Findings Of Fact Introduction Petitioner, Leesburg Regional Medical Center ("Leesburg"), is a 132-bed acute care private, not-for-profit hospital located at 600 East Dixie Highway, Leesburg, Florida. It offers a full range of general medical services. The hospital sits on land owned by the City of Leesburg. It is operated by the Leesburg hospital Association, an organization made up of individuals who reside within the Northwest Taxing District. By application dated August 13, 1982 petitioner sought a certificate of need (CON) from respondent, Department of Health and Rehabilitative Services (HRS), to construct the following described project: This project includes the addition of 36 medical/surgical beds and 7 SICU beds in existing space and the leasing of a CT scanner (replacement). The addition of the medical/surgical beds is a cost effective way to add needed capacity to the hospital. Twenty-four (24) beds on the third floor will be established in space vacated by surgery and ancillary departments moving into newly constructed space in the current renovation project. A significant portion of this area used to be an obstetric unit in the past; and therefore, is already set up for patient care. The 7 bed SICU unit will be set up on the second floor, also in space vacated as a result of the renovation project. Twelve additional beds will be available on the third and fourth floors as a result of changing single rooms into double rooms. No renovation will be necessary to convert these rooms into double rooms. It is also proposed to replace the current TechniCare head scanner with GE8800 body scanner. Based on the high demand for head and body scans and the excessive amount of maintenance problems and downtime associated with the current scanner, Leesburg Regional needs a reliable, state-of-the-art CT scanner. The cost of the project was broken down as follows: The total project cost is $1,535,000. The construction/renovation portion of the project (24 medical/surgical and 7 SICU beds) is $533,000. Equipment costs will be approximately $200,000. Architectural fees and project development costs total $52,000. The CT scanner will be leased at a monthly cost of $16,222 per month for 5 years. The purchase price of the scanner is $750,000 and that amount is included in the total project cost. The receipt of the application was acknowledged by HRS by letter dated August 27, 1982. That letter requested Leesburg to submit additional information no later than October 10, 1982 in order to cure certain omissions. Such additional information was submitted by Leesburg on October 5, 1982. On November 29, 1982, the administrator for HRS's office of health planning and development issued proposed agency action in the form of a letter advising Leesburg its request to replace a head CT scanner (whole body) at a cost of $750,000 had been approved, but that the remainder of the application had been denied. The basis for the denial was as follows: There are currently 493 medical/surgical beds in the Lake/Sumter sub-district of HSA II. Based upon the HSP for HSA II, there was an actual utilization ratio of existing beds equivalent to 2.98/1,000 population. When this utilization ratio is applied to the 1987 projected population of 156,140 for Lake/Sumter counties, there is a need for 465 medical/surgical beds by 1987. Thus, there is an excess of 28 medical/surgical beds in the Lake/Sumter sub-district currently. This action prompted the instant proceeding. At the same time Leesburg's application was being partially denied, an application for a CON by intervenor-respondent, Lake Community Hospital (Lake), was being approved. That proposal involved an outlay of 4.1 million dollars and was generally described in the application as follows: The proposed project includes the renovations and upgrading of patient care areas. This will include improving the hospital's occupancy and staffing efficiencies by reducing Med-Surg Unit-A to 34 beds and eliminating all 3-bed wards. Also reducing Med-Surg Units B and C to 34 beds each and eliminating all 3-bed wards. This will necessitate the construction of a third floor on the A wing to house the present beds in private and semi-private rooms for a total of 34 beds. There is also an immediate need to develop back-to-back six bed ICU and a six-bed CCU for shared support services. This is being done to fulfill JCAH requirements and upgrade patient care by disease entity, patient and M.D. requests. Another need that is presented for consideration is the upgrading of Administrative areas to include a conference room and more Administrative and Business office space. However, the merits of HRS's decision on Lake's application are not at issue in this proceeding. In addition to Lake, there are two other hospitals located in Lake County which provide acute and general hospital service. They are South Lake Memorial Hospital, a 68-bed tax district facility in Clermont, Florida, and Waterman Memorial Hospital, which operates a 154-bed private, not-for-profit facility in Eustis, Florida. There are no hospitals in Sumter County, which lies adjacent to Lake County, and which also shares a subdistrict with that county. The facilities of Lake and Leesburg are less than two miles apart while the Waterman facility is approximately 12 to 14 miles away. South Lake Memorial is around 25 miles from petitioner's facility. Therefore, all three are no more than a 30 minute drive from Leesburg's facility. At the present time, there are 515 acute care beds licensed for Lake County. Of these, 493 are medical/surgical beds and 22 are obstetrical beds. None are designated as pediatric beds. The Proposed Rules Rules 10-16.001 through 10-16.012, Florida Administrative Code, were first noticed by HRS in the Florida Administrative Weekly on August 12, 1983. Notices of changes in these rules were published on September 23, 1983. Thereafter, they were filed with the Department of State on September 26, 1983 and became effective on October 16, 1983. Under new Rule 10-16.004 (1)(a), Florida Administrative Code, subdistrict 7 of district 3 consists of Lake and Sumter Counties. The rule also identifies a total acute care bed need for subdistrict 7 of 523 beds. When the final hearing was held, and evidence heard in this matter, the rules were merely recommendations of the various local health councils forwarded to HRS on June 27, 1983 for its consideration. They had not been adopted or even proposed for adoption at that point in time. Petitioner's Case In health care planning it is appropriate to use five year planning horizons with an overall occupancy rate of 80 percent. In this regard, Leesburg has sought to ascertain the projected acute care bed need in Lake County for the year 1988. Through various witnesses, it has projected this need using three different methodologies. The first methodology used by Leesburg may be characterized as the subdistrict need theory methodology. It employs the "guidelines for hospital care" adopted by the District III Local Health Council on June 27, 1983 and forwarded to HRS for promulgation as formal rules. Such suggestions were ultimately adopted by HRS as a part of Chapter 10-16 effective October 16, 1983. Under this approach, the overall acute care bed need for the entire sixteen county District III was found to be 44 additional beds in the year 1988 while the need within Subdistrict VII (Lake and Sumter Counties) was eight additional beds. 2/ The second approach utilized by Leesburg is the peak occupancy theory methodology. It is based upon the seasonal fluctuation in a hospital's occupancy rates, and used Leesburg's peak season bed need during the months of February and March to project future need. Instead of using the state suggested occupancy rate standard of 80 percent, the sponsoring witness used an 85 percent occupancy rate which produced distorted results. Under this approach, Leesburg calculated a need of 43 additional beds in 1988 in Subdistrict VII. However, this approach is inconsistent with the state-adopted methodology in Rule 10- 5.11(23), Florida Administrative Code, and used assumptions not contained in the rule. It also ignores the fact that HRS's rule already gives appropriate consideration to peak demand in determining bed need. The final methodology employed by Leesburg was characterized by Leesburg as the "alternative need methodology based on state need methodology" and was predicated upon the HRS adopted bed need approach in Rule 10-5.11(23) with certain variations. First, Leesburg made non-rule assumptions as to the inflow and outflow of patients. Secondly, it substituted the population by age group for Lake and Sumter Counties for the District population. With these variations, the methodology produced an acute care bed need of 103 additional beds within Lake and Sumter Counties. However, this calculation is inconsistent with the applicable HRS rule, makes assumptions not authorized under the rule, and is accordingly not recognized by HRS as a proper methodology. Leesburg experienced occupancy rates of 91 percent, 80 percent and 73 percent for the months of January, February and March, 1981, respectively. These rates changed to 86 percent, 95 percent and 98 percent during the same period in 1982, and in 1983 they increased to 101.6 percent, 100.1 percent and 95.1 percent. Leesburg's health service area is primarily Lake and Sumter Counties. This is established by the fact that 94.4 percent and 93.9 percent of its admissions in 1980 and 1981, respectively, were from Lake and Sumter Counties. Although South Lake Memorial and Waterman Memorial are acute care facilities, they do not compete with Leesburg for patients. The staff doctors of the three are not the same, and there is very little crossover, if any, of patients between Leesburg and the other two facilities. However, Lake and Leesburg serve the same patient base, and in 1982 more than 70 percent of their patients came from Lake County. The two compete with one another, and have comparable facilities. Leesburg has an established, well-publicized program for providing medical care to indigents. In this regard, it is a recipient of federal funds for such care, and, unlike Lake, accounts for such care by separate entry on its books. The evidence establishes that Leesburg has the ability to finance the proposed renovation. HRS's Case HRS's testimony was predicated on the assumption that Rule 10-16.004 was not in effect and had no application to this proceeding. Using the bed need methodology enunciated in Rule 10-5.11(23), its expert concluded the overall bed need for the entire District III to be 26 additional beds by the year 1988. This calculation was based upon and is consistent with the formula in the rule. Because there was no existing rule at the time of the final hearing concerning subdistrict need, the witness had no way to determine the bed need, if any, within Subdistrict VII alone. Lake's Case Lake is a 162-bed private for profit acute care facility owned by U.S. Health Corporation. It is located at 700 North Palmetto, Leesburg, Florida. Lake was recently granted a CON which authorized a 4.1 million dollar renovation project. After the renovation is completed all existing three-bed wards will be eliminated. These will be replaced with private and semi-private rooms with no change in overall bed capacity. This will improve the facility's patient utilization rate. The expansion program is currently underway. Like Leesburg, the expert from Lake utilized a methodology different from that adopted for use by HRS. Under this approach, the expert determined total admissions projected for the population, applied an average length of stay to that figure, and arrived at a projected patient day total for each hospital. That figure was then divided by bed complement and 365 days to arrive at a 1988 occupancy percentage. For Subdistrict VII, the 1988 occupancy percentage was 78.2, which, according to the expert, indicated a zero acute care bed need for that year. Lake also presented the testimony of the HRS administrator of the office of community affairs, an expert in health care planning. He corroborated the testimony of HRS's expert witness and concluded that only 26 additional acute care beds would be needed district-wide by the year 1988. This result was arrived at after using the state-adopted formula for determining bed need. During 1981, Lake's actual total dollar write-off for bad debt was around $700,000. This amount includes an undisclosed amount for charity or uncompensated care for indigent patients. Unlike Leesburg, Lake receives no federal funds for charity cases. Therefore, it has no specific accounting entry on its books for charity or indigent care. Although Leesburg rendered $276,484 in charity/uncompensated care during 1981, it is impossible to determine which facility rendered the most services for indigents due to the manner in which Lake maintains its books and records. In any event, there is no evidence that indigents in the Subdistrict have been denied access to hospital care at Lake or any other facility within the county. Lake opines that it will loose 2.6 million dollars in net revenues in the event the application is granted. If true, this in turn would cause an increase in patient charges and a falling behind in technological advances. For the year 1981, the average percent occupancy based on licensed beds for Leesburg, Lake, South Lake Memorial and Waterman Memorial was as follows: 71.5 percent, 58.7 percent, 63.8 percent and 65.7 percent. The highest utilization occurred in January (81 percent) while the low was in August (58 percent). In 1982, the utilization rate during the peak months for all four facilities was 78 percent. This figure dropped to 66.5 percent for the entire year. Therefore, there is ample excess capacity within the County even during the peak demand months.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Leesburg Regional Medical Center for a certificate of need to add 43 acute care beds, and renovate certain areas of its facility to accommodate this addition, be DENIED. DONE and ENTERED this 15th day of December, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of December, 1983.
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue Whether Rule 59C-1.038, the acute care bed need rule, is an invalid exercise of delegated legislative authority. Whether this rule challenge should be dismissed as an untimely attack on a published fixed need pool.
Findings Of Fact In August 1994, the Agency for Health Care Administration ("AHCA") published a numeric need of zero for additional acute care beds in AHCA District 9, Subdistrict 5, for southern Palm Beach County. Pursuant to Subsection 408.034(3), Florida Statutes, AHCA is the state agency responsible for establishing, by rule, uniform need methodologies for health services and facilities. In September 1994, NME Hospitals, Inc. d/b/a Delray Community Hospital, Inc. ("Delray") applied for a certificate of need ("CON") to add 24 acute care beds for a total construction cost of $4,608,260. AHCA published its intent to approve the application on January 20, 1995, in Volume 21, No. 3 of the Florida Administrative Weekly. By timely filing a petition, Bethesda Memorial Hospital, Inc. ("Bethesda") challenged AHCA's preliminary decision in DOAH Case No. 95-0730. Bethesda is also located in AHCA District 9, Subdistrict 5. On May 24, 1995, Bethesda also filed the petition in this case challenging Rule 59C-1.038, Florida Administrative Code, the acute care bed need rule. Pursuant to the acute care bed need rule, AHCA's August 1994 notice published its finding that zero additional acute care beds will be needed in the southern Palm Beach County subdistrict by July, 1999. The data, formulas, and calculations used in arriving at the number zero were not published. AHCA and Delray argue that the publication put persons on notice to inquire into the population data, occupancy rates, or the calculations leading to the published need number. An AHCA rule bars a person from seeking, and AHCA from making, any adjustments to the fixed need pool number if the person failed to notify AHCA of errors within ten days of publication. Still another rule defines "fixed need pool" as the " . . . numerical number, as published. " Bethesda is not contesting and, in fact, agrees that the fixed need pool number as published, zero, is correct. Using AHCA's definition of the fixed need pool, Bethesda's challenge is not barred because it failed to notify AHCA of an error in the fixed need pool number within 10 days of publication. Bethesda is challenging as irrational and invalid subsections (5), (6), and (7) of the acute care bed need rule. Subsection (5) directs the local health councils to determine subdistrict bed need consistent with the methodology for determining district bed need. Under that provision, total projected patient days of acute care needed in a district is calculated by adding together the projected patient care days needed in medical/surgical, intensive care, coronary care, obstetric, and pediatric beds. Each of these separate bed need projections is computed, in general, by multiplying projected population in the district for the appropriate age or gender group times a factor which is the product of the statewide discharge rate and the average length of stay for that particular type of care. After the total projected acute care patient days for district residents is computed, the number is adjusted to reflect historical patient flow patterns for acute care services, for out-of-state residents served in the district, for residents of other districts served in the district, and for residents of the district served outside the district. The rule includes specific percentages to apply for each patient flow group for each of the eleven districts. After the total number of beds needed in the district is derived, that number is decreased by the number of existing licensed or approved beds to get the number of additional acute care beds needed in the district, if any. Bethesda is challenging subsections (7)(a), (b), and (c) of the acute care rule, which authorize adjustments to the calculations from subsections (5) and (6) to achieve desired occupancy levels, based on historic utilization of acute care beds in a district. Bethesda is also seeking a determination that subsections 7(d) and (e) are invalid. Each of those subsections of the rule refer to (5)(b), although AHCA's expert witness testified that they should refer to (6)(b). Subsection (7)(d) requires at least 75 percent occupancy in all hospitals in the district before new acute care beds normally are approved, regardless of the net need projected by the formulas. Subsection (7)(e) allows approvals under special circumstances if net need is projected by the formulas and the applicant facility's occupancy rate equals or exceeds 75 percent. Subsection (7)(e), the provision directly related to the Delray application, is as follows: (e) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if a net need for beds is shown based on the formula described in paragraphs (5)(b), (7)(a), (b), (c), and (8)(a), (b), (c), and provided that the hospital's average occupancy rate for all licensed acute care beds is at or exceeds 75 percent. The determination of the average occupancy rate shall be made based on the average 12 months occupancy rate made available by the local health council two months prior to the beginning of the respective acute care hospital batching cycle. Phillip C. Rond, III, Ph.D., was the primary architect of the rule, beginning in 1981. The rule was initially published in 1982, and adopted in 1983. Constants in the rule formulas, including use rates, average lengths of stay, occupancy standards and patient flow patterns were taken from a 1979 survey of some state hospitals. Because data used for the constants in the formulas was expected to change, subsection (6) also provides, in pertinent part, that: Periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors will be done as data becomes available through the institution of statewide utilization reporting mechanisms. Patient flow factors were updated in March 1984 to reflect a change in the realignment of counties in Districts 5 and 8. No other constants have been updated since the rule was adopted in June 1983. More current data is available. The Hospital Cost Containment Board ("HCCB") began collecting statewide hospital inpatient discharge data in the fourth quarter of 1987, which became available by the fall of 1988. AHCA now collects the data. Using the rule, the projected net need for acute care beds in 1999 in District 9 is 1,442 additional beds. By contrast, with the factors updated by Dr. Rond, the projected net need is a negative 723 or, in other words, District 9 has 723 more acute care beds than it will need in 1999. The updated formulas show a need for a total of 3,676 beds in District 9, which already has 4,399 licensed or approved acute care beds. Since 1983, hospital utilization has declined in both rates of admissions or discharges, and in average lengths of stay. Although the occupancy goals in the rule are 75 to 80 percent, depending on the type of hospital service, the occupancy rate achieved by using the number of beds projected by the rule methodology is 45 to 52 percent. The statewide occupancy rate in acute beds is approximately 50 percent in 49,215 licensed beds. The formulas in the rule show a statewide net need for 6,000 more beds in 1999, but updated constants in the same formulas result in a total statewide need for approximately 36,000 acute care beds in 1999, or 13,000 fewer beds than currently exist. Statewide utilization of acute care hospital beds declined from 1187.2 days per 1000 population in 1983 to 730.5 days per 1,000 in 1993, despite increases in the percentage of the elderly population. By 1987, AHCA's predecessor realized that the need methodology in the rule was grossly overestimating need and inconsistent with its health planning objectives. Subsection (7)(d) was added to the rule to avoid having a published fixed need based on the outdated methodology in subsections (5), (6) and 7(a)- (c). The occupancy data is also, as the 1987 amendment requires, that reported for the most recent 12 months, available 2 months before the scheduled application cycle. In August 1994, AHCA published a numeric need of zero for District 9, Subdistrict 5, rather than 1,442, the calculated net need predicted by the formulas in the rule, because all subdistrict hospital occupancy rates did not equal or exceed 75 percent. Elfie Stamm of AHCA, who is responsible for the publication of fixed need pools, confirmed that the 1987 amendment to the rule was an efficient and cost-effective way to avoid publishing need where there was no actual need. She confirmed Dr. Rond's conclusions that the formulas are no longer valid and produce excessive need numbers, as in projecting a need for 6,000 or 7,000 more acute care beds in the state. She also confirmed that none of the constants in the formula have been updated as required by subsection 6. Ms. Stamm claims that the information needed to update the formulas cannot be obtained easily from any statewide utilization reporting mechanism. One problem, according to Ms. Stamm, is the possibility of including patients in acute care beds with comprehensive rehabilitation, psychiatric, or substance abuse problems, although it is not lawful for acute care providers to place patients with these primary diagnoses in licensed acute care beds and all data bases have some miscoding of diagnoses. She also testified that some factors required in the formulas are not included in HCCB data base. In addition, she testified that AHCA is in the process of filing a notice to repeal the acute care bed need rule. The filing of the notice of repeal, published in Volume 21, Florida Administrative Week, pp. 4179-4180 (6/23/95) was confirmed by Bethesda's Request For Official Recognition, which was filed on July 20, 1995, and is granted. Ms. Stamm also noted that rules for other need-based health services have facility-specific special circumstances provisions, which are not tied to numerical need, otherwise the special circumstances are not really facility- specific. Need rules make no sense, according to Ms. Stamm, without an exception in the absence of a determination of need. Subsection (7)(e) of the acute care rule requires a finding of numeric need and a 75 percent occupancy rate at the applicant facility. Ms. Stamm's records indicate that AHCA's predecessor adopted the facility-specific provisions tied to net need at the same time it adopted the 75 percent average district occupancy standard to overcome the problems with the net need formula. AHCA asserts that the admittedly irrational need methodology when combined with the 1987 amendment achieves a rational result. Because the need methodology always over estimates numeric need, facilities exceeding 75 percent occupancy have an opportunity to demonstrate special circumstances. Daniel Sullivan, Delray's expert, also testified that problems exist in extracting acute care bed from specialty bed utilization data, in hospitals which have both. He also agreed with Ms. Stamm that the 1987 amendment corrects the erroneous projections of the formula to give a rational outcome from the rule as a whole when not all hospitals in a subdistrict equal or exceed 75 percent occupancy and when one hospital, over 75 percent occupancy, attempts to establish a special circumstance, despite the fact that the need methodology itself is always wrong in projecting numeric need. Ms. Stamm testified that one district is approaching 75 percent occupancy in all hospitals. Mr. Sullivan testified that, if and when that occurs, then the formula is intended to, but does not, reflect the number of additional beds needed. An alternative methodology is required to determine bed need. AHCA, with its responsibility for the data base formerly collected by the HCCB, receives discharge data and financial worksheets from every hospital in the state. The claim that AHCA cannot update the formulas because its data may be unreliable is rejected as not credible. The data now available is more reliable than the 1979 data used in developing the rule, which was not collected from a formalized statewide reporting system, but from a sample of hospitals. The claim that AHCA cannot use its data base from mandatory statewide reporting mechanisms to extract the data needed to update the formulas is also rejected. The rule contemplated ". . .the institution of statewide utilization reporting mechanisms." Dr. Rond's work to update the formulas before the final hearing began on May 23, 1995. Dr. Rond used a total of approximately 1.5 million acute care discharges from the AHCA (formerly, HCCB) data base for the 1992 calendar year. At the time of the final hearing, Dr. Rond had not separated days of care for medical/surgical, intensive and coronary care. The data can be taken from hospital financial data, including detailed budget worksheets which are submitted to AHCA. Separate data are anticipated in the formula because the computation of need for the different bed categories is based on different occupancy goals. For medical/surgical and intensive care beds, the goal is 80 percent occupancy, but it is 75 percent for coronary care for persons age 0 to 64. For persons 65 and older, the rule applies a combined occupancy standard of 79.7 percent for all three bed categories, which assumes that approximately 4 percent of the combined days of older patients will be spent in coronary care. Dr. Rond reasonably applied the 79.7 percent occupancy standard to the combined days for persons under 65, in arriving at the total district bed need for 3,676 beds. To check these results and to assume a worse case scenario of all patient days attributable to coronary care beds, for which more beds are needed to maintain a lower occupancy, Dr. Rond worked the formula using 75 percent occupancy as the goal for medical/surgical, intensive and care coronary care beds combined. Although the base number increased by 100, the calculations and adjustments in the rule yielded the same number of total acute care beds needed in the district, 3,676. That reliably confirms that the maximum number of acute care beds needed in District 9 is 3,676 by 1999. AHCA could use its data base to update formulas and achieve rational results in the rule by using the hospital financial data to distinguish coronary care days for patients 0-64 to include in the formula, or by using a rational blended occupancy standard in a rule amending the existing methodology. AHCA demonstrated that the 1987 amendment overrides the exaggerated numeric need number to yield a rational published fixed need pool in the absence of 75 percent occupancy in all acute care beds in a subdistrict. AHCA also demonstrated that because the projected need is always excessive under the formula, hospitals are allowed to demonstrate special circumstances, although it is absurd to include a requirement of numeric need in a provision for special circumstances. AHCA's claim that the excessive need projection is, therefore, irrelevant is rejected. Net need under the rule formula fails to give any rational indication of the number of beds needed when all hospitals in a subdistrict reach 75 percent occupancy.
The Issue The ultimate issues to be resolved in this proceeding are whether the Respondent has committed violations of provisions of law relating to the practice of dentistry and, if so, what penalty should be imposed by the Board of Dentistry. In Count I of the complaint, it is alleged that the Respondent made fraudulent misrepresentations in an application for a renewal certificate submitted to the Board. The Respondent contends that statements he made do not constitute misrepresentations and that to the extent they were misrepresentations, they were not material and did not affect his licensure. In Count II, it is alleged that the Respondent was grossly incompetent, guilty of malpractice and willful negligence, and failed to meet minimum standards of performance in his treatment of a patient, Michelle Marie McPhail. The Respondent denies the allegations. In Count III, it is charged that the Respondent was grossly incompetent, guilty of willful malpractice and willful negligence, and failed to meet minimum standards of performance in his treatment of a patient, Sandra Gray. The Respondent denies the allegations. Petitioner offered no evidence in support of Count IV of the complaint, and the count has been dismissed. In Count V, it is charged that the Respondent was guilty of gross incompetence, malpractice and willful negligence, and failed to meet minimum standards of performance in connection with his treatment of a patient, Catherine Ardizone. The Respondent denies the allegations.
Findings Of Fact Respondent is a dentist licensed to practice dentistry in Florida. He holds License No. 4333, issued by the Board of Dentistry. After graduating from dental school, Respondent entered the oral and maxillofacial surgery program at Grady Hospital, in connection with Emory University in Atlanta, Georgia. He completed two years of that program and entered the United States Army. He served for three years as a dental officer in the Army. In 1973, the Respondent completed an oral surgery residence at University Hospital in Jacksonville, Florida. During 1973 and 1974, he was a professor in the School of Dentistry at the University of Connecticut. The Respondent has been practicing dentistry in the Jacksonville, Florida, area since 1976. He specializes in the field of oral and maxillofacial surgery with an emphasis on orthognathic surgery and temporomandibular joint reconstruction. The Respondent is board certified as an oral and maxillofacial surgeon. He has good qualifications in the field and has never previously been the subject of any disciplinary proceedings. Findings of Fact Respecting Count I of the Administrative Complaint During the time that the Respondent was teaching at the University of Connecticut, he made a decision to return to Florida to practice oral and maxillofacial surgery. The Board of Dentistry at that time utilized a system of issuing annual certificates to licensed dentists depending upon whether they were practicing dentistry in the State of Florida. A dentist practicing within the State would be issued an annual renewal certificate. A dentist practicing outside of the State would be issued a conditional renewal certificate. If a dentist practicing outside of Florida decided to practice in Florida, it was necessary to apply for issuance of an annual renewal certificate in exchange for the conditional renewal certificate. An application form needed to be filled out and a resume provided to the Board. The Board's staff would check the applications, and a copy would be sent to each Board member for approval or disapproval. Upon approval by a majority of the Board, the annual certificate would be issued, allowing the dentist to practice in Florida. The Respondent applied to exchange his conditional certificate for an annual certificate by an application that was received by the Board of Dentistry on July 29, 1974. In the application, the Respondent described his residency at the Grady Memorial Hospital program that was associated with Emory University as follows: From June 1967 through July of 1969 I was a resident at Grady Memorial Hospital in Atlanta, Georgia. The extent of my duties were in Oral and Maxillofacial Surgery. I left upon my graduation. This statement was untrue. The residency program at Grady Memorial Hospital was a three-year program. Residents were given annual contracts for each of the three years. The Respondent received contracts for the first and second years of the program. He was not offered a contract for the third year. He was not offered the contract because his performance during the second year was found to be inadequate. The persons evaluating him felt that he had been devoting too little time to the program and that he was not carrying his weight in the program. Although the Respondent was issued a certificate at the conclusion of each year of the residency program, he did not graduate from it. It was a three-year program, and he did not complete it. At the time that the Respondent applied for issuance of the annual certificate that would allow him to practice in Florida, there was no requirement that a licensed dentist participate in any residency program. The Respondent would have been eligible for licensure and to receive his annual certificate whether he had completed the program at Grady Memorial Hospital or not. Indeed, he would have been eligible for his annual certificate even if he had never attended a residency program. Furthermore, even if completion of a residency program had been a requirement for the Respondent to receive an annual certificate, the Respondent did complete such a program at University Hospital in Jacksonville, Florida. The Respondent's statement that he left Grady Memorial Hospital upon his graduation was not true and constituted a puffing of the Respondent's credentials. The statement is not, however, such as to indicate bad moral character. The statement did not cause the Board or anyone else to take any action with respect to the Respondent's licensure that would not otherwise have been taken. Findings of Fact Respecting Count II of the Administrative Complaint On April 8, 1977, Michelle McPhail was scheduled for an appointment at the Respondent's Orange Park, Florida, office for the purpose of having her third molars, or wisdom teeth, extracted. She was a high school senior who had recently turned 18 years old. She was in very good health and had suffered no prior serious illnesses. She was approximately 5 feet 6 inches tall and weighed approximately 120 pounds. Michelle arrived at the Respondent's office at approximately 1:45 p.m. She had not previously visited the Respondent. X-rays were taken. The Respondent conferred with Michelle and her mother regarding the surgery and the fact that it could be safely performed in his office. The Respondent has performed hundreds of similar procedures in his office both prior to and subsequent to Michelle McPhail's visit. During the surgical procedure, the Respondent was assisted by two dental assistants. One of the assistants took Michelle into the room where surgery would be performed. Michelle was placed in a dental chair in a reclining position. Generally, an assistant of the Respondent's would have taken the patient's vital signs (pulse, blood pressure, and temperature) at this point in the procedure. While that was the general procedure, the evidence does not establish that Michelle's vital signs were taken. If they were, no notation of them was made in her chart. Initially, a mask was placed over Michelle's nose and mouth, and she was administered a 100 percent oxygen solution. The concentration was gradually changed until she reached a level of 30 percent oxygen and 70 percent nitrous oxide. At this point, the Respondent followed his typical procedure for anesthetizing a patient. He administered Xylocaine as a local anesthetic. Xylocaine serves to deaden tissue in the immediate area where surgery would be performed. The Respondent had one of his assistants draw two vials, one containing Demerol and one Valium. The Respondent observed the patient and first administered 15 milligrams of Valium. The Respondent administered the Valium by pulling blood from the patient's arm into the syringe, then injecting the Valium, diluted with the patient's own blood, slowly into the vein. The Valium was injected very slowly. The entire injection would take approximately 5 minutes. The needle was then left in Michelle's arm, and the Demerol syringe was attached. Seventy-five milligrams of Demerol were administered in the same manner, but over a shorter period of time, approximately 1 or 1 1/2 minutes. At that point, the needle was withdrawn, and a sponge was placed on the spot and later was replaced with a Band-Aid. The Respondent at that point regarded Michelle as being properly sedated. She was responsive, but quite sedate. Valium is primarily a tranquilizer. Demerol is a potent narcotic. It is used primarily as a pain killer and has tranquilizing effects. A potential side effect of both drugs is respiratory depression. Demerol depresses the length and depth of breathing. Valium depresses the depth of breathing. Use of the two drugs together increases the respiratory depressant effect of them both. The dosages of Valium and Demerol that the Respondent administered were within proper medical limits, but on the outer edge of those limits. Together, the doses, while not inappropriate, were quite high. Use of the drugs at these levels necessitates careful monitoring of a patient's respiration. The manner in which the Respondent administered the drugs is not the most desirable procedure. It would be more desirable to administer the drugs through a continuous intravenous ("I.V.") drip system. That system assures that the drugs will be administered evenly. The system that the Respondent utilized, while less desirable, was commonly utilized by oral and maxillofacial surgeons in 1977. Many continue to use the system of mixing the drug with the patient's own blood rather than a continuous I.V. drip system, despite the preferability of the latter. Utilizing the method used by the Respondent, while less desirable, does not constitute negligence, malpractice, or a failure to practice within community standards. Once the drugs were administered, the Respondent commenced to extract Michelle's third molars. During the procedure, the Respondent sat just to the right of the patient's head. One of his assistants was directly across the table from him, to the immediate left of the patient's head. The other assistant was to the Respondent's immediate right, approximately adjacent to the patient's hip. The Respondent did not assign the specific duty of monitoring the patient to himself or either of his assistants. It was his practice at the time to himself monitor the patient and ask that his assistants do likewise on a frequent basis. The Respondent did not have any mechanical or electronic means of monitoring the patient's vital signs during the surgical procedure. No constant readings of blood pressure, pulse, heartbeat, or respiration were taken. What monitoring was done was done by individual observation, again without any person having the specific responsibility to do that. The Respondent first extracted Michelle's third molars on the right side. As he began to move to the left side, Michelle began moving her head and moving about. She displayed apprehension, a slight tachycardia, or increase in heartbeat, and may have cried. These symptoms could have meant that the patient was experiencing a lack of oxygen or too much carbon monoxide, as a result of an adverse reaction to the Valium and Demerol. The symptoms could also have been construed as the patient having metabolized the drugs and coming but of sedation. The latter is the more likely explanation, but the former is the more dangerous. The Respondent did not carefully observe the patient's vital signs at that time. He removed the bite block, which had been used to keep her mouth open during the surgical procedure, from her mouth. After a few moments, her breathing appeared to return to normal. The Respondent construed her symptoms as having been the result of her coming out of sedation. Accordingly, he administered 5 milligrams of additional Valium and 25 milligrams of additional Demerol. They were injected in a fashion similar to the original injections. The Respondent then proceeded to extract the third molars on the patient's left side. The total surgical procedure lasted from 25 to 30 minutes. When the extractions were completed, either the Respondent or one or his assistants observed that Michelle was not breathing well. The Respondent became aware that her condition was serious. One of the assistants was sent to an adjoining room to bring the emergency cart. The same assistant was dispatched to locate a physician in an adjoining office. The physician was not present, and the assistant was only able to locate another dentist who was in an adjoining office. The Respondent commenced to administer emergency resuscitation ("C.P.R.") procedures. Michelle was at that time without pulse or respiration. The Respondent was successful in ventilating the patient with artificial respiration. The C.P.R. that Respondent administered was in several respects not in accordance with American Heart Association guidelines. The Respondent administered five heart compressions for every two ventilations. He stopped the compressions while the ventilations were taking place. American Heart Association guidelines provide for five compressions for every one ventilation, with compressions being continued and not stopped. Furthermore, Respondent did not place Michelle on a hard backboard or surface which would have increased the effectiveness of the compressions. The Respondent sent one of his assistants to contact emergency rescue unit personnel. The rescue unit arrived at the Respondent's office within minutes. When they arrived, the rescue unit personnel took over the life- support efforts and transported Michelle to the Orange Park Hospital. The Respondent had administered a dosage of Epinephrine to the patient. He administered it through an injection under her tongue. This drug would have served to improve the ability of Michelle's heart to pump blood through her system. The drug could have been more effectively administered if the Respondent had maintained an open I.V. to the patient during the surgical procedure. It was not, however, the Respondent's practice, nor the practice at that time among a majority of oral surgeons, to maintain an open I.V. during this type of surgical procedure. Once she was at the hospital, appropriate medications were administered to Michelle, and she was placed on a respirator. She was diagnosed as having suffered cardiac respiratory arrest. This condition caused insufficient oxygen to be provided to the patient's brain, liver, lungs, and kidneys. While she could be maintained in a technically alive state while on the respirator, her brain had suffered irreparable damage. During the hospitalization, Michelle did not show any significant brain functions for any significant period of time. After four days, it was concluded that her brain was dead. It is probable that irreversible brain injury had occurred before Michelle arrived at the hospital. Michelle's parents made the very difficult decision of removing her from the respirator, and she died. There are numerous possible explanations for the very tragic death of Michelle McPhail. The most likely explanation is that she suffered an adverse reaction from the Valium and Demerol that was administered. It is likely that her respiration had been compromised to the extent that she suffered cardiac arrest which resulted in irreversible damage to her brain, liver, lungs, and kidneys. There are other possible explanations, and it cannot be determined with certainty that her death resulted from an adverse reaction to the drugs administered by the Respondent. What the evidence does reveal is that Michelle McPhail displayed symptoms of respiratory failure during the course of the surgical procedure. Rather than carefully monitoring her condition or stopping the procedure because of the overwhelmingly severe consequences that could result from respiratory failure, the Respondent viewed her symptoms as being the result of her coming out of sedation. That may have been the more likely explanation. Given the possible consequences of the less likely explanation, however, the Respondent's administration of additional drugs and continuation of the surgical procedure was inexcusable. Thereafter, it is clear that the Respondent and his assistants were not adequately prepared to deal with an emergency situation. The manner in which the Respondent administered C.P.R. does not itself constitute negligence, malpractice, or a failure to practice in accordance with community standards. C.P.R. was not, however, administered in the most effective manner so as to save the patient's life. The Respondent's administration of additional Valium and Demerol to Michelle McPhail and his failure to be adequately prepared to administer life- support procedures constitute incompetence, malpractice, and willful negligence in the practice of dentistry and a failure to meet the minimum standards of performance in diagnosis and treatment when measured against generally prevailing peer performance. Subsequent to the experience with Michelle McPhail, the Respondent has improved his techniques for sedating patients, monitoring patients, and for dealing with potential emergencies. He now administers sedatives through a continuous I.V. drip system. He has electronic monitoring devices which constantly monitor the patient's pulse and blood pressure. The Respondent now utilizes three assistants, one of whom has the specific duty of observing the patient and monitoring the patient's condition. The Respondent now maintains an open I.V. so that if drugs need to be administered on an emergency basis, the most rapid avenue for accomplishing it exists. Findings of Fact Respecting Count III of the Administrative Complaint The Respondent's primary specialty within the area of oral and maxillofacial surgery is orthognathic surgery. Orthognathic surgery involves the repositioning of the skeletal parts of the head through surgical techniques to correct jaw deformities. Patients are typically referred to orthognathic surgeons by orthodontists. Orthodontists seek to correct misalignment of teeth by the use of braces and other nonsurgical techniques. When orthodontic procedures and techniques are insufficient to correct misalignment of teeth, surgical techniques may be appropriate. Sandra Gray is a former patient of the Respondent. She was referred to the Respondent by an orthodontist who practices in Jacksonville, Florida. Sandra Gray had a severely bad relationship between her upper and lower jaws. Her upper jaw protruded too far forward, causing a very severe overbite. Her upper and lower teeth could not meet in the front. The orthodontist concluded that orthodontic techniques were insufficient to correct the deformity. The Respondent first saw Ms. Gray on May 14, 1976. He had previously seen her files and orthodontal records. He examined her, took her history, and did X rays and photographs. He determined that surgery on her upper jaw, or maxillary, could correct the condition. The Respondent met with Sandra Gray on a number of occasions and discussed the nature of her condition, the surgical technique that he would utilize, the amount of time that she would need to stay in-the hospital, and possible complications at great length with her. He made models of her jaw and performed a mock surgical procedure to demonstrate to her what would occur. Ms. Gray waited a year before deciding to go ahead with the surgery. The surgery was scheduled for May 25, 1977. Prior to her entering the hospital, the Respondent took final impressions from which splints were fabricated for use during and after the surgery. The Respondent planned to divide the maxilla into four segments. The splint that he had made would in part be used as a guide during surgery to assure that what was being planned actually occurred. Ms. Gray entered the hospital on May 24, 1977, and a complete physical was performed. Prophylactic antibiotics were administered. The surgery was performed on May 25, as scheduled. The surgery proceeded as planned without significant incident. The Respondent performed a full thickness superior and inferior flap to remove tissue from the area where the incision would be made. There is a difference of opinion as to whether the Respondent should have disturbed as much tissue as he did. Some orthognathic surgeons would not have used the inferior flap due to concerns with compromising the blood supply to the area. Others would use the procedure followed by the Respondent because of the danger of destroying tissue and compromising blood supply if there is no inferior flap. Once the flaps were made, the Respondent made incisions through the maxillary and removed bone tissue. The splint was inserted to demonstrate that the correct amount of tissue had been removed. The splints used by the Respondent were made in such a manner as to not fit tightly against the patient's upper palate. A splint that fits too tightly can compromise blood supply to the area. Eventually, the pieces of Ms. Gray's upper jaw were wired together and further secured with the splint. The surgical techniques necessarily compromise blood supply to the area of the incision. The techniques that the Respondent utilized were not such as to unduly compromise blood supply. Nothing in the surgery performed by the Respondent on Sandra Gray constituted incompetence, malpractice, willful negligence, or a failure to meet minimum standards of performance. After surgery, Sandra Gray was taken to the intensive care unit of the hospital, which was being used as a recovery room. On the first postoperative day, her vital signs were good, and she was doing well. She was transferred to a general hospital ward. Ice was placed in the area of the surgery to reduce swelling, and a clear liquid diet was administered. On the second day, Ms. Gray was receiving antibiotics, vitamins, clear liquids, and an I.V. diet. The need for good hygiene was stressed to her, and she was told to constantly cleanse the area. On the second day, the Respondent observed a dusty-looking area, grayish in appearance, below the incision line in the front of Ms. Gray's mouth. He made a note in the hospital records that the area "looked necrotic." Necrotic means dead. Necrotic tissue has a brown appearance and resembles dead meat. The Respondent had heat applied to the area and carefully observed it. The dusty appearance receded by the next day, and there was fresh blood in the area, indicating that the area was not necrotic. Respondent kept her on antibiotics. He had some concerns about her hygiene. He directed that nurses irrigate her mouth three times per day. No evidence of infection was observed. The patient was maintained on antibiotics and discharged on the morning of May 31, 1977. There were no indications of infection. She was taking fluids orally and had no fever. She was discharged on an oral dosage of antibiotics. She was given further instructions regarding hygiene, and the importance of keeping her mouth clean was stressed. The following day, the patient's mother contacted the Respondent. Sandra Gray experienced swelling around the I.V. site on her arm. The next day, Ms. Gray came into the Respondent's office. The Respondent examined her and found that the incision line looked badly infected. He noticed food debris in the area. Cultures were taken, and Sandra Gray was advised to be readmitted to the hospital immediately. The Respondent took the cultures to the lab at the hospital. The patient went home to get her clothes, but then called and said that due to family problems, she would not be able to enter the hospital until the next day. She did not arrive at the hospital until 1:45 on the next afternoon. The Respondent saw her immediately. She was immediately placed on a broad spectrum dosage of antibiotics. She remained in the hospital for eight days. On June 5, lab tests revealed that the infection was a Klebsiella bacteria infection. The antibiotic regimen was determined to be correct and was continued. Wires and splint were removed from the patient's mouth, and it was found that there had been a complete loss of tissue across the anterior part of the mouth. The right side was gray, necrotic, and not viable. The left side had some viability that might have been saved. The Respondent performed a debridement, or removal of bone tissue, from the right anterior maxilla. When he removed the splint, hue observed a dehiscence on the palate, indicating that the infection had spread. There was evidence of blood supply to the bone. The Respondent placed a flap over the area where the debridement had been performed. There was no evidence of necrosis on the palatal side of the incision. Cultures were taken to determine whether the infection was spreading and becoming systemic. The Respondent was seeking to lose as little bone tissue as possible and to prevent the spread of the infection. Ms. Gray was continued on an antibiotic regimen. The infection appeared to be coming from the top of the patient's mouth and moving downward, rather than from the palate. The Respondent felt that a further conservative debridement would be required, but he wanted to save as much of the patient's upper jaw as possible. She left the hospital after eight days with no apparent infection. Sandra Gray was hospitalized a third time. There was no evidence of infection, but there was considerable necrotic tissue and bone. A second debridement was performed. The result was that Sandra Gray was left with very little upper jawbone, no upper teeth, and several fistulas, or holes, in her upper palate, so that her nasal cavity and mouth were connected. Sandra Gray was hospitalized a fourth time in order to attempt a graft of tissue to cover the fistulas. The graft was only partially successful, and Sandra Gray's condition remains largely as it was following her third hospitalization. She is able to wear a device which serves as an upper denture and covers the fistulas. The cause of what one witness described as a surgical misadventure with Sandra Gray cannot be reliably determined. A severe compromise of blood supply during surgery could have caused tissue to die and provided a convenient avenue for Klebsiella germs to spread inordinately. It does not appear that the surgical techniques used by the Respondent presented an inordinate risk of a compromise of blood supply. Compromise of blood supply and potentially bad results that flow from it are an understood risk of this type of surgical procedure. There are other viable explanations that can explain the misadventure. There were more than normal incidents of Klebsiella infections at the hospital where surgery was performed during this period. It is possible that the patient contracted a Klebsiella infection from the hospital and that the Klebsiella itself invaded the weakened area of her mouth, killing tissue and spreading. Klebsiella infections are relatively rare, but they can be devastating. It does not appear that the techniques utilized by the Respondent presented an inordinate risk of Klebsiella infection to the patient. Nothing in the Respondent's examination, care, and treatment of the Patient Sandra Gray constitutes incompetence, malpractice, willful negligence, or failure to meet minimum standards of performance. It appears that the surgery was performed with requisite skill, that the infection was promptly diagnosed, and that appropriate steps were taken to combat the infection. While the results were devastating to the patient, the evidence does not establish that it was the fault of the Respondent. Findings of Fact Respecting Count IV of the Administrative Complaint No evidence was offered by the Petitioner in support of the allegations set out in Count IV of the Administrative Complaint. The count should he dismissed. Findings of Fact Respecting Count V of the Administrative Complaint The Findings of Fact set out with respect to Count III of the Administrative Complaint, except those that relate strictly to the patient Sandra Gray, apply equally to the allegations of Count V of the Administrative Complaint. The Findings of Fact respecting Count III are accordingly incorporated into this portion of the Recommended Order dealing with the allegations of Count V. Catherine Ardizone is a former patient of the Respondent's. She was referred to the Respondent by an orthodontist. She had a very severe overbite. Her lower jaw was very small in relation to her upper jaw. Her front teeth did not meet, and her overbite was extremely severe. This condition had caused a somewhat degenerative arthritic condition in her mandibular joint. The orthodontist concluded that orthodontic techniques were inadequate to correct her condition. The Respondent first saw Catherine Ardizone on January 25, 1977. He determined that orthognathic surgery could correct her condition. Prior to surgery, he saw her on more than ten occasions. He took X rays and photographs, made models and drawings, and performed mock surgery utilizing the models he made. He discussed the surgical techniques in detail with Ms. Ardizone. He advised her of possible complications, including infection, and stressed to her the importance of good hygiene. Several types of orthognathic surgery were considered, including surgery on both the upper and lower jaws. Respondent ultimately decided that surgery on the lower jaw could be performed to lengthen the lower jaw and chinbone and lower the anterior portion of the lower jaw, causing her teeth to more nearly meet. The surgery was scheduled for August 9, 1977. The patient was admitted to the hospital. The surgery was performed without significant incident. Bone was removed from the front of her lower jawbone, or mandibular, and the chinbone was cut out and extended forward. An oblique osteotomy, or sagital osteotomy, was performed along the sides of the mandibular. This kind of incision allows the bone to slide along itself. An artery runs along the bone in this area and must be preserved. The Respondent performed the surgery in a manner that should not have compromised blood supply to the area. Initially, no wiring was done on the back part of the mandibular because the area appeared secure without it. Two splints were applied in such a manner as to secure her lower jaw. Following surgery, Catherine Ardizone did well during her hospitalization. She healed well, but she did have some trouble keeping her mouth clean. On the third postoperative day, the Respondent made a note about her hygiene and discussed it with her. She improved, and there was no evidence of infection during the entire length of her stay. She was not advised of any infection because she did not have any. She was advised that she would need to do better hygiene and that she had some irritation on her gums because of the way she was brushing. She was discharged on August 14. Catherine Ardizone visited the Respondent's office on August 15. There appeared to be food debris in one area of her mouth and a dehiscence in the front part of her jaw near the incision around her chin. The Respondent observed milk and food by-products in those areas. The patient was advised that she would need to irrigate this area better. The Respondent took a culture of the area and advised her to return to the hospital. She did not immediately return to the hospital, but again visited the Respondent's office on the following day. It still appeared that her hygiene was poor. It appeared that the dehiscence had spread and that there was pus and infection. The Respondent immediately admitted her to the hospital, and further cultures were taken. She was placed on a broad spectrum dosage of antibiotics and prepared for a debridement of the area. There was some necrotic tissue, but not in the bone. The cultures revealed a Klebsiella infection. A debridement was performed on August 17. There was a slight loss of bone, and one tooth was lost. Tissue was grafted into the area. She was released from the hospital free of infection and with a prescription for antibiotics. She was hospitalized a year later without any indication of infection or further bone loss. The purpose of this hospitalization was to release tissue that the Respondent had grafted into the area to free up her lower lip so that she could open her mouth more normally. Catherine Ardizone's bite is improved somewhat over her preoperative condition. The improvement is not as profound as had been hoped due to the interruption and debridement that were necessitated because of the infection. Her condition is not markedly worse than it was when she first visited the Respondent. It does not appear that the Respondent's examination, diagnosis, and treatment of Catherine Ardizone constitutes incompetence, malpractice, willful negligence, or a failure to meet minimum standards of performance. The results were certainly less positive than had been hoped, but the evidence does not establish that the less than perfect result was caused by any inappropriate action on the part of the Respondent. The surgical techniques employed by the Respondent did not improperly cut off blood supply to Catherine Ardizone's lower jaw. As is the case with Sandra Gray, there are several possible explanations for the infection. The evidence does not establish that the Respondent did anything improper that caused the infection or that he responded inappropriately to it.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is, hereby, RECOMMENDED: That a final order be entered by the Florida State Board of Dentistry dismissing Counts I, III, IV, and V of the Administrative Complaint filed against Gerald Franklin Jenkins. That a final order be entered by the Florida State Board of Dentistry finding the Respondent, Gerald Franklin Jenkins, guilty of violating the provisions of Sections 466.24(3)(c) and (d), Florida Statutes (1975), as alleged in Count II of the Administrative Complaint, and suspending Respondent's license to practice dentistry in the State of Florida for a period of three years. RECOMMENDED this 25th day of October, 1983, in Tallahassee, Florida. G. STEVEN PFEIFFER Assistant Director Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of October, 1983. COPIES FURNISHED: L. Haldane Taylor, Esquire 1902 Independent Square Jacksonville, Florida 32202 Edward M. Booth, Esquire Lamar Winegeart, III, Esquire 2508 Gulf Life Tower Jacksonville, Florida 32207 Mr. Fred Roche Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Mr. Fred Varn Executive Director Board of Dentistry Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 =================================================================
The Issue Whether the application of Petitioner Naples Community Hospital, Inc. for a Certificate of Need to add a total of 35 beds to Naples Community Hospital and North Collier Community Hospital should be approved based on peak seasonal demand for acute care beds in the relevant subdistrict.
Findings Of Fact Naples Community Hospital, Inc., ("NCH") holds the license for and operates Naples Community Hospital ("Naples"), a 331 bed not-for-profit acute care hospital, and North Collier Community Hospital ("North Collier"), a 50 bed acute care hospital. NCH also operates a 22 bed comprehensive rehabilitation facility and a 23 bed psychiatric facility. NCH is owned by Community Health Care, Inc., "(CHC"). Both Naples and North Collier are located within Agency for Health Care Administration ("ACHA") district 8 and are the only hospitals within subdistrict 2 of the district. Naples is located in central Collier County. North Collier is (as the name implies) located in northern Collier County approximately 2-3 miles from the county line. NCH's primary service area is Collier County from which approximately 85-90 percent of its patients come, with a secondary service area extending north into Lee County. Neither Naples nor North Collier are teaching hospitals as defined by Section 407.002(27), Florida Statutes (1991). NCH is not proposing a joint venture in this CON application. NCH has a record of providing health care services to Medicaid patients and the medically indigent. NCH proposes to provide health care services to Medicaid patients and the medically indigent. Neither Naples nor North Collier are currently designated by the Office of Medicaid as disproportionate share providers. NCH has the funds for capital and initial operating expenditures for the project. NCH has sufficient financial resources to construct and equip the proposed project. The costs and methods of the proposed construction are reasonable. The Agency for Health Care Administration ("AHCA") is the state agency charged with responsibility for administering the Certificate of Need program. Southwest Florida Regional Medical Center ("Southwest") is a 400 bed for-profit acute care hospital located in Fort Myers, Lee County. Lee County is adjacent to and north of Collier County. Southwest is owned by Columbia Hospital Corporation ("Columbia"), which also owns Gulf Coast Hospital in Fort Myers, and two additional hospitals in AHCA District 8. Southwest's primary service area is Lee County. Although Southwest asserts that it would be negatively impacted by the addition of acute care beds at NCH, the greater weight of the credible evidence fails to support the assertion. The primary market services areas of NCH and Southwest are essentially distinct. However, the facilities are located in such proximity as to indicate that secondary service areas overlap and that, at least during peak winter season periods, approval of the NCH application could potentially impact Southwest's operations. Southwest has standing to participate in this proceeding. Southwest offered evidence to establish that it would be substantially affected by approval of the NCH application. The NCH length-of-stay identified in the Southwest documents is inaccurate and under-reports actual length-of-stay statistics. The documentation also includes demographic information from a zip code (33912) which contributes an insignificant portion of NCH patients, and relies on only two years of data in support of the assertion that utilization in the NCH service area is declining. Southwest's chief operating officer testified that he considers Gulf Coast Hospital, another Columbia-owned facility, to offer more competition to Southwest that does NCH. Further, a physician must have admitting privileges at a hospital before she can admit patients to the facility. Of the physicians holding admitting privileges at Southwest, only two, both cardiologists, also have admitting privileges at NCH. Contrary to Southwest, NCH does not have an open heart surgery program. Accordingly, at least as to physician-admitted patients, approval of the NCH application would likely have little impact. On August 26, 1991, NCH submitted to AHCA a letter of intent indicating that NCH would file a Certificate of Need ("CON") application in the September 26, 1991 batching cycle for the addition of 35 acute care beds to the Naples and North Collier facilities. The letter of intent did not specify how the additional beds would be divided between the two facilities. The determination of the number of beds for which NCH would apply was solely based on the fact that the applicant had 35 observation beds which could be readily converted to acute care beds. The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH and are currently staffed. The costs involved in such conversion are minimal and relatively insignificant. Included with the letter of intent was a certified corporate resolution which states that on July 24, 1991, the NCH Board of Trustees authorized the filing of an application for the additional beds, authorized NCH to incur related expenses, stated that NCH would accomplish the proposed project within time and budget allowances set forth in the application, and that NCH would license and operate the facility. By certification executed August 7, 1991, the NCH secretary certified that the resolution was enacted at the July 24, 1991 board meeting and that the resolution did not contravene the NCH articles of incorporation or bylaws. Article X, Sections 10.1 and 10.1.3 of the NCH bylaws provides that no CON application shall be legally effective without the written approval of CHC. On September 26, 1991, NCH filed an application for CON No. 6797 proposing to add 31 acute care beds to Naples and 4 acute care beds to North Collier. The CON application included a copy of the NCH board resolution and certification which had been previously submitted with the letter of intent as well as the appropriate filing fee. NCH published appropriate public notice of the application's filing. As of the date of the CON application's filing, CHC had not issued written approval of the CON application prior to the action of the NCH Board of Directors and the filing of the letter of intent or the application. On October 2, 1992, four days prior to the administrative hearing in this case, the board of CHC ratified the actions of NCH as to the application for CON at issue in this case. The CHC board has previously ratified actions of the NCH in such fashion. There is uncontroverted testimony that the CHC board was aware of the NCH application and that no reservation was expressed by any CHC board member regarding the CON application. Although NCH's filing of the CON application without appropriate authorization from its parent company appears to be in violation of the NCH bylaws, such does not violate the rules of the AHCA. There is no evidence that the AHCA requested written authorization from the CHC board. After review of the application, the AHCA identified certain deficiencies in the application and notified NCH, which apparently rectified the deficiencies. The AHCA deemed the application complete on November 8, 1991. As required by statute, NCH included a list of capital projects as part of the CON application. The list of capital projects attached to the application was incomplete. The capital projects list failed to identify approximate expenditures of $370,000 to construct a patio enclosure, $750,000 to install an interim sprinkler system, $110,000 to construct emergency room triage space, and $125,000 to complete electrical system renovations. At hearing, witnesses for NCH attempted to clarify the omissions from the capital projects list. The witnesses claimed that such omitted projects were actually included within projects which were identified on the list. When identifying the listed projects within which the omitted projects were supposedly included, the witnesses testified inconsistently. For example, one witness testified that the patio project was included in the emergency room expansion project listed in the application. Another witness claimed that the patio enclosure was included in an equipment purchase category. Based on the testimony, it is more likely that the patio enclosure was neither a part of an emergency room expansion nor equipment purchase, but was a separate construction project which was omitted from the CON application. Similarly inconsistent explanations were offered for the other projects which were omitted from the capital projects list. The testimony was not credible. The capital projects omitted from the list do not affect the ability of NCH to implement the CON sought in this proceeding. The parties stipulated to the fact the NCH has sufficient financial resources to construct and equip the proposed project. As part of the CON application, NCH was required to submit a pro forma income statement for the time period during which the bed additions would take place. The application failed to include a pro forma statement for the appropriate time period. Based on the stipulation of the parties that the costs and methods of the proposed construction are reasonable, and that NCH has adequate resources to fund the project, the failure to include the relevant pro forma is immaterial. Pursuant to applicable methodology, the AHCA calculates numeric acute care bed need projections for each subdistrict's specific planning period. Accordingly, the AHCA calculated the need for additional acute care beds in district 8, subdistrict 2 for the July, 1996 planning horizon. The results of the calculation are published by the agency. The unchallenged, published fixed need pool for the planning horizon at issue in this proceeding indicated that there was no numeric need for additional acute care beds in district 8, subdistrict 2, Collier County, Florida, pursuant to the numeric need methodology under Rule 59C-1.038 Florida Administrative Code. The CON application filed by NCH is based on the peak seasonal demand experienced by hospitals in the area during the winter months, due to part-time residents. NCH asserts that the utilization of acute care beds during the winter months (January through April) results in occupancy levels in excess of 75 percent and justifies the addition of acute care beds, notwithstanding the numerical need determination. Approval of the CON application is not justified by the facts in this case. The AHCA's acute care bed need methodology accounts for high seasonal demand in certain subdistricts in a manner which provides that facilities have bed space adequate to accommodate peak demand. The calculation which requires that the average annual occupancy level exceed 75 percent reflects AHCA consideration of occupancy levels which rise and fall with seasonal population shifts. The applicant has not challenged the methodology employed by the AHCA in projecting need. Peak seasonal acute care bed demand may justify approval of a CON application seeking additional beds if the lack of available beds poses a credible threat of potentially negative impact on patient outcomes. The peak seasonal demand experienced by NCH has not adversely affected patient care and there is insufficient evidence to establish that, at this time, such peak demand poses a credible threat of potential negative impact on patient outcomes in the foreseeable future. There is no dispute regarding the existing quality of care at Naples, North Collier, Southwest or any other acute care hospital in district 8. The parties stipulated that NCH has the ability to provide quality of care and a record of providing quality of care. In this case, the applicant is seeking to convert existing beds from a classification of "observation" to "acute care". The observation beds NCH proposes to convert are equipped identically to the acute care beds at NCH. Approval of the CON application would result in no net increase in the number of licensed beds. NCH offered anecdotal evidence suggesting that delays in transferring patients from the Naples emergency room to acute care beds (a "logjam") was caused by peak seasonal occupancy rates. There was no evidence offered as to the situation at the North Collier emergency room. The anecdotal evidence is insufficient to establish that "logjams" (if they occur at all) are related to an inadequate number of beds identified as "acute care" at NCH facilities. There are other factors which can result in delays in moving patients from emergency rooms to acute care beds, including facility discharge patterns, delays in obtaining medical test results and staffing practices. NCH asserted at hearing that physicians who refer patients to NCH facilities will not refer such patients to other facilities. The evidence fails to establish that such physician practice is reasonable or provides justification for approval of CON applications under "not normal" circumstances and further fails to establish that conditions at NCH are such as to result in physicians attempting to locate other facilities in which to admit patients. The rule governing approval of acute care beds provides that, prior to such approval, the annual occupancy rate for acute care beds in the subdistrict or for the specific provider, must exceed 75 percent. This requirement has not been met. Applicable statutes require that, in considering applications for CON's, the AHCA consider accessibility of existing providers. The AHCA- established standard provides that acute care bed accessibility requirements are met when at least 90 percent of the residents in an urban subdistrict are within a 30 minute automobile trip to such facilities. At least 90 percent of Naples residents are presently within a 30 minute travel time to NCH acute care beds. The number of acute care beds in the subdistrict substantially exceed the demand for such beds. Additional beds would result in inefficient utilization of existing beds, would further increase the current oversupply of beds, would delay the time at which need for additional beds may be determined and, as such, would prevent competing facilities from applying for and receiving approval for such beds. The financial feasibility projections set forth in the CON application rely on assumptions as to need and utilization projections which are not supported by the greater weight of the evidence and are not credited. Accordingly, the evidence fails to establish that the addition of 35 acute care beds to NCH facilities is financially feasible in the long term or that the income projections set forth in the CON application are reasonable. As to projections related to staffing requirements and costs, the beds are existing and are currently staffed on a daily, shift-by-shift basis, based on patient census and acuity of illness. There is reason to believe that the staffing patterns will remain fairly constant and accordingly the projections, based on historical data, are reasonable. Generally stated, where there is no numeric or "not normal" need for the proposed addition of 35 acute care beds in the relevant subdistrict, it could be predicted that the addition of acute care beds would exacerbate the oversupply of available beds and could cause a slight reduction in the occupancy levels experienced by other providers. In this case, the market service areas are sufficiently distinct as to suggest that such would not necessarily be the result. However, based on the lack of need justifying approval of the CON application under any existing circumstances, it is unnecessary to address in detail the impact on existing providers. The state and district health plans identify a number of preferences which should be considered in determining whether a CON application should be approved. The plans suggest that such preferences are to be considered when competing CON applications are reviewed. In this case there is no competing application and the applicability of the preferences is unclear. However, in any event, application of the preferences to this proposal fail to support approval of the application.
Recommendation RECOMMENDED that a Final Order be entered DENYING the application of Naples Community Hospital, Inc., for Certificate of Need 6797. DONE and RECOMMENDED this 19th day of March, 1993 in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 March, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1510 To comply with the requirements of Section 120.59(2), Florida Statutes, the following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3-4, 6-8, 16-20, 29-36, 38, 41, 44, 47, 49-61, 80, 88, 95-96, 100, 104, 108, 117-119, 122-125, 127, 134-138. Rejected as unnecessary. 15. Rejected as irrelevant. Peak seasonal demand is accounted for by the numeric need determination methodology. There is no credible evidence which supports a calculation of three years of four month winter occupancy to reach a 12 month average occupancy rate. 21-27, 37, 42-43, 62-64, 66, 97, 99, 101-103, 105-107, 109, 120-121, 126. Rejected as not supported by the greater weight of credible and persuasive evidence. 28. Rejected as not supported by the greater weight of credible and persuasive evidence and contrary to the stipulation filed by the parties. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the transfer of patients from emergency room to acute care beds is delayed due to numerical availability of beds. Rejected as not supported by greater weight of credible and persuasive evidence which fails to establish that the alleged lack of acute care beds is based on insufficient number of total beds as opposed to other factors which affect bed availability. Rejected as immaterial and contrary to the greater weight of the evidence Rejected as immaterial and contrary to the greater weight of the evidence which fails to establish reasonableness of considering only a four month period under "not normal" circumstances where the period and the peak seasonal demand are included within the averages utilized to project bed need. 86. Rejected as cumulative. 114. Rejected as unsupported hearsay. Respondent/Intervenor The Respondent and Intervenor filed a joint proposed recommended order. The proposed order's findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 6, 45, 51, 53, 59-67, 69-70, 94-113. Rejected as unnecessary. 16. Rejected as to use of term "false", conclusion of law. 58. Rejected as not clearly supported by credible evidence. 71-93, 114-124. Rejected as cumulative. COPIES FURNISHED: Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Harold D. Lewis, Esquire Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 W. David Watkins, Esquire Oertel, Hoffman, Fernandez, & Cole Post Office Box 6507 Tallahassee, Florida 32314-6507 Edward G. Labrador, Esquire Thomas Cooper, Esquire Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 John D.C. Newton, II, Esquire Aurell, Radey, Hinkle, Thomas & Beranek Monroe Park Tower, Suite 1000 101 North Monroe Street Post Office Drawer 11307 Tallahassee, Florida 32302
Findings Of Fact Donald Davis is the promoter behind the formation of Community Hospital of Collier, Inc. He is a health care management consultant and a principal of the firm Health Research and Planning Associates, Inc. In his profession he concentrates on the promotion and development of health care facilities. He has engaged previously in the business of forming corporations for the purpose of submitting applications and obtaining Certificates of Need. He also provides consulting services to health service corporations. Neither Davis nor the other principals of the applicant corporation, including his wife, have any experience or expertise in constructing or operating hospitals, and Davis admitted that the sole purpose for forming the entity known as Community Hospital of Collier, Inc. was for the purpose of submitting an application and prosecuting it in order to obtain a Certificate of Need for an acute care hospital for District VIII. Mr. Davis' own company, Health Research and Planning Management Associates, Inc. was paid $15,000 by Community Hospital of Collier, Inc. to develop the Certificate of Need application at issue. Community has "a couple of thousand dollars" in its own bank account. The officers and directors of Health, Research and Planning Management Associates, Inc. are the same as those of Community Hospital of Collier, Inc. On June 15, 1983, after having previously filed a letter of intent, Mr. Davis filed an application for a Certificate of Need for a 152-bed acute care hospital on behalf of Community Hospital of Collier, Inc. Mr. Davis is an officer and director of that corporation. The articles of incorporation for Community Hospital of Collier, Inc. which gave it its de jure status were not signed until July 29, 1983 and were not filed with the Secretary of State until August 19, 1983. Be that as it may, Mr. Davis maintains that the Board of Directors of Community ratified the filing of the application. That authorization found at page 44 of the application, however, refers to the Board of Directors of Community Health Care of Okaloosa/Walton. The resolution was dated June 7, 1983 and Mr. Davis testified that the use of the name Community Health Care of Okaloosa/Walton in the caption of that Board of Director's resolution was a "typographical error." In any event, the applicant corporation had no legal existence at the time the application was filed on June 15, 1983, however, by its later acts in filing and prosecuting the application it implicitly, at least, ratified the action of its promoter, Mr. Davis, in filing the application since the officers and directors consisted of Mr. Davis, his wife and a third individual. Be that as it may, Community negotiated a stock purchase agreement with National Medical Enterprises (NME) on August 15, 1984. Pursuant to this agreement, NME is obligated to purchase all capital stock of Community if a Certificate of Need for 100 beds or more is awarded. In return for the sale of the stock of the applicant corporation to NME, Mr. Davis and the other two board members of Community will receive a total of $600,000 in addition to the $15,000 Mr. Davis has already received for his efforts in preparing and prosecuting the Certificate of Need application. The only asset of Collier is the inchoate Certificate of Need. Upon consummation of the stock purchase agreement, Mr. Davis will resign from the Board of Directors and presumably NME will appoint its own board. Community has given full authority to NME to prosecute the application as it sees fit, including making certain changes NME deemed appropriate to the application, including seeking 150 beds instead of 152 and changing the method and means of financing the project (mostly equity instead of debt). Additional changes in NME's approach to prosecution of the application include the proposed method of recruitment of personnel and management of the hospital. Community has no agreements with any other group, entities or individuals to provide financial, personnel and other resources necessary to construct, manage and operate an acute care hospital and did not demonstrate that it has any such resources in its own right. Mr. Frank Tidikis, Vice-President for Operations for the eastern region for National Medical Enterprises, testified concerning the financial and management resources and staffing arrangement NME proposes for the new hospital should it be authorized. He enumerated many medical specialties that NME intends to place on the staff of the hospital, but neither Community nor NME have done any studies revealing what types of medical specialties are presently available in the Collier County area, how many physicians in those specialties are available and what ratio exists or is appropriate for various types of physicians to the community population. The proposed staffing pattern, sources and method of recruitment was predicated solely on NME's past experience in obtaining hospital staff in other areas of the nation, and not upon any study or other investigation showing the availability of appropriate types of trained staff people in reasonable commuting distances of the proposed hospital, which would be located in northern Collier County. If NME consummates the purchase agreement, the hospital would be locally managed by a board of directors consisting of 51 per cent of the hospital's own medical staff and 49 per cent lay members chosen from the community at large. FINANCING Mr. Michael Gallo was Community/NME's expert in the area of health care finance, being NME's Vice-President for Finance. It was thus established that the total cost of the project, if approved, would be approximately $23,600,000. This amount would be financed by NME which proposes to make a 35 per cent equity contribution in the amount of approximately $8,500,000 and which will finance the balance of the project cost at a rate of approximately 13 per cent interest for 20 years. NME projects that an average daily patient census of 45 would be necessary to "break even." A daily census of 45 would yield 6,425 patient days per year, with the facility projected to break even in its first year of operation. NME projects that by the third year of operation, a return on investment of 10 to 12 per cent would be achieved. NME's projections are based on an assumed average length of stay per patient of 5.6 days. NME allocated two and sone-half per cent of its projected gross revenues for indigent patient care, and four per cent of projected gross revenues allocated to bad debt, that is, uncollectible hospital bills, not necessarily related to indigent patients. The $600,000 which NME must pay Community Hospital of Collier and Mr. Davis in order to acquire the assets of that corporation (i.e. the CON) will be treated as a project cost and will be depreciated as though it were a part of the buildings. Community/NME projects its total revenue per adjusted patient admission to amount to $4,843, with projected total revenue per adjusted patient day at $865. It predicts these figures will increase by about five per cent for successive years as a factor of inflation. The proposed hospital site consists of approximately 12 acres, available at a price of $30,000 to $50,000 per acre. The application itself originally proposed a location in the central or southern portion of Collier County. However, after NME entered into the agreement with the applicant corporation for the stock purchase and became involved in the prosecution of the application, the location was changed. Thus, it was discovered at the outset of the hearing that indeed, the proposed location of Community of Collier's hospital would be in the northern portion of Collier County in close proximity to Lee County. 1/ The proposed $360,000 to $600,000 land cost would of course, be added to the total cost of Community's proposed project. It has not been demonstrated what use would be made of the entire 12 acres, nor that the entire 12 acres is required for the hospital, its grounds, parking and ancillary facilities. STAFFING One of the reputed benefits of Community's proposed project is that it would afford a competitive hospital in the Collier County health services market to counter what Community contends is a virtual monopoly held by Naples Community Hospital, as well as to promote the attraction of more qualified medical staff to that "market". In this context, Community contends that its facility, by being built and operating as an alternative acute care hospital, would attract more physicians to the Collier County area and thus, arguably, render health services more readily available. Community thus decries the supposed "closed staff" plan of Naples, contending that Community offers an "open" staffing plan, which would serve to attract more physicians to the geographical area involved and enhance Community's ability to appropriately staff its hospital. Naples Community Hospital, on the other hand, experiences numerous physicians vacationing in the area requesting staff privileges. Many of these physicians apparently do not have any intention of permanently locating in the Naples/Collier County area, however, and therefore in order to determine which physicians are seriously interested in locating there, Naples has a screening procedure which includes an interview with the Chief of Staff, the Assistant Director for Staff Development, and the chief of the service for which a physician is applying for privileges. This preliminary screening procedure is not tantamount to a closed staffing situation, which only exists where a fixed number of physicians are permitted on a hospital staff, with others waiting until an opening occurs. In the open staff situation, as exists at Naples, no matter how rigorous the screening process, there is not a finite number of staff physicians available. Any physician who qualifies under the hospital bylaws and assures the screening committee of his intention to locate in the area served by the hospital is admitted to the staff. Thus, the staffing pattern for physicians at Naples Community Hospital augurs just as well for the attraction of physicians to the Collier County vicinity as does the staffing method proposed by Community. In that vein Naples has granted privileges to 13 new physicians in the preceding calendar year and had 8 applications pending at the time of hearing. Only one applicant was denied privileges during that year. Additional factors which must be considered in the context of staffing such a hospital concern the ability of the applicant to provide quality of care and appropriate, available resources including health care and management personnel to operate the facility. Aside from demonstrating that NME, through the stock purchase agreement, may obligate itself to provide ample funds and other resources to fund, staff and operate the project, and that it has successfully staffed and operated hospitals in numerous locales, Community did not demonstrate what likely sources would be drawn upon for nurses and other staff members to staff its hospital in order to avoid recruiting most of them from nearby facilities, including Naples Community, which could precipitate a diminution in the quality of health care at these other facilities. In short, other than showing that NME's management has the financial resources and experience to accomplish the staffing and operation of the hospital, there was no demonstration by Community which would establish the availability of sufficient health care personnel to operate and manage its hospital at adequate levels of care. COMPETITION Community contends that its facility should be built in order to foster competition in the provision of health care services in Collier County. It took the position, through its expert witness, Dr. Charles Phelps, that the Naples hospital holds a monopolistic position in Collier County inasmuch as it is the only hospital in the county. It should be pointed out somewhat parenthetically, however, that this "County market area" theme ignores the fact that this application is for an acute care hospital in District VIII, which is not subdivided by rule into County sub-districts for health care planning purposes. Further, Community originally proposed locating its hospital in the central or southerly portion of Collier County, but as of the time of the hearing, proposed to locate its hospital in the northerly portion of Collier County with a service area it itself proposed which will include the southerly portion of Lee County. This area is also within the service areas of Naples Community Hospital, Lee Memorial Hospital, Fort Myers Community Hospital and the soon to be constructed Gulf Coast Osteopathic Acute Care Hospital. Thus, in its attempt to establish Naples Community Hospital as occupying a monopolistic position in the "Collier County health care market", Community did not establish that Collier County either legally or practically is a separate health care market demarcated by the county boundary with Lee and Hendry Counties, such that Naples' status as the sole acute care hospital within the legal boundaries of Collier County is monopolistic. Indeed, it competes for patients with the Lee County hospitals named above in the northern Collier-southern Lee County market area involved. Community attempted to demonstrate a monopolistic situation in favor of Naples Community Hospital by comparing its relative increase in costs per day and costs per patient stay with Fort Myers Community Hospital and Lee Memorial Hospital. Naples Community Hospital did indeed exhibit the largest rate of cost increase in both those categories. Community's expert, Dr. Phelps, opined that lack of competition in the Naples area caused the disparity in rate of increase in costs between Lee County hospitals and the Collier County hospital. Naples called Ed Morton, who was accepted as an expert witness in hospital financial analysis, reimbursement, hospital auditing and accounting, financial feasibility and corporate finance. It was thus established that Naples does not occupy a monopoly position and provides health care at lower costs than would be the case should the Community Hospital facility be constructed. Mr. Morton demonstrated that analyzing total costs per adjusted patient day does not reliably indicate the efficiency of a hospital, since such daily costs fluctuate with the average length of stay. A better indicator for determining hospital efficiency is to analyze total revenue per adjusted admission. A comparison of Lee Memorial, Naples Community Hospital, Fort Myers Community Hospital and NME's six Florida hospitals was employed based on data provided to the hospital cost containment board for the years 1980 through 1983, in order to show which hospital operated more efficiently and tended less toward monopolistic market positions. In making this comparison, Mr. Morton employed the "total revenue per adjusted admission" and "total revenue per adjusted patient day" methods of comparing the hospitals. He used this approach because it reduces to a common denominator the various values and statistics utilized in the hospital cost containment board formulas. It was thus established that Naples has the lowest total revenue per adjusted admission and lowest total revenue per adjusted patient day of all the hospitals depicted in the comparison study (Naples Exhibit 23). Naples total revenue per adjusted admission is $400 to $1,900 less than each of the other hospitals. One reason Naples experiences less total revenue is because its charges are lower, since it employs some 1,600 volunteer workers. If these workers were paid at a minimum wage they would reflect a cost of approximately $600,000 per year. Further, the hospital over the years has obtained large donations of money and labor through funding drives, all of which have enabled it to keep charges down for its patients and to continue to operate certain services at a deficit. For instance, Naples has a discreet pediatric unit, which means a physically separate, self-contained pediatric care unit, with specialized staff, who perform no other services than those they are designated to perform in pediatrics. That unit operates at a deficit repeatedly since 40 per cent of the Naples pediatric patients originate from the Immokalee area, which is characterized by an extremely high percentage of indigent persons. Naples' witness Morton performed a patient origin study which shows that approximately 84 per cent of Naples' patients originate in Collier County, 12 per cent originate in Lee County, particularly southern Lee County, and two per cent originate from unrelated areas. The Naples Community Hospital is located in Naples, approximately in the mid-section of Collier County and a significantly greater distance from the northern Collier/Lee County line than will be the Community facility, if built. Community expects to draw approximately one-half, or six per cent, of the 12 per cent of Naples' patient load which is derived from Lee County. NCH however, at the present time, competes with Fort Myers Community Hospital and Lee Memorial Hospital, in particular, for patients from both southern Lee County and northern Collier County, Community's proposed service area. Thus, NCH does not maintain a monopoly serving Collier County or Community's proposed service area to the exclusion of these other hospitals. The placement of Community's facility at a point much closer to the Lee County border than is Naples' present facility would result in the injection of a fourth or fifth strong competitor into the Collier County-southern Lee County patient origin and health service market area, rather than merely the addition of a second competitor for Naples Community Hospital. ADVERSE COMPETITIVE EFFECTS Both Lee Memorial Hospital and Fort Myers Community Hospital already draw a substantial number of patients from southern Lee County, as well as northern Collier County. Gulf Coast Osteopathic Hospital, after protracted litigation, has secured approval of a Certificate of Need to build an osteopathic acute care hospital in the southerly portion of Lee County. That Final Order authorizes 60 beds. It is fair to assume, inasmuch as these hospitals are already drawing from southerly Lee County, that the capture of the patient market in southern Lee County will be made much more pervasive with the addition of the Gulf Coast Osteopathic acute care facility. That being the case, insofar as the 1989 horizon year is concerned, far less than 12 per cent of the Lee County origin patient days now available to hospitals located in Collier County will actually be available. Community will thus draw even less than its own projected six per cent of its patient days from Lee County. In any event, it is logical to conclude that substantially all the patient days resultantly available to a Collier County situated facility will be derived from Collier County upon the advent of the Gulf Coast Hospital. Thus, any patients drawn to Community, if its facility were built, would be at the direct expense of NCH. That being the case, it is reasonable to conclude that the analyses performed by Mr. Morton, Naples' expert, which reveal that Community Hospital will potentially siphon off as many as 80 patient days per day from Naples Community Hospital, is accurate. If this occurs, it would mean that approximately 29,200 annual patient days would be garnered by Community. Mr. Morton's analysis established that a resultant raising of rates by Naples would have to occur in the amount of $240 per patient day. Failure of Naples to so raise its rates to patients, would cause an annual revenue deficiency of 6.5 million dollars. This increase of $240 per patient day would result in a $1,536 increase in the average charge per adjusted admission, based upon the average length of stay at Naples which is 6.2 days. Even if Community obtained only half its patients from the Naples Community Hospital, (a likely understatement of its patient market impact), the resulting loss to Naples per patient day would be $220 with a concomitant necessary increase, in average patient charges per admission in the amount of $768, in order for NCH to remain financially viable. If Naples were unable to raise its charges to compensate for this loss of patients to the Community facility, then it would have to curtail services currently rendered on a deficit basis, such as its discrete pediatric unit, which experiences a 40 per cent indigent patient utilization. Community's own projections show that it expects to garner 27,790 patient days, which for the above reason, are likely to all be gained at the expense of NCH. This will result in the loss to NCH of at least 76 patient days per day with a resultant revenue shortfall nearly as high as that postulated by Morton as a result of his patient origin study and adverse impact analysis. Thus, in terms of lost patient days and lost revenue, both the figures advanced by Naples and those advanced by Community reveal that a substantial adverse impact will be occasioned to Naples by the installation of Community's hospital, especially in view of its location at approximately the midpoint between the Lee County boundary and NCH's facility in Naples. Naples derives approximately 54 per cent of its gross patient revenues from Medicare reimbursement. Four per cent of its revenues are represented by Medicaid patient reimbursement. Eight to nine per cent of its billings are not collected because of non-reimbursable, indigent patient care and bad debts. Community will obtain from 76 to 80 patient days per day case load now enjoyed by Naples Community Hospital. Community projects that its billable case load will be characterized by four per cent Medicaid reimbursable billings, and six and one- half per cent of its annual case load will be represented by indigent and bad debt uncollectible billings. Forty-six per cent of NCH's indigent and bad debt cases come from the Immokalee area lying east of State Road 887 and north of State Road 846, and the Community Hospital would be built approximately midway between that area and the location of NCH. Therefore, based upon Community's own projection of total billings for 27,790 patient days, or at most, 29,200 days per year, (according to NCH's figures which depict the loss to NCH of 80 patient days instead of 76) it becomes obvious that Community's bad debt, indigent case billings would actually be in the neighborhood of 17 per cent of its total, billable case load, rather than the six and one-half per cent it projects in its application and evidence. This would render the bad debt, indigent patient-based uncollectibles of Community to be on the order of four million dollars per year. Such a high magnitude of bad debt, uncollectible billing experience can reasonably be expected since Community's Hospital would be constructed between the source of most of the indigent bad debt case load and NCH's location. This location is also in the center of the most affluent, rapidly developing residential area of Collier County. Given the fact that Community-NME's proposed location is likely to attract a high indigent, bad debt case load from the economically depressed Immokalee area, approaching the magnitude of 17 per cent of total case load, if a policy of freely accepting indigent, uncollectible cases were followed by Community-NME, but considering also the fact that Community proposes to locate its hospital in the service area it has delineated to include the most concentrated source of more affluent, privately paying patients available to these competing hospitals, it cannot be concluded that Community-NME plans to incur such a high financial risk by free acceptance of indigent, charity cases. Rather it seeks to largely serve the collectible, private-paying patient source of northwestern Collier County, hence its recently altered proposed location. This determination is borne out by the experience of NME's other Florida hospitals, which are characterized by a very low percentage acceptance of indigent, bad debt, patient service. Thus, it is quite likely that NCH would be relegated to continued service of this large number of indigent, nonpaying patients while Community/NME would serve a patient base composed of largely private-paying and Medicare reimbursed patients drawn primarily from NCH, a significant financial detriment to that entity, which at present experiences a rather precarious operating ratio, characterized by, at best, a three per cent profit margin. Such an eventuality would force upon NCH the choice of raising its rates substantially or curtailing services, or both, with the probable alternative of seeking taxpayer subsidization of such an increased charity case load. NCH effectively competes with the pertinent hospitals in Lee County for the same patient base, due to its lower charges, as shown by the fact that Naples has the lowest revenue per adjusted admission and per adjusted patient day of the hospitals in Collier and Lee Counties. Thus, any increase in charges at Naples necessitated by the adverse effect of the installation of Community's hospital would put it at a distinct additional disadvantage in competing with the Lee County hospitals. A similar financial resultant adverse impact would be imposed on Lee Memorial, Fort Myers Community and Gulf Coast in terms of declining utilization and revenues. It is further noteworthy that Community's own projection of annual patient days reveals that it will experience an occupancy rate of approximately 50 per cent. It has not been established how 27 to 29 thousand patient days with a concomitant occupancy rate of only SO to 51 per cent can support a 150-bed free standing, acute care hospital with a full complement of ancillary services, which fact renders the financial feasibility of Community's proposed hospital substantially in doubt. In terms of the relationship of adverse impacts on existing hospitals to the legislative goals of hospital cost and rate containment, it should be pointed out that the current utilization rate of all hospitals in this area District VIII are declining, partly as a result of the impact of the "diagnostic related groups" (DRG) method of reimbursement. The utilization at NCH for the first six months of 1984 has dropped to 62.3 per cent. The utilization rate of the Lee County hospitals has been reduced to approximately 65.4 per cent. The addition of another acute care hospital to this area, which is established to likely experience a utilization of only 50 to 51 per cent itself, would only cause the current low utilization rates to plummet more drastically. This situation would substantially impair the financial viability of all existing hospitals in the relevant area of District VIII, and Community, as well. Thus, if the proposed Community Hospital were added to this area, it would only aggravate the problem the CON approval process is designed to prevent, that of avoiding escalating health care rates and costs, concomitant decline in adequate levels of service and unnecessary duplication of services. GEOGRAPHIC ACCESSIBILITY In support of its assertion that by 1989 a portion of its service area will not be accessible within 30 minutes driving time of an existing hospital, Community adduced the testimony of Mr. Michael Dudek, accepted as an expert traffic engineer. Mr. Dudek plotted the time and distance of travel from NCH, Cape Coral Hospital, Lee Memorial Hospitals Fort Myers Community Hospital, Eastpoint Hospital, the future Gulf Coast Hospital and proposed Lee Memorial 100-bed satellite facility. He employed the "floating car method" in determining travel times from each hospital to points 30 minutes from the hospital. He projected future travel times along the same routes with a view toward growth in traffic volume based upon population growth. Mr. Dudek opined that in 1989 there will be, under average traffic conditions, a portion of northern Collier and southern Lee Counties which will not be within 30 minutes average travel time of any existing hospital. In his own opinion, in peak travel seasons, coextensive with seasonal, winter population peaks in this geographic area, the situation will be aggravated such that the territory where residents are more than 30 minutes driving time from existing hospitals will expand. Mr. Dudek conceded that vehicles on roads adjacent to main artery roads would reach various main arteries at different times, depending on the density of the population in the residential neighborhoods between those main traffic arteries. He did not map his proposed 30-minute driving time contour lines to indicate these variables. Further, he acknowledged that even during the 1989 projected peak traffic season, the geographical triangle in which Community-NME will locate its proposed hospital, was not outside the driving time projected for Naples Community Hospital. He apparently based his conclusions on the premise that road and traffic improvements would not occur so as to significantly compensate for the population and traffic growth posed by various real estate developments of regional impact which have been filed and proposed for north Collier and south Lee Counties. Naples, presented the testimony of Mr. Jack Barr, also accepted as an expert traffic engineer. Mr. Barr used the "average car method" in conducting a travel-time study to determine the points on arterial roads 30-minutes distance from all existing hospitals in Lee and Collier Counties as well as from the proposed Lee Memorial Satellite Hospital. (Naples Exhibit 76). The distances between those points are interpolated and plotted on the basis of estimated average speeds on the non- arterial segments of the roadways that would be traversed by people making their way to the arterial roads. Mr. Barr also surveyed proposed road improvements in the Collier and Lee County areas (Naples Exhibit 7C). He predicated this survey on the most recent Department of Transportation traffic maps. He performed his original field study during a four-week period in December and January, 1982. The travel times for Collier County were then revised and updated on October 24, 1984 with a field survey and for Lee County on August 14 through 23, 1984. Mr. Barr was unable to determine any significant statistical difference between the contours he plotted in his 1982-83 survey and those plotted in the 1984 updated survey. Mr. Barr employed information obtained from the Southwest Florida Regional Planning Council, the Lee County Planning Department and the Collier County Traffic Planner, as well as information from his own files on proposed residential building projects with which he has been associated professionally or become aware of in the area. It was thus established that that portion of north Collier County and southern Lee County, where most of the proposed residential development will occur, and which is in Community's proposed service area, is currently partially or totally within 30-minutes driving time of three existing and one approved hospital. All the proposed major residential developments in the north Collier/south Lee County area are within 30 minutes travel time of at least one existing hospital and most lie within the 3 minute contour lines for the proposed Lee Memorial Satellite Hospital. The travel time contours will remain substantially unchanged for the next ten years based upon major road improvements planned in the next ten years. Information as to road improvements was obtained from the approved Collier County Comprehensive Plan, from average daily traffic counts on U.S. 41 conducted by the Department of Transportation and Collier County, from the Lee County Transportation and Improvement Program which shows the status of road improvements for 1985 through 1989, and from the Department of Transportation Road Improvement Program extending through the fiscal year 1989 for Lee and Collier Counties. All the roads included in the DOT projection for the next five years are committed and will be built. Although there will not be a decrease in traffic along U.S. 41, rather the increase in traffic that would normally occur on U.S. 41 will be largely offset by traffic shifting over to parallel routes which are to be developed through the road improvement programs established by Mr. Barr. There has been a steady decrease in use of the formerly highly congested U.S. 41 artery because of the development of parallel highways such as Airport Road. Mr. Barr established that the road improvements upon which his opinion is partly based are being implemented, and since most are funded by gasoline tax monies earmarked for that purpose, it is reasonable to assume that the DOT sponsored improvements will continue to be made. Further, although Community sought to show that a portion of the population of its service area is beyond a 30- minute travel time from existing acute care hospitals, it did not demonstrate that that population now or in 1989 amounts to more than 10 per cent of the Collier County population. In his capacity as a traffic-engineer, Mr. Barr has worked in Lee and Collier Counties for approximately seven years, representing public and private clients. He has monitored the implementation of the Collier Comprehensive Plan as it relates to roadways and real estate development and established that road improvements are indeed being implemented. His testimony and opinion, predicated on more accurate surveying techniques, supported by local planning and Department of Transportation documentation, is better corroborated and more competent than that of Mr. Dudek and is accepted. Thus, it has not been shown that the 30 minute travel time points and distances attributable to existing hospitals will recede sufficiently to create the new service area contemplated by Community. EXISTING SERVICE - AVAILABILITY, QUALITY, ADEQUACY OF CARE, ACCESSIBILITY To ALL, INCLUDING INDIGENTS NCH affords adequate availability and access to acute care services for patients in Collier and southern Lee Counties, including indigent patients. Community's proposed facility would not have a level 2 or 3 nursery, and would not have a discreet pediatric unit, both of which Naples has. Thus, access to pediatric, as well as obstetric services, would not be enhanced by the advent of Community's hospital, for indigent or other patients originating in Community's proposed service area. Additionally, inasmuch as NCH's pediatric unit operates at a deficits the addition of such services, even of their limited scope, by Community may, for financial reasons, result in the curtailment of such services, especially for indigent, in view of the considerations expressed above. The physician-director of the Collier County Health Department, Dr. Polkowski was called and accepted as an expert witness on behalf of Naples in the area of public health, for the purpose of discussing the distribution of medically indigent persons and availability of services in Collier County. Her work requires her to routinely review U.S. Bureau of Census data on age and health characteristics of the population of Collier County and to travel throughout the county to acquire knowledge of the health characteristics of the population. It was thus established that the highest concentration of poverty level patients occurs in Census Tracts 112, 113, 114 and 104, with a particularly high concentration in Census Tract 112 which comprises the Immokalee area in northeastern Collier County. A particular health problem in that area is teenage pregnancy, with 90 births to females under 19 years of age in 1983 out of a county-wide statistic for such births of 172. Eleven per cent of the babies born to women under 19 years of age in Collier County are low birth weight babies, which typically necessitate higher levels of neonatal, specialized care because of the increased chances of serious health problems occasioned by low birth weight. There are three recognized levels of care for newborn babies in Florida. Naples Community Hospital has a Level 1 and 2 nursery. Level 1 represents babies who have no exceptional conditions. Level 2 is for those babies with respiratory and other serious problems requiring enhanced levels of care and is characterized by such special equipment as isolettes, intensive care bassinets with respirators, cardiac monitors, apnea monitors, resuscitation and cardiac resuscitation equipment. The staffing level of the Level 2 nursery is at a ratio of one neonatal specialized nurse to three babies rather than the one nurse per six babies of the Level 1 nursery. The Level 2 and 3 babies have serious and frequently chronic health conditions for the short, and sometimes the long-term, often characterized by quite high patient costs. The Immokalee area has the highest poor as well as non white concentration in the bounty. There are approximately 14,000 permanent residents, but during the wintertime the population swells to over 20,000 when predominantly Mexican American migrant farm workers arrive in the area. The poor population has a higher mortality rate for infants and manifests more serious medical problems on a greater per capita basis than does the more affluent population lying to the west and southwest. The Immokalee area population has a high rate of tuberculosis, venereal disease, parasites and hepatitis. The current level of services provided to the indigent population by Naples Community Hospital however, is of a high quality. Richard Akin is the Director of the Collier Health Services, a private, nonprofit primary health care organization which offers primary medical and dental care services to the rural, poor population of northeast Collier County. Most of these patients are migrant farm workers who have absolutely no means of paying their own medical bills. Collier Health Services provides primary medical care at three locations in the county with the largest center being at Immokalee. The Immokalee facility has seven staff positions which include such specialties as pediatrics, family practice, internal medicine and obstetrics. The Immokalee facility records approximately 60-thousand patient visits per year. Seventy-five per cent of these are represented by Mexican- American farm workers who are employed in the area seasonally. Another 10 to 12 per cent per year are Haitian immigrants employed in agriculture. Between 60 and 80 per cent of all patient visits are not paid for by the patient. The Immokalee primary care facility refers 4,000 to 4,500 patients to a hospital annually, with about 12 to 15 such referrals per day. These are for normal, non-emergency care situations. Additionally, between 400 and 450 patients are referred to a hospital for emergency care per year. All the primary care center's emergency and non emergency patients are referred to NCH. Mr. Akin has attempted to refer patients from the Immokalee facility to other area hospitals such as in Lee County, but without success. NCH is located in fairly close proximity to the Immokalee Primary Care Center, and, even though most patients have no means of paying for medical care, NCH treats and admits them without questioning them in advance concerning their ability to pay, insurance, Medicaid and the like. Mr. Akin has previously attempted to refer his indigent patients to the Fort Myers area hospitals with little success in having them admitted. LeHigh Acres Hospital is considerably closer, being 24 miles away, but Mr. Akins has had little success in having the indigent patients he serves admitted there. Instead, he refers to Naples since the patients are treated with the same dignity and decency as paying patients at that hospital. In excess of 50 per cent of the patients he refers from the primary health center to Naples never pay anything for the services received. Approximately 30 per cent of the non-emergency patients referred to Naples annually are pediatric referrals. About 30 per cent of the emergency referrals are also pediatric patients. Four hundred to four-hundred fifty non- emergency patients annually are obstetric patients who come to full term and are delivered. It is unlikely that any of the pediatric patients would be referred to a hospital, such as the proposed Community facility, which does not have a discreet pediatric unit with a specialized staff and equipment, since the primary care center in Immokalee has the capability of treating any overnight, routine pediatric problem itself, and any pediatric patient that cannot be handled on a one-day admission at the facility, can be sent to the discreet, specialized pediatric unit at Naples Community Hospitals which Community of Collier will not offer. The standard procedure at Naples Community Hospital for admitting patients who do not have a private physician or a private physician referral, is nondiscriminatory. That is, in the triage process, when a patient arrives at the emergency room, for instance, only the patient's name, address, age, date of birth and questions eliciting his medical status are asked upon his arrival. Depending on the nature of the injury involved, the on-call medical specialist for that type of injury is then summoned to the emergency room. If it appears necessary to admit the patient to the hospital, the on-call specialist authorizes the admission. When the admission determination is made, there is no information available on the admitting documents and no questions are asked to indicate whether the patient is a paying patient, a nonpaying migrant worker, an insured patient, or a Medicare patient. Naples presently has a labor and delivery area with a birthing room and a three-stage cohort type of nursery. Infants move through three different stages in the nursery depending on age, so as to reduce infections. Seventeen of the 24 beds on the floor are designated as OB beds. Whenever more than 17 patients must use that floor, they are able to expand to gynecological medical surgical beds on the same floor which thus gives a total capacity for OB patients of 24 beds. The OB services as proposed by Community are essentially duplicative of the services in existence at Naples Community Hospital, although with a less intensive level of care for 08 and pediatric patients. Essentially all the other services proposed by Community duplicate these services already available to area residents at NCH and the other pertinent hospitals. Thus, it is apparent that if Community's facility is located where proposed, it will actually serve an area that is more elongated north to south rather than east to west, and will in reality serve the more affluent, private- paying patient origin areas lying in west-central and northwest Collier County. The reason for this is that most of the indigent patient population will bypass Community of Collier's Hospital and go to Naples for the above delineated reasons, and Community would then tend to draw patients from the more populated, wealthier areas on a north-south line from the Naples area up to and across the Lee County line rather than on an east-west axis. The fact that Community/NME would serve primarily privately-paying patients is exemplified by the fact that NME's other Florida hospitals typically have no (or very minimal) Medicaid patient days, such that that parent company's policy is not one of encouraging service to Medicaid or indigent patients. It is thus apparent that with the advent of Community/NME's hospital that there would be created two different patient bases or patient markets, with Naples continuing to serve the vast majority of the indigent, Medicaid, or bad- debt patient base. Community/NME would garner its patient base largely from private-paying, more affluent patients with substantially less bad debt ratio. This would siphon off much of Naples's private paying base, such that, with its already slim or sometimes nonexistent profit margin, its financial viability would become more and more in doubt. This would raise the alternative mentioned above of either raising its rates substantially, causing health care costs for the consuming public to rise significantly, seeking relief from the taxpayers of Collier County, or curtailment of available services to indigents and all other patients, especially GE and pediatrics; possibly even all three cost coverage alternatives. Such an eventuality would ultimately result in a reduction in the quality of health care afforded the patient public. NAPLES AVAILABLE AND PROPOSED SERVICES Mr. Mike Jernigan was tendered by NCH and accepted as an expert in health care planning and hospital financial management. Mr. Jernigan is employed as Director of Planning at Naples and prepared the instant Certificate of Need application seeking 30 beds. Naples has recently added 43 psychiatric beds under previously issued Certificates of Need. The instant application contemplates relocation of the 43 psychiatric beds to the fourth floor of a support building, there creating a discrete psychiatric care unit. Naples amended its request at hearing so as to seek 20 instead of 30 medical/surgical beds to be added to the space to be vacated by the 43 psychiatric beds. No significant construction will be required in the vacated space, rather semiprivate rooms will be converted to private rooms. The 1.7 million dollar project cost is chiefly attributable to the construction of the facility which will house the licensed 43 psychiatric beds. Thus, the reduction in the number of acute care beds sought from 30 to 20 will not significantly alter the 1.7 million dollar project cost. Naturally, the minor project costs attributable to installation of 10 acute care beds in the vacated, former psychiatric bed space will be lessened by an amount attributable to 10 beds. In any event, NCH has been demonstrated to have adequate financial resources to undertake the project outlined in its application and has those funds committed. Naples can add these 20 proposed beds and successfully operate them as a minor addition to its now feasibly operating acute care hospital. Naples has recently opened a free standing, primary care center called North Collier Health Center, in the vicinity of the proposed site of Community/NME's hospital. That facility includes a radiology room, laboratory and emergency medical service station, in addition to offering normal, primary care services. It is staffed 24 hours a day, seven days a week with a physician, but does not have inpatient beds. A similar primary care center has been constructed on Marco Island. Both of these centers have been added to Naples complement of facilities and services in implementation of a long-range health care expansion plan designed to make Naples' services more accessible and available to the public throughout its Collier County, southern Lee County service area. Given Naples low and sometimes non existent margin of revenue over expenses, the construction of these two facilities was rendered largely financially feasible through the donation of the land for both of them through community fund raising efforts, and the construction of the Marco Island facility was accomplished with entirely donated funds. The EMS substation at the North Collier Primary Care Center is operated and financed by the county, and the sleeping quarters at that sub station and at the Naples main campus facility for EMS personnel are provided free of charge at some financial loss to the hospital. Such an arrangement constitutes good health care planning, even though it results in some financial detriment to Naples, since it makes the emergency medical technicians immediately available to assist emergency patients who are transported to the primary care centers by their own means, and shortens the reaction time for emergency personnel since they are not located at separate locations from the hospital or primary care centers. These arrangements further Naples' long range goal in making its emergency primary care and primary care services more available and accessible to the public in its service area, which goal receives strong public support as evidenced by the large public donations which largely made the installation and operation of these facilities possible. Since Naples is a not-for-profit hospital, any excess of revenue over expenses it experiences is used to acquire new and needed equipment or expand facilities, including facilities and services such as these. The installation of Community/NME's hospital at its proposed locations especially, would duplicate the services offered at North Collier Primary Care Center and to a great extent those offered at the main campus of NCH in Naples. It was established through the testimony of Miles Price, an architect specializing in hospital design, that the construction costs, architectural costs and related inflation factors depicted in Naples' application are reasonable and accurate with regard to the relocation and construction for the psychiatric beds, which are to be moved, and the installation of the 20 acute care beds proposed. Acquisition of equipment necessary for the operation of the 20 proposed beds will be financially assisted by its present shared purchasing arrangements, whereby it is able to obtain resultant discounts in acquisition of the necessary equipment needed for installation and operation of the new beds. BED NEED AND BED ALLOCATION Thomas Porter was tendered and accepted as an expert in health care planning in Florida. Subpart (23) of Rule 10-5.11, F.A.C. is the acute care bed need determination methodology. It is the policy of HRS in accordance with the legal mandate referenced herein to facilitate the use of subpart (23) of the rule by regularly compiling and disseminating district bed need information, including that depicted in Community's Exhibit 16, which includes a memorandum from Phil Rond, the Administrator of the Office of Comprehensive Health Planning of HRS. If the formula at subpart (23) of the above rule is employed using historical utilization data from the years 1981 through 1982, a net bed need of 375 for all of District VIII results and that is the current bed need status of the district advocated by Community. However, as established by the memorandum from Mr. Rond incorporated in Exhibit 16, the most recent utilization data includes that for the year 1983, which is the most recent hospital reporting period envisioned by the formula and above rule. When the 1983 utilization data is added to the 1981-1982 information, a drop in total bed need for District VIII occurs from a figure of 4,147 beds to 3,654 beds. When licensed and approved beds are subtracted from that figure, a minus bed need results and District VIII has an excess of 118 beds. The rule formula at subpart (23)(g) dictates that the three most recent annual hospital licensure reporting periods must be used for the utilization data necessary to operate the need determination formula. 2/ The use of the most recent utilization data, including 1983, for District VIII causes the overall projected occupancy level contemplated in the methodology (at 10.5.11(23)(g)(2)) to fall below 75 per cent, when the bed need calculation is carried out to its conclusion. Given the projected occupancy falling below 75 per cent, the end result is that gross bed need in District VIII is 3,654 beds, rather than 4,147 beds as postulated by Community. Community contends that the 1983 utilization data should not be used since it was not available for Districts I and II and should not be used for any district until it is available and disseminated for all districts 3/ The reason the department promulgated Mr. Rond's special memorandum with regard to the bed need projections for District VIII, was to alert users of that information that in that particular district the drop in the most recent utilization data triggered the rule mechanism of subpart (23)(g)(2) because it revealed that the overall projected occupancy levels would fall below 75 per cent, all of which showed on a district-wide basis an over-bedding of 118 acute care beds. Mr. Larry Bebe is Acting Executive Director and Planner for the District VIII Health Council. He was accepted as an expert witness in health care planning and public health administration. Mr. Bebe considers the local health council plan to be a valuable planning tool for purposes of allocating beds in District VIII on a less than district-wide basis. The plan was adopted in March, 1984, but has not yet been adopted as a rule by HRS. According to the District VIII Health Council Plan, that district is sub-districted by counties, except for Glades and Hendry Counties which are combined in a two-county sub- district. This form of sub-districting has been done for approximately seven years. District VIII is sub-districted on a county basis rather than on other geographical boundaries, because population data, useful in planning allocation of beds, is only available in the form of county-based population projections by age-specific cohorts from the Bureau of Economic and Business Research at the University of Florida (BEBR). Further, in considering the location of existing hospitals, the greatest proportion of people in the seven county area of District VIII can be located within a reasonable time and access to health care services by allocating the beds on a county sub-district basis. The population data promulgated by the BEBR is employed by HRS, is generally accepted as authoritative in Certificate of Need proceedings, and is herein. It is not available by age-specific cohort in the census tract geographical subdivisions attempted to be used by Community in 4 in delineating its purported service area. 4/ Performance of population based health care planning must be done consistently and future need must be projected based upon preparing utilization rates predicated on the same population geographical area each time. A common geographical basis for allocation of beds, such as counties, is most appropriate since that is the basis on which the most accurate population data is available. The bed allocation methodology used by the local health council to allocate beds by county sub-districts is contained in Naples Exhibit No. 35. Bed allocation on a county sub-district basis is determined by taking the overall bed number available from the state methodology rule formula and breaking it down into county sub-districts according to the District VIII health plan methodology. This methodology takes into account existing hospital utilization and location, changes in population, and projected patient days. All items of information to operate the allocation formula are obtained on a county basis. Under the District VIII health plan methodology, when existing beds are subtracted from needed beds, a projected need for 20 medical/surgical beds in Collier County results with an excess of 41 existing beds in Lee County for the horizon year of 1989. Mr. Porter corroborated Mr. Bebe's testimony and established that, although not adopted by HRS rule, the sub-districting of District VIII by county for health planning purposes conforms with HRS policy in terms of population and geographical criteria and constitutes a reasonable and rational health planning tool. The methodology used by the local health councils to allocate beds to the counties incorporates standard, accepted health planning practices and HRS' policy is not to interfere with that allocation of beds on a sub-district basis, so long as the subdistricting allocation does not exceed the bed need number for the district as a whole. Mr. Porter demonstrated that it is possible under the state Subpart (23) methodology to find no need or excessive beds at a district level, however, by applying the local health council methodology a positive mathematical need might be shown in one or more county sub-districts. Thus, it has been shown that the local health council allocation method which reveals a 20-bed need for Collier County is the result of a rational, standard, accepted health planning practice with regard to determining projected bed need on a less than district- wide basis. However, although that methodology shows a formula-based "need" in Collier County, the above findings reflecting the severely declining utilization experience in Collier County at NCH, together with its already scant operating ratio, when considered with the future effect on its utilization rate caused by the advent of Gulf Coast Hospital, show that no true need for any beds exists. Bed need projections are not the only pivotal considerations in determining entitlement to a CON. Brown and Kendall Lakes Hospital, Inc., Humana, Inc. d/b/a Kendall Community Hospital v. HRS, 4 FALR 2452A, (Final Order entered October 6, 1982).
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the application for a Certificate of Need submitted by Community Hospital of Collier, Inc. for 150-beds for northern Collier County be DENIED, and that the application for a Certificate of Need submitted by Naples Community Hospital, Inc. for the addition, as amended, for 20 beds be DENIED, and that, in view of the application involved in Case No. 84-0909 having been withdrawn, that that case be CLOSED. DONE and ENTERED this 16th day of August, 1985 in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of August, 1985.
The Issue Whether the Respondent should be placed on probation or her license #0929202 should be suspended or revoked.
Recommendation Discipline the Respondent, Catherine Barclay, by imposing the judgment of guilt, but suspend enforcement thereof and place the licensee on probation for a period of not less than two years. DONE and ORDERED this 13th day of April, 1979, in Tallahassee, Leon County, Florida. DELPHENE C. STRICKLAND Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Julius Finegold, Esquire 1107 Blackstone Building 233 East Bay Street Tallahassee, Florida 32202 Jerome M. Novey, Esquire 100 Salem Court Tallahassee, Florida 32301
The Issue Whether the certificate of need application to convert 30 acute care beds to 30 adult psychiatric beds at Broward General Medical Center meets the statutory and rule criteria for approval.
Findings Of Fact The North Broward Hospital District (NBHD) is a special taxing district established by the Florida Legislature in 1951 to provide health care services to residents of the northern two-thirds of Broward County. NBHD owns and operates four acute care hospitals: Coral Springs Medical Center, North Broward Medical Center, Imperial Point Medical Center (Imperial Point), and Broward General Medical Center (Broward General). NBHD also owns and/or operates primary care clinics, school clinics, urgent care centers, and a home health agency. FMC Hospital, Ltd., d/b/a Florida Medical Center (FMC) is a 459-bed hospital with 74 inpatient psychiatric beds, 51 for adults separated into a 25-bed adult unit and a 26-bed geriatric psychiatric unit, and 23 child/adolescent psychiatric beds. FMC is a public Baker Act receiving facility for children and adolescents and operates a mental health crisis stabilization unit (CSU) for children and adolescents. FMC also operates separately located facilities which include a partial hospitalization program, an adult day treatment program, and a community mental health center. At Florida Medical Center South, FMC operates another day treatment program and partial hospitalization program. The Agency for Health Care Administration (AHCA) is the state agency which administers the certificate of need (CON) program for health care services and facilities in Florida. The NBHD applied for CON Number 8425 to convert 30 acute care beds to 30 adult psychiatric beds at Broward General. Broward General operates approximately 550 of its total 744 licensed beds. It is a state Level II adult and pediatric trauma center and the tertiary referral center for the NBHD, offering Level II and III neonatal intensive care, pediatric intensive care, cardiac catheterization and open heart surgery services. Broward General has 68 adult psychiatric beds and is a public Baker Act receiving facility for adults. Public Baker Act receiving facilities have state contracts and receive state funds to hold involuntarily committed mental patients, regardless of their ability to pay, for psychiatric evaluation and short-term treatment. See Subsections 394.455(25) and (26), Florida Statutes. Although they serve different age groups, both FMC and Broward General are, by virtue of contracts with the state, public Baker Act facilities. When a Baker Act patient who is an indigent child or adolescent arrives at Broward General, the patient is transferred to FMC. FMC also typically transfers indigent Baker Act adults to Broward General. At Broward General, psychiatric patients are screened in a separate section of the emergency room by a staff which has significant experience with indigent mental health patients. If hospitalization is appropriate, depending on the patient's physical and mental condition, inpatient psychiatric services are provided in either a 38-bed unit on the sixth floor or a 30- bed unit on the fourth floor of Broward General. In July 1995, Broward General also started operating a 20-bed mental health CSU located on Northwest 19th Street in Fort Lauderdale. Prior to 1995, the County operated the 19th Street CSU and 60 CSU beds on the grounds of the South Florida State Hospital (SFSH), a state mental hospital. Following an investigation of mental health services in the County, a grand jury recommended closing the 60 CSU beds at SFSH because of "deplorable conditions." In addition, the grand jury recommended that the County transfer CSU operations to the NBHD and the South Broward Hospital District (SBHD). As a result, the SBHD assumed the responsibility for up to 20 CSU inpatients a day within its existing 100 adult psychiatric beds at Memorial Regional Hospital. The NBHD assumed the responsibility for up to 40 CSU inpatients a day, including 20 at the 19th Street location. The additional 20 were to be redirected to either the 68 adult psychiatric beds at Broward General or the 47 adult psychiatric beds at Imperial Point. CSU services for adult Medicaid and indigent patients in the NBHD service area were transferred pursuant to contracts between the NBHD and Broward County, and the NBHD and the State of Florida, Department of Children and Family Services (formerly, the Department of Health and Rehabilitative Services). Based on the agreements, the County leases the 19th Street building in which Broward General operates the CSU. The County also pays a flat rate of $1.6 million a year in monthly installments for the salaries of the staff which was transferred from the County mental health division to the NBHD. The County's contract with the NBHD lasts for five years, from December 1995 to September 2000. Either party may terminate the contract, without cause, upon 30 days notice. The State contract, unlike that of Broward County, does not provide a flat rate, but sets a per diem reimbursement rate of approximately $260 per patient per day offset by projected Medicaid revenues. The State contract is renewable annually, but last expired on June 30, 1997. The contract was being re-negotiated at the time of the hearing in November 1997. Based on actual experience with declining average lengths of stay for psychiatric inpatients, the contract was being re-negotiated to fund an average of 30, not a maximum of 40 patients a day. If CON 8425 is approved, NBHD intends to use the additional 30 adult psychiatric beds at Broward General to meet the requirements of the State and County contracts, while closing the 19th Street CSU and consolidating mental health screening and stabilization services at Broward General. NBHD proposes to condition the CON on the provision of 70 percent charity and 30 percent Medicaid patient days in the 30 new beds. By comparison, the condition applicable to the existing 68 beds requires the provision of 3 percent charity and 25 percent Medicaid. When averaged for a total of 98 beds, the overall condition would be 23.5 percent charity and 26.5 percent Medicaid, or a total of 51 or 52 percent. The proposed project will require the renovation of 10,297 gross square feet on the fourth floor of Broward General at a cost of approximately $450,000. The space is currently an unused section of Broward General which contains 42 medical/surgical beds. Twelve beds will be relocated to other areas of the hospital. The renovated space will include seclusion, group therapy, and social rooms, as well as 15 semi- private rooms. Twelve of the rooms will not have separate bathing/showering facilities, and seven of those will also not have toilets within the patients' rooms. Need in Relation to State and District Health Plans - Subsection 408.035(1)(a), Florida Statutes The District 10 allocation factors include a requirement that a CON applicant demonstrate continuously high levels of utilization. The applicant is given the following evidentiary guidelines: patients are routinely waiting for admissions to inpatient units; the facility provides significant services to indigent and Medicaid individuals; the facility arranges transfer for patients to other appropriate facilities; and the facility provides other medical services, if needed. Broward General does not demonstrate continuously high utilization by having patients routinely waiting for admission. Broward General does meet the other criteria required by allocation factor one. The second District 10 allocation factor, like criterion (b) of the first, favors an applicant who commits to serving State funded and indigent patients. Broward General is a disproportionate share Medicaid provider with a history of providing, and commitment to continue providing, significant services to Medicaid and indigent patients. In fact, the NBHD provides over 50 percent of both indigent and Medicaid services in District 10. See also Subsection 408.035(1)(n), Florida Statutes. Allocation factor three for substance abuse facilities is inapplicable to Broward General which does not have substance abuse inpatient services. Allocation factor 4 for an applicant with a full continuum of acute medical services is met by Broward General. See also Rule 59C-1.040(3)(h), Florida Administrative Code. Broward General complies with allocation factor 5 by participating in data collection activities of the regional health planning council. The state health plan includes preferences for (1) converting excess acute care beds; (2) serving the most seriously mentally ill patients; (3) serving indigent and Baker Act patients; (4) proposing to establish a continuum of mental health care; (5) serving Medicaid-eligible patients; and (6) providing a disproportionate share of Medicaid and charity care. Broward General meets the six state health plan preferences. See also Rule 59C-1.040(4)(e)2., Florida Administrative Code, and Subsection 408.035(1)(n), Florida Statutes. Broward General does not meet the preference for acute care hospitals if fewer than .15 psychiatric beds per 1000 people in the District are located in acute care hospitals. The current ratio in the District is .19 beds per 1,000 people. Rule 59C-1.040(4)(3)3, Florida Administrative Code, also requires that 40 percent of the psychiatric beds needed in a district should be allocated to general hospitals. Currently, approximately 51 percent, 266 of 517 licensed District 10 adult inpatient psychiatric beds are located in general acute care hospitals. On balance, the NBHD and Broward General meet the factors and preferences of the health plans which support the approval of the CON application. See also Rule 59C- 1.040(4)(e)1. and Rule 59C-1.030, Florida Administrative Code. Numeric Need The parties stipulated that the published fixed need pool indicated no numeric need for additional adult inpatient psychiatric hospital beds. In fact, the numeric need calculation shows a need for 434 beds in District 10, which has 517 beds, or 83 more than the projected numeric need. In 1994- 1995, the District utilization rate was approximately 58 percent. The NBHD asserts that the need arises from "not normal" circumstances, specifically certain benefits from closing the 19th Street CSU, especially the provision of better consolidated care in hospital-based psychiatric beds, and the establishment of a County mental health court. The NBHD acknowledges that AHCA does not regulate CSU beds through the CON program and that CSU beds are not intended to be included in the calculation of numeric need for adult psychiatric beds. However, due to the substantial similarity of services provided, NBHD contends that CSU beds are de facto inpatient psychiatric beds which affect the need for CON- regulated psychiatric beds. Therefore, according to the NBHD, the elimination of beds at SFSH and at the 19th Street CSU require an increase in the supply of adult psychiatric beds. The NBHD also notes that approval of its CON application will increase the total number of adult psychiatric hospital beds in Broward County, but will not affect the total number of adult mental health beds when CSU and adult psychiatric beds are combined. After the CSU beds at SFSH closed, the total number of adult mental health beds in the County has, in fact, been reduced. NBHD projected a need to add 30 adult psychiatric beds at Broward General by combining the 1995 average daily census (ADC) of 48 patients with its assumption that it can add up to 10, increasing the ADC to 58 patients a day in the existing 68 beds. Based on its contractual obligation to care for up to 40 CSU inpatients a day, the NBHD projects a need for an additional 30 beds. The projection assumed that the level of utilization of adult inpatient psychiatric services at Broward General would remain relatively constant. With 40 occupied beds added to the 48 ADC, NBHD predicted an ADC of 88 in the new total of 98 beds, or 90 percent occupancy. The assumption that the ADC would remain fairly constant is generally supported by the actual experience with ADCs of 48.1, 51.5, and 45.8 patients, respectively, in 1995, 1996, and the first seven months of 1997. NBHD's second assumption, that an ADC of 40 CSU patients will be added is not supported by the actual experience. Based on the terms of the State and County contracts, up to 20 CSU patients have already been absorbed into the existing beds at the Imperial Point or Broward General, which is one explanation for the temporary increase in ADC in 1996, while up to 20 more may receive services at the 19th Street location. In 1996 and 1997, the ADC in the 19th Street CSU beds was 15.3 and 14.2, respectively, with monthly ranges in 1997 from a high of 17 in April to a low of 12 in June. The relatively constant annual ADCs in psychiatric and CSU beds are a reflection of increasing admissions but declining average lengths of stay for psychiatric services. The NBHD also projects that it will receive referrals from the Broward County Mental Health Court, established in June 1997. The Court is intended to divert mentally ill defendants with minor criminal charges from the criminal justice system to the mental health system. Actual experience for only three months of operations showed 7 or 8 admissions a month with widely varying average lengths of stay, from 6 to 95 days. The effect of court referrals on the ADC at Broward General was statistically insignificant into the fall of 1997. Newspaper reports of the number of inmates with serious mental illnesses do not provide a reliable basis for projecting the effect of the mental health court on psychiatric admissions to Broward General, since it is not equipped to handle violent felons. One of Broward General's experts also compared national hospital discharge data to that of Broward County. The results indicate a lower use rate in Broward County in 1995 and a higher one in 1996. That finding was consistent with the expert's finding of a growth in admissions and bed turnover rate which measures the demand for each bed. The expert also considered the prevalence of mental illness and hospitalization rates. The data reflecting expected increases in admissions, however, was not compared to available capacity in the County nor correlated with declining lengths of stay. The District X: Comprehensive Health Plan 1994 includes an estimate of the need for 10 CSU beds per 100,000 people, or a total of 133 CSU beds needed for the District. FMC argues that the calculation is incorrect because only the adult population should be included. Using only adults, FMC determined that 116 CSU beds are needed which, when added to 434 adult psychiatric beds needed in the February 1996 projection, gives a bed need for all mental health beds of 550. That total is less than the actual combined total number of 567 mental health beds, 517 adult psychiatric beds plus 50 CSU beds in 1995. Whatever population group is appropriate, the projection of the need for CSU beds is not reliable based on the evidence that, since the end of 1995, CSU services have been and, according to NBHD, should continue to be absorbed into hospital- based adult psychiatric units. For the same reason, the increase in adult psychiatric bed admissions from 1995 to 1996 does not establish a trend towards increasing psychiatric utilization, but is more likely attributable to the closing of CSU beds at SFSH. FMC's expert's comparison of data from three selected months in two successive years is also not sufficient to establish a downward trend in utilization at the 19th Street CSU, neither is the evidence of a decline in ADC by one patient in one year. Utilization is relatively static based on ADCs in existing Broward County adult psychiatric beds and in CSU beds. FMC established Broward General's potential to decrease average lengths of stay by developing alternative non-inpatient services as FMC has done and Broward General proposes to do. See Finding of Fact 37. Based on local health council reports, FMC's data reflects a rise in the ADC at Broward General to 52.7 in 1996, and a return to 46 in the first seven months of 1997. Using a 14.2 ADC for the 19th Street CSU, FMC projects that Broward General will reach an ADC of approximately 60 in the first year of operations if the CON is approved, not 88 as projected. Broward General acknowledged its capacity to add 10 more patients to the ADC without stress on the system. Having already absorbed 20 of up to 40 CSU patients at Imperial Point and Broward General in 1996 and 1997 resulting in an ADC of 48, and given the capacity to absorb 10 more, the NBHD has demonstrated a need to accommodate an ADC of 10 more adult psychiatric patients at Broward General, or a total ADC of 68 patients. The need to add capacity to accommodate an additional 10 patient ADC was not shown to equate to a need for 30 additional beds, which would result in an ADC of 68 patients in 98 beds, or 69 or 70 percent occupancy. Special Circumstances - Rule 59C-1.040(4)(d) The psychiatric bed rule provides for approval of additional beds in the absence of fixed numeric need. The "special circumstance" provision applies to a facility with an existing unit with 85 percent or greater occupancy. During the applicable period, the occupancy at Broward General was 74.15 percent. However, occupancy rates have exceeded 95 percent in the CSU beds on 19th Street. If up to 20 patients on 19th Street are added to the 48 ADC at Broward General, the result is that the existing 68 beds will be full. A full unit is operationally not efficient or desirable and allows no response to fluctuations in demand. Therefore, the state has established a desirable standard of 75 percent occupancy for psychiatric units, a range which supports the addition of 10 to 15 psychiatric beds at Broward General. Available Alternatives - Subsection 408.035(1)(b) and (d), Florida Statutes, and Rule 59C-1.040(4)(e)4., Florida Administrative Code The psychiatric bed rule provides that additional beds will "not normally" be added if the district occupancy rate is below 75 percent. For the twelve months preceding the application filing, the occupancy rate in 517 adult psychiatric beds in District 10 was approximately 58 percent. FMC's expert noted that each day an average of 200 adult psychiatric beds were available in District 10. Broward General argues that the occupancy rate is misleading. Five of the nine facilities with psychiatric beds are freestanding, private facilities, which are ineligible for Medicaid participation. Historically, the freestanding hospitals have also provided little charity care. One facility, University Pavilion, is full. Of the four acute care hospitals with adult psychiatric beds, Memorial Hospital in the SBHD, is not available to patients in the NBHD service area. Imperial Point, the only other NBHD facility with adult psychiatric beds, is not available based on its occupancy rate for the first seven months of 1997 of approximately 81 percent, which left an average of 9 available beds in a relatively small 47-bed unit. That leaves only Broward General and FMC to care for Medicaid and indigent adult psychiatric patients. FMC is the only possible alternative provider of services, but Broward General was recommended by the grand jury and was the only contract applicant. The occupancy rate in FMC's 51 adult beds was approximately 80 percent in 1995, 73 percent in 1996, and 77 percent for the first seven months in 1997. FMC has reduced average lengths of stay by having patients "step down" to partial hospitalization, day treatment and other outpatient services of varying intensities. The same decline in average lengths of stay is reasonably expected when Broward General implements these alternatives. Adult psychiatric services are also accessible in District 10 applying the psychiatric bed rule access standard. That is, ninety percent of the population of District 10 has access to the service within a maximum driving time of forty- five minutes. The CSU license cannot be transferred to Broward General. Broward County holds the license for CSU beds which, by rule, must be located on the first floor of a building. Although Broward General may not legally hold the CSU license and provide CSU services on the fourth floor of the hospital, there is no apparent legal impediment to providing CSU services in psychiatric beds. Quality of Care - Subsection 408.035(1)(c), Florida Statutes and Rule 1.040(7), Florida Administrative Code Broward General is accredited by the Joint Commission on Accreditation of Health Care Organizations. The parties stipulated that Broward General has a history of providing quality care. Broward General provides the services required by Rule 59C-1.040(3)(h), Florida Administrative Code. Services Not Accessible in Adjoining Areas; Research and Educational Facilities; Needs of HMOs; Services Provided to Individuals Beyond the District; Subsections 408.035(1)(f),(g),(j), and (k), Florida Statutes Broward General does not propose to provide services which are inaccessible in adjoining areas nor will it provide services to non-residents of the district. Broward General is not one of the six statutory teaching hospitals nor a health maintenance organization (HMO). Therefore, those criteria are of no value in determining whether this application should be approved. Economics and Improvements in Service from Joint Operation - Subsection 408.035(1)(e), Florida Statutes The consolidation of the psychiatric services at Broward General is reasonably expected to result in economies and improvements in the provision of coordinated services to the mentally ill indigent and Medicaid population. Broward General will eliminate the cost of meal deliveries and the transfer of medically ill patients, but that potential cost-saving was not quantified by Broward General. Staff and Other Resources - Subsection 408.035(1)(h), Florida Statutes The parties stipulated that NBHD has available the necessary resources, including health manpower, management personnel, and funds to implement the project. Financially Feasibility - Subsection 408.035(1)(h) and (i), Florida Statutes The parties stipulated that the proposed project is financially feasible in the immediate term. The estimated total project cost is $451,791, but NBHD has $500,000 in funds for capital improvements available from the County and $700,000 from the Florida Legislature. As stipulated by the parties, NBHD has sufficient cash on hand to fund the project. Regardless of the census, the County's contractual obligation to the NBHD remains fixed at $1.6 million. The State contract requires the prospective payment of costs offset by expected Medicaid dollars. If the number of Medicaid eligible patients decreases, then state funding increases proportionately. The state assumed that 20 percent of the patients would qualify for Medicaid, therefore it reimburses the per diem cost of care for 80 percent of the patients. One audit indicated that 30 percent of the patients qualified for Medicaid, so that State payments for that year were higher than needed. The State contract apparently makes no provision to recover excess payments. The application projects a net profit of $740,789 for the first year of operations, and a net profit of $664,489 for the second year. If the State contract with NBHD is renewed to contemplate an average of 30 patients per day as opposed to up to 40 patients per day, then annual revenue could be reduced up to $400,000. Projected net profit will, nevertheless, exceed expenses when variable expenses are reduced correspondingly. If 20 state funded patients are already in psychiatric beds, and 20 more could be transferred from 19th Street, the result is an ADC of 68. Based on the funding arrangements, there is no evidence that the operation of a total of 98 beds could not be profitable, even with an ADC of 68, although it would be wasteful to have 30 extra beds. Impact on Competition, Quality Assurance and Cost-Effectiveness - Subsection 408.035(1)(l), Florida Statutes With a maximum of 68 inpatients or more realistically, under the expected terms of a renegotiated State contract, 58 to 60 inpatients in 98 beds, Broward General will reasonably attempt to expand the demand for its inpatient psychiatric services. Within the NBHD's legal service area, one-third of adult psychiatric patients not admitted to Broward General are admitted to FMC. Assuming a proportionate impact on competitors, FMC's expert projected that one-third of approximately 30 unfilled beds at Broward General will be filled by patients who would otherwise have gone to FMC. The projection of a loss of 9 patients from the ADC of FMC is reasonably based on an analysis showing comparable patient severity in the most prevalent diagnostic category. Given the blended payor commitment of approximately 51 or 52 percent total for Medicaid and charity in 98 beds, Broward General will be able to take patients from every payor category accepted at FMC. The loss of 9 patients from its ADC can reduce revenues by $568,967 at FMC. The impact analysis is reasonably based on lost patient days since most payers use a per diem basis for compensating FMC. For example, although Medicare reimbursement is usually based on diagnosis regardless of length of stay, it is cost-based for the geriatric psychiatric unit. Net profit at FMC, for the year 1996-1997, was expected to be approximately $4.5 million. FMC will also experience increased costs in transporting indigent patients from FMC to Broward General for admission and treatment. Because of the additional distance, the cost to transfer indigent patients is $20 more per patient from FMC to Broward General than it is from FMC to the 19th Street CSU. FMC typically stabilizes indigent adult psychiatric inpatients, then transfers them to either the 19th Street CSU or Broward General. From March through September of 1997, FMC transported approximately 256 indigent patients from FMC to the 19th Street CSU. In terms of quality assurance, the consolidation of psychiatric services at Broward General will allow all patients better access to the full range of medical services available at Broward General. The NBHD's operation of the 19th Street CSU is profitable. Approval of the CON application should reasonably eliminate all costs associated with operation of the 19th Street facility, and shift more revenues from the State and County contracts to Broward General. Some savings are reasonably expected from not having meal deliveries to 19th Street or patient transfers for medical care. The NBHD did not quantify any expected savings. Costs and Methods of Construction - Subsection 408.035(1)(m), Florida Statutes Broward General will relocate 12 of 42 medical/surgical beds and convert 30 medical/surgical beds to 30 adult psychiatric beds on one wing of the fourth floor, which is currently unused. Fifteen semi-private medical/surgical patient rooms will be converted into semi-private adult psychiatric rooms. Existing wards will be converted to two social rooms, one noisy and one quiet. With the removal of the walls of some offices, the architect designed a group therapy room. An existing semi-private room will be used as a seclusion room. Of the fifteen semi-private rooms, twelve will not have bathing or showering facilities and seven will not have toilets within the patients' rooms. At the time the hospital was constructed, the state required only a lavatory/sink in each patient room. AHCA's architect agreed to allow Broward General to plan to use central bathing and toilet facilities to avoid additional costs and diminished patient room sizes. Because the plan intentionally avoids construction in the toilets, except to enlarge one to include a shower, there is no requirement to upgrade to Americans With Disabilities Act (ADA) standards. Therefore, the $23,280 construction cost contingency for code compliance is adequate. Although the projected construction costs are reasonable and the applicable architectural code requirements are met, the design is not the most desirable in terms of current standards. Patient privacy is compromised by the lack of toilets for each patient room. Past and Proposed Provision of Services to Promote a Continuum of Care in a Multi-level System - Subsection 408.035(1)(o), Florida Statutes Broward General is a tertiary acute care facility which provides a broad continuum of care. Because it already operates the CSU and provides CSU services in adult psychiatric beds, the proposal to relocate patients maintains but does not further promote that continuum of care. Broward General's plan to establish more alternatives to inpatient psychiatric care does promote and enhance its continuum of care. Capital Expenditures for New Inpatient Services - Subsection 408.035(2), Florida Statutes Broward General is not proposing to establish a new health service for inpatients, rather it is seeking to relocate an existing service without new construction. The criteria in this Subsection are inapplicable. Factual Conclusions Broward General did not establish a "not normal" circumstance based on the grand jury's findings and recommendations. The grand jury did not recommend closing 19th Street facility. Broward General did generally establish not normal circumstances based on the desirability of consolidating mental health services at Broward General to provide a single point of entry and to improve the quality of care for the 19th Street facility patients. Broward General failed to establish the need to add 30 beds to accomplish the objective of closing the 19th Street facility. Although the existing beds at Broward General may reasonably be expected to be full as a result of the transfer of 19th Street patients, the addition of 30 beds without sufficient demand results in an occupancy rate of 69 or 70 percent, from an ADC of 68 patients in 98 beds. Broward General has requested approximately twice as many beds as it demonstrated it needs. Broward General's CON application on balance satisfies the local and state health plan preferences. In general, FMC is the only alternative facility in terms of available beds, but is not the tax-supported public facility which the grand jury favored to coordinate mental health services. Broward General meets the statutory criteria for quality of care, improvements from joint operations, financial feasibility, quality assurance, cost-effectiveness, and services to Medicaid and indigent patients. The proposal is not the most desirable architecturally considering current standards. More importantly, Broward General did not demonstrate that it can achieve its projected occupancy without an adverse impact on FMC. The NBHD proposal will add too many beds to meet the targeted state occupancy levels in relatively a static market. Broward General's application does not include a partial request for fewer additional beds which would have allowed the closing of 19th Street, while maintaining some empty beds for demand fluctuations and avoiding an adverse impact on FMC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration deny the application of the North Broward Hospital District for Certificate of Need Number 8425 to convert 30 medical/surgical beds to 30 adult psychiatric beds at Broward General Medical Center. DONE AND ENTERED this 21st day of April, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 21st day of April, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul Vazquez, Esquire Agency For Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
