiac cases) in need of rehabilitation services; and The availability of specialized staff. Based on rule methodology for computing numeric need, there is zero need for additional CMR beds in District VI. That methodology is based on the assumption that there will be 3.9 CMR beds needed for every 1000 acute care discharges. In terms of population conditions, UCH has urged the consideration of the actual statewide use rate of 8.46 CMR admissions for every 1000 acute care admissions, which would equate to a need for an additional 132 beds in the District. In District VI, there are 6.67 CMR admissions for every 1000 acute care admissions which, considering projected population increases, equates to a need for 80 additional beds. According to UCH, CMR bed availability is a factor in determining utilization In District VI, there are 7 CMR beds per 100,000 people. UCH points to the actions of AHCA in approving an increase from 8 to 12 CMR beds per 100,000 people in District IX in the absence of any published numeric need. AHCA emphasizes that empty CMR beds exist in District VI, which had 1990-1991 occupancy rates of 72.07 percent, below the 85 percent minimum for approval of new beds absent not normal circumstances. Tampa General's rate was 82.77 percent, but Winter Haven's was 50.82 percent and L. W. Blake in Manatee County was 67.36 percent occupied. As AHCA also indicated, population projections and numeric need are calculated to determine future need. UCH has demonstrated that the geographic and economic accessibility of Winter Haven in Polk County is limited for patients from the UCH area. In part, the limitations result from the requirement of third party payers for CARF accredited facilities, when intense, inpatient rather than outpatient CMR services are needed. Winter Haven is not CARF accredited. In addition, during the time there was a low rate of utilization at Winter Haven, some licensed beds were not in service due to construction. Utilization in the first quarter of 1992 reached just under 80 percent at Winter Haven. UCH also claims that AHCA approved beds at Winter Haven based on the geographic inaccessibility of beds in Tampa. AHCA filed a Request for Official Recognition on February 3, 1993, which shows the award of beds to Winter Haven resulted from a stipulated settlement. UCH's Exhibit 9 does include the distance to Tampa as one of several factors considered in the agency's approval of the stipulated settlement with Winter Haven. L. W. Blake in Manatee County is also geographically inaccessible for Hillsborough County patients and their families, particularly the elderly proposed to be served by UCH. In addition, L.W. Blake's utilization increased to an average of 84 percent in the first quarter of 1992. Tampa General has 59 of its 60 CMR beds in service. All rooms at Tampa General are semi-private, necessitating same gender placements, except one isolation room. In addition, patients with similar injuries are grouped together. Tampa General is a regional referral center for vocational rehabilitation and a state designated center for head and spinal cord injuries. These factors limit the availability of Tampa General's beds to serve District VI residents, as does its occupancy rate of 85 percent. In the past, when UCH operated and then closed a CMR unit, there was no statistical impact on Tampa General. Currently, Tampa General has a waiting list and patients average a 9 day wait. For the reasons identified by UCH, including geographic and economic inaccessibility, the district incidence of CMR admissions as compared to acute care admissions, UCH has provided sufficient, credible evidence of the need for the services proposed by UCH in additional CMR beds in District VI. AHCA has amended its CMR rule to better predict need. Although it is not applicable to computing numeric need for this cycle, AHCA asserts that its new rule methodology is the alternative which should be used rather than other factors, such as the ratio of CMR beds to acute care admissions, or population. Under the new rule methodology, there is no numeric need for additional CMR beds in District VI. Assuming arguendo, that AHCA is correct, the other factors related to the accessibility and availability of services at the three existing providers could not be disregarded. PROJECT COSTS AND FINANCIAL FEASIBILITY In this application, UCH proposes to operate a 20-bed CMR unit in the renovated space of the sixth floor south wing. That space currently is being used as an overflow area for 30 medical/surgical beds. UCH estimates total project costs of $248,596, with major expenses for consulting, legal, and accounting expenses, and $67,496 of the total or $3.66 per square foot for redecorating the renovated wing. No additional construction is anticipated. AHCA acknowledges that UCH has the funds to finance the project, but asserts that the costs are understated by $150,000 due to the failure of UCH to include construction costs to bring the wing into compliance with the Americans with Disabilities ACT ("ADA"). UCH notes, and AHCA concedes, that the rule requiring compliance with ADA standards was not adopted until a year after this application was filed. In addition, ADA compliance is required for new construction, not redecorating. AHCA also criticized UCH for omiting the cost of relocating 10 medical/surgical beds, after the conversion of 20 of the existing 30 beds to CMR beds. UCH asserts that the conversion or relocation of the 10 beds is properly an expense item in the project which would utilize the 10 beds and is included in other pending CON applications for difference services. Other CON projects however, are not certain to be approved. If none are, UCH's expert planner testified that the 10 beds will be located in a general surgical area which is being redecorated. UCH also maintains that as long as it can bring the CMR beds on line within the total project costs within the application, it should be allowed to do so, even if that involves shifting amounts among the various expense items. AHCA has not estimated the cost of relocating the 10 beds, nor contradicted UCH's alternative plans for covering that cost. UCH's projected total project costs are, therefore, accepted as reasonable. AHCA agrees that UCH could profitably operate a CMR unit, particularly, as proposed to provide stroke and orthopedic services to medicare patients. When UCH operated an 18-bed unit, occupancy ranged from 77 percent to 84 percent, with 80 to 85 percent of the patients transferring from UCH acute care beds. Projected charges, deductions from revenue, payor mix, and expenses are reasonable. AHCA did not dispute UCH's assertions that its proposal is the most cost-effective alternative for increasing district CMR beds, because no other provider could initiate such services without substantial construction costs, and that utilization of CMR beds is increasing. ADDITIONAL CON CRITERIA AND CMR PROGRAM REQUIREMENTS UCH, as acknowledged by AHCA, has a history of providing quality care and is accredited by the Joint Commission on Hospital Accreditation. UCH has a staff physiatrist to serve as CMR Medical Director. The types of therapists needed to provide a coordinated multidisciplinary approach to rehabilitation are already on staff at UCH. The staffing and renovations of the wing in the late 1980's indicate that UCH will meet the requirements for CARF accreditation. UCH does not propose to offer CMR services as a joint venture with any other health care facility, nor does it propose to offer a service which is not available in adjacent districts. In fact, AHCA notes that District V providers had occupancy rates of 53.31 percent for 1990-1991. The agency's rule, however, places at issue the historic, current and projected population conditions in the Department service district by age and sex group.

Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered issuing Certificate of Need No. 6936 to University Community Hospital to convert 20 medical/surgical acute care beds to 20 comprehensive medical rehabilitation beds in District VI. DONE and ENTERED this 19th day of October, 1993, at Tallahassee, Florida. ELEANOR M. HUNTER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of October, 1993. APPENDIX TO CASE NO. 92-5107 University Community Hospital Accepted in Findings of Fact 1 and 3. Accepted in Finding of Fact 1. Accepted in Finding of Fact 4. Accepted in Finding of Fact 5. Accepted in Finding of Fact 5. Accepted in Finding of Fact 4. Accepted in Findings of Fact 1 and 5. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 6. Accepted in Preliminary Statement. Accepted in Preliminary Statement. Accepted in Finding of Fact 17. Accepted in Finding of Fact 18. Accepted in Finding of Fact 18. Accepted in Finding of Fact 18. Accepted in or subordinate to Finding of Fact 19. Subordinate to Finding of Fact 19. Accepted in Findings of Fact 20 through 24. Accepted in Finding of Fact 16. Subordinate to Finding of Fact 21. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 29. Accepted in part and rejected in part in Findings of Fact 6-16. Accepted in Finding of Fact 8. Accepted in Finding of Fact 20. Accepted in Finding of Fact 20. 28. Accepted in Finding of Fact 21. 29. Subordinate to Finding of Fact 21. 30. Accepted in Finding of Fact 22. 31. Accepted in Finding of Fact 22. 32. Accepted in Finding of Fact 24. 33. Subordinate to Finding of Fact 24. 34. Subordinate to Finding of Fact 24. 35. Subordinate to Finding of Fact 24. 36. Accepted in Finding of Fact 23. 37. Subordinate to Finding of Fact 23. 38. Subordinate to Finding of Fact 23. 39. Subordinate to Finding of Fact 23. 40. Subordinate to Finding of Fact 23. 41. Subordinate to Finding of Fact 23. 42. Accepted in Finding of Fact 23. 43. Subordinate to Finding of Fact 23. 44. Subordinate to Finding of Fact 23. 45. Subordinate to Finding of Fact 23. 46. Subordinate to Finding of Fact 23. 47. Subordinate to Finding of Fact 24. 48. Subordinate to Finding of Fact 24. 49. Subordinate to Finding of Fact 24. 50. Subordinate to Finding of Fact 24. Accepted in Findings of Fact 7 and 27. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 29. Accepted in Finding of Fact 30. Accepted in Finding of Fact 27. Accepted in Findings of Fact 26 and 28. Subordinate to Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Finding of Fact 27. Accepted in Findings of Fact 31 and 32. Subordinate to Finding of Fact 1. Accepted in Findings of Fact 27 and 32. Subordinate to Finding of Fact 27. Subordinate to Finding of Fact 30. Subordinate to Finding of Fact 30. Accepted. Accepted in Finding of Fact 32. Accepted and subordinate to Finding of Fact 1. Agency For Health Care Administration 1. Accepted in Findings of Fact 1 and 3. 2. Accepted in Findings of Fact 1 and 3. 3. Accepted in Finding of Fact 1. 4. Accepted in Finding of Fact 4. 5. Accepted in Finding of Fact 5. 6. Accepted in Finding of Fact 6. 7. Accepted in Findings of Fact 1 and 4. Accepted in Findings of Fact 26 and 28. Accepted in Finding of Fact 27. Accepted in Finding of Fact 32. Accepted in Finding of Fact 1. Accepted in Finding of Fact 29. Accepted in Finding of Fact 5. Accepted in Finding of Fact 6. Accepted in Finding of Fact 7. Accepted in Finding of Fact 8. Accepted in Finding of Fact 9. Accepted in Finding of Fact 10. Rejected in Finding of Fact 11. Accepted in Finding of Fact 12. Rejected in Finding of Fact 16. Accepted in Finding of Fact 13. Accepted in Finding of Fact 14. Rejected in Findings of Fact 20 and 22. Accepted in Finding of Fact 15. Subordinate to Finding of Fact 32. Accepted in Finding of Fact 19. Accepted in Finding of Fact 21. Rejected in Findings of Fact 20-23. Accepted in Finding of Fact 17. Accepted in Findings of Fact 8, 17 and 19. Accepted in Finding of Fact 17. Accepted in Finding of Fact 16. Accepted in Finding of Fact 16. Rejected in Findings of Fact 20-23. Rejected in Findings of Fact 20-23. Accepted in Finding of Fact 18. Rejected in Finding of Fact 24. Accepted in Finding of Fact 18. Accepted in Finding of Fact 25. Rejected in Finding of Fact 24. Accepted in Finding of Fact 16. Accepted in relevant part in Finding of Fact 21. Accepted in Finding of Fact 16. Conclusion Rejected in Findings of Fact 20-23 and 29. Accepted in Finding of Fact 16. Accepted in Finding of Fact 32. Accepted in Finding of Fact 20. Accepted in Finding of Fact 20. Rejected in Finding of Fact 29. Accepted in Findings of Fact 29 and 4. Rejected in Finding of Fact 29. Accepted in Finding of Fact 21. Subordinate to Findings of Fact 21-24. Accepted in Findings of Fact 21-24. Accepted in Findings of Fact 21-24. Subordinate to Finding of Fact 24, and Accepted in Finding of Fact 33. Accepted in Findings of Fact 4, 21 and 32. Rejected in Findings of Fact 4, 21, and 32. Subordinate to Finding of Fact 21. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 33. Accepted in Finding of Fact 33. Accepted in Finding of Fact 9. Accepted in Finding of Fact 9. Subordinate to Finding of Fact 29. Subordinate to Finding of Fact 29. Subordinate to Finding of Fact 29. Accepted in Finding of Fact 29. Rejected in relevant part in Findings of Fact 27 and 28. Rejected in Findings of Fact 27. Subordinate to Finding of Fact 21. Accepted in Finding of Fact 23. Rejected in Finding of Fact 27. Accepted in Finding of Fact 29. Issue not reached. See Finding of Fact 27. Issue not reached. See Finding of Fact 27. Issue not reached. See Finding of Fact 27. Accepted in relevant part in Finding of Fact 28. Subordinate to Finding of Fact 29. Rejected in Findings of Fact in 21-24. Rejected in Finding of Fact 23. Accepted, except last sentence in Findings of Fact 21-24. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Cynthia S. Tunnicliff, Esquire Post Office Box 190 Tallahassee, Florida 32302

Florida Laws (2) 408.035408.039 Florida Administrative Code (1) 59C-1.039
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PALM BEACH-MARTIN MEMORIAL HOSPITAL vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES AND HOSPITAL CARE COST CONTAINMENT BOARD, 85-000287 (1985)
Division of Administrative Hearings, Florida Number: 85-000287 Latest Update: Nov. 04, 1985

The Issue Whether under Section 381.494(6)(c)-(d), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, Respondent, Martin Memorial Hospital Association, Inc., is entitled to a Certificate of Need ("CON") authorizing a proposed 75-bed satellite hospital in Port Salerno, Martin County, Florida.

Findings Of Fact Background Respondent, Martin Memorial Hospital Association, Inc. ("Martin Memorial"), seeks a CON to construct and operate a 75- bed satellite hospital in Port Salerno, Florida. Of the proposed 75 acute-care beds, 50 will be new and 25 will be transferred from Mar in Memorial's existing hospital in Stuart, Florida. The proposed satellite hospital will have six intensive care beds, 69 medical-surgical beds, and two operating rooms. Respondent, Department of Health and Rehabilitative Services ("DHRS"), preliminarily issued the applied-for CON. After Petitioner, Palm Beach-Martin County Medical Center ("PBMC"), owner of nearby Jupiter Hospital in northern Palm Beach County, requested a Section 120.57 hearing to contest issuance of the CON, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. This case, in its earlier stages, was a consolidated proceeding with numerous parties and party-applicants. In the fall of 1984, several parties withdrew or were dismissed. One of the them, American Healthcorp., dismissed its challenge of DHRS' denial of its application to construct a 120-bed new hospital in Vero Beach, Florida. Prior to that dismissal, American Healthcorp. had filed a mandamus action in Leon County Circuit Court to require DHRS to issue a CON. The writ of mandamus was issued and that order was appealed by DHRS to the First District Court of Appeal. On June 18, 1985, the First District reversed the Circuit Court's order. DHRS never issued a CON to American Healthcorp., as the writ of mandamus was stayed during the pendency of the appeal. Initially, PBMC, another party-applicant, contested DHRS' denial of a proposed 66-bed addition to its existing hospital in Jupiter, Palm Beach County, Florida. Later, PBMC dropped its opposition to the denial after concluding that, due to a dramatic drop in patient census during 1984, additional beds in the area were not needed.1 On Martin Memorial's unopposed motion to dismiss, PBMC was dismissed as a party. Other nonapplicant intervenors subsequently withdrew. In the earlier consolidated proceeding, Martin Memorial had contested the denial of its initial application (filed in 1983) for a CON to construct a 150-bed satellite hospital in Port Salerno, on the same site as now proposed for the 75-bed hospital. In October, 1984, Martin Memorial revised its application, within a deadline for submittal of amended applications set by prehearing order. This revised application, now the subject of this proceeding, reduced the number of beds in the proposed hospital from 150 to 75: 50 were to be new and 25 were to be transferred from Martin Memorial's existing hospital in Stuart.2 This 75-bed application was then preliminarily approved by DHRS, as part of an effort to settle the pending consolidated proceeding. After notice of the approval was published on December 7, 1984 in the Florida Administrative Weekly, PBMC timely requested a hearing to contest it. PBMC's position is, generally, that another hospital in the area is not needed and will result in an unnecessary duplication of services and that, if built, the hospital would draw patients who would otherwise use Jupiter Hospital, to the economic injury of PBMC. The remaining party-applicant in the consolidated proceeding was Lawnwood Medical Center, whose proposed 50- bedexpansion of its hospital in Fort Pierce (St. Lucie County), was preliminarily approved by DHRS. Martin Memorial requested a Section 120.57(1) hearing to contest the approval. By stipulation dated May 15, 1985, Lawnwood Medical Center was dismissed as a party. Martin Memorial II. The Parties The applicant, Martin Memorial, operates a not-for- profit community hospital in Stuart, Florida, which has served the health care needs of the area since 1939. At that time, it had 25 beds and the site consisted o eight acres. In subsequent years, Martin Memorial added five additional acres of land, and the hospital now has 336 beds, including 26 new beds: nearing completion. Martin Memorial is a subsidiary of Coastal Health Corporation, a not-for-profit holding company. One of the holding company's other non-profit subsidiaries, Coastal Care Corporation, provides services such as ambulatory surgery and primary or emergency care at medical treatment centers. Martin Memorial and its parent corporation, Coastal Health Corporation, are governed by boards comprised of full- time residents of Martin County who serve without compensation. Martin Memorial Hospital has a proven record of providing health care to indigents. Its policy is to provide health services without regard to race, religion, national origin, or a patient's ability to pay. It has always participated in the Medicare/Medicaid Programs and participates in the county indigent program. It proposes to follow the same policy at the proposed satellite hospital. Martin Memorial Hospital, in Stuart, is adjacent to the St. Lucie River on the north, bounded by the Heida-Brad Park residential development on the east, by the St. Mary's Episcopal Church on the south, and by various businesses and residences on the west. It would be difficult for Martin Memorial Hospital to expand to meet anticipated future demand. It has found it impractical to buy additional land adjacent to its existing facility. (It does not nave eminent domain power.) Under current zoning, its height is limited to the existing six floors. Other obstacles include problems with parking access and compliance with fire safety codes. Palm Beach-Martin (PBMC) PBMC is a non-profit corporation, organized in 1973, with the stated purpose of serving tee health care needs of residents of northern Palm Beach County and southern Martin County. It operates a community not-for-profit hospital, known as Jupiter Hospital, in Jupiter, Florida. A 156-bed acute care hospital, it is the northern most hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. Over 10% of Jupiter Hospital's patients come from the Hobe Sound area of Martin County, and another 20% come from the Tequesta area of Martin County. The boards which operate PBMC and Jupiter Hospital are made up of volunteers; one-half of whom are doctors on the hospital's medical staff, and the other half are lay-members from the community. All policy decisions are made by the boards. The hospital is managed, under contract, by hospital Corporation of America Management Company (owned by Hospital Corporation of America) which supplies only the hospital administrator and finance director, all other personnel are employees of PBMC. Like Martin Memorial, PBMC has a practice of providing health care to indigent patients. It has a Medicaid contract at its convalescent pavilion and treats Medicaid patients requiring care. (Since it has not had a Medicaid contract with the state, PBMC "writes-off" the cost of care provided to Medicaid and indigent patients. But due to an increasing number of Medicaid patients, PBMC has applied for a Medicaid contract.) It has a current contract with Palm Beach County to treat indigents in its out-patient facility. Department of Health and Rehabilitative Services (DHRS) DHRS is designated by statute as the single state agency charged with issuing and denying CONs in accordance with district plans, DHRS rules, and state and federal statutes. See, Section 381.494, Florida Statutes (1983). Geographic Facts The proposed satellite hospital would be located in Port Salerno, Martin County, 5 1/2 miles south of Martin Memorial Hospital and 15 miles north of Jupiter Hospital. The site of the proposes hospital is 35 acres in size, and is located approximately 1/4 mile east of Highway U.S. 1, on Port Salerno Road. Jonathan Dickinson State Park, abutting Highway U.S. 1 for five miles, is situated between the site of the proposed satellite hospital and PBMC's Jupiter Hospital. The area of Hobe Sound is just north of this State Park. The proposed hospital would be adjacent to the Martin County Campus of Indian River Community College. III. Standing of PBMC: Expected Impact of Proposed Hospital on PBMC. Since it is physicians who admit patients to hospitals, the extent to which medical staffs overlap is one factor used to project how a new hospital will affect an existing one. Martin Memorial Hospital and Jupiter Hospital have distinct medical staffs and there is no material overlap. Neither has it been shown that Jupiter Hospital physicians will seek staff privileges at the proposed satellite hospital. It is reasonably expected that the proposed hospital will be staffed, for the most part, by physicians who are also on the staff of Martin Memorial Hospital. Nevertheless, the proposed satellite hospital would draw away a substantial portion of Jupiter Hospital's patient base and is intended to reduce Jupiter Hospital's market share in the Hobe Sound area to near zero. (Indeed, this is a result projected in Martin Memorial's Long Range Plan.) Martin Memorial (in its Long Range Plan) estimates Jupiter Hospital's current market share to be 65%. Jupiter Hospital's primary service area includes Hobe Sound, from which it draws approximately 10% of its patients. The northern boundary of the Hobe Sound area is 20 minutes driving time from Jupiter Hospital. Hobe Sound is also within the primary service area of the proposed satellite hospital. The proposed hospital would be in the same DHRS Service District as Jupiter Hospital and both hospitals would have overlapping primary service areas. The projected loss of 10% of its patient base to the proposed satellite hospital would have a significant adverse financial impact on PBMC. It has not been shown, however, this impact would imperil the continued financial feasibility of Jupiter Hospital. IV. Numerical Bed-need Projected by Applying DHRS Rule-Based Bed-need Methodology. The proposed satellite hospital would be located in DHRS Health District 9, which consists of Indian River, St. Lucie, 55artin, Okeechobee, and Palm Beach Counties. The state acute care bed-need methodology is a complex formula contained in Rule 10-5.11(23), Florida Administrative Code. It projects bed-need, on a district-wide basis, five years into the future, creating what is referred to as a "five-year planning horizon" for assessing acute care bed-need. The formula requires several district-specific inputs, including population forecasts in four age groups, the average fertility rate in the district for the three most recent years, the average historical utilization rate in the district for the three most recent years, together with specific factors used to determine the net flow of elderly patients. Three other input factors are applied uniformly to all districts: discharge rates by service and by age cohort for Florida residents, average length of stay by service and by age cohort, and occupancy standards by service and by age cohort. Application of the formula entails seven steps: Project patient days by service and by age cohort using the formula: Patient days = projected population x discharge rate x average length of stay Adjust the projected patient days for the 65 and over age cohort to account for patient flows. Calculate bed-need by applying service- specific occupancy standards to projected patient days. Calculate the district bed allocation by summing the beds needed by service. Calculate the projected occupancy of these beds using the district's historical utilization rate. If the projected occupancy. rate is less than 75 percent or greater than 90 percent, apply specified formulas to adjust the district bed allocation (downward or upward, respectively. Check to ensure that each district will be able to meet peak demand based on the adjusted allocation. (R-l8l/, Testimony of Kolb) Population projections used in the methodology are: "for age- specific cohorts residing in the relevant district projected five years into the future," Rule 10-5.11(23)(f)1., Florida Administrative Code. These age-specific cohort projections (of county populations) must be "those developed by the State Health Planning Agency, and will be based on the latest mid-range projections published by the Bureau of Economic and Business Research of the University of Florida [BEBR]." Id. There are currently 4,695 licensed or approved acute care beds in District 9, which includes the 50 additional beds (preliminarily) approved for the proposed satellite hospital and the 45 beds approved in a subsequent batching cycle. For July, 1989, application of the bed-need methodology shows a district wide gross need of 4,621 beds. This is based on population forecasts for July, 1939, released by the Governor's Budgeting and Planning Office on- January 1, 1985.This office interpolates and publishes population forecasts based on figures received from BEBR. Since later 1934 (when Rule 27E-2.01-.04 was adopted requiring state agencies to use, in their planning, population projections provided by the Governor's Office), DHRS's Office of Health Planning and Development has used such forecasts to project bed-need under the methodology. These forecasts are appropriate for such use since they are "developed" by the State Health Planning Agency and based on the latest mid-range projections published by BEBR. When the licensed or approved bed total of 4,645 (excluding 50 beds for the proposed satellite hospital) are subtracted from the district wide gross need, there is a net surplus of 24 beds. If the 50 beds of the proposed satellite hospital are included, the net surplus increases to 74 beds. A planning horizon of January, 1990, however, is more appropriate. It more closely conforms to the methodology's requirement that need be projected five years into the future. (At hearing, all parties agreed or acquiesced to the proposition that the five year planning horizon should begin to run, to the extent possible, from the date of final hearing in June, 1985.) The latest county-wide projections released by the Governor's Office for state agency use, projects population by age and sex cohorts for January 1, 1990 and July 1, 1990. The July 1, 1990 projections are beyond the five year horizon and so less suitable for use in the methodology. Applying, then, the bed-need methodology to project bed-need for January, 1990, shows a gross need of 4,702 beds, resulting in a total district wide net need of 57 beds (excluding the proposed 50-beds satellite hospital). Hence the methodology shows (just barely) a January, 1990 need for the 50- beds sought for the proposed satellite hospital. Because of projected increases in district population, the methodology predicts a significant growth in bed-need between July, 1989 and January, 1990: bed-need grows by 81 beds or by more than 10 beds per month. PBMC contends that a planning horizon of July 1, 1989, and no later, must be used since DHRS has, historically, updated bed-need projections only on July 1 of each year. Annual updates were limited to once a year because updated population figures were received only in July. Now, however, -he situation has greatly improved. DHRS receives updated population forecasts from the Governor's Office twice a year--in January and July. There is no reason why these updated and, presumably, more accurate population forecasts cannot be used to project bed-need Martin Memorial, on the other hand, argues for a more distant planning horizon--April 1, 1990. This horizon, however, requires use of BEBR projections recently received but not yet released or interpolated by the Governor's Office, until released, such projections are not appropriate for use by state agencies. See, Rule 27E-2.01-2.04, Fla. Admin. Code. V. Consideration of Other CON Review Criteria [A CON may be denied even though the bed- need methodology projects a need for the proposed beds five years into the future. Rule 10-5.11(23)(b): "An unfavorable Certif- icate of Need determination may be made when a calculated bed-need exists, but other criteria specified in Chapter 3Bl.494(6)(c), Florida Statutes, are not met." DHRS must consider CON applications in light of all statutory and rule criteria. See, Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984).] Subdistrict Need: Allocation of District Wide Bed-need to|-. Relevant Subdistrict In 1983, the Local Health Council divided District9 into five subdistricts: (1) Indian River County, (2) Martin and St. Lucie Counties, (3) Okeechobee County, (4) northern Palm Beach County, and (5) southern Palm Beach County. Each subdistrict "is an area where the co-unity, by itself, uses the facilities in an area. It is supposed to be a sort of natural boundary that separates the different communities." (TR-413) The council also adopted a methodology for allocating acute care beds among the five component subdistricts. (R.-19) Although DHRS has not yet adopted, by rule, District9's subdistricts and subdistrict bed-need allocation methodology, both are part of District 9's Local Health Plan, adopted after a series of workshops and public hearings. The subdistricts were identified pursuant to a protocol furnished by DHRS which required consideration of whether an area was urban or rural, or comprised a standard metropolitan statistical area (SMSA). Under the protocol, an SMSA must be designated a separate subdistrict. Since Martin and St. Lucie Counties form a SMSA, they form a separate subdistrict. The five subdistricts of District 9 were identified in a rational manner, have a factual basis, and are useful tools for health care planning purposes. The methodology for allocating district wide bed-need to the subdistricts, also part of the Local Health Plan, has also been shown to be supported by reason and accepted health care planning concepts. DHRS cannot rationally determine the need for additional acute care beds, at least in =he context of this case without looking at subdistrict need or lack of need. In this way, local needs and conditions are considered in the decision- making process. District 9 is too large to serve as a useful unit for acute care bed planning purposes. Applying the Local Health Plan's sur5istrict bed-need allocation methodology to the July, 1989 planning horizon, indicates a net acute care bed-need for the Martin/St. Lucie-- County Subdistrict (not counting the 50 beds at issue) of 103beds. If the proposed hospital were approved, the subdistrict bed-need methodology would show a remaining subdistrict need for53 acute care beds. (R-18, TR-249) When applied to the January, 1990 planning horizon, preferred to the July, 1999 horizon., the subdistrict methodology shows a net acute care bed-need of 119 beds for the Martin/St. Lucie County Subdistrict (not counting the 50 beds at issue). Thus, the bed-need allocation methodology contained in District 9's Local Health Plan, shows a need for the proposed 50-acute care beds, with a 69-bed margin. (T-18, TR-248) Since the total number of licensed and approved beds (excluding the 50-beds at issue) for the subdistrict is 761, the projected need for 119 new acute care beds in January, 1990, is considered to be substantial. But the subdistrict bed allocation methodology assumes, incorrectly, that patients do not "cross-over" from one subdistrict to another. It fails, therefore, to consider or take to account the significant number of patients residing in the Martin/St. Lucie Counties Subdistrict who use acute care beds at Jupiter Hospital, located in the subdistrict to the south. This failure in the subdistrict methodology detracts from the weight to be given the resulting bed-need calculation. Availability, Accessibility and Adequacy of Like and Existing Facilities. Section 384.494(6) (c) 2.; Florida Statutes, requires review of CON applications in context with the "availability . . . accessibility and adequacy of like and existing health care services . . . in the district of the applicant."] Excess or under-utilized acute care bed capacity is a problem because it contributes to higher health costs. There are fixed overhead costs associated with acute care beds, whether empty or filled by a patient. These costs must ultimately be borne by the patients, or their insurers In reviewing a CON application, DHRS considers the number of available unoccupied beds at the facility and in the county or subdistrict for the most recent calendar year, determines actual occupancy rates, and compares them against an 80% occupancy standard, a standard generally accepted by health care planners. For example, one stated reason for DHRS' denial of Martin Memorial's initial 150-bed application was the availability of 20 unoccupied medical-surgical beds at Martin Memorial in 1982, on an average daily basis. Similarly, the average daily availability of 73 unoccupied medical-surgical beds in the five hospitals within PBMC's service area, plus additional approved but not licensed beds in the area, were stated reasons for DHRS' denial of PBMC's initial 1983 application for additional beds. (R-13) Applying the 80% occupancy standard to 1984 bed utilization statistics in the Martin/St. Lucie County Subdistrict, there were 111 unoccupied acute care beds on an average daily basis, not counting the 50 new beds recently approved for Lawnwood Hospital and the 26 new beds soon to be available at Martin Memorial. This is a 63.7% occupancy rate. Moreover, there were 47 unoccupied licensed beds on an average daily basis at Martin Memorial Hospital (not counting the 26 new beds under construction). The same calculation using only medical-surgical beds shows that in 1984, on an average daily basis, Martin Memorial had 36 unoccupied medical-surgical beds or an occupancy rate of 661. At Jupiter Hospital and Port St. Lucie Medical Center, the two hospitals having overlapping service areas with Martin Memorial, there were 31 (58.2% occupancy rate) and 49 (43.7% occupancy rate) unoccupied medical-surgical beds, respectively, on an average daily basis. (HRS-4) There is an ample supply of available beds: there is not a shortage of acute care hospital beds at Martin Memorial Hospital or in the Martin/St. Lucie Subdistrict. Martin Memorial has shown only that there may be, or could be, bed availability problems during certain peak months at Memorial Hospital in 1990, based on seasonal considerations. At most, it has shown that, without the proposed satellite hospital, the average occupancy for its highest occupancy month in 1990 would reach 91%. (TR-263-265) However, it is possible to operate a hospital at such an occupancy level for several months and yet maintain an acceptable level of service. (Moreover, Martin Memorial's analysis fails to take into account acute care beds which would be available in 1990 at Port St. Lucie Medical Center and Jupiter Hospital, where occupancy rates would be much lower.) Martin Memorial does not assert that in 1990 its average daily occupancy rate will exceed 80%. Indeed, assuming the validity of its average length of stay and hospital utilization assumptions (which are questionable), Martin Memorial forecasts an average daily occupancy rate of 79.4%. The State Health Plan states that "the issue of surplus beds is expected to be an even greater problem in the future because of the growth of alternative delivery systems"-- (R-20, p.22)--a proposition with which Martin Memorial's expert generally agrees. (TR-287-288) The State Health Plan concludes that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed-need by 15% or more." Id. Thus it becomes more likely that there will be an ample supply of available unoccupied beds in the subdistrict through 1990. The proposed satellite hospital would improve or enhance the accessibility of hospital services, since it would be located closer to some patients than either Martin Memorial or Jupiter Hospital. However, it has not been shown that geographic accessibility has been or will be a serious problem without construction of the proposed satellite hospital. The proposed hospital would be located about 5 miles from Martin Memorial and about 15 1/2 miles from Jupiter Hospital. Patients in the southern part of Martin County, residing south of the northern part of Hobe Sound, can be driven to Jupiter Hospital in 20 minutes or less. The definitive standard, commonly used by DHRS and.generally accepted by health care planners to detect geographical bed-access problems, is the 30 minute drive-time standard. Under this standard, if acute care hospital beds are available and accessible, within an automobile travel time of 30 minutes under average traffic conditions to at least 90% of the population, there is no cause for concern about geographic accessibility. It is undisputed that hospital beds are now available well within 30 minutes travel time to all residents of Martin County during all relevant periods, and will continue to be so through 1990. In short, geographic accessibility is not a current or projected problem and although the satellite hospital would make in-patient services more geographically accessible to some residents, such a result could be expected whenever a new hospital is constructed, whatever its location. As to adequacy of existing and licensed and approved facilities, there is no showing that the quality or extent of health care provided is inadequate. Extent of Utilization of Like and Existing Facilities. [Under Section 3Bl.494(6)(c)2., Florida Statutes, CON applications must also be reviewed in context with the "extent of utilization . . . of like and existing health care services . . . in the service district of the applicant."] During the last two years, the health care industry has undergone major changes resulting in a sudden and dramatic decline in the use of hospital in-patient services. The main cause of this decline was the shift, in October 1983, to the Medicare prospective payment system, otherwise known as Diagnostic Related Groupings (DRGs). The DRG payment system changed Medicare reimbursement from a cost basis to a set reimbursement based on diagnosis. It has caused a sharp decline in the average length of stay of Medicare patients as well as a decrease in Medicare admissions, and a resulting decline in hospital occupancy levels. For example, in calendar year 1984, the average length of stay for hospital patients in District 9 dropped from approximately 6.8 to 6.1. (DHRS-4) Another recent development contributing to the general decline in hospital utilization .is the increasing emphasis on providing out-patient services such as out-patient surgery and home health services. In many areas of the country, the advent of Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) have significantly impacted hospital occupancy rates, not only by encouraging shorter lengths of stay, but also by greatly lowering admission rates. (TR-604-05, 773: P-3, p.l8) According to the State Health Plan, "the emergence of [these] alternative delivery systems . . . [has] exacerbated declining occupancy rates." (R-20, Vol. 1, p.26) Martin Memorial has developed free-standing medical treatment centers in Hobe Sound and Port St. Lucie, which can provide up to 80% of the services required by patients in hospital emergency rooms. (TR-56-59 R-1, Vol. II at 73) In addition, Martin Memorial is merging with VNA in Martin County to provide home health care. These alternative delivery systems, along with the expected increasing effects of PPOs, HMOs and prospective payment systems, will contribute to further declines in hospital utilization and tend to extend the time during which the existing inventory of acute care beds will be adequate to meet the needs of a growing population. Although witnesses for Martin Memorial suggest that this steady decline in bed utilization at Martin Memorial will soon bottom out and that the average length of stay will fall no further, the weight of credible evidence shows that hospital utilization in District 9, as well as in the country as a whole, is still declining and that no one can say, with any reasonable degree of certainty, just when the decline (or "nose dive," TR- 682) in average length of stay and overall utilization will stop. The Executive Director of the District 9 Health Council predicts that the average length of stay in the district may fall from its current level of 6.1 or 6.2 to 5, and a recent survey of southeastern hospitals predicts at least a 5% further decline in average length of stay from 1984 levels. Hospital admission or discharge rates in District 9 fell slightly in 1984, but on the whole have remained relatively constant. The decline in hospital utilization has been chiefly caused by the unprecedented drop in average length of stay. Several factors causing declines in hospital admissions as well as utilization in other areas of the state and country have not yet begun to significantly affect northern Palm Beach, Martin, and St. Lucie Counties. It is, however, reasonably expected that these factors, such as out-patient or ambulatory surgical centers, and home health services (which are becoming increasingly used), will continue to grow and further decrease hospital in-patient surgery and care, admissions, and utilization. (TR-39-40, 578) As stated earlier, the most recent State Health Plan predicts that the combined effect of ambulatory surgery and other alternative health care delivery systems will be to reduce hospital discharges (or admissions) by 15% or more by 1989. (R-20, Vol. 2, p.72) Another factor which will contribute to the further decline in hospital utilization in Florida will be the required adoption of prospective payment programs by hospitals and private insurers for non-;5edicare patients. Under the Florida Health Care Access Act of 1984, hospitals are required to negotiate a prospective payment arrangement with each health insurer representing 10% or more of the hospital's private pay patients (R-20, Vol. 1, p. ll) To date, the only active HMOs in District 9 are found in southern Palm Beach County and their impact has not been felt elsewhere in the district. It is reasonably anticipated, however, that HMOs will expand throughout the district in the next several years and will contribute to a further decline in admissions. (Some commentators predict HMOs will reduce hospital admission rates by as much as 40%.) (TR-605-06, 679-80) Even without these factors, the extent of the decline in hospital utilization in District 9 has been dramatic. Overall hospital utilization i., 1984 declined from a level of 73.7% in 1983 to 65.R% in 1984. (HRS-4; R-~9: P-5) The District 9 medical-surgical utilization rate dropped from 76.3% in 1983 to 67.3% in 1984. The decline in hospital utilization in the Martin/St. Lucie Subdistrict and at specific hospitals in the area have been even more pronounced: 1983-84 Subdistrict and Specific Hospital Utilization Rates Overall Rate Med-Surg Rate 1983 1984 1983 1984 Martin/St. Lucie Subdistrict 76.9%1 63.7% 78% 63.8% Martin Memorial 74.1% 65.1%4 74.8% 66.0% Port St. Lucie5 38.9% 44.1% 37.6% 43.7% Jupiter Hospital 67.7% 55.7% 71.4% 58.2% Although experts disagree on how long the decline in hospital utilization will continue and how far it will fall, it is apparent that hospital utilization is continuing to decline in District 9 in 1985. By January and February 1985, the Martin/St. Lucie Subdistrict medical-surgical utilization declined about 1% from the same period in 1984. However, the most recent data for March, 1985, shows a decline in monthly medical-surgical utilization from 73.2% in 1984 to 68.8%. Martin Memorial's patient days in 198; are less than the corresponding number of patient days .when compared to the same periods in 1984. In addition, in no single month during Martin Memorial's 1985 fiscal year, beginning on October 1, 1984, has Martin yet achieved its budgeted patient days or admissions. In fact, Martin Memorial's bed utilization is more than 10% under budget for fiscal year 1985. (TR-66-69 P-1) Martin Memorial contends that the projected increase in the population and the aging in population in the Martin/St. Lucie Subdistrict will offset the decline in average length of stay and gradually increase the in-patient population. Although it is reasonable to expect that such factors would increase utilization, over the last year in District 9, use rates have gone down and admission rates have decreased slightly even though population increased and aged. In addition, it is reasonably anticipated that the future negative impact of HMOs on use and admissions will offset these population changes and contribute to further decline in utilization. Projected Utilization of Martin Memorial Hospital and the Proposed Satellite Hospital. In projecting- utilization for its existing and proposed facilities, Martin Memorial used 1984 District 9 use rates and a constant to increasing average length of stay. (R- 18) Use and admission rates have declined steadily for several years for the under-65 population and, in the first year of DRGs, dropped by over 3% for the over-65 population. Vet, despite this t-end and projections of decreasing use and admission rates in the future due to alternative delivery programs, Martin Memorial's utilization forecast uses admission rates slightly higher than the 1984 actual admission rates. (R- 18) In projecting the average length of stay for the proposed Port Salerno Hospital, Martin 'Memorial discounted 10% from its 1984 average length of stay. This discount, however, was due to projections of lower Medicare utilization and lower intensity of services at the new hospital, and makes no allowance for any further decreases in average lengths of stay. Similarly, in projecting utilization for Martin Memorial Hospital, Martin Memorial assumed an increase over the 1984 average length of stay of 6.0 days to 6.1 days in 1990. These assumptions are unreasonable in that they 'ail to fully into account the current and projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization—that the satellite hospital would experience 58% occupancy in 1990, the first year of operation. Martin Memorial projects that without the proposed Port Salerno Hospital, Martin Memorial would achieve an occupancy rate of 79.4% in 1990. This utilization projection was based on population projections for Martin County done in 1984 by Dr. Stanley Smith it fails to take into account Dr. Smith's recent revision downward of the 1990 population projections for Martin County from 100,900 to 98,700. (TR-95-96, 294-95 R-6) The decline in average length of stay and hospital use rates will have a major impact on the number of empty beds in District 9 and, at least as applied to this District, the bed- need methodology of Rule 10-5.11(23), over-states the need for additional beds in 1990. The methodology uses a constant average length of stay derived from prior years. It is not an accurate predictor of future occupancy when, as now, use rates and utilization are declining and are reasonably expected to continue to decline. (TR-639-41: TR-614, 621-22 P-5) Martin Memorial's projected 79.4% occupancy rate in 1990 is overstated because it fails to fully take into account continuing declines in average length of stay and use rates, and because the 1984 population figures used to derive the 1984 use rate may be understated, thereby overstating the use rate. Similarly, using the same assumptions, an occupancy rate of 69.7% was projected for Jupiter Hospital (without the proposed Port Salerno Hospital). This projection is also overstated for the same reasons. If the Port Salerno Hospital were approved, the 1990 occupancy figures for both Martin Memorial and Jupiter Hospital would, in all likelihood, be much lower. (TR-627 P-5) 21 A more credible projection of ,Martin Memorial Hospital's 1990 occupancy rate was offered by Thomas W. Schultz, PSMC's health care planning expert. By reducing the 1984 Dis- trict 9 use rate by 2.9% to account for declining utilization at Martin Memorial during the first three months of 1985, as well as the general continuing decline in hospital utilization, Mr. Schultz projected Martin Memorial's 1990 occupancy (without the new facility) to be only 72.6%. Similarly, because use rates are still declining and because the 1985 population numbers used to calculate the rates may have been understated, this projected occupancy is overstated. (TR-628-30, 635-38; P-5) The State Health Plan and the District 9 Local Health Plan [Section 381.494(6) (c)l. requires that CON applications be reviewed "in relation to the applicable district plan and state health plan "] Several specific utilization and occupancy standards are contained in the State Health Plan and the District 9 Local Health Plan. A major stated goal of the State Health Plan is to promote the efficient utilization of acute care services by raising the occupancy rates or acute care hospitals. (R-20) It identifies 80% as the appropriate minimum occupancy level for acute care hospitals: an average annual occupancy rate of at least 80% is made an objective. As conceded by Debra S. Kolb, Ph.D., Martin Memorial's expert health planner, the 80% occupancy standard is an appropriate minimum standard which should be "looked at as a hurdle before beds are added." (TR- 289) She adds, however, that "there are other factors, such as . . . size of the facility, seasonality issues, age problems. . . that would warrant special cases." (T?.-289) By policy and practice, DHRS considers current occupancy levels to be an important criterion and has applied this 80% occupancy standard in reviewing CON applications. Its use of these standards is illustrated by its initial action on the various applications which were once part of this proceeding. DHRS granted Lawnwood Hospital's application for several stated reasons, one of which was a 1982 occupancy rate of 90%. Martin Memorial's initial 150-bed application and PBMC's 60-bed application (later dropped) were denied, in substantial part, because of low utilization rates in 1982 and because there was an adequate supply of beds currently available. (Interestingly, both Martin Memorial and PBMC had 1982 occupancy rates exceeding 70%.) As stated by Gene Nelson, then supervisor of DHRS' CON review section, in the State Agency Action Report denying PBMC's application: "Overall utilization for Palm Beach Martin County Medical Center for 1982 was 72.3% and medical/surgical utilization was 76.4%, neither being sufficiently high to justify additional beds." (R-13) The Acute Care portion of District 9's Local Health Plan (1984), contains "Recommendations by Priority Ranking" reflecting policies and priorities which, according to the local health council, should be used (in addition to the DHRS bed-need methodology) in planning and allocating acute care bed-need. Priority I delineates the subdistricts for purposes of allocating acute care hospital beds: Priority II establishes the_ subdistrict allocation methodology: Priority III establishes an occupancy rate which must be met before additional beds may approved: Before needed beds, as determined by Rule 10-5.11(23), may be approved, applicants requesting additional acute care beds should demonstrate that certain occupancy thresholds have been achieved relative to medical/surgical, obstetric, pediatric and ICU/CCU beds. The average annual occupancy rate (most recent calendar year) in the applying facility and its corresponding subdistrict average, should equal or exceed the following levels (inclusive of CON approved beds): Medical/Surgical 75% Obstetrical 65% Pediatric 65% ICU/CCU, Monitored & Intermediate Care 75% (e.s.) (R-10, pp.48-49) The rationale for this standard is set forth in the plan: With the advent of the Medicare prospective reimbursement system, there is literally no way to estimate the magnitude of impact that this reimbursement mechanism will have on hospital admissions, occupancy rates, and average lengths of stay. Therefore, relying upon the national standard of 4 beds/1000 population was not adequate. There is a need for an indicator based solely on utilization for the elderly. Since the reimbursement mechanism for non-Medicare patients has not changed, a resource based methodology has been utilized for this population group. Moreover, the program goals of the Local Health Plan state that the overall occupancy rate in District 9--as a whole--for licensed acute care beds as well as the occupancy rate for medical/surgical beds should equal or exceed 756. (Id. at 47) These minimum annual district and subdistrict occupancy rates take seasonality and age considerations into account. Bed utilization or occupancy standards are the only bed-need criteria that look to actual, verifiable data reflecting current conditions as opposed to forecasts, which look to the future.6 Failure to achieve the occupancy standards of Priority III A of the Local Health Plan creates, at least, a strong presumption against the approval of the project. In exceptional situations, however, additional beds may be approved even though the occupancy standard is not met. A typical example projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization--that the satellite hospital would experience 58% occupancy in 1990.the first year of operation would be where there was a geographical access problem.7 Both the State and District 9 Health Plans cite the high cost of unused hospital beds which add to the cost of hospitalization. (R-20, p.70: R-10, p.10) A primary goal of both plans is to raise occupancy rates and eliminate excess beds. With this in mind, it is reasonable to give considerable weight to current utilization rates even though a numerical "need" for the beds is projected by the DHRS bed-need methodology.8 1984 bed utilization at Martin Memorial, Port St. Lucie and Jupiter Hospitals, as well as average utilization for District 9 and the Martin/St. Lucie Subdistrict, fall well below the minimum occupancy standards normally applied by DHRS and set out in the State and Local Health Plans. These minimum occupancy standards have not been met and are not reasonably projected to be met by 1990. Considerable weight should be accorded this factor since that is the effect of the State and Local Health Plans and DHRS' normal practice. Moreover, since occupancy rates are based on actual current conditions, they are less subject to manipulation, and inject a healthy measure of reality into CON decision-making during a time of great change in the health care industry. Economies and Improvement Services Derived From Operation of Joint, Cooperative or Shared Resources. [Another CON criterion is whether there will be "[p]robable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources." Section 3fll.494(6)(c)5., Florida Statutes.] Because the proposed project is a satellite hospital, there will be economies and improvements in services realized from the operation of joint, cooperative or shared health care resources, as compared to the operation of a wholly separate free-standing hospital. The satellite hospital will not offer obstetrics or a defined pediatric unit. It will not have a CAT Scanner, a -- personnel office similar to Martin Memorial's, or a hospital laundry. It will have an emergency room, normal operating room suites, and radiology and lab services, although the more complex lab tests will be performed at Martin Memorial Hospital. The Need for Research and Educational Facilities. [CON applications are also reviewed in context with the "need for research and educational facilities . . .." Section 381.494 (6)(c)7, Florida Statutes.] The proposed satellite hospital will be located directly adjacent to the Martin County campus of Indian River Community College ("IRCC"). The IRCC campus has an Allied Health Building with approximately nine classrooms, a nursing 120 and an emergency medical technician lab. IRCC has a contract with Martin Memorial Hospital which allows IRCC students to use Martin Memorial facilities for clinical training. Clinical training is an important part of the allied health curriculum at IRCC. Construction of the satellite hospital next to the IRCC campus would benefit the Allied Health Programs since there could be joint use of equipment, facilities, and personnel, and a better opportunity to invite doctors, nurses, and other health care professionals to the classroom. The satellite hospital would also be more convenient to students, in terms of scheduling and transportation, than Martin Memorial Hospital, where they now receive clinical training. Although the proposed satellite hospital would enhance the IRCC health care training programs, there is no evidence that the clinical training programs now provided at Martin Memorial Hospital are inadequate. The proposed facility is not predicated on a claim that its primary purpose will be to serve as a research or educational facility. Financial Feasibility of the Proposed Satellite Hospital. [Another CON criterion is "[t]he immediate and long-term financial feasibility of the proposal." Section 381.494 (6)(c)9, Florida Statutes.] Estimated Project Costs The estimated costs of the movable equipment for the proposed satellite hospital are reasonable. (Stipulation, P.3) The real property in Port Salerno where the proposed satellite hospital would be located, is owned by Martin Memorial and is of adequate size and otherwise appropriate for the proposed project. (Stipulation, p.3) The estimated cost of construction and fixed equipment is $7,490,625.00, which amounts a cost of $117.50t per square foot. (The hospital will have 850 square feet per bed: $117.50 X 850 X 75 = $7,490,625.00.) his is a reasonable cost for bidding the project in the spring of 1986. Estimates of the architect's fee ($545,317.00), the cost for surveys and borings ($25,000.00j, the 3% contingency cost ($251,000.00), the developmental costs ($195,000.00), the site work and utilities ( $960, 000.03 ), the actual land costs.($595,000.00), and the financing and refinancing costs($3,100,770.00) have also been shown to be reasonable. Short-Term Financial Feasibility Martin Memorial has sufficient funds to make the equity contribution necessary to obtain financing. It also has the ability to raise $16,370,000.00 through the sale of tax exempt bonds, which appear to be marketable. It is likely that Martin Memorial would be able to secure the necessary funds for construction. The proposed satellite hospital would be financially feasible in the short-term. Martin Memorial has proven its ability to operate a hospital efficiently and profitably. Even with the advent of the DRG payment system, Martin Memorial Hospital has continued to operate profitably. During the initial DRG phase-in year of 1984, Martin Memorial benefited financially from the use of the new prospective payment schedule. Even if bed use at the satellite hospital is less than projected, or desired, during the start-up years, it is likely that Martin Memorial would be able to subsidize its operation until, with expected population growth, utilization increases and it becomes financially self- sustaining. Long-Term Financial Feasibility The proposed satellite hospital is also financially feasible in the long-term his conclusion is supported by a financial analysis utilizing reasonable assumptions based on Martin Memorial Hospital's historical experience an t financial costs obtained from a qualified securities analyst. The financial analyst also used bed utilization projections supplied by Martin Memorial's qualified earth care planner. Although the reliability of the 1990 utilization forecast is questionable, over the long-term--with projected increases in population9 is likely that the proposed hospital would become financially feasible, self-sustaining, and able to meet its operating expenses and debt service payments. I. Availability of Manpower and Resources [Another CON criterion is "[t]he availability of resources, including health manpower . . .." Section 381.494 (6)(c)8, Florida Statutes.] Martin Memorial has an in-place recruiting department which, in the past, has successfully recruited new employees for expansion programs. It has the capability of recruiting, training, and staffing the 175 full-time equivalent medical personnel shown in its CON application. There has been no showing that the hiring of employees for the satellite hospital will significantly impact other facilities or that there is a shortage of health manpower and resources. III. Need for the Proposed Hospital (using a planning horizon of January, 1990) Based on a Balanced Consideration of all CON Criteria_ ["Need" for a proposed facility, under CON law, is determined by "a balanced consideration of all the statutory [and rule] criteria." Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361, 363 (Fla. 1st DCA 1984) See, Section 381.494(6)(c), Florida Statutes. DHRS may not adopt a rule allowing it to "ignore some statutory criteria and emphasize others." Id. Nor may it adopt a methodology, in rule form, which "rigidly control[s] the granting or withholding of [CON] approval." Humana, Inc. et al. v. Department of Health and Rehabilitative Services, So. 2d (Fla. 1st DCA Case No. AY-422, Opinion filed May 16, 1985), 10 F.L.W. 1222.] (a) The foregoing evidentiary findings support an ultimate finding that the proposed satellite hospital is not needed, either now or within the planning horizon of January, 1990. When measured against all pertinent statutory and rule criteria, the factors favoring approval of Martin Memorial's application are outweighed by the factors supporting denial. The DHRS numerical bed-need methodology projects a January, 1990 "need", but barely so. Further, the methodology, as one criterion among many, is assigned less weight since it is a less accurate predictor of "need" in times, such as these, when in-patient bed use is steadily declining. This decline is pervasive, has continued, unabated, for over 13 months and has not yet bottomed-out. The methodology uses bed-need figures rooted in the past and does not adequately reflect this decline. Allocation of bed-need to the Martin/St. Lucie Subdistrict shows a more substancial "need" (103 beds), but this figure is, in part, also derived from the DHRS methodology. There is an adequate current supply of available acute care beds at existing facilities, similar in nature. No geographical access problem has been shown. The existing hospitals which serve the area proposed to be served by the satellite hospital, as well as the subdistrict and district, have 1984 occupancy rates considerably below the,30% occupancy standard generally applied by DHRS and health care planners. There is not a current shortage of beds. In January, 1990, it is likely that the supply of acute care beds will continue to be adequate. In all likelihood, daily occupancy rates at Martin Memorial and in the subdistrict will still be below the 80% standard. At best, Martin Memorial has shown that during two or three peak winter months, its own institution-specific occupancy rate will exceed 90%.10 But on a short-term basis, such a rate is doable and consistent with quality health care. Current bed utilization, a readily ascertainable criterion which reflects actual conditions, should be accorded considerable weight on the scale of criterion when, as now, the health care industry is in rapid flux and past trends have been disrupted, or even displaced. With declining average lengths of stay and anticipated growth in alternative delivery systems, it is reasonably expected that acute care bed use will continue to decline. The steady drop in bed use makes it more likely that the currently existing and licensed or approved beds in the area will be adequate through January 1990. Martin Memorial's utilization forecast failed to fully take into account the steady decline in bed use. Approval of the proposed hospital would be inconsistent with the State Health Plan, which identifies 80% as a minimum occupancy rate for acute care hospitals and, more particularly, with the Local Health Plan (Priority III) which, with few exceptions, does not allow new beds (irrespective of the DHRS methodology numbers) until specified occupancy thresholds have been met. These thresholds have not yet been met. The proposed hospital would be financially feasible in the short-and-long-term, enhance competition, and improve the education of health care students at the adjacent Indian River Community College. These benefits, however, are outweighed by the other factors which support a conclusion that the proposed hospital will not be needed by January, 1990. Construction of an unneeded hospital would have the effect of reducing occupancy rates at nearby hospitals and exacerbating the problem of excess bed capacity.

Recommendation Based on the foregoing, it is RECOMMENDED: That Martin Memorial's application or a CON to construct and operate the Port Salerno Hospital be DENIED. DONE and ORDERED this 4th day of October, 1985, in Tallahassee, Florida. R. L. CALEEN, J . Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, FL 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1985.

Florida Laws (2) 120.52120.57
# 6
UNIVERSITY MEDICAL PARK OF TAMPA, LTD. vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 84-000168 (1984)
Division of Administrative Hearings, Florida Number: 84-000168 Latest Update: Feb. 09, 1987

The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.

Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).

Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN 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 25th day of June, 1985.

Florida Laws (2) 120.52120.57
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LEE MEMORIAL HOSPITAL vs. SOUTHWEST FLORIDA REGIONAL HOSPITAL AND DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 89-001262 (1989)
Division of Administrative Hearings, Florida Number: 89-001262 Latest Update: Apr. 27, 1989

Findings Of Fact By application dated September 28, 1988 respondent/applicant, Southwest Florida Regional Medical Center, Inc. (SFRMC), filed an application with respondent, Department of Health and Rehabilitative Services (HRS), seeking the issuance of a certificate of need (CON) authorizing the expenditure of approximately $19.98 million to construct a new three story clinical and ancillary services building at its facility located in Fort Myers, Florida. After the application was filed, and certain additional information was provided by SFRMC, HRS issued proposed agency action in the form of a letter on January 13, 1989 advising that it intended to issue SFRMC a CON. On February 3, 1989, HRS published in the Florida Administrative Weekly a notice of its intent to grant the CON. After learning of this action, petitioner, Lee Memorial Hospital (Lee), filed a petition for formal administrative hearing seeking to contest the proposed agency action. That prompted this proceeding. The state agency action report, which is a part of this record, reflects that the applicant proposes to: ... add 4 additional operating rooms to the existing 11; 16 new cardiac surgery recovery beds to the existing 16; and 8 new CCU beds to the existing 8 (by conversion of med/surg beds) in a new three story building that will be a replacement/expansion to the existing facility. The requested project will not constitute an increase in the licensed beds of the applicant's facility. The proposal does not request approval of any new services or change in the total number of beds that are licensed for the applicant's facility, but it does include redesignation of 8 existing medical/surgical beds to add to the 8 additional CCU beds requested. New space for Central Supply Services, as well (as) new and additional administrative, staff support areas, land public areas have been planned. (Emphasis added) These changes were sought by SFRMC to meet "(t)he need and demand for Cardiac services (that have) increased dramatically over the last seven years due to the community's growth, technological advancements and changing clinical practices." According to the allegations in the petition, Lee operates a health care facility in Fort Myers, Florida, which is in the same health planning district as SFRMC. The petition goes on to aver that Lee provides a wide range of medical services and programs, including cardiac surgery and recovery, cardiac catheterization laboratories, CCU, and non-invasive diagnostic cardiology services as proposed in SFRMC's application. The petition alleges further that, due to the sheer size of the project and the "substantial change" in services that will occur, Lee is entitled to a hearing. Based upon these considerations, Lee alleges that its open heart surgery program will be substantially affected if the CON is issued. HRS has authorized Lee to operate an open heart surgery program. However, by stipulation dated March 28, 1988 in DOAH Case No. 87-4755, it has agreed not to begin this program until at least April 1, 1990. If approved, SFRMC's building addition would not be completed until May 1, 1990, or one month after Lee's program begins. The application reflects that SFRMC will increase its total square footage by 25%, operating room capacity by 57%, and SICU capacity by 64%. In all, the project will add approximately 68,000 square feet to the facility complex. In addition, operating expenses associated with the project will total in excess of $28 million per year. Finally, utilization of existing facilities will be enhanced by the new addition.

Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Southwest Florida Regional Medical Center's motion to dismiss the petition of Lee Memorial Hospital be GRANTED and that Lee's petition for formal administrative hearing be dismissed with prejudice. DONE AND ORDERED this 27th day of April, 1989, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 27th day of April, 1989.

Florida Laws (1) 120.57
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UNIVERSITY COMMUNITY HOSPITAL vs. DEPARTMENT OF HEALTH AND REHABILITATIVE SERVICES, 87-004760 (1987)
Division of Administrative Hearings, Florida Number: 87-004760 Latest Update: Dec. 28, 1988

Findings Of Fact Introduction On October 15, 1986 University Community Hospital, Inc. (UCH or applicant), which operates an acute care facility in Tampa, Florida, filed an application with respondent, Department of Health and Rehabilitative Services (HRS), seeking a certificate of need (CON) authorizing approval for a new thirty-bed comprehensive medical rehabilitation (CMR) unit to be established by converting and delicensing thirty medical/surgical beds to CMR beds at an estimated cost of $325,240. As a health care provider, UCH is licensed by and subject to the regulatory authority of HRS. On February 20, 1987, and in conjunction with the above application UCH submitted a written request to HRS seeking exemption of an existing rehabilitation unit from CON review. In its request, UCH represented that its rehabilitation unit was providing CMR services prior to July 1983 and thus was eligible to have those beds grand fathered without the need for CON review. This was because prior to July 1983, HRS did not consider CMR services as a separate specialty requiring a CON. After requesting and receiving additional information from the applicant, HRS issued proposed agency action on September 23, 1987, denying the application for a CON. As grounds, HRS stated that "there is a projected District 5 (sic) surplus of 12 rehabilitation beds in the 1991 planning horizon" and that "Tampa General Hospital's 60 rehabilitation beds were occupied at an 84 percent (occupancy) during the preceding calendar quarter; L. W. Blake's 28 rehabilitation beds were occupied at a 74 percent occupancy for the same period; (and) the district had a combined occupancy of 79 percent which is below the 85 percent occupancy standard." By letter dated October 1, 1987, HRS determined preliminarily that nine existing rehabilitation beds at UCH qualified for an exemption from CON services based on HRS's finding that UCH was operating a nine-bed CMR unit prior to July 1983. This written advice was authored by HRS's administrator of community health services and facilities, Sharon M. Gordon-Girvon. Hillsborough County Hospital Authority is a public agency operating two acute care hospitals in Tampa, Florida, one being the Tampa General Hospital (TGH). Citing a potential adverse effect on its CMR unit if UCH's application was approved, TGH filed a petition to intervene in support of HRS's proposed agency action on November 6, 1987. This petition was granted on December 18, 1987. In addition, on March 8, 1988, TGH requested a formal hearing to contest HRS's preliminary determination that UCH was entitled to nine CMR beds by virtue of having operated the same prior to July 1983. In general terms, TGH asserted that HRS had no authority to grant an exemption, but if it did, UCH did not qualify for one. The two cases were consolidated on May 3, 1988. The Applicant and Protestant UCH is a community hospital that began service to patients on July 15, 1968. Its facility is located at 3100 East Fletcher Avenue, Tampa, Florida. It is managed by a twenty person board of trustees and currently is licensed by HRS for four hundred and four beds offering medical/surgical, diabetes, oncology, pediatric and rehabilitative services. UCH is accredited by the Joint Commission on Accreditation of Hospitals (JCAH). The facility provides health care services in HRS District 6, an artificially created health planning area that includes Hillsborough, Polk, Manatee, Hardee and Highlands Counties. In January 1987, UCH executed a contract with HRS and became a participant in the Medicaid program. As such, it receives reimbursement from HRS for services provided to Medicaid patients. Created by special act of the legislature, the Hillsborough County Hospital Authority operates two public, not-for-profit hospitals in Hillsborough County, those being TGH and Hillsborough County Hospital. TGH is a 770-bed facility providing services within HRS District 6. Since it provides sophisticated services to patients who are on average much more severely ill than patients at community hospitals such as UCH, TGH can be described as a tertiary hospital. Since 1984 TGH has operated a CON-approved and licensed sixty-bed CMR unit connected to its main acute care facility and is the only level one trauma center on the west coast of Florida. Also, TGH is the primary provider of indigent care in the district, carrying a disproportionate share of the indigent care burden. In 1987 alone, its indigent care costs totaled almost $30 million. C. Grandfathering of Beds Prior to July 1983, HRS determined whether there was a need for various types of hospital beds (e.g., general medical/surgical, critical care, psychiatric and rehabilitation) under its general acute care bed need rule now codified as Rule 10-5.011(1)(m), Florida Administrative Code (1987). Thus, prior to July 1983, CMR services were not recognized by HRS as a separate bed category for CON and licensure purposes, and the conversion by a hospital of licensed acute care beds to rehabilitation beds did not constitute a change in service. In January 1982 UCH established a nine-bed rehabilitation unit on the sixth floor of the south wing of its facility. The unit was established because UCH believed there to be a lack of rehabilitation care in the community. These beds came from its licensed medical/surgical inventory. At that time, only TGH offered CMR services in Hillsborough County and had sixteen beds dedicated to that specialty. According to UCH's chief physical therapist, the unit was "full from the first week." In its 1982-83 licensure application, which is a filing that must be made with HRS every two years, UCH reflected that its bed inventory included nine dedicated to rehabilitation care. On May 16, 1983, UCH, through its counsel, inquired of HRS whether a proposal to convert nine more licensed medical/surgical beds to CMR beds at a cost of less than $600,000 would be subject to CON review. 1/ Also, it requested that, in the event HRS determined that a CON was needed, the request letter be treated as a letter of intent. One week later, HRS responded by letter and requested further information. Among other things, HRS asked for "a detailed description of rehabilitative care currently being provided in the nine beds dedicated to rehabilitative use." This information was provided to HRS by UCH by letter dated June 6, 1983. It included a lengthy description of the care being provided in the nine beds dedicated to rehabilitative use. According to the response, UCH was providing, among other things, a "comprehensive rehabilitation service, or intensive care providing a coordinated multi- disciplinary approach to patients with severe physical disabilities." This letter was followed on June 30 by another letter from UCH's counsel advising HRS that it understood HRS's position that a project to change the rehabilitation beds to CMR beds would be subject to CON review and that UCH contemplated no such change in service. Effective June 8, 1983, HRS adopted a rule which prescribed a separate bed need methodology for rehabilitation beds. Effective July 1, 1983, the legislature amended Section 395.003, Florida Statutes (1983), by adding a new subsection (4) which required that all licensees providing rehabilitation services thereafter reflect the number of beds in that category on the face of their hospital license. At the same time, the legislature amended Section 381.706, Florida Statutes (1983), to require CON approval for any change in the number of rehabilitation beds by a provider. Thus, on and after July 1, 1983, CMR services were recognized as a separate bed category for licensure and CON purposes. On July 19, 1983, or after the above changes took effect, HRS advised UCH that, because UCH had not sought accreditation for its rehabilitation unit from the Commission on Accreditation of Rehabilitation Facilities (CARF), and its unit did not meet the minimum size requirements (twenty beds) for a rehabilitation unit under then-existing HRS Rule 10-5.11(24)(c)3.a., Florida Administrative Code (1983), it had concluded UCH was not providing CMR services as defined by its rule. The letter pointed out also that any effort by UCH to establish an eighteen bed unit would require a CON pursuant to the recent change in the general law. Finally, HRS advised UCH that it could "continue to provide rehabilitative care in the existing unit, using the nine (9) medical/surgical beds dedicated for that care" and that it could also "provide rehabilitative care on the third floor and use an additional nine (9) medical/surgical beds." HRS added that such beds would "not be considered to constitute comprehensive medical rehabilitation care and the beds dedicated to such care will be counted as medical/surgical beds." Because of a demand for more rehabilitation beds, UCH made a decision to expand its rehabilitation unit in the winter of 1983-84 from nine to fourteen beds. In August 1984 UCH expanded its unit to eighteen beds. It did not seek HRS's approval for either expansion project because of its interpretation of HRS's letter of July 19, 1983, that CON approval was not necessary for units having less than twenty beds. Responding to the changes in the general law, HRS undertook to inventory the existing rehabilitation beds in the state. To this end, its office of comprehensive planning sent a questionnaire to all hospitals, including UCH, in late 1983 inquiring whether they provided CMR services. To verify the accuracy of the responses, but not for the purpose of determining whether CMR services existed prior to July 1983, HRS checked whether CON authorization had been issued previously to the facility, whether the facility reported CMR services to the newly created Hospital Cost Containment Board, and whether the facility reported CMR beds in its biannual licensure application. In its reply to the questionnaire, UCH reported it had a twenty-bed rehabilitation unit. In 1983, UCH requested that the federal Health Care Financing Administration (HCFA), which operates the federal Medicare program, recognize its rehabilitation services as being exempt from diagnostic related groups (DRG). If the request was approved, this meant that UCH could be reimbursed on a cost-basis for services rendered to Medicare patients in its rehabilitation unit instead of under the DRG system which reimbursed the facility on a flat rate basis regardless of the length of stay of a patient. HCFA granted the request for exemption of the nine beds effective October 1, 1983. On October 1, 1984, HCFA recognized an exemption for eighteen beds. This exclusion was renewed after a subsequent survey of the unit in 1985. When these exemptions were granted, HCFA did not enforce a federal requirement that a facility be licensed for CMR services in order for HCFA to recognize the exemption. In 1984-85, HRS became aware of certain DRG-exempt rehabilitation units in the state that were not licensed by HRS for CMR services. As noted in a later finding, these providers, including UCH, were allowed to seek a CON exemption and demonstrate that they were providing CMR services prior to July 1983. This opportunity was given partly because HCFA began enforcement of its policy that CMR services be licensed by the state before an exemption would be recognized. Indeed, HCFA revoked UCH's exclusion from Medicare's prospective payment system effective October 1, 1987, on the ground UCH's unit was not licensed by the state. It was later reinstated in 1988, for nine beds after HCFA became aware of HRS's preliminary determination on October 1, 1987, that UCH was entitled to a CON exemption. Because of this limited exemption, UCH now accepts no more than nine Medicare patients at any one time in its unit. On March 18, 1985 UCH's chief executive officer, Terry L. Jones, filed with HRS the facility's biannual licensure application which reflected, inter alia, the facility's then current bed utilization. According to UCH's filing, UCH had three hundred sixty medical/surgical beds, twenty-six pediatric beds and eighteen CMR beds. A copy of the application has been received in evidence as TGH exhibit 102. After receiving the application, HRS advised UCH by letter dated April 25, 1985, that "(HRS's) records (did) not indicate 18 comprehensive medical rehabilitation beds... Please explain." In reply to this, Jones advised HRS by letter dated April 29, 1985 that "a copy of our authorization for rehabilitation beds is attached." This "authorization" was a copy of HRS's July 19, 1983 letter. In July 1985 HRS issued License No. 1779 for the continued operation of UCH's facility. In an undated transmittal letter, HRS stated in part: Please be advised that part of the application pertaining to licensure of 18 comprehensive medical rehabilitation beds is hereby denied because you have failed to obtain a Certificate of Need or exemption from review pursuant to Section 381-493 through 381-499, Florida Statutes (F.S.) and Rule 10-5, Florida Administrative Code (F.A.C.). Certification as an excluded unit by the Department of Health and Human Services, Health Care Financing Administration does not eliminate the Certificate of Need requirements. (Emphasis added.) UCH was offered a point of entry to contest this decision. After receiving the above advice, UCH did not request a hearing but simply inquired of HRS as to whether the eighteen beds should be counted under its general medical/surgical bed component. According to UCH, it did not contest the decision because HCFA continued to recognize UCH's unit as being exempt from the DRG's. On May 16, 1986, Jones and HRS's licensure supervisor, John Adams, had a telephonic conversation concerning the status of the eighteen rehabilitation beds. To confirm the substance of this conversation, Jones advised Adams by letter as follows: I wanted to confirm our conversation today regarding our "rehabilitation" beds licensure to avoid any future problems. You suggested that our 18 beds used for rehabilitation are appropriately licensed under medical/surgical. The beds are not Comprehensive Medical Rehabilitation beds and should not be listed under the Rehabilitation section. The beds could be listed under the "Other" category with an explanation that they are medical rehabilitation, but as you suggest, it would probably further confuse the issue. We intend to continue to offer rehabilitation care with these beds, and understand they do not require a C.O.N. as they are not Comprehensive Rehabilitation Beds. (Emphasis added) On or about May 6, 1986, someone at HRS's office of licensure and certification amended UCH's 1985-86 licensure application to reflect eighteen "Rehab" beds instead of eighteen CMR beds as originally recorded on the application by UCH. In early 1986, TGH became concerned that UCH was providing CMR services without the necessary authority from HRS. It voiced these concerns to HRS on several occasions. On April 30, 1986, HRS advised TGH by letter that UCH had "authorization to use eighteen medical/surgical beds for the purpose of rehabilitation of patients in the hospital" but it did "not have approval for a comprehensive rehabilitation center." It added that HRS had been assured by UCH that UCH was not operating a comprehensive rehabilitation center. By letter dated October 6, 1986 TGH's counsel complained again to HRS's secretary that UCH was operating beyond its licensed authority. UCH learned of this complaint and responded by letter to HRS that its unit was established in 1982, nine beds "for rehabilitation purposes" had been approved by HRS in July 1983, and it had received permission to add nine more beds to its unit in 1983 because of its insufficient size (less than twenty beds) and failure to meet CARF standards. On January 4, 1987, responded to UCH's letter and advised that, based upon a site visit, it now believed UCH was providing CMR services. The letter advised further that HRS had erred in 1983 by telling UCH that its rehabilitation unit was exempt from CON review because of its size (less than twenty units). This was because HRS now construed its Rule 10-5.11(24) governing size of units to apply only to proposed CMR units and not existing CMR units. In view of this error, HRS offered UCH the opportunity to request an exemption of its rehabilitation unit from CON review. This prompted UCH's request for exemption for its nine beds dedicated to rehabilitative care prior to July 1983. In March 1987, an on-site inspection of UCH's facility was made by Robert E. Pannell, HRS's consultant for health services and facilities. This visit was prompted by UCH's request for exemption made on February 20, 1987. The results of that visit are reflected in a report and recommendation dated July 31, 1987, and received in evidence as joint exhibit 5. According to the report, UCH was providing CMR services prior to July 1983, and was entitled to an exemption. In reaching that conclusion, Pannell utilized ten criteria developed during the course of previous investigations. Except for the criteria relating to unit size and compliance with CARF standards, which Pannell deemed to be inapplicable, Pannell concluded that UCH satisfied all others. These included the categories of distinct unit, range of services, provision of service prior to June 1983, team approach/team meetings, length of stay over twenty-eight days, separate policies and procedures, types of patients treated and individualized patient goals. These criteria generally track the CMR rule. Pannell's recommendation was reviewed and concurred in by two other HRS administrators, and proposed agency action granting the exemption was issued by HRS on October 1, 1987. The evidence is conflicting as to whether UCH actually provided CMR services as defined in HRS's rule prior to July 1983. This matter is crucial since eligibility for an exemption is contingent on such a showing. The UCH rehabilitation unit was not specifically designed for rehabilitation care and did not satisfy the CARF standards prior to July 1983. Indeed, UCH has been upgrading its program and facilities since that date to comply with those standards. In 1986, UCH requested and received from HRS authorization to make a complete renovation of its sixth floor "rehabilitation unit" at a cost of $300,000. After doing so, the unit satisfied CARF standards and later became accredited by JCAH. 2/ Prior to 1986, UCH's rooms were not designed for rehabilitation care and were like those in any medical-surgical unit. For example, they did not allow wheelchair accessibility, there were no central bathing facilities and the individual bathrooms were not wheelchair accessible. As to the requirement that the unit have separate policies and procedures for rehabilitation services, UCH's policy manual on this subject was not drafted until 1984. As to the requirement that the unit have individualized patient goals, UCH's patients did not have an overall rehabilitation patient care plan prior to July 1983. Rather, there were separate patient goals in separate sections of the medical record pertaining to each discipline, such as physical therapy and nursing. Until the 1986 renovation project was completed, UCH's rehabilitation unit did not have a physical therapy room on the same floor as the patients. Physical therapy, if needed, was provided on the first floor of the facility. Thus, prior to that date, therapy was provided to rehabilitation patients bedside, exactly as medical rehabilitation services are provided bedside to general medical-surgical patients throughout the hospital. Further, the nine beds dedicated to rehabilitative care were mixed in with non-rehabilitative beds so that a semiprivate room might have one dedicated to rehabilitative care and the other used by a patient not receiving that type of service. According to HRS's supervisor of medical facilities, a rehabilitation unit is not considered to be a physically distinct unit unless all patients and support services are in the same area of a floor and not scattered throughout the hospital. In addition, the area devoted to CMR services must house only patients receiving CMR services. There is a distinction between medical rehabilitation services and CMR services. Medical rehabilitation services provided in a hospital setting include such services as physical therapy, occupational therapy and speech therapy and are routinely available to patients in general medical-surgical beds. Further, medical rehabilitation services have neither an integration of the disciplines nor the full-time assignment of the various specialties (e.g., physical therapy, occupational therapy, speech pathology, rehabilitation nursing, social services, psychologist and the like) to the care of the patient. In contrast, CMR services are a specialized, intensive type of rehabilitation service that involve a coordinated, multi-disciplinary approach to a person's disability. Indeed, CMR services are defined by statute to be a "tertiary" service that is specialized and concentrated in a limited number of hospitals to ensure the quality, availability and cost-effectiveness of that service. In summary, there is a marked difference between the two in the level of care and intensity of services. Prior to July 1983 UCH's nine bed unit provided medical, but not comprehensive medical, rehabilitation services to its patients. Application for Additional Beds - Statutory and Rule Compliance Need for New Beds - Subsection 381.705(1)(a), F.S. At hearing, UCH amended its request to seek only twenty CMR beds. If the amended application is approved, UCH will convert and delicense a comparable number of medical/surgical beds from its inventory. There are no capital costs associated with the project. As noted earlier, UCH lies within HRS District 6 which is composed of Hillsborough, Polk, Manatee, Hardee and Highlands Counties. Presently, the only existing CMR units in the District are sixty beds at TGH and twenty-eight beds at L. W. Blake Hospital in Bradenton, Florida. In addition, just prior to final hearing in this cause, Winter Haven Hospital (in Polk County) opened a twenty- four bed CMR unit at its facility giving a total of one hundred twelve beds in the District. The need for new facilities is measured in relation to the applicable district plan and state health plan. The district (local) plan, while having broad policy goals applicable to health planning in general, is nonetheless inapplicable since it fails to address the need for rehabilitation services. Rule 10-5.011(1)(n), Florida Administrative Code (1987), is the HRS specialty bed need rule applicable to CMR services. The methodology has been incorporated into the state health plan and is an important consideration in the evaluation process. Under this rule, the bed need or surplus is projected five years into the future from the application filing year. In this case the so-called planning horizon against which the need for CMR beds is to be tested is July 1991. According to HRS's proposed agency action to deny the application, there is a projected surplus of twelve rehabilitation beds in District 6 in the 1991 planning horizon. In addition, the proposed agency action found that the occupancy rate for TGH's unit was 84 percent during the "preceding calendar quarter," L. W. Blake Hospital had a 74 percent occupancy rate for the same period, and the district as a whole had a combined occupancy rate of 79 percent which is below the HRS 85 percent occupancy standard. Bed need or surplus for the district is calculated by first determining the number of projected acute care discharges, broken down by age group, from hospitals in the district for the horizon year. The rule then sets as a standard 3.9 CMR beds per 1,000 acute care discharges in the target year, with those beds occupied at an average rate of 85 percent, assuming an average length of stay of twenty-eight days. In this case, the formula yielded a gross need for 1991 of one hundred beds. The above targeted bed supply (gross need) was then compared to the actual inventory of existing and approved beds. As indicated in finding of fact 32, the actual inventory of CMR beds in District 6 was one hundred twelve beds thus indicating a surplus of twelve CMR beds. Therefore, no need was shown for UCH's proposed new CMR beds. To this extent, the application is inconsistent with the state health plan. Besides the bed need calculation, Rule 10-5.011(1)(n)2.c.(II) addresses the utilization of existing providers in a second way and provides that, even if the formula produces a need for new CMR beds, no such beds shall be authorized "unless the average annual occupancy rate for all existing comprehensive rehabilitation facilities and units within the Department service district exceeds 85 percent occupancy for the preceding calendar quarter." This standard is somewhat confusing since it uses the phrases "average annual occupancy rate" and "preceding calendar quarter" in the same sentence thereby raising the question of which time period to use. However, HRS's practice is to use the occupancy rate for the preceding calendar quarter when applying the rule to this type of application. Also, it interprets the words "preceding calendar quarter" to mean the quarter preceding the scheduled decision date on the application. Therefore, HRS determined the occupancy rate of existing district providers for the calendar quarter preceding February 27, 1987, which was the scheduled decision date on UCH's application. During this time period, TGH's sixty beds were 84 percent occupied while L. W. Blake's occupancy rate for its twenty-eight beds was 74 percent, or a weighted average of 81 percent. This was below the required district standard of 85 percent. Had HRS used the occupancy data for the calendar quarter preceding the actual decision date of September 4, 1987, the two hospitals still had a weighted average of 81 percent, or well below the necessary rate. Neither calculation includes the twenty-four beds recently opened in Polk County. Thus, occupancy was not at a level to counterbalance the oversupply of CMR beds in District 6. In an effort to show need on another basis, UCH presented evidence concerning those factors enumerated in Rule 10-5.011(1)(n)2.b.(I)-(IV) and substituted more favorable numbers into the formula. To support the use of more favorable formula data, UCH asserted that if actual admissions (4.7) and patient length of stay (35-37 days) were used, the formula would produce a need for forty-six new beds in 1991. It contended also that if national incidence and prevalence rates were applied to the District 6 population, the bed need would be in excess of three hundred. Both calculations are inappropriate since they draw upon factors already taken into account in the rule or are based on erroneous assumptions. As to evidence submitted to support the other factors for determining need, which were not a part of UCH's completed application, UCH likewise made incorrect assumptions or applied incorrect data. Thus, UCH failed to demonstrate any special circumstances that would justify a deviation from the rule methodology. Availability, Efficiency, Appropriateness, Accessibility, Extent of Utilization and Adequacy of Existing CMR Units (Subsections 381.705(1)(b) and (f), F.S. In the last three years, there have been waiting lists for admission to the rehabilitation units at TGH and UCH. However, TGH's waiting list has declined in recent times, and it now intends to intensify its marketing efforts to maintain a high occupancy level. While UCH still had a waiting list as of the time of hearing, UCH has followed the practice of placing some of these patients on the list before they were ready for rehabilitation and before being screened medically and financially to determine if they met admissions criteria. Indeed, even though UCH has experienced 1988, occupancy rates ranging from only 68 percent to 78 percent, it continues to maintain waiting lists and fails to give continual assessment to those lists. UCH's occupancy rate for its eighteen bed unit was 84 percent in 1986 and 86 percent in 1987. If the application is approved, UCH projects an 85 percent occupancy rate for the twenty-bed unit. Prior to August 1985, the unit was generally 85 percent to 90 percent full with a waiting list of three or four patients. However, until a renovation project was completed in 1986, the beds were used as medical rehabilitation beds, and utilization factors before that date are irrelevant. Further, non-licensed CMR beds are not taken into account by HRS in the licensing process. TGH's occupancy was 90.86 percent in 1986 and 88.51 percent in 1987, but the rate has declined in 1988, because of a new CMR facility in an adjoining district (New Port Richey) and a drop in the average length of stay by patients. This decline has occurred even though the demand for rehabilitation services is increasing, and it is not feasible to maintain 100 percent occupancy in a rehabilitation unit because of the way patients are historically admitted on Monday and discharged on Friday. The HRS rule contains a two hour accessibility standard. The standard is not a limitation on facilities but is designed to insure that there are facilities available to the public. The standard requires that CMR services be accessible to 90 percent of the population within two hours driving time. This means that it is not unreasonable to have patients travel up to two hours to access CMR services. In interpreting this rule, HRS includes the availability of CMR beds in adjacent districts that are reasonably accessible. Thus, Districts 5 and 8, which include communities such as Sarasota, St. Petersburg and New Port Richey, are reasonably and economically accessible in adjoining districts. CMR beds that are available, or will shortly become available, include sixty beds in St. Petersburg, forty beds in Clearwater, twenty beds in New Port Richey, and sixty beds in Sarasota. While there was an accessibility problem in the past, this problem peaked in 1986 and has been subsequently alleviated by the rejuvenation of programs in Districts 5 and 6 and the addition of twenty-four beds at Winter Haven Hospital. 3/ District 6 has experienced rapid growth and is expected to continue growing in the future. However, health planning is not done in this state on a geographically ad hoc basis, particularly for tertiary services that are planned on a regional basis. Proximity of a facility to the family of rehabilitation patients is important to the patient's recovery. This is because the training and counseling of the family is an important part of rehabilitative care. Approximately 80 percent of UCH's rehabilitation patients are elderly stroke patients. This makes driving time a significant barrier to the rehabilitation process if the families of the patients are likewise elderly and unable to drive more than a short distance. This was confirmed by the testimony of a local physician who always attempted to place patients in facilities closest to their families. However, because CMR services are not emergency health care services, HRS does not require such services to be accessible within a short drive time. Moreover, besides TGH, most of the other district facilities lie within one hour's driving time from Tampa. As to financial accessibility to CMR services within District 6, TGH provides services to indigents, medicaid and medicare patients and private pay patients. There are also financial incentives to use outpatient services whenever possible. Should UCH's application be denied, patients within District 6 will not experience any problems in obtaining CMR services. Quality of Care - Subsection 381.705(1)(c), F.S. UCH is accredited by the Joint Commission on Accreditation of Health Care Organizations (JCAH). At hearing, HRS expressed no concern over UCH's ability to provide quality of care. If approved, UCH's twenty-bed unit will meet all criteria in Rule 10- 5.011(1)(n). UCH has agreed to provide all programs and range of services specified by the rule. The unit now meets CARF standards. Finally, UCH has a fully developed referral system. Availability and Adequacy of Existing Providers - Alternatives - Subsection 381.705(1)(d), F.S. There are no alternatives to CMR services for patients who need inpatient comprehensive rehabilitation services. This is because only a CMR unit offers the comprehensive specialized services needed by CMR patients. In this proceeding, UCH does not propose an alternative to CMR services. Rather, it proposes an alternative site from that offered by other CMR providers in the district. Although there is a growing number of comprehensive outpatient rehabilitation facilities (CORF) in the district, these do not provide the same level of care as do CMR units. Availability of Resources, including Manpower - Subsection 381.705(1)(h), F.S. There is a general, overall shortage of specialized staff in the Tampa area. However, UCH does not have any problem attracting and keeping qualified staff for its eighteen-bed rehabilitation unit or finding qualified physical therapists to provide rehabilitation services. This was confirmed by HRS's administrator of community health services and facilities. Financial Feasibility - Subsection 381.705(1)(i), F.S. The proposed project, if approved, is financially feasible from both an immediate and long-term standpoint. Impact on Costs of Health Care - Subsection 381.705(1)(i), F.S. The evidence is conflicting as to whether the project will impact adversely or favorably upon UCH's costs of providing health care. It is found that the project will have a beneficial effect on UCH's cost of providing health care since the unit provides a positive cash flow and offsets in part its uncompensated indigent care costs. It will also prevent UCH from going into an operating deficit. Provision of Services to Indigents and Medicaid Patients - Subsection 381.705(1)(n)1, F.S. Historically, UCH has not provided a high percentage of care to Medicaid and indigent patients. In its application, UCH proposes a patient mix that includes 2.5 percent indigent care and 2.5 percent medicaid. Also, UCH proposes to screen patients seeking rehabilitation care and deny admission to the unit if they lack a funding source. I. Impact on TGH. TGH's CMR unit is a significant contributor to TGH's overall financial soundness. Admissions, revenues and operating margin from the unit have increased each year. Because of large indigent care costs (which totaled almost $30 million in 1987), TGH depends on cross-subsidization of profits from private paying patients to offset the cost of indigent care and other laudable purposes such as being the primary teaching hospital for the University of South Florida. Therefore, it is necessary that TGH's CMR unit be fully utilized in order to maximize the return on its investment. TGH currently attracts patients from roughly a 72-mile radius and is impacted by providers in District 6 and adjoining districts. UCH's proposed CMR service area will overlap with TGH's existing service area and thus adversely impact on TGH's admissions. Indeed, TGH's profit margin in its CMR unit could be wiped out with a 10 percent drop in the occupancy rate. Around sixty percent of UCH's rehabilitation admissions come from in- house. Virtually none of its patients come from Pinellas or Polk Counties but it does get a significant number from Pasco County. TGH also admits patients from Pasco County and would be adversely affected by this competition.

Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application for a Certificate of Need and the request for exemption of nine beds be DENIED. DONE AND ORDERED this 28th day of December, 1988, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 28th day of December, 1988.

Florida Laws (2) 120.57395.003
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