The Issue Whether the Department of Health and Rehabilitative Services should grant petitioners' applications for certificates of need for the establishment of Medicare certified home health agencies in Hillsborough and Polk Counties, Florida.
Findings Of Fact HRS thereby adopts and incorporates by reference the findings of fact set forth in the recommended order except for the last sentence of paragraph 32 and paragraph 33. See discussion in ruling on exceptions.
Recommendation Based upon the foregoing findings of fact and conclusions of laws, it is RECOMMENDED that the Department of Health and Rehabilitative Services enter a final order granting and issuing CON Nos. 3605 and 3606 to Medical Personnel Pool. DONE and ENTERED this 25th day of April, 1986, in Tallahassee, Leon County, Florida. DIANE A. GRUBBS, 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 25th day of April, 1986.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Petitioner filed an application with HRS for a Certificate of Need to establish and operate a new home health agency in Hillsborough, Manatee, Pasco and Pinellas Counties. HRS has given notice of its intent to deny the application on the grounds that the proposed project is not consistent with Rule 10-5.11(14)(a) and (b), Florida Administrative Code. That preliminary determination is the subject of a pending formal administrative proceeding filed pursuant to Section 120.57(1), Florida Statutes. The Florida Association of Home Health Agencies (FAHHA) is an organization formed in 1975 to represent the interests of home health care agencies in Florida. Its members consist of seventy (70) licensed home health care agencies in Florida. As of 1981, there were approximately 144 home health agencies licensed in Florida. The membership of the FAHHA fear that if the challenged rule were invalidated, there would be a proliferation of other new home health agencies into the markets served by association members. This, it is felt, would redistribute existing patient censuses and result in increased costs per patient. Gulf Coast Home Health Services, Inc. is a private, for-profit organization operating a home health care agency in Hillsborough County. It provides medical and other therapeutic services to patients in their homes as ordered by the patient's physician. Such services are provided under a variety of programs, including Medicare, Medicaid, private pay and third-party private insurance carriers. Its Administrator believes that the challenged rule helps to keep costs from escalating and that the rule's invalidation would have a negative economic impact upon his agency. Effective July 1, 1977, the Florida Statutes were amended to require a certificate of need as one of the prerequisites for licensure of a new home health agency. Emergency rules were promulgated by HRS to include proposed new home health agencies in the certificate of need program and to establish standards against which applications for certificate of need for new home health agencies could be judged. Emergency Rule 10-ER77-12 amended Rule 10-5.11(14), Florida Administrative Code, by setting forth a formula methodology for determining, on a county by county basis, the number of home health agencies necessary to meet the needs of the population. The Emergency Rule further stated that mitigating and extenuating circumstances could be considered in approving a certificate of need for a new home health agency even though the formula methodology of need determination did not clearly indicate need. Three examples of mitigating and extenuating circumstances were provided in the Emergency Rule, but they were not stated to be all-inclusive. In the summer of 1977, HRS began the process of developing a permanent rule containing criteria upon which certificate of need determinations for home health agencies would be based. There ensued exchanges of correspondence, discussions, meetings and a workshop among representatives of the Department of HRS, local health systems agencies, individual home health agencies and representatives of FAHHA to discuss what type of regulation would be most appropriate. One of the prime concerns at the workshop was the proliferation of home health agencies and the stabilization of the industry. As indicated by a majority vote or a show of hands of the attendees at the workshop, it was the consensus that the formula methodology for determining need, as set forth in the Emergency Rule, should be deleted and substituted with a "rule of 300." As finally adopted by HRS in 1977, Rule 10-5.11(14) provided that a certificate of need for a proposed new home health agency or subunit could not be issued until the daily census of the existing home health agencies or subunits providing services within the same service area reached an average of 300 patients, in the aggregate, for the immediate preceding calendar quarter unless need could be demonstrated by application of the three mitigating and extenuating circumstances listed in subparagraph (b) of the Rule. The three circumstances listed included documented population variances, documentation that the population of the proposed service area is being denied access to home health care services in that existing agencies are unable to provide services to all persons in need of home health care, and documentation that approval of the proposed agency would foster cost containment for all providers in the area. As to the numerical figure of 300, the rule, as originally adopted in 1977, meant that if the total average number of patients being serviced in a particular health service area by all existing home health agencies exceeded 300 patients on a daily basis, then a need was indicated for a new home health agency. For example, if there were three agencies in a given area with patient censuses of 401, 400 and 100, the average would exceed 300 and a need would be indicated. The "rule of 300" was suggested and proposed for adoption by representatives from the FAHHA. The number 300 was selected by the Association for the average "based upon the experience of various home health providers in the state. It's the consensus of the association's members that an agency operates with optimum administrative efficiency up to a patient level of approximately 300. As the census begins to climb to any significant degree beyond the 300 level, administrative efficiency declines. In conclusion, the association urges the adoption of the 300-average-patient-census rule. It is fair to the HSA's because it allows them to control unwarranted growth with a minimum of administrative difficulty. It is fair to the agencies because it assures them of the potential for an adequate patient census while maintaining their flexibility to have a larger or smaller census. 1/ The representatives from the FAHHA and private existing home health agencies felt that the rationale for the "rule of 300" was to afford the industry a chance to recover from rising costs resulting from the proliferation of new home health agencies. It was believed that traditional formula-based methodologies for need determinations would not work because of the ease of expansion of services and service areas and because the data base necessary for the formula methodology was not available. According to an FAHHA witness, the 1977 "rule of 300 came about due to a lack of successful alternatives." (TR. 329). The HRS representative in charge of drafting the 1977 rule admitted that, at that point in time, "no one could make a decision about whether or not the rule of 300 would be good, bad or indifferent. . ." (TR. 35). No empirical data, statistical analysis or studies were considered by HRS to illustrate that the "rule of 300" as adopted in 1977 was justified. Rule 10-5.11(14) was amended in 1979 to its present form, and this is the rule which is being challenged in this proceeding. No reason or rationale for the amendment was provided by witnesses for HRS or the intervenors or by any documentary evidence adduced at the hearing. Notice of intent to amend many portions of Chapter 10-5, Florida Administrative Code, was published in the Florida Administrative Weekly. The notice provided as follows: "PURPOSE AND EFFECT:" To amend Rule 10-5 for administration of the 'Health Facilities and Health Services Planning Act' in compliance with legislative intent and mandate, to eliminate references to the Section 1122 program which has been terminated in Florida, and to adopt health planning guidelines developed by HEW. "SUMMARY OF RULE:" These amendments will provide administrative rules under which the Certificate of Need program will be administered in compliance with state and federal requirements." No specific reference to Rule 10-5.11(14) or home health agencies was provided in the notice filed in the Florida Administrative Weekly. No specific reference to home health agencies or the "rule of 300" was provided in the HRS detailed statement of facts and circumstances justifying the proposed rules, the HRS statement of purpose or effect, the HRS summary of the rule or the HRS economic impact statement, as filed with the Joint Administrative Procedures Committee or the Secretary of State. Copies of the proposed amendment were sent to a representative of FAHHA and to existing home health care agencies. The 1979 amendment to Rule 10-5.11(14), Florida Administrative Code, made substantial changes to the manner in which new home health agencies' applications for a certificate of need were to be evaluated. The "rule of 300" was no longer to be applied as an average figure for all existing home health agencies or subunits, in the aggregate. Instead, the amendment required that a certificate of need shall not be issued until the daily census of each existing agency within the service area has reached an average of 300 patients for the immediate preceding calendar quarter, unless need could be demonstrated by application of the mitigating and extenuating circumstances listed in the amended rule. While the former 1977 rule listed three mitigating and extenuating circumstances which "may be considered" even though application of the 300 figure did not indicate need, the 1979 amendment provided only two circumstances which "must be met" before the Department could issue a certificate of need in the event that application of the "rule of 300" did not indicate need. In its entirety, the 1979 amendment to Rule 10-5.11(14) provides as follows: "(14)(a) A Certificate of Need for a proposed new home health agency or subunit shall not be issued until the daily census of each of the existing home health agencies or subunits providing services within the health service area of the proposed new home health agency or subunit has reached an average of 300 patients for the immediate preceding calendar quarter unless the need for the proposed new home health agency or subunit can be demonstrated by application of the mitigating and extenuating circumstances in Rule 10-5.11(14) (b) herein. (b) Mitigating and extenuating circumstances which must be met for the department to issue a Certificate of Need for a proposed new home health agency or subunit even though the previously described need determination procedure does not clearly indicate needs are: Documentation that the population of the proposed service area is being denied access to home health care services in that existing home health agencies or subunits within the proposed service area are unable to provide service to all persons in need of home health care, or Documentation that approval of such proposed new home health agency or subunit would foster cost containment for all providers in the health service area." Home health agencies in existence in 1977 were not required to meet the "rule of 300," but rather were grandfathered. No applicant for a certificate of need for a home health agency from the effective date of the 1977 "rule of 300" to the present has been able to satisfy the numerical component of the rule and no applicant has ever satisfied the mitigating or extenuating circumstance relating to the fostering of cost containment "for all providers in the health service area." Indeed, there was great confusion as to the meaning of "all providers" on the part of those responsible for enforcing and administering the certificate of need program within HRS. Between 1977 and 1979, four applicants were able to satisfy the other mitigating or extenuating circumstance regarding accessibility by demonstrating that the existing home health agencies were unwilling to service indigent or Medicaid patients, whom the applicants promised to serve. A survey of 100 home health agencies in Florida revealed that only six of the 100 had an average active census greater than 300 during the second quarter of 1980. A home health agency provides health and medical services and supplies to individuals in the individual's own home. Such services include part-time or intermittent nursing care, medical social services, nutritional guidance, physical, occupational or speech therapy and homemaker services. While an agency may not provide skilled nursing or medical services to a patient without a physician's order, the spectrum of services provided by any particular agency is a matter of choice. Inasmuch as patients are visited and treated in their own place of residence, the home health care business in not capital intensive. In terms of equipment and facilities, the initial capitalization of a home health care agency is not very high and the costs are variable and adjustable as compared with other health care facilities. Since there are low fixed costs involved in operating a home health agency, economies of scale are generally not expected. An agency may expand its services and its service area with relatively little expense. Rule 10-5.11(14), as amended, does not provide for a consideration of the level of care or the quality of care being offered by the existing facilities or by the applicant for a new facility. It does not measure the efficiency of existing agencies with respect to the size or level of services offered. Given the facts that the "rule of 300" does not purport to measure or quantify the number of patients needing home health care or the quality, size or scope of services offered by existing agencies, the rule does not even provide an effective measure of utilization of existing agencies. It does not require consideration of the financial feasibility of the applicant's proposal. The rule does not consider principles of cost containment for the public, as opposed to other providers in the area. While the rule does not prohibit a consideration of these factors if the 300 figure is met, it does, on its face, preclude the approval of a new home health agency when the 300 figure is not met, absent the two "mitigating or extenuating circumstances" relating to access and cost containment for other providers.
The Issue The issues concern the question of the entitlement of Petitioner to the grant of a certificate of need (CON) to provide home health services in District III.
Findings Of Fact On December 15, 1986, Petitioner made application for a certificate of need (CON) to provide home health services in Citrus County, Florida. That application was denied by Respondent on December 14, 1987. The basis for denial as set out in Respondent's State Agency Action Report (SAAR) was to the effect that there was no demonstrated need when resort was made to the methodology suggested by the North Central Florida Health Planning Council in its 1986 District III Health Plan. (At that time Respondent did not have a methodology for determining need). It was felt that some advantage might be gained in serving the needs of underserved groups; however, there was limited information to demonstrate that existing home health agencies in the county could not meet the demands for service. Finally, it was stated that the referral agreement between Petitioner, as a source of clients from its hospital operation, and Intervenor as an existing home health care provider, to include use of Petitioner's employees in the provision of care, care which was as "hi-tech", as Petitioner could provide, was sufficient. Following the application denial, Petitioner filed a timely request for formal hearing under the authority set forth in Section 120.57(1), Florida Statutes. On February 17, 1988, Intervenor was allowed to intervene. Given that the Respondent did not have a rule methodology in place to consider this application when first filed or at the point in time where the case was referred to the Division of Administrative Hearings for consideration, on May 12, 1988, Respondent moved, unopposed, to have the case returned to the agency to await the promulgation of a new home health rule. The motion was granted. On September 12, 1988, the new rule became effective as Rule 10- 5.011(1)(d), Florida Administrative Code. Which provided as follows: (d) Medicare Certified Home Health Agencies. Definitions. Home Health Agency. A home health agency is defined as a Medicare certified home health agency in accordance with subsection 381.702(10), F.S. Home Health Services. Home Health Services are defined in accordance with subsection 400.462(3), F.S. Home Health Services Provider. For the purpose of this rule, a home health services provider is defined as the person or corporate entity to which the certificate of need or license is issued. District. District means a service district of the department as established in subsection 20.19(5), F.S. Service Area. A certificate of need for the establishment of a home health agency shall authorize a home health services provider to locate a home health agency and serve persons anywhere within the district for which the certificate of need is awarded. Planning Horizon. The planning horizon is the anticipated time frame within which the agency is expected to be licensed. The planning horizon for applications submitted between January 1 and June 30 of each year, shall be July of the following year; the planning horizon for applications submitted between July 1 and December 31 of each year shall be January of the year following the year subsequent to the application deadline. Approved Home Health Agency. For the purpose of this rule, an approved home health agency is defined as a new agency within the district which holds a valid certificate of need and has not been licensed by the department one moth prior to the publication date of the semi-annual fixed need pool. Persons or corporations who do not operate Medicare certified home health agency in the district and are the holder of one or more certificate of need approvals within the same district, shall only be counted as one approval. Persons or corporations who do operate a Medicare certified home health agency in the district and are also the holder of a certificate of need approval for the same district, shall not be counted in the inventory of approved agencies. Quality of Care. Home health agencies regulated under this rule shall meet the minimum of care standards contained in HRS rules 10D-68, F.A.C. Need Methodology. The establishment of a home health agency by a provider who does not currently operate a Medicare certified home health agency in a district, shall require a certificate of need for the operation of a Medicare certified home health agency in the district. Applications for home health agencies shall be reviewed against all applicable statutory and related rule criteria. Applications for home health agencies shall not normally be approved unless a need is indicated in accordance with the formula under paragraph 3. The establishment of additional Medicare certified home health agencies, additional offices, mail drops, or any other physical presence by a Medicare certified home health services provider within the same district is not subject to a certificate of need. The need for the establishment of a new home health agency within the HRS district shall be determined twice a year. The net need for new Medicare home health agencies in each HRS district is calculated as follows: HHNN = ((PHHV - AHHV)/CEAS) - AHH Where: HHNN equals the Medicare certified home health agency net need. PHHV equals the projected number of home health agency visits for the respective district and planning horizon. The projected number of home health agency visits is calculated by multiplying the number of home health visits per 1000 population 65 years and over provided by the Medicare certified agencies in the district for the most recent year for which data available, by the projected population 65 years and over for the respective district. The population projections shall be based on the population projects issued by the Executive Office of the Governor available to the department 1 month prior to the publication date of the semi- annual fixed pool. AHHV equals the actual number of home health agency visits provided by all Medicare certified home health agencies in the district based on cost report data obtained from Medicare Intermediaries for the most recent year available to the department 1 month prior to the publication date of the semi-annual fixed need pool as specified in Rule 10-5.008(2), F.A.C. CEAS is the cost efficient agency size in numbers of visits at which economy of scale is achieved according to the data available to the department. If the fraction (PHHV - AHHV)/CEAS is .5 or exceeds .5, the fraction shall be rounded upward to the nearest whole number. CEAS shall be updated by the department annually and shall be determined by the department according to the following methodology: Rank all agencies by visit size, excluding hospital-based agencies. calculate the average cost for all visits for each remaining agency. Calculate the mean visit cost for all agencies, excluding hospital-based agencies, and two standard deviations from the mean for the remaining agencies. Eliminate agencies with average visit costs at or exceeding two standard deviations above and below the mean visit cost from further calculations. Array remaining agencies by visit size from low to high, and sort agencies into 4 groupings by visit size containing an equal or similar number of agencies, and calculate the mean cost for each groupings. Calculate the percentage reduction, if any, in mean visit cost for each grouping as compared to the previous grouping. Identify the agency size groupings which have a mean visit cost reduction of 5 percent or more compared to the mean visit cost of the previous groupings. Select the agency size grouping for which the last 5 percent or more reduction in mean visit cost is achieved prior to a grouping for which a less than 5 percent reduction is achieved as compared to the previous grouping and determine the median agency size for this grouping rounded to the nearest thousand. This agency size is defined as CEAS. AHH equals the number of approved home health agencies in the district. Preference shall be given to applicants proposing to provide home health care services to indigent persons and Medicaid patients. Preference shall be given to applicants proposing a comprehensive range of home health services if it is determined by the department that certain types of services are unavailable or that there is a shortage of certain types of home health service. Preference shall be given to applicants proposing to provide home health services and establish a physical presence underserved areas of the district. Data Reporting Requirements. Home health agencies regulated under this rule shall provide the following information to the department or its designee. The information shall be provided for the same reporting period covered by the annual cost reports submitted to the Medicare Intermediaries, and shall be submitted to the department or its designee at the same time the annual cost report is submitted to the Medicare Intermediary. The total number of patients served less than 65 years of age and 65 years of age and over by county of residence. The total number of visits provided by type of service. The total number of patients served by payment source including Medicaid, Medicare, and uncompensated care. As can be seen, this rule considers the need question district-wide as opposed to a county-by-county analysis in effect at the time of application by Petitioner. District III, which contains Citrus County, has fifteen other counties. The rule in its text is not found to be applicable per se to this application, although its underlying concepts arguably have an influence on the case outcome. While the Petitioner and Respondent urge that the rule does-have retroactive effect and the Intervenor disagrees, all parties acknowledge the logistical awkwardness of trying to employ the rule's terms in a literal sense. In fact, the rule cannot be used as it is written, for reasons to be explained and in any event neither of the proponents have exercised its terms in exact detail. When Respondent reviewed the application using a modified version of the new rule in the interest of what Respondent believed to be an equitable treatment of pending home health applicants who had waited for the rule to be enacted, it changed its position from one of recommended denial to recommended grant of the CON. The case was returned to the Division of Administrative Hearings and upon motion by the Intervenor, as granted, the Petitioner updated its application on December 5, 1988. This lead to the hearing on the dates previously described The updated information was provided to the other parties in this case. It was not given to the local health council for further review by that organization. Petitioner is a public not-for-profit healthcare organization created by state law. The hospital is governed by a Board of Trustees appointed by the Governor of the State of Florida. The proposed home health agency would be owned and operated by Petitioner. It treats indigent and Medicaid patients and other medically underserved groups. The hospital's mission is to serve the residents of the community regardless of their ability to pay. This approach would be continued in home health care. Petitioner provides high quality patient care and this could be expected to continue if a CON for home health care was granted. The quality assurance plan and mechanisms in place at Petitioner's hospital would be used in its home health agency to help assure high quality patient care. Petitioner would also develop a utilization review plan similar to what is in effect at the hospital that would help insure proper utilization of the home health agency. Petitioner is JCAH accredited and licensed by the State of Florida, and is currently in compliance with all State of Florida licensure requirements. Petitioner's home health agency would be a hospital-based home health agency, as opposed to a free-standing home health agency. There are benefits to being a hospital-based home health agency. The home health agency employees have the advantage of being part of the hospital's employment benefit package; the home health agency has the ability to tap into the expertise of the hospital in such areas as accounting, data processing, and so forth; discharge planning is easy to coordinate; and, the home health agency has the potential ability to use trained hospital personnel who have high tech skills and expertise and can provide services to the home health agency in their area of expertise. However, the suggestion that employees would be involved in both roles of hospital care and home health care is suspect in that certain employees such as nursing staff are not expected to fulfil that dual role and other employees such as the dietician were unable to consistently aid the patient in the home and carry out the duties in the hospital under an arrangement by which the Intervenor per agreement with the Petitioner sought to have continuation of services from the hospital to the home. If this could not be done, given the demands on the dietician in the hospital duties at that time, then there is no reason to believe that it would be any easier to achieve if the hospital had a home health agency. None of the aforementioned benefits are significant improvements over existing conditions in Citrus County where home health care is provided by freestanding agencies. More specifically, Petitioner currently has physical therapists, respiratory therapists, dietitians, and social workers on its full-time paid staff that could conceivably be available to the home health agency. Since these persons are already full-time salaried employees of the hospital, it would not cost the home health agency any additional amount for these skilled persons to provide services to home health care patients, assuming the ability to meet the needs of hospital patients and home health care patients, again a real uncertainty. Petitioner's personnel would be available to assist in the development of policy and procedure manuals, quality assurance plan and utilization review plan for the home health agency. There are other possible economies in service that could be derived from Petitioner's operation of a hospital-based home health agency. These include: the hospital-based agency is easily accessible to physicians; discharge planning is facilitated due to the close cooperation of nursing, social worker, and home care provider while the patient is still in the hospital; services will be available 24-hours a day through the use of hospital switchboard and communications systems; and use of current medical records systems will mean a patient's entire medical history will be available to practitioners. Again, these arrangements do not afford a significant improvement over existing home health services. Petitioner has sufficient resources available to initiate and operate a hospital-based home health agency. Necessary staff can be employed to the extent they are not already working at the hospital. Petitioner is in sound financial condition. Petitioner would be able to hire a qualified administrator. Petitioner's projected payor mix of 88% Medicare, 3% Medicaid, 4% insurance and 5% indigent, is an admirable goal. However, there is some question about whether the projections of Medicare and indigent care levels of service will be achieved. Petitioner as a referral source from its hospital operations had not achieved those projected levels of referrals in the past. This is important because Petitioner expects to obtain its home health patients from the hospital referrals. Consequently to promote the grant of the CON premised solely upon the belief that underserved groups will be better off would not be warranted. The possibility exists that with greater awareness more underserved persons might be referred for home health care but nothing in this case points to any increased effort to publicize the availability of home health for the underserved to justify the optimistic levels the applicant predicts. In a home health agency, all of the patient services are provided in the patient home. Thus, the only space requirement is for office space for the administrative staff and working space for the employees to do their necessary paperwork. Petitioner Memorial Hospital has about 1,600 square feet of vacant space available in which to house the home health agency offices. This building is currently owned by Petitioner. There is no debt associated with this building, and the building has been fully depreciated. Contrary to the statement in its application, Petitioner has decided not to offer prescription delivery services. This is not a significant change. Intervenor is a licensed home health agency in Citrus County. It first became licensed by the State of Florida in February, 1986. Intervenor has been surveyed annually by Respondent since 1986. In each of these surveys, it received no deficiencies. Intervenor is a full-service home health agency. It offers a range of "hi-tech" home health services, including: skilled nursing services; physical therapy; occupational therapy; speech therapy; social services; home health aide services; dietary guidance; medical supplies; home IV therapy; parenteral nutrition; interostomal therapy; home phlebotomy and lab testing services; and respiratory care. It has offered these services since its inception. Intervenor provides some homemaker services during home health aide visits, such as cleaning, straightening, and laundry. Intervenor's personnel include registered nurses, certified home health aides, physician therapists, licensed physical therapist assistants, speech therapists, occupational therapists, a medical social worker who holds a masters in social work, interstomal therapists, nutritionists, and respiratory therapists. Intervenor offers quality of care and ensures continuity of care in the delivery of home health services. Petitioner has never complained that a patient could not be discharged quickly enough due to Intervenor's shortcomings in taking on home health services for the discharged patient. Intervenor makes every effort to coordinate its operations with Petitioner to ensure quality and continuity of care related to patients referred by the hospital. The service area of Intervenor is Citrus County. Until late 1988, about 70% of Intervenor's referrals came directly from Petitioner. On average, Intervenor provides about 28.6 home health visits per patient. Intervenor provides home health services to all patients regardless of ability to pay. Intervenor provides home health services to the following payor classes: Medicare, Medicaid, VA, workmen's compensation, private insurance, and indigent. Its CON contemplates 2% Medicaid and 3% indigent patients. Since opening in 1989, Intervenor has treated 985 patients. Of these 985 patients, only ten (10) have been indigent and fifteen (15) have been Medicaid patients. This works out to one percent (1%) indigent care and one and one half percent (1.5%) Medicaid care. Community Care publishes a brochure that advertises its services to the community. Nowhere in this brochure does it indicate that Community Care serves indigent patients. The brochure stresses that services will be provided through reimbursed coverage, either Medicare, insurance, or other reimbursement sources. On the other hand it does not require any deposit or up-front payment from new home health patients and has never refused a patient due to an inability to pay. As stated until recently a very substantial portion of the Intervenor's referrals came from Petitioner and levels of service to the underserved, that is, Medicaid and indigent, have been low. This ties back to the observation that the 3% Medicaid and 5% indigent projection of service made by Petitioner may not be any easier to achieve and probably less so than the 2% Medicaid and 3% indigent which Intervenor is committed to. This is supported by the fact that on the first 11 months in 1988, Petitioner referred less than 2% Medicaid and 1% indigent. Moreover, the District III average for existing agencies of services to these underserved groups is .8% Medicaid and 1.3% indigent. As alluded to before, in December, 1985, Petitioner and Intervenor entered into an agreement. Per that agreement, Petitioner would refer all home health patients to Intervenor unless a patient or physician specifically requested otherwise. The agreement provided that Petitioner would provide certain services and personnel to Intervenor in exchange for compensation. It was a two-year agreement with an automatic one-year renewal. Petitioner chose to extend the contract for three years through the latter part of 1988. Since late 1988, Petitioner rotates its hospital referrals in the instance where the patient, patient's family or physician did not specify which home health agency was preferred. This means that as many as seven agencies could be involved in the rotation if Petitioner gained a CON, with Petitioner having no greater share than the rest. At present, there are four providers, two in the rotation are from the ABC home health group, the Intervenor and Upjohn another home health provider. Petitioner would make five. To make seven, VNA and Gulf Coast Home Health Services who have come into Citrus County would be added. VNA is another provider with a history of service to underserved patients. In this connection, Petitioner argues that its equal treatment of existing providers and itself, if granted a CON, minimizes the adverse impact of another competitor arriving on the scene and allows existing providers who are for profit agencies to remain financially viable. This together with trends toward early release in DRG for the hospital inpatient sector; provision of home health care through the Catastrophic Healthcare Act, and the general trend in increased home health visits in Citrus County make it possible for both the existing providers and the Petitioner to survive in the market place, if you accept the point of view of those who favor the grant of a CON to Petitioner. In fact, the DRG situation and the Catastrophic Healthcare Act, as events, are too speculative to say what their influence will be in promoting greater use of home health services. Otherwise, the trend toward increased visits that have been pointed out are now being met with an increased number of providers to deliver those visits. This dilutes market share. The Petitioner's rotation system further dilutes market share, especially as to the Intervenor. Thus, the question is raised on the matter of whether the historical trend toward increased visits is enough to sustain the existing providers with the advent of the Petitioner's presence and choice to rotate referrals. On the whole, the Petitioner's influence on competition is not positive and is not acceptable. The Petitioner's projections concerning its own market acceptance are unrealistic and unacceptable. The projections in the original application and in the December 5, 1988 update to that application as to skilled visits per patient far exceed the experience in the service area, Citrus County. The applicant speaks in terms of 53 visits when the historical experience in the county is approximately 30. Nothing in the record of the hearing tends to support the idea that Petitioner can deliver such an excessive increase in visits. Additionally, estimates of total home health visits in the first two years of operation are generally out of line. The estimate by Petitioner ranges as high as 42,000, plus visits. Some of the items in that count are not comparable to referrals made out of the hospital at present. Examples of this incomparability are homemaker services, DME and the category listed as general items. Again, prescription service is no longer proposed thereby reducing the numbers. Nonetheless, the estimate is still excessive. This is made the more apparent when taking in account that by annualizing available data 464 patients were referred by Petitioner in 1988. In examining what had been referred out in 1988 in number of patients, the number of visits on average by history and the idea of rotation of referrals, Petitioner cannot achieve the performance level it predicts. Moreover, projections for population in 1990 and 1991, the furtherest years out given by Petitioner in support of its application, don't change this impression because the increases in population will not justify the Petitioner's projections on market share as a function of number of visits. The estimates of visits at 1990 and 1991 based upon 50% retention of referrals projected from Petitioner's hospital for home health services is unrealistic in that retention could be as low as 15% to 20%. Therefore, visits would be much less than 5,693 and 7,950 in 1990 and 1991, respectively. (See Petitioner's Exhibit 22.) The failing in the estimate of performance level means that the revenue projections are inaccurate. Although Petitioner is a not for profit institution, its proposed home health operation is not seen to be financially feasible in the short term or long view. The fact that approximately 80% of costs in a home health operation are variable and that home health delivery is cost-based reimbursed does not relieve the Petitioner from giving a more realistic estimate of those costs, its performance and net financial position. The effect of this failing leaves the record unclear and the trier of fact unconvinced concerning the true facts about this project's financial feasibility. The pro formas as written do not identify employee benefits ranging in costs from 25% to 30%. Transportation costs are not reflected. If other facts were favorable to Petitioner, there would be very little additional costs associated with the start-up of its operation. Only minor "sprucing up" would be necessary before occupying existing space. Excess office furniture is currently available at the hospital. The addition of Petitioner as a provider of home health services will not significantly advance variety or quality of care sufficient to justify the issuance of a CON. At present, existing providers offer a wide variety of home health services and provide quality care. The fact that the Petitioner is a hospital based not for profit institution, does not alter these findings. The addition of Petitioner promotes no positive influence in competition in the market place. The risk is presented that overall cost in the health care system can be increased if the Petitioner is added and the market place becomes overburdened. Based upon past experience, the Intervenor needs to achieve around 8,700 visits a year to be financially viable, and to break even. Petitioner's proposal together with other competitors in the market, some recently arrived, Upjohn, VNA and Gulf Coast Home Health Services jeopardize the ability to remain financially viable. Nothing can be done about the other competitors, but the issue of Petitioner's presence can be dealt with and should be rejected as an outcome. At a minimum the addition of Petitioner does not foster cost containment in that it could cause the existing providers to up requests for reimbursement nearer the caps in the Medicare segment at public expense. While there is a need for homemaker services in Citrus County, that fact doesn't justify the grant of a CON to Petitioner because it is willing to provide them. In home health care delivery there is credible evidence that initial economies of scale occur between 6,000 to 9,000 visits per annum. There is a serious question about the Petitioner's ability to achieve that level of performance under the facts found previously. When initially reviewing the compliance of the application with the 1986 District III Health Plan, in addition to problems of compliance with the need methodology in that plan, Petitioner did not respond to the need for home health services in Hamilton County and expansion of the range of services in Columbia and Suwannee Counties. These counties are within District III. These latter items concerning the other counties do not hinder the Petitioner's attempt to gain a CON because at present the decision to grant or deny a CON is on a district-wide and not county-by-county basis. Therefore, in theory, the Petitioner could serve Hamilton, Columbia and Suwannee Counties. Admittedly, that is unlikely given the proximity of these counties to Citrus County. More importantly, there has been no showing that some other applicant entitled to comparative review with the Petitioner sought to serve the other three counties putting into effect the local planning guidelines on priorities for grant of a CON. Likewise the local planning council methodology is of no moment. It deals with a county-wide analysis, not a district-wide analysis of need. The district-wide concept applies in this case per the change in the method of assessment that was fostered by the agreement to wait for the Respondent to enact a rule methodology and with that delay the tacit acceptance of the idea that approved and licensed home health providers could expand their services throughout the district. By contrast the fact that the local council reported that 148% of need was being met in Citrus County is telling and works against Petitioner. Finally, the support of the application by the local council as advisor to the Respondent is noteworthy but cannot overturn the adverse facts in this hearing which cause the application to be rejected. Petitioner is basically in compliance with the Florida State Health Plan in effect at the time of application except for the question of whether the Petitioner can achieve the aforementioned economies of scale at 6,000 to 9,000 visits per annum and the possible adverse influence on existing providers in maintaining economies of scale. Rule 10-5.0111(1)(d), Florida Administrative Code, supra, is the product of a considerable effort by Respondent to establish a balanced method of measuring the need for additional home health care providers in the various districts throughout the state. Unfortunately, it has limited utility in trying to resolve this controversy. The proponents of the use of the rule point out that nothing in the rule states that it cannot be applied retroactively to the case facts. Intervenor reminds us that nothing says it can be applied in that way. As hinted before, the rule cannot be seen to apply retroactively as it is written to render a defensible projection of need at the theoretical planning horizon of January, 1988. First, the service area in December, 1986 through January, 1988 was in reality Citrus County, not the district. There is no way to postulate who might have taken advantage of the opportunity to serve the overall district and come into Citrus County from outlying counties within the district because that was not allowed as a matter of right back then as it is now in the terms of the rule. The present situation has shown that there is such interest in coming into Citrus County with the addition of Upjohn, VNA and Gulf Coast Home Health Services. Next, the idea of who would have been shown as approved as a home health agency taking into account the January, 1988 planning horizon cannot reasonably be ascertained. The annual fixed need pool publication did not occur such that one could see who had been approved, or held a CON, one month prior to that publication to serve the district. Although one could argue that the identification of the pool can be hypothetically set for the fall of 1986, problems with identifying the 1985 data to establish that pool based upon information that was available to the Respondent at the time to announce the pool or availability of a complete data set about 1985 at the point of hearing persist. Associated with this dilemma is the influence agency expansions into other counties would have on calculation of CEAS. In the area of CEAS the exact nature of that situation cannot be ascertained. It cannot because one doesn't know which existing providers might have determined to go out of the counties in which they had offered their services and into other counties to open new units. This would have some influence on the average agency size within the district, which in turn causes a possible different answer in deriving the number of needed providers by the use of the formula. All this makes the exercise of accurately setting the pool unlikely and it wasn't done in this hearing. In using the district-wide service analysis back in time to fit the Petitioner's situation, an application by VNA in District III, Alachua County, pending and denied in December, 1987, the same month as Petitioner's denial, was not comparatively reviewed with the Petitioner as the law would theoretically require. VNA was subsequently approved and is functioning now. Consequently, comparative review is no longer possible. On the topic of the 1985 data, which is mandated in exercising the rule, what data in this category was available in the fall of 1986 is uncertain. The data about 1985 presently held by the Respondent is incomplete. This incompleteness is in AHAV where visits in all categories cannot be shown for 1985. This tends to understate what the formula derives as an answer. The derived answer for needed agencies is .7, rounded up per terms in the rule is one agency if the other factors that were described are ignored. They should not be. Especially, compelling is the existence of VNA, Alachua County which could use up the net need of one agency. Concerning the applicants who waited for the Respondent to enact a rule who applied for a CON in the period June, 1985 through December, 1987, the Respondent modified the use of the rule. In its thinking to make certain that no applicant along that time continuum was treated unfairly, Respondent picked 1986 data and a July, 1988 planning horizon in deciding the question of need. The result in the Petitioner's case was to use inappropriate data and an inappropriate planning horizon, according to the rule. This produced an answer of 1.1 agencies rounded down to 1. This is the same answer as before and no purpose is served in criticizing the Respondent's choice to deviate from the terms of the rule. On balance the concept of this rule as opposed to the ability to use the rule per se may look appealing as an abstraction, but it is unappealing as a means to resolve the factual dispute. It superimposes a system of district review at a time of county level service. For that reason, it cannot answer the riddle of how many providers would have exercised the right to serve Citrus County from other counties in the district as they have begun to do when the rule took effect in September, 1988. Using the rule retroactively anticipates a planning horizon which is already past. In recognition of this anomaly the parties have spoken to the future in their proof through the years 1990 and 1991. This has been necessitated by the agreement to wait for the Respondent to enact a new home health rule. That future is not conducive to the grant of the CON on the facts in this case which are more instructive about the true need in the district than the exercise of the formula in some past period. Had the Petitioner chosen to reapply and fallen under the clear terms of the rule, the result might be different. It did not, and it must accept the results of that choice.
Recommendation Based upon a consideration of facts found in the conclusions of law reached, it is, RECOMMENDED: That a final order be entered which denies the request for Certificate of Need as applied for by Petitioner. DONE AND ENTERED this 29th day of June, 1989, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700 Stephen K. Boone, Esquire Boone, Boone, Klingbell Boone & Roberts, P.A. 1001 Avenida Del Circo P. O. Box 1596 Venice, Florida 34284 Stephen M. Presnell, Esquire Macfarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 James C. Hauser, Esquire Joy Heath Thomas, Esquire Messer, Vickers, Caparello, French & Madsen, P.A. O. Box 1876 Tallahassee, Florida 32302 CHARLES C. ADAMS 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 29th day of June, 1989. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-0386 The following discussion is given concerning the proposed facts of the parties. Petitioner's Proposed Finding of Facts The first paragraph and the first sentence to the second paragraph are subordinate to facts found. The remaining sentences within paragraph 2 are not necessary to the resolution of dispute. Paragraph 3 is contrary to facts found. Paragraphs 4-7 are subordinate to facts found with exception the last sentence in paragraph 7 which is contrary to facts found. Paragraph 8 is subordinate to facts found. Paragraph 9 may express the statement of policy by the Respondent, but it is not an acceptable outcome in this instance. Paragraphs 10-12 are subordinate to facts found. Paragraph 13 is an accurate portrayal of the facts as far as its goes; however, it does not account for the problems of imposing the new home health rule over the time period associated with the filing date in this application. Paragraphs 14-16 are subordinate to facts found. Paragraph 17 is contrary to facts found. Paragraph 18 is subordinate to facts found. Paragraph 19 is not necessary to resolution of dispute. Paragraph 20 in all sentences except the latter is subordinate to facts found. The latter sentence is not necessary to the resolution of dispute. Paragraph 21 is subordinate to facts found. Paragraph 22 is contrary to facts found. Paragraph 23 is subordinate to facts found. Paragraph 24 is contrary to facts found. Paragraph 25 is true in that at the time the local health council examined the application there was an indicated need for home health for Medicare and indigent patients. That need is being met at present to the extent that those classes of patients have been made aware of the existence of the home health services. Paragraph 26 is subordinate to facts found. Paragraphs 27 and 28 are contrary to facts found. Suggestions in Paragraph 29 do not comport with the situation in Citrus County at present. Paragraph 30 is subordinate to facts found. Paragraph 31 is contrary to facts found. Paragraphs 32-36 are subordinate to facts found. Paragraphs 37 and 38 are not necessary to the resolution of dispute. Paragraphs 39-43 are subordinate to facts found. Paragraph 44 is not necessary to the resolution of dispute. Paragraphs 45-51 are subordinate to facts found. Paragraph 52 is not necessary to the resolution of dispute. Paragraph 53 is subordinate to facts found. Paragraphs 54-56 are contrary to facts found. Paragraph 57 is subordinate to facts found. As to Paragraph 58 it is uncertain whether the staff levels are adequate given the failure to accurately portray the volume of visits. In a related sense, Paragraph 59 as to salary level made to depicts the cost of those salaries, but it fails to include the benefits. Paragraph 60 is to general in its contention. It does not answer the failure to identify the more reasonable statement of staffing levels. Paragraph 61 is subordinate to facts found. The pro formas were not clear and the complementary proof offered at hearing did not confirm the assertion set out in paragraph 62. Paragraphs 63-65 are contrary to facts found. Paragraph 66 is subordinate to facts found. Paragraph 67 is contrary to facts found. Paragraph 68 is not necessary to the-resolution of dispute. Paragraph 69 depicts a situation that is to speculative to have relevance in this case. Paragraphs 70 and 71 are contrary to facts found. While the Paragraphs 72-74 accurately states the circumstance related to the intervenor in its initial involvement in the market. This situation has changed since that time and if Petitioner were to gain entry into the market the probability is that the intervenor's business would be seriously impacted. Paragraph 75 is contrary to facts found. Paragraphs 76 and 77 are subordinate to facts found. Paragraph 78 is not necessary to the resolution of dispute. Paragraphs 79-82 with exception of the last sentence in 82 are subordinate to facts found. The last sentence in paragraph 82 is not accepted. Paragraph 83 is subordinate to facts found. Paragraphs 84 and 85 are contrary to facts found. Paragraph 86 is true if one fails to take into account the advent of services by the intervenor and additional providers who has come into the market who are willing to undertake service to those patients. Paragraphs 87 and 88 are contrary to facts found. Paragraph 89 is subordinate to facts found. Paragraphs 90 and 91 are contrary to facts found. Paragraph 92 is subordinate to facts found. In Paragraph 93, while it is true that Petitioner has an excellent record of service to the Medicaid population in Citrus County, it is unclear why Medicaid patients are not receiving sufficient home health services, compared to what one would expect the demand to be. Respondent's Proposed Findings of Fact Paragraphs 1-3 are subordinate to facts found. Paragraphs 4-6 are contrary to facts found. Suggestion in Paragraph 7 is not a certainty and is not accepted in the fashion presented in these proposed facts. Paragraphs 8-10 are contrary to facts found. Paragraph 11 is subordinate to facts found. Paragraph 12 is contrary to facts found. Paragraphs 13 and 14 is subordinate to facts found. Paragraph 15 is a true statement if other factors which have been discussed in the recommended order are not taken into account. Paragraph 16 is subordinate to facts found. Paragraph 17-19 are not sufficiently relevant to this case to be reported as facts. Paragraph 20 is contrary to facts found. Paragraph 21 is subordinate to facts found. Paragraphs 22 and 23 may be basically an accurate statement of the Respondent's policies; however, this arrangement is not satisfactory on this occasion. Paragraph 24 is subordinate to facts found. Paragraph 25 is contrary to facts found. Paragraph 26 is subordinate to facts found. Paragraphs 27 and 28 are not necessary to the resolution of dispute. Paragraph 29 is subordinate to facts found. Paragraph 30 is true if the rule was found to be applicable. Paragraph 31 and 32 are not necessary to resolution of dispute. Paragraph 33 may be true in terms of the prospective use of the rule but is not influential in this case. Paragraph 34 is not necessary to the resolution of dispute. Paragraph 35 is speculative and has little relevance absent a showing that the expansion into the other areas within the district offset new providers coming into Citrus County, to include the Petitioner. Paragraphs 36 and 37 are subordinate to facts found. The suggestion in paragraph 38 is a statement of limited value in that there are no other competitors in District III from other batches. Paragraphs 39-43 are subordinate to facts found. The first sentence to paragraph 44 is subordinate to facts found. The remaining sentence is contrary to facts found. Paragraphs 45 and 46 are subordinate to facts found. Paragraph 47 is contrary to facts found. Paragraph 48 is accurate as for as it goes; however, it fails to take into account the fact that the Intervenor began to provide home health care to indigent and Medicaid patients. Paragraph 49 is contrary to facts found. Paragraph 50 is subordinate to facts found. Paragraph 51-53 are contrary to facts found. Paragraph 54 is subordinate to facts found. 35 The suggestion in the first sentence of paragraph 55 is true. Again it fails to take into account the change in circumstances with the advent of the Intervenor's services. The second sentence is subordinate to facts found. Paragraph 56 is not in meaningful contribution to the fact finding in the context of the overall facts reported in the recommended order. Paragraphs 57 and 58 are subordinate to facts found. Intervenor's Proposed Findings of Facts Paragraph 1 is subordinate to facts found. Paragraph 2 is not necessary to the resolution of the dispute. Paragraphs 3-5 are subordinate to facts found. Paragraph 6 is not necessary to the resolution of the dispute. Paragraph 7 is subordinate to facts found. Paragraph 8 is; not necessary to the resolution of the dispute. Paragraphs 9 through the first sentence in paragraph 16 are subordinate to facts found. The remaining sentences in paragraph 16 are not necessary to the resolution in dispute nor is the first and last sentences within paragraph 17. The other sentence within paragraph 17 is subordinate to facts found. The first sentence in paragraph 18 is subordinate to facts found. The remaining sentences are not necessary to the resolution of the dispute. Paragraphs 19 through the first sentence of paragraph 23 are subordinate to facts found. The second sentence in paragraph 23 is not necessary to the resolution of the dispute nor is paragraph 24. Paragraph 25 in all sentences save the last is subordinate to facts found. The last sentence is not necessary to resolution of dispute. Paragraph 26 through all sentences in paragraph 30 except the last sentence are subordinate to facts found. The last sentence is not necessary to the resolution of the dispute. The first sentence of paragraph 31 is subordinate to facts found. The remaining sentence is not necessary to the resolution of dispute. Paragraph 32 and the first sentence to paragraph 33 are subordinate to facts found. The remaining sentence in paragraph 33 is not necessary to the resolution of dispute. Paragraph 34 and the first sentence of paragraph 35 subordinate to facts found. The last sentence in paragraph 35 is not necessary to the resolution of the dispute. Paragraph 36 through the first sentence of paragraph 38 are subordinate to facts found. The remaining sentence in paragraph 38 is not necessary to the resolution of dispute. Paragraph 39 cannot be utilized in that the rule in question was not provided to the Hearing Officer under official recognition and is unavailable to confirm the assertion set out in that paragraph. Paragraphs 40 through 43 are subordinate to facts found. The suggestions in paragraphs 44 through 45 are contrary to the impression of the Hearing Officer. Paragraphs 46 through 48 are subordinate to facts found. Paragraphs 49 and 50 are not necessary to the resolution of dispute. Paragraphs 51 and 52 are subordinate to facts found. Paragraphs 53 through 55 as an approach to resolving factual disputes are rejected. Paragraph 56 is subordinate to facts found. Paragraph 57 is contrary to facts found. Paragraph 58 is not in keeping with the analysis of this case and the facts found in the recommended order nor is paragraph 59. Paragraphs 60 through 65 are subordinate to facts found. Paragraph 66 is not necessary to the resolution of dispute. Paragraph 67 and the first two sentences within paragraph 68 are subordinate to facts found. Remaining sentences within paragraph 68 are not in keeping with the analysis performed in the fact finding within the recommended order. Paragraph 69 is subordinate to facts found. Paragraph 70 is subordinate to facts found. Paragraph 71 is not necessary to the resolution of dispute. Paragraphs 72 through 76 are subordinate to facts found. Paragraph 77 is not necessary to the resolution of dispute. Paragraphs 78 and 79 are subordinate to facts found. Paragraph 80 is not necessary to the resolution of dispute. Paragraphs 81-86 are subordinate to facts found. Paragraph 87 is not necessary to the resolution of dispute. Paragraph 88 is subordinate to facts found. Paragraphs 89-91 are not necessary to the resolution of dispute. Paragraphs 92 through 94 are subordinate to facts found. Paragraph 95 is not necessary to the resolution of dispute. Paragraphs 96 through 101 in the first sentence to that paragraph are subordinate to facts found. The remaining sentences in paragraph 101 are not necessary to the resolution of dispute. Paragraph 102 is subordinate to facts found. Paragraph 103 is not necessary to the resolution of dispute. Paragraphs 104 and 105 are subordinate to facts found. Paragraph 106 is contrary to facts found. Paragraph 107 is not necessary to the resolution of dispute. Paragraphs 108 through 116 are subordinate to facts found. Paragraphs 117 and 118 are not necessary to the resolution of dispute. Paragraphs 119 through 122 are subordinate to facts found. Paragraph 123 is not necessary to the resolution of dispute. Paragraphs 124-126 are subordinate to facts found. Suggestion in paragraph 127 that the rotation system will not be employed is rejected. The remaining contents within that paragraph are subordinate to facts found. Paragraph 128 is not necessary to the resolution of dispute. Paragraphs 129 through 133 are subordinate to facts found. Paragraph 134 is contrary to the facts found. Paragraph 135 is contrary to the facts found. Paragraph 136 is not necessary to the resolution of dispute.
The Issue The ultimate issue is whether the application of Home Care Associates for a Certificate of Need to establish a Medicare-certified home health agency in Okaloosa and Walton Counties should be granted. The principal factual issue is whether there is a need for an additional agency and the principal legal issue is what criteria for need should be applied. The statutory criteria for determining need is Section 381.705, Florida Statutes. In this proceeding, the Petitioner showed its entitlement to a CON using the statutory criteria set out in Section 381.705, Florida Statutes. GENERAL STATEMENT Proposed Findings of Fact were filed by the Petitioner and the Intervenors. The Respondent adopted and incorporated the Intervenor's Proposed Findings of Fact adding to the Intervenor's findings its own proposed findings numbered 1 through 20. Proposed findings submitted by the parties are addressed in an Appendix hereto.
Findings Of Fact All home health care agencies in the State of Florida must be licensed and those home health care agencies which want to participate in the Medicare program must also obtain a Certificate of Need (CON). Medicare is a federally funded health program for the elderly and certain disabled persons. Medicare provides reimbursement only for the following part-time and intermittent home care: skilled nursing, physical therapy, speech therapy, home health aide, and medical social services. Medicare does not reimburse for custodial care or 24-hour-a-day care (adult congregate living facilities or nursing homes) or acute care services (hospitals). In order for a provider of Medicare home services to be reimbursed, the provider must have a CON and serve Medicare-eligible persons who: (a) are referred by order of a physician, (b) are home bound, (c) require skilled care, and (d) require skilled services only on a part-time basis. The patient must have rehabilitative potential and need skilled home care for Medicare to reimburse for home care. The overall goal of Medicare home health services is to have the patient functioning at his/her optimum level using rehabilitative services and having registered nurses and other skilled professionals to instruct the family and patient in rendering patient care. Medicaid provides reimbursement to providers only for skilled nursing services and home health aide services to patients who meet strict income and asset limitations. No reimbursement is provided for any other services. Medicaid has maximums or caps on reimbursement for services rendered under the program, and will pay for the services rendered up to the amount of the caps which are based upon allowable patient care costs. Medicaid reimburses only a fixed amount established by HRS for a specific service. Respondent, HRS, is the state agency responsible for administering the State Health Planning Act pursuant to Sections 381.701 through 381.715, Florida Statutes. The Petitioner, Home Care Associates of Northwest Florida, Inc. (Home Care), is a Florida corporation owned by Marck Ehrman, M.D., Warren A. Phillips, Dennis L. Sauls, Ronald O. White, and Steven P. Espy. Dr. Ehrman is a practicing hematologist/oncologist in Ft. Walton Beach, Florida. Home Care filed a Letter of Intent on October 8, 1986 and on December 15, 1986, it actually filed a CON application for a Medicare-certified home health agency to be established in Okaloosa and Walton Counties in the State of Florida. These counties are in Subdistrict IB of HRS District I which is composed of four counties. This application was identified by HRS as CON Action No. 4911. Okaloosa and Walton Counties are an appropriate service area for Home Care. Home Care's application was placed in the December 15, 1986 batching cycle by HRS, which preliminarily denied the application. There were no other applications for a Medicare- certified home health agency in Okaloosa and Walton Counties filed in said batching cycle with which Home Care's application could be comparatively reviewed. HRS published notice of its denial in 13 FAW 1806 (May 8, 1987). Home Care timely requested an administrative hearing by petition filed with HRS on May 11, 1987. Choctaw filed a timely Petition to Intervene on August 14, 1987, and Northwest filed its Petition to Intervene on August 28, 1987. Both petitions were filed more than one month before the scheduled final hearing, and Choctaw was granted standing to intervene by Order of the Hearing Officer dated August 20, 1987, and Northwest was granted standing to intervene by Order of the Hearing Officer dated September 4, 1987. Both Intervenors were determined to be existing providers of Medicare home health services in the geographic area for which Petitioner had applied for a CON. The basis for the denial of the Petitioner' application for Certificate of Need was based upon the Respondent's determination that: There was no need demonstrated by Home Care Associates of Northwest Florida for an additional home health agency to serve the residents of Okaloosa and Walton Counties. Marta V. Hardy was the Deputy Assistant Secretary for Regulation and Health Facilities, Department of Health and Rehabilitative Services, from September 1984 through June 1987. Ms. Hardy was responsible for home health agency policy and was the ultimate decision maker with regard to the preliminary denial of the instant Certificate of Need. (Petitioner's PFF paragraph 19) 1/ In the Fall of 1984, Respondent attempted to promulgate a proposed rule on home health care facilities to replace a rule on need which had been invalidated in an earlier rule challenge proceeding. This proposed rule was invalidated in 1985 because it was based on a use rate methodology which contained arbitrary criteria. On May 15, 1986, in response to invalidation of the proposed rule, Bob Sharp, administrator of Comprehensive Health Plans for the Department of Health and Rehabilitative Services, published an interim policy by memorandum which was used to review applications for CON's for home health agencies. This interim policy utilized a variation of the previously invalidated rule but attempted to correct criticisms which had resulted in the invalidation of the proposed rule. The Sharp memorandum was a public document and interested persons were aware of this memorandum and the policies expressed therein. The interim policy promulgated by Sharp was applied to home health agency applications beginning with the first batching cycle in 1986. The interim policy used a use rate/population methodology which projected the number of Medicare enrollees using home health services. The projected number of users was multiplied by the average number of visits per Medicaid home health user. Under the interim policy the total number of visits was divided by 9,000 to determine the gross number of agencies needed. Nine thousand visits was deemed by agency planners to constitute a large enough use base to sustain a home health agency based on the agency's assessment of the economies of scale of home health operations. The total number of licensed and approved agencies was subtracted from the gross number of agencies needed to yield the number of new agencies which could be approved. The interim policy provided that new agencies would be phased in over a three year period and resulted in the approval of 23 Certificates of Need between May 15, 1986 and December 1986. This interim policy was defended by the Respondent before the First District Court of Appeal in December 1986. During the Summer 1986, representatives of the Florida Association of Home Health Agencies (FAHHA) complained to the Governor's Office about the interim policy, contending that the interim policy put too many home health agencies in the field. As a result of FAHHA's complaints, meetings were held between members of the Governor's staff and representatives of the Department of Health and Rehabilitative Services to include Marta V. Hardy. As a result of these meetings, the Department abandoned its interim policy. Ms. Hardy was instructed that additional applications for home health agencies would have to be approved by her superiors. Medical or financial factors did not change during this period, which would warrant a change in policy. The Department changed its policy but did not publish any document rescinding Sharp's Memorandum. No notice was given to the public that the change in policy had occurred until after the second batching cycle of 1986, the one which contained the Petitioner's CON. Similarly, the Department did not notify the public that there was a need for additional services or agencies. Marta Hardy had instructed her staff not to issue any more home health agency CON's until a new methodology had been developed. The applicants were informed that the Department of Health and Rehabilitative Services had changed its interim policy and there was no numerical need methodology. Applicants were asked for an unlimited extension of time within which the Department could render a decision on their applications. In the absence of a rule on need, the Department required the applicants who refused to agree to an extension of time to demonstrate an unmet need based upon the broad statutory criteria found in Chapter 381, Florida Statutes. The Department of Health and Rehabilitative Services characterizes the procedure above as a free form action utilizing the statutory criteria found in Section 381.705, Florida Statutes. Using the free form procedure, one home health agency CON was granted in a county in which no existing service was being provided. The three existing Medicare-certified home health agencies in Subdistrict IB are: Northwest, Choctaw, and Okaloosa County Health Department (OCHD). OCHD is the home health agency of last resort for chronically ill patients in Okaloosa County. It renders services to those patients who would not be treated otherwise. It conducts few Medicare visits: 363 in 1985-86 and 225 Medicare visits in 1986-87. OCHD's costs to provide a home visit are high and the number of visits per patient is low. While rendering all classes of home health care, its services are limited, slow, and not competitive with the private agency in the County. It lacks the ability to perform high tech home care. Its program, which is directed by the Department of Health and Rehabilitative Services, is placing its current emphasis on maternal-child health. When OCHD is eliminated as a competitive element, Northwest is the only provider of Medicare-certified home health services in Okaloosa County and Choctaw is the only provider of medicare-certified home health care in Walton County. The market share of Northwest in Okaloosa County is 92 percent. It has provided home health services in Okaloosa County for nine years. Choctaw currently has a 100 percent market share in Walton County and has been the sole provider of home health services for over ten years. There are no alternative home health care providers in Walton County. Choctaw and Northwest provide all basic home health care services in their respective service areas. Neither Choctaw nor Northwest had provided technically innovative home health care services until the last few months when they added certain basic types of high tech care, such as infusion pumps. To the extent there has been an increase in the availability of such services, it appears to be a competitive response to the pending application of the Petitioner. The skills and services currently available in Walton and Okaloosa Counties in the area of home health are not state-of-the-art home health services which Home Care states it will provide. Home health agencies first must develop the capacity to provide sophisticated patient evaluation and high tech services if physicians are going to depend on and use these services when planning out-patient care. Petitioner is a durable medical equipment ("DME") company. This company has brought new technology to the Ft. Walton Beach area to include oxygen services, pulmonary rehabilitation, home dialysis, parenteral nutrition and hydration. A related company provides private duty nursing care to non- Medicare and non-Medicaid patients currently. Dr. Ehrman is also involved in Home Care Professionals. Home Care Professionals, a non-Medicare provider of home health care services and durable medical equipment, was developed to meet the needs of home care patients whose needs were not being met by current providers. Dr. Ehrman is already using computers to assist in the transmission of data from the patient's location to the doctor's location and to transmit and receive the results of lab tests. He plans and has allocated money to computerize Home Care. This will cut down on delays in transmitting and receiving information. Lab results and other patient information will be computerized. Dr. Ehrman plans to rigorously select his staff and provide to them in-service training in new procedures and high tech home health care. Home Care's nurses will be better trained than current providers' nurses. Home Care will assign a patient to one nurse. The Petitioner, Home Care, will provide a new, competitive alternative to the existing agencies which will provide incentive for all the agencies to improve their services and the quality of their care. Choctaw and Northwest staff their cases geographically east and west. Choctaw refers patients in the south end of Walton County to Northwest, and Northwest refers patients in the northern part of Okaloosa County to Choctaw. This practice, which is a technical violation of their DHRS licensing by county, is dictated by the geography of the service area and the natural and man-made obstacles, including Choctawhatchee Bay, I-10, and Eglin Air Force Base, which create geographical divisions which span both counties east and west while the counties run north and south. The largest and most rapidly growing population areas are in the southern portions of both counties. This is where the major acute care hospitals are located. The remaining population in these counties tends to be along the I-10/U.S 90 corridor where smaller hospitals are located. Patients which cannot be treated in these smaller hospitals have been referred historically to facilities and physicians in Pensacola, although this is changing as more patients are being sent to facilities and physicians in Ft. Walton Beach. Approval of this application is consistent with the boundaries of the subdistrict, will enhance competition encouraging the other providers to upgrade their services, and will tend to orient care along a north-south axis. The Petitioner would be he only provider licensed to serve both Walton and Okaloosa Counties which would be advantageous because it could legally staff on an east- west axis and avoid the problems created by the geographic division of Subdistrict IB. In determining the need for home health agencies in Subdistrict IB, a two year planning horizon was used. A two year planning horizon is reasonable. Two years from the Petitioner's filing date would be December 1988. Data for the periods ending July 1988 and January 1989 were used because the official population projections from the Governor's Office focus on July and January of each year. The two projected dates bracket December 1988, two years from the filing date. The population of elderly (65 and over) for Subdistrict IB is projected to be 16,868 for January 1988 and 17,350 for January 1989. The Medicare use rate the number of Medicare home health visits per elderly person in Florida for 1984 was multiplied by the projected elderly population to arrive at a projected number of visits. The number of visits projected to occur in July 1988 was 31,976, and 32,889 visits were projected for January 1989. An average of the two projections was used to estimate the number of projected visits in December 1988. Dr. Kolb, an expert in health planning, researched the optimal size of an agency. She determined that once an agency's visits reach the range of 6,000 to 9,000, economies of scale are achieved in which the fixed costs are spread sufficiently among all visits to make operations viable, and that once this scale of operations is reached, costs per visit become relatively static or are affected more by other factors. Her findings in this regard are consistent with the conclusions reached by HRS in adopting virtually the same criteria in the Sharp policy which it used to evaluate need in the first half of 1986. See Paragraph 15 above. The optimum size for an agency is riot wholly dependent upon ratio of costs per visit, but it is that size which keeps costs low, fosters healthy competition, sustains the quality and availability of service, encourages innovation, and meets the other statutory objectives. To determine the number of agencies needed, the projected number of visits was divided by 9,000, the optimal number of visits per agency, which showed a need for 3.6 agencies. Rounding up, this calculation shows a total need for four (4) agencies in the subdistrict in December 1988. There are three licensed and approved home health care agencies in Subdistrict IB. Subtracted from the four agencies needed in December 1988, one additional agency could be added. The addition of Home Care to the home health market will not significantly affect existing providers. Home Care projects it will deliver 3,800 visits in its first year of operation and 7,000 visits in its second year. A large percentage of those visits are attributable to population growth alone. If the state home health use rate of 1.9 is applied to the 4,588 population growth expected by 1990, an additional 8,717 home health visits will be generated. That growth alone will meet the volume of visits projected by Home Care. Home Care will do new procedures and will educate existing providers and physicians to the availability and desirability of using new services provided by Home Care. This will cause an increase in the local use rate. Approval of Home Care's application will increase the overall market for home health services. Dr. Ehrman is a highly trained and experienced physician. Dr. Ehrman has been instrumental in improving the nature and delivery of health care in his medical specialty and community. He has improved the way blood smears are done at the hospital lab and improved the administration of blood bank at the local hospital. He has organized and taught nurses about chemotherapy and developed a tumor board. He helped get radiological procedures improved. Dr. Ehrman has developed new and innovative practices in his office and has assisted patients in obtaining appropriate Medicare reimbursement for services and drugs. Northwest adduced evidence that it operates very close to its Medicare cost caps; however, Northwest pays out much of its revenue to related organizations in the form of management, consulting, and computer fees. For example, in the 1986 cost reporting period, Northwest paid $17,783 to related organizations. In 1985-86, Northwest provided 2,818 home health aide visits at a cost of $19.29 pea visit. In 1986-87, Northwest paid $76,849 to related organizations with shared members of their boards. Northwest provided 3,406 home health aide visits in 1986-87 at a cost of $28.95 per visit. These related organizations are for-profit entities. Open-ended management and administrative contracts with related organizations allow management to add expenses in order to reach the cost caps each year. If management and administrative fees were backed out of Northwest's "costs," it would be well below its cost caps. As Northwest's visits have increased, administrative, general, and other expenses also have increased (1985-86: $91,708; 1986-87: $198,635). However, the direct costs associated with providing the nursing care for those visits have decreased (1985-86: $89,281; 1986-87: $81,71). Thus, the increase in visits did not result in any overall cost- efficiencies or savings, but in an increase in money paid out as administrative expenses. There is no relationship between number of visits and cost per visit once an agency is beyond the volume needed to cover its minimal operating costs. An increase in number of visits does not necessarily result in lower costs per visit. An analysis of hospital utilization by Medicare reveals that the rate of use in District I is higher than both the Florida and national average. Analysis of the local nursing home use rate reveals it is 68 percent higher than the statewide nursing home use rate. This is in spite of the fact that Walton and Okaloosa Counties have more nursing home beds than other areas of the State and the beds in these counties are at 95 percent occupancy. Analysis of the home health use rate for Walton and Okaloosa Counties reveals that it is approximately 40 percent lower than the statewide use rate. Many nursing home placements and hospital admissions could be avoided if appropriate home health care were available and utilized. For example, a home health service could start antibiotics in the nursing home for patients who had received the medication before, rather than admit the patient to the hospital to start the treatment as is currently done. The proposed agency will not decrease the number of visits by existing agencies because of (1) the increase in population, (2) the shifts to home health care from acute care facilities and nursing homes, and (3) the increase in the types of home health care available. The application contains Home Care's projection of income and expenses for the first two years of operation. See Figure 7, Page 22 of the application. Evaluation of costs for a two year period shows that they are reasonable. The assumptions about payor mix, utilization projections, gross charges per visit type, salaries, inflation, depreciation, marketing, advertising, administrative expenses, bad debts/charity, travel expenses, depreciation, costs of medical supplies, and gross revenues made in the feasibility study were reasonable. The projections of revenue from visits and from medical supplies are reasonable and their sum constitutes gross revenue. Deductions for contractual allowances and bad debt/charity are reasonable and when deducted from gross revenue they determine net revenue. Dr. Kolb, an expert in health planning, supervised the preparation of the financial feasibility projections contained in the application. The methodology used by Dr. Kolb was reasonable, appropriate, and supported by the facts. Dr. Kolb conservatively estimated reimbursement to arrive at contractual allowances. Subsequent to her preparation of the pro forma and the filing of the application, the Legislature increased by 100 percent the amount Medicaid reimburses for home health services. Medicare has also subsequently increased its cost services. This increases the range of reimbursement available to the Petitioner and makes Dr. Kolb's predictions of financial success more viable. The amount of $22,600 is reasonable for the cost of this project. Equipment costs of $7,600 include office equipment and the lease- purchase of a computer terminal. The computer will be used for billing and for tracking patient problems. The depreciation expense is derived from an assumption of five years' depreciation on $7,600 worth of office equipment, When deductions from revenue are subtracted from gross revenue, net revenue is approximately $284,700 in the second year. Home Care has the capital to fund this project. Individual expenses on the expense column on the pro forma include salaries, contract services, administrative expenses, transportation, marketing and advertising, medical supplies, and depreciation. Administrative salaries and benefits are based on the assumption that in the first year there will be three administrative full time equivalents ("FTE"): an administrator, a nurse supervisor, and a clerical person. In the second year, this will increase to three and a half FTE's. The salaries for these positions in year two are $28,350 for the administrator, $22,050 for the nurse supervisor, and $28,800 for one and a half clerical personnel. In addition, an 18 percent fringe benefit figure is computed. Salary assumptions are based on area wage levels. Both the salary assumptions and the number of FTE's and salaries are reasonable. A breakdown of total per visit costs is depicted on HCA X-26. The expenses for contract visits represent the cost per visit in each of the listed categories. The contract rates in year one are: home health aide - $8.25; speech pathologist - $30.00; medical/social worker - $25.00; occupational therapist - $30.00; skilled nurse - $13.75; and physical therapist - $30.00. Medical supplies are assumed to be $1.00 per visit in the rest year and are inflated by 5 percent in the second year. This assumption is reasonable. Although not required, Petitioner has allocated funds for advertising and marketing which are not allowable expenses in computing reimbursable expenses; however, this will help in informing the public and medical professionals about the availability of home health services. The transportation expense is based on $.21 per mile which is reimbursed to employees. This is a reasonable assumption. Administrative expenses include rent ($12,000), telephone ($4,800), insurance ($5,000), postage ($2,000), office supplies ($3,000), legal and accounting fees ($4,000), dues ($500) , and licenses ($500). Most expense items are inflated 5 percent for the second year. The expense and inflation assumptions are reasonable. In order to test the reasonableness of the assumptions contained in the pro forma, Dr. Kolb compared the projected costs in the second year to Medicare cost limitations. Home Care's projections are 28 percent below the Medicare cost limits for 1987. Home Care could have $78,000 more in expense and still be below its Medicare cost limits. In both his private office practice and in his DME company, Dr. Ehrman tries to ensure that underserved groups receive medical services. Although there is a large medically indigent population in the area Dr. Ehrman serves, he does no financial screening in his office. Dr. Ehrman is a participating provider in Medicare. This means that he has agreed in advance to accept Medicare assignment for his services. Dr. Ehrman is also a Medicaid provider. Three to five percent of his patients are Medicaid. The assumption that Home Care will have the same financial policies which are reflected in Dr. Ehrman's practice is reasonable. The assumption that Home Care will provide three percent Medicaid and three percent indigent home health visits is reasonable. Home Care's project is financially feasible on both an immediate and long term basis.
Recommendation Having determined, based upon the facts adduced at hearing, that there is a need for another home health care agency and that the applicant meets the statutory criteria, it is RECOMMENDED that the Department of Health and Rehabilitative Services approve Certificate of Need Number 4911. DONE and ORDERED this 1st day of July, 1988, in Tallahassee, Florida. STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of July, 1988.
The Issue Whether Petitioner Hospice of Palm Beach County, Inc. (Hospice) is entitled to a certificate of need (CON) from the Department of Health and Rehabilitative Services, Respondent, (HRS) in CON Action No. 3702 for a home health agency in Palm Beach County and the District IX service area?
Findings Of Fact Hospice provides special interdisciplinary services, including medical, psychological, spiritual, counseling and volunteer services, for persons in the terminal stages of illness. Hospice is licensed by HRS as a hospice under Chapter 400, Part V, Florida Statutes. Hospice has been qualified by the United States Health Care Financing Administration for participation in the Medicare hospice program. See Part 418, 42 Code of Federal Regulations. Hospice was the first hospice program in Florida to be accredited by the Joint Commission on the Accreditation of Hospitals (JCAH) as a hospice. JCAH accreditation includes approval of the home care component of Hospice's service. HRS has approved issuance of a certificate of need (CON No. 3693) for the establishment by Hospice of its own 24-bed freestanding inpatient facility. Hospice's inpatient facility will be the first free- standing hospice facility in Florida. Hospice's present service area is within Palm Beach County. Hospice's service area reaches from the southern border of Boynton Beach in Palm Beach County north to the Martin County line. Hospice's service area also extends west within the County to include service to Belle Glade, a multi-ethnic rural community. Approximately 25 percent of Hospice's patients are medically indigent, with little or no ability to pay for care. Over 28 percent of Hospice's patients in fiscal 1985 were members of ethnic minorities. Hospice was one of five applicants in its "batching" cycle seeking a certificate of need to establish a home health agency within local health District IX. The others were Palm Beach Gardens Home Health Agency (CON #3699), MEA (CON #3700), Coastal Health Corporation (CON #3701) and Medical Personnel Pool of Treasure Coast, Inc. (CON #3706). (A sixth applicant, Medical Personnel Pool of Palm Beach, Inc., CON #3698, was granted a certificate in an earlier cycle and not considered by HRS in this batch.) By letter dated June 14, 1985, HRS indicated that it had determined to deny Hospice a certificate of need to establish a home health agency in Palm Beach County. Hospice's substantial interests are affected by HRS' determination of denial. Section 400.601(3), Florida Statutes (1985), requires Hospice to provide care to terminally ill patients regardless of ability to pay, and to make such care available 24 hours a day, 7 days a week. Unless Hospice receives a certificate of need to establish a home health agency, it is ineligible for licensing by HRS under Chapter 400, Part III, as a home health agency and corresponding certification as a Medicare home health service provider. See § 400.462(2), Fla. Stat. (1985). Without a certificate of need for home health care, Hospice's financial ability to serve its hospice patients is not as great as it might be if it held such a CON. Without certification as a home health agency, Hospice cannot presently collect any reimbursement for home health care of medically indigent Medicaid patients. Hospice often experiences difficulty in collecting even private insurance payments for home health care of patients with such insurance. Hospice will suffer injury in fact as a result of HRS' determination and its interests are among those regulated by this action. Hospice filed a timely petition for a Section 120.57 administrative proceeding concerning HRS' decision on CON Action 3702. Prior to the decision in Department of Health and Rehabilitative Services v. Johnson and Johnson Home Health Care, 447 So.2d 361 (Fla. 1st DCA 1984), HRS followed a rule generally precluding the issuance of a certificate of need for a new home health agency until the average daily census of each existing home health agency within the same service area had reached 300 patients. This rule was known as the "Rule of 300." In Johnson and Johnson, supra, the First District Court of Appeal struck the "Rule of 300" as arbitrary and inconsistent with Section 381.494(6)(c), Florida Statutes, which lists numerous criteria for evaluation of CON applications. In particular, the Court noted, the "Rule of 300" did not allow new agencies "where existing agencies are able but unwilling to provide services of a particular type or for a particular class of patients." 447 So.2d at 362. After the "Rule of 300" was struck, a statewide task force was created to develop new criteria to evaluate CON applications for new home health agencies. The statewide association of hospices, Florida Hospices, Inc., attempted to participate in the development of new criteria, but did not participate in this process. On April 5, 1985, HRS proposed new rule criteria for home health agency evaluations, which were the subject of a proposed rule challenge in September 1985 before the Division of Administrative Hearings. This proposed rule was struck down as invalid on March 12, 1986. These new criteria were proposed for use in addition to other relevant statutory and applicable rule criteria." In acting on the five CON applications in Hospice's "batch," HRS applied its invalidated proposed rule criteria and determined that within District IX as a whole (which includes Indian River, Martin, Okeechobee, St. Lucie and Palm Beach Counties), no new home health agencies were needed. However, in its analysis of the five applications in this batching cycle, HRS also stated that the District IX Local Health Council had indicated that Palm Beach County should be considered a separate subdistrict for home health agency evaluation. Although it found no need for new home health agencies in District IX as a whole in its analysis of this batching cycle, HRS, using its own newly proposed rules, found an existing need for two new home health agencies in Palm Beach County. HRS stated in its June 14, 1985, letter that Hospice's application was denied for the following reason: Use of the methodology developed by the special statewide work group to determine the need for home health agencies in District IX shows no numeric need for additional agencies in this district. HRS has determined for purposes of this proceeding that the following need exists in District IX for home health agencies, indicating a net need of five new agencies in District IX and a net need in Palm Beach County for five new agencies: Application Submittal Date: 12/84 Planning Horizon: 7/86 District 9 1986 (July) population: 65+ = 257,346 District 9 1986 (July) population: <65 = 809,845 1. 257,346 x .0578 = 14,875 Projected use for 65+ population 2. 809,845 x .00058 = 470 Projected use for <65 population 3. (14,875 + 470) x 33.3 = 510,989 Projected visits 7/86 4. 9,000 + (510,989 x 270) - 24,330 5. 410,989 9,000 ? 21,000 = 24 Agencies needed in District 9 for 7/86 24 Agencies - 19 licensed and approved = 5 Agencies needed in District 9 Subdistrict Allocation: Need: Indian River Projected 2 Existing 1 Net 1 Martin 2 2 0 Okeechobee 0 1 (1) Palm Beach 18 13 5 St. Lucie 2 2 0 This need is related solely to the planning horizon of July 1, 1986 established by HRS for Hospice's CON batch and other home health applications filed before the end of 1984. This need is not related to the later planning horizons applicable to District IX home health agency CON applications filed after 1984. Therefore, applicants in batches following Hospice's, which was the last batch submitted in 1984, are not substantially affected by this determination of need. For the purposes of this hearing, there are only two (2) denials by HRS of certificates of need for home health agencies in District IX and proposing service in Palm Beach County in CON batches prior to Hospice's (Joseph Morse Geriatric Center, CON Action No. 3621; A Professional Nurse, CON Action No. 3492) that have been challenged in administrative proceedings and are still pending without Final Order in those proceedings. Thus, Hospice's CON application as a home health agency is, in the worst case, third in line for licensure as a home health agency in District IX, without regard to the special circumstances of Hospice's case and assuming these denials by HRS are reversed in final agency action. Since there is a need for more than 3 new home health agencies in District IX and Palm Beach County based on the planning horizon applicable to Hospice's batch and no other valid request is pending in Hospice's batch, there is a numeric need for granting a CON to Hospice as a home health agency. There is a special need for access within Hospice's actual service area in Palm Beach County to home health services for the terminally ill, which services are provided by a hospice as opposed to existing or other proposed traditional home health agencies. There is additional need for access by the medically indigent to home health services within Hospice's service area in Palm Beach County, and within Palm Beach County in general. The 1985 District IX Hospice Services Plan provides that hospices generally should be licensed as a special type of home health agency. Of all pending applicants in this and the immediately prior batching cycles since 1984 seeking a certificate of need to provide home health services in Palm Beach County, Hospice is committed to providing the greatest percentage of its services for Medicaid and other medically indigent patients, in accordance with the State Health Plan. Hospice, due to its existing and proposed provision of home health services to the medically indigent, its service in Belle Glade, and its service to AIDS patients, as well as its services to the elderly, serves the need for care of low-income persons, medically underserved groups and the elderly. Hospice can provide higher quality of home health care to the terminally ill in its service area than any other existing home health provider or current applicant for a certificate of need to provide home health services in Palm Beach County. Hospice offers a new type of home health service within its service area for terminally ill patients and their families, including a special pediatric program for children with irreversible diseases. This type of service is an alternative to inpatient care, nursing home and traditional home health services. The applicant home health agencies affiliated with hospitals in District IX in Hospice's batching cycle have not shown that they can achieve greater economies or improvements of service than Hospice. Hospice provides the following research and health educational facilities: a) rotational internships for fourth- year medical students at the University of Miami Medical School; training for R. N. candidates at Florida Atlantic University; research support service to the Tropical Disease Center and Palm Beach County Public Health Department through Hospice's care for AIDS patients in the Belle Glade area; d) training for graduate students in psychology at Florida Atlantic University; e) training for seminary students at St. Vincent's Seminary in Boynton Beach; f) training for candidates for master's degrees in social work from Florida State University; and g) designation as second research and training site by the International Hospice Institute, an international research and professional education accrediting institution. No other home health agency in Palm Beach County provides or has proposed to provide the research or educational facilities referenced in the preceding paragraph. Hospice proposes to control its home health agency rather than to allow the home health agency to control its hospice functions. Hospice will have a positive effect on the clinical needs of health professional training in hospice care and related services in District IX and will make such training available to health professional schools. Hospice's proposal, which is based on a conservative growth projection of its historical patient service care needs, demonstrates the immediate and long-term financial feasibility of Hospice's non-profit project goals. Hospice's provision of home health services under a certificate of need will have a positive effect on the costs of and charges for home health services for the terminally ill and their families. Due to its inpatient hospital capability, Hospice is a regional resource and teaching center for the care of the terminally ill. Hospice has a positive impact on competition among providers of care to the terminally ill. Hospice has a positive impact on promotion of quality assurance due to its accreditation by the Joint Commission on Accreditation of Hospitals. No other home health agency in District IX is accredited by that national joint commission for provision of home health services. According to HRS' own determination, the District IX health plan calls for evaluation of home health services needs within the subdistrict of Palm Beach County. Under HRS' determination, that county subdistrict needs five additional home health agencies without regard to the special needs of the terminally ill. In addition, the 1985 District IX plan for hospice health services provides that hospices should be licensed as special home health agencies. Nothing in the 1985 District IX Health Plan suggests that "surplus" home health agencies in other District IX counties can provide access to service needed by the terminally ill and their families within Palm Beach County. According to HRS' determination, the provision of the State Health Plan addressing home health services deals with access of Medicaid and medically indigent patients to home health services. Hospice's proposal meets this goal of the State Health Plan because Hospice will provide 25% of its care to the medically indigent, even if Medicare reimbursement is available as a result of CON approval and home health agency licensure. On a percentage basis, Hospice proposes to provide 3 times more home health care services to the medically indigent than any other District IX applicant in its batching cycle and even a greater incidence than any District IX home health agency applicant in the immediately preceding batching cycle. Hospice's proposal also satisfies other goals and priorities of the State Health Plan not considered by HRS, including but not limited to the continued fostering of the hospice care alternative, potential increased provider participation in the Medicaid home health services program, and creation of funding mechanisms for hospice care of the medically indigent. Hospice is the only hospice program located within Palm Beach County providing and proposing to provide home health care to terminally ill patients and their families in its service area. Hospice can provide a higher quality of home care for the terminally ill than any other existing home health care provider in Palm Beach County due to its accreditation by JCAH and qualification for the Medicare hospice program including home health services. Hospice's home health care, due to provision of additional hospice services, and continuity of home health personnel serving each patient and patient family, is also more appropriate for the terminally ill than other traditional home health services. Hospice's on-call home health personnel must, by Hospice policy, reside no farther than 30 minutes from patients to be served on a round-the-clock basis. The 1985 District IX Health Plan endorses the 30-minute travel maximum for provision of hospice care at home. Even prior to Hospice's provision of service in Belle Glade, nearly one-third of Hospice's patients were members of ethnic minorities. The Belle Glade area served by Hospice is populated by ethnic minorities in need of home health care service. Hospice's development of a special program to serve AIDS patients in Belle Glade and throughout Palm Beach County will make needed home health care available to this underserved group. Other home health agencies recognize the special type of home health care provided by Hospice through their referrals to it. The existence of the Gold Coast Home Health Agency serving Broward County was the basis for HRS' determination that of all five applicants, only Hospice did not meet the criterion in Section 381.494(6)(c)6, Florida Statutes, evaluating the need for special services in adjoining areas. Both traditional and hospice-based home health agencies exist in adjoining District IX areas. Hospice has at present a paid staff of 33 and approximately 270 volunteers. As shown in its financial statements submitted with its application, Hospice has a broad base of community support sufficient to achieve its goals with the aid of the Medicare reimbursement mechanism. Since home health care is a vital component of hospice care, the operation of a home health agency by a hospice is both logically and philosophically a natural outgrowth of the developing hospice movement in the United States. Hospice has excellent prospects for the immediate and long-term financial feasibility of its project, especially if the regular Medicare reimbursement mechanism is made available. Hospice served more than 565 patients in fiscal 1985 and currently serves approximately 110-20 patients per month. Its estimated patient census used to calculate its 1985 and 1986 operating income and expenses in its CON application, therefore, is based on historical data and is conservative. Since Hospice has received approval for the first free- standing inpatient facility for the terminally ill in Florida, it will serve as a regional resource and training center for care of complex cases. Hospice, unlike any other applicant, will offer services complementary to home health care not available in adjacent service districts. Hospice's market entry as a licensed home health agency should stimulate other hospices to seek to meet the rigorous JCAH standards. Hospice provides many services not offered by traditional home health agencies at per visit charges that are competitive with those presently charged by those agencies. Hospice's market presence encourages competition among all home health agencies serving Palm Beach County, particularly for care of patients who are terminally ill or in the near-final stages of a catastrophic illness.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The letter of intent and authorizing board resolution to establish a new Medicare certified home health agency filed by ABC for District Four for the September, 1989 batching cycle was timely filed with HRS and the Health Planning Council for Northeast Florida, Inc., and met all statutory and rule requirements for filing. The CON application to establish a new Medicare certified home health agency filed by ABC for District Four for the September, 1989 batching cycle was timely filed with HRS and the Health Planning Council for Northeast Florida, Inc. The CON application to establish a new Medicare certified home health agency for District Four for the September, 1989 batching cycle was deemed complete and accepted for review by HRS, effective November 13, 1989. There is a numeric need for one additional Medicare certified home health agency in District Four as determined by HRS and published pursuant to Rule 10-5.011(1)(d), Florida Administrative Code. Local Health Plan The 1989-90 CON Allocation Factors Report for HRS District Four (Health Plan) is the applicable health plan with regards to this proceeding. In its application ABC addressed the recommendations found in the Health Plan. The Health Plan recognizes that under the new methodology for determining numeric need, a licensed home health agency within an HRS district could serve any and all counties within the district. However, the Health Plan contains recommendations for allocating home health agencies. The Health Plan makes the following recommendations: Geographic Preference Home health agencies should be allocated to counties on the following basis: Preference should go to applicants who will establish their program in a county which does not have any CON approved agencies or subunits based in the county. Consideration should be given to counties with a low number of Medicare visits per 1,000 persons 65 years and older. Competing Applications In the case of competing applications for the same or similar geographic area, preference should be given to those applicants which demonstrate: They will meet identified needs in the most cost-effective manner. They are addressing a current or potential geographic access problem in the district. They will serve the widest spectrum of the population, including the medically indigent. They have written agreements with a broad spectrum of local hospitals, nursing homes, mental health resources and/or other service providers in order to help ensure continuity of care. They demonstrate in their CON application how they will comply with any conditions placed on the CONs. They will serve AIDS patients. ABC proposes to locate its agency office in Duval County because it contains medical centers, hospitals with discharge planners and physician staff for referrals, and because of enhanced recruiting and retaining of appropriate staff. However, it proposes to serve all patients referred to it in all counties located throughout District Four, including Baker County. Baker County has no CON approved home health agency based within the county. However, it is presently being served by home health agencies based in Duval County. Because of its small population, with a relatively low percentage of the population being 65 years old or older, its distance from hospitals and the recruiting and staffing problems it would engender, it is doubtful that Baker County could support a main office for a home health care agency. In fact, the 1988 Local Health Plan indicated that Baker County should probably not have a home health agency physically located within the county. Baker County has the lowest number of citizens 65 years of age or older and the lowest usage rate for home health agencies. There is no data or documentation to show why the usage of home health services in Baker County is low. However, HRS makes the assumption from the usage rate only that Baker County is underserved. Duval County is not considered as being underserved in terms of Medicare units. By locating in Duval County, ABC does not specifically comply with preference 1A or 1B. However, ABC has proposed to serve all patients within District Four referred to it regardless of where the patient is located, and regardless of the patient's payor class. (Medicare, Medicaid, private pay or indigent) While 1A and 1B of the Health Plan's recommendation is concerned with geographic preferences, 2A through 2F of the Health Plan's recommendations are preferences that relate mainly to situations involving competing applications in the same batch. ABC meets a majority of those preferences, including: 1A. ABC will be among the lowest in cost of the existing providers in District Four. 1B. ABC goes to the patient and has stated it will serve all of the patients within District Four referred to it. 1C. ABC proposed to serve all patients referred to it, including the medically indigent and medicaid. Because of the situation with Medicaid patients, ABC did not project any Medicaid patients. However, ABC proposed to serve all patients on which it has referrals including Medicaid patients. 1D. ABC did not have written referrals with hospital, nursing homes and other resources for patient referrals. However, ABC stated that this was its standard operating procedure and if granted a CON they would establish written referrals. 1E. ABC does not specifically address how they would comply with any condition placed on the CON. 1F. Again, ABC proposed to serve all patients within District Four referred to it, including AIDS and HIV patients. Since ABC has no control over which patients are referred to it, then its payor mix is just a projection. Whether an AIDS or HIV patient is on Medicare, Medicaid, private pay or medically indigent ABC has proposed to served them. In fact, it has a corporate policy to train and educate its employees in this area of service. ABC has shown that it intends to serve AIDS and HIV patients on which it has referrals. State Health Plan The 1989 Florida State Health Plan is the applicable health plan in this proceeding. The State Health Plan is a comprehensive three-volume document which describes Florida's health system and the services available to Florida residents. Specifically, the State Health Plan addresses certain preferences which HRS uses in reviewing home health CON applicants. They are as follows: Preference shall be given to an applicant proposing to serve AIDS patients. Preference shall be given to an applicant proposing to provide a full range of services, including high technology services, unless these services are sufficiently available and accessible in the same service area. Preference shall be given to an applicant with a history of serving a disproportionate share of Medicaid and indigent patients in comparison with other providers within the same HRS service district and proposing to serve such patients within its market area. Preference shall be given to an applicant proposing to serve counties which are underserved by existing home health agencies. Preference shall be given to an applicant who makes a commitment to provide the department with consumer survey data measuring patient satisfaction. Preference shall be given to an applicant proposing a comprehensive quality assurance program and proposing to be accredited by the Joint Commission on Accreditation of Healthcare Organizations. As to 16A, ABC has proposed to serve all patients in District Four that are referred to it by referring agencies, including AIDS and HIV patients regardless of their of payor class. ABC has a stated commitment to serving AIDS and HIV patients. The evidence establishes that of all AIDS cases reported in District Four, Duval County has approximately 69 percent. District-wide 52 percent of all reported AIDS cases have ended in death whereas in Duval County the percentage is 56. Very few AIDS patients are medicare eligible. A higher percentage of AIDS patients in Duval County are served as indigents or under Medicaid, notwithstanding HRS' Medicaid Project AIDS Care. As to 16B, ABC proposes to provide the full range of services, including high technology services. ABC included in it application excerpts from its high tech policy manual. There was no data available from local health council on what high tech services are available from existing providers. As to 16C, while ABC's payor mix does not indicate that they would be serving a disproportionate share of Medicaid and indigent patients there is no data indicating what access problem, if any, exists for Medicaid and indigent case patients needing home health care services. ABC proposes service to all patients within District Four that are referred to it be referring agencies. As to 16D, while there is no data available that any county within District Four is in fact underserved, ABC has stated that it will serve all counties in District Four and there is no evidence to show that ABC will not serve all counties in District Four. As to 16E, ABC has indicated it will comply with this requirement and there is no evidence to show that ABC will not furnish the data in terms of consumer survey response. As to 16F, ABC has a quality assurance program in place and HRS agreed that ABC could provide quality of care to its patients. Statutory Criteria Section 381.705(1)(a), Florida Statutes - Availability and Access to Services District Four has 20 Medicare certified home health agencies, with five located in Duval County and, one approved but not yet established Medicare certified home health agency. However, as stated in the State Agency Action Report (SAAR) there is a market for another home health agency in District Four as determined by the fixed need pool. ABC's stated commitment to serve all counties in District Four and to serve all patients in those counties referred to it by referring agencies regardless of whether the patient's payor class should enhance the convenience and accessibility to patients. Section 381.705(1)(b), Florida Statutes - Quality of Care, Efficiency and Adequacy of Existing Area Providers There is no specific data available from HRS concerning the quality of care, efficiency and adequacy of services being provided by existing care providers in District Four. ABC did not conduct a survey to assess the existence of quality care problems in District Four. However, the existence of quality care problems in District Four would be difficult to gauge since the in- home provision of services makes them largely beyond public or professional scrutiny. In fact, generally, with few exceptions, application for home health agencies do not address this criterion. The parties stipulated that the provisions of Section 381.705(1)(c) through (g), Florida Statutes were deemed to have been met or otherwise not applicable. Section 381.705(1)(h), Florida Statutes - Availability of Resources and Funds and Accessibility of Service to all Residents of Service District The evidence establishes that ABC has sufficient resources and funds to accomplish what it proposes. HRS has no data suggesting significant access problems for Medicaid patients to home health care nor was there sufficient evidence that AIDS or HIV patients suffer an access problem for home health care. However, due to improvements in terms of Medicaid reimbursement any access problem that may exist should be reduced. ABC has a stated commitment to serving all patients in District Four regardless of the patient's payor class. This commitment should improve the accessibility of home health care to underserved patients if, in fact, there is an access problem for the Medicaid, AIDS, HIV or indigent patients. Section 389.705(1)(i), Florida Statutes - Financial Feasibility ABC projects it will do 12,000 home visits in year one and 14,000 home visits in year two. These projections are based on ABC's experiences in other districts, particularly District Three. These projections also represent approximately 25 and 29 percent of the new visit pool market for each year, respectively. However, ABC clients would not necessarily all come from the new visit pool. ABC's projected home care visits are reasonable based on its experience in other Florida districts and its experience in other states, notwithstanding its lack of an established referral network in District Four and being a new entrant into the District Four market. ABC's financials displayed in its application are reasonable and consistent with its Florida experience. ABC's payor mix and visit each correlate to its actual Florida experience. ABC's pro forma expenses for year one and year two are reasonable. ABC projects a first year profit of $3,914 and a second year profit of $5,010 and after the second year, ABC should continue to show a profit. ABC's proposed project will benefit ABC by allowing it to meet its long term goals. ABC's existing Florida agencies are operating in financially sound manner and there is no reason to believe that ABC's proposed agency will not operate in the same manner. ABC's liquidity ratio is 0.7 to one which means that ABC has excess current liabilities over current assets and is one factor used for determining the general health of a company. ABC has an accumulated deficit of $651,836. From all of the above, ABC's proposed agency is feasible in both the short term and the long term. It was stipulated that Section 381.705(1)(j) and (k), Florida Statutes were deemed to have been met or otherwise inapplicable. Section 381.705(1)(l), Florida Statute - Impact on Competition Since ABC has a stated commitment to serve all patients in all counties in District Four referred to it regardless of the payor class and is offering a full range of services, including high tech, its proposal should only serve to enhance competition within District Four, notwithstanding that the proposal is primarily a Medicare home health care provider which would not provide any financial competition. The parties stipulated that Section 381.705(1)(m), Florida Statutes was deemed to have been met or otherwise inapplicable. Section 381.705(1)(n), Florida Statutes - Medicaid and Indigent Care Very few medicaid and indigent patients are served by the existing agencies in District Four. Most of these patients are served by the Visiting Nurses Association (VNA) which is subsidized by United Way, local governments and other sources. There is no data or documentation that Medicaid patients do not in fact have a significant access problem. Medicare is the predominant payor source in Florida and is ABC's primary payor source even though ABC has a stated commitment to serve all patients regardless of payor class. A high percentage of Florida's Medicaid budget for home health services is used for co-insurance for medicare. Therefore, Medicaid patients that are "dually eligible" are receiving home health care under Medicare. Florida's Medicaid program does not reimburse for physical therapy, speech therapy or occupational therapy for adults. In a Medicare certificate home health agency there is only a certain pool of profit available to serve Medicaid and indigent patients. Therefore, if the percentages of Medicaid service goes up then indigent or charity cases must suffer or the agency cannot operate in the "black". While HRS usually places a condition on the CON concerning Medicaid services, a majority of the recently issued CONs for home health care had no such condition placed on them. The parties stipulated that Section 381.705(2) and (3), Florida Statutes were deemed to have been met or otherwise inapplicable. State Agency Action Report (SAAR) HRS up to and including, the home health care agency batching cycle immediately preceding the instant September 1989 batch, used not applicable (N/A) on those criteria that were not typically addressed by applicants or were not considered to be applicable to an applicant. HRS now enters a "no" in those situations but a "no" in this situation has no adverse or negative impact on HRS' decision. Typically, approved applicants do not meet all the statutory criteria. Some of the criteria may be only partially met and some may not be met at all.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That a final order be entered granting ABC's application for a certificate of need (CON No. 6015). DONE and ENTERED this 26th day of October, 1990, in Tallahassee, Florida. WILLIAM R. CAVE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of October, 1990. APPENDIX TO THE RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case. Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, ABC 1. Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the finding of fact which so adopts the proposed finding of fact: 6(2,3); 7(8); 8(7,8,11); 9(8,10); 11(7,14); 15(4); 16(16,17,18,19); 17(16,18); 18(16,21); 19(16,22); 20- 21(23,24); 23(25); 25(4,25); 28-29(25-27); 31-38(29); 40-42(29); 45(32); 48- 52(33,34,35,36); 54-58(32,37,38,41); 61-64(43); 68-70(45,46,47); 72- 77(47,48,49); 79-81(47,49,50); 83(51); 85-87(53); 89(53); 90(54). 2. Proposed findings of fact 1-5, 10, 12-14, 22, 24, 26, 27, 30, 39, 43, 44, 46, 47, 53, 59, 60, 65-67, 71, 78, 82, 84, 88, 91 and 92 are unnecessary. Specific Rulings of Proposed Findings of Fact Submitted by Respondent, HRS Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 3-9(5,6,7,9,12,13,14); 12- 26(14,18,19); 28-29(15,16); 44-46(32) 48-51(39,40). Findings of fact 1 and 2 are covered in the preliminary statement. Proposed findings of fact 10, 11 as to the last 2 sentences, 27, 30, 31, 32 other than last sentence, 33, 35, 36 other than last sentence, 37, 38, 39, 41, 42, 47 and 52 are not supported by substantial competent evidence in the record. The last two sentences of finding of fact 34 are adopted in finding of fact 25, otherwise not supported by substantial competent evidence in the record. Proposed finding of fact 43 is unnecessary. The first two sentences of proposed finding of fact 53 are adopted in finding of fact 36, otherwise not supported by substantial competent evidence in the record. Copies furnished to: R. Terry Rigsby, Esq. F. Philip Bank, P.A. 204-B South Monroe Street Tallahassee, FL 32301 Edward Labrador, Esq. Assistant General Counsel 2727 Mahan Drive, Suite 103 Tallahassee, FL 32308 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700 Linda Harris, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700
The Issue The ultimate issue to be resolved in this proceeding is whether a license should be issued to the Intervenor to operate a home health agency in Palm Beach County, Florida. Intervenor contends that it is not required to obtain a Certificate of Need to operate in Palm Beach County because it is excluded from Certificate of Need requirements by a "grandfathering" provision. Petitioner contends that the Intervenor is not exempt from the requirement of obtaining a Certificate of Need and that a license should not have been issued allowing Petitioner to operate in Palm Beach County. Intervenor contends that Petitioner has no standing to attack Intervenor's license and that the Petition for Hearing was not filed in a timely manner.
Findings Of Fact This proceeding is an offshoot of a long and bitter feud between former business partners. Two couples, the Collisters and the Schacks, together established a home health agency that provided services in Broward County, Florida. The agency was set up to provide skilled nursing and other therapeutic services to homebound patients in their place of residence. The agency was incorporated as "A Associated Home Health Agency, Inc." on February 26, 1974. It thereafter provided services to homebound patients in Broward County. To facilitate payments for the agency's Medicare or Medicaid patients, the agency obtained a provider identification number from the Federal Department of Health, Education and Welfare. The federal department issued the agency Provider Identification No. 10-7093. Sometime in late 1974 or early in 1975, the agency opened an office in Palm Beach County and began serving patients there. The Broward County office operated as the parent office of the Palm Beach County office. The Department of Health, Education and Welfare issued provider No. 10-7305 to the Palm Beach office operating as a suboffice of the Broward County office. The provider number was issued to the Palm Beach County office on June 18, 1975. The relationship between the Schacks and the Collisters deteriorated shortly after the expansion into Palm Beach County. The Schacks were operating the Broward County office, and the Collisters were operating the Palm Beach County office. The two offices began to operate independently of each other from the point of view of day-to-day operations beginning in December, 1975, when an accountant was hired for the Palm Beach County office. From then on, agency patients in Broward County were served by the Schacks, operating out of the Broward County office. Agency clients in Palm Beach County were served by the Collisters, operating out of the Palm Beach County office. For more than a year after December, 1974, the parties continued to operate legally as A Associated Home Health Agency, Inc., with a parent office in Broward County and a suboffice in Palm Beach County. While this was their legal umbrella, the parties operated independently of each other subsequent to December, 1974. The parties were unable to work out a settlement of their difficulties. There is some question as to whether they both ever signed any document that outlined how an ultimate separation should occur. Whether they both signed it or not, the parties acted as if a memorandum dated February 18, 1976, set the terms of their separation. Under this memorandum, the Schacks agreed not to compete in Palm Beach County, and the Collisters agreed not to compete in Broward County. Basically, each office would retain its balance sheets for November 30, 1975. The Broward office would be allowed to keep the logo, and the Palm Beach County office would keep the existing corporation. The Broward County office would form a new corporation. The Schacks filed Articles of Incorporation for a new corporation on June 30, 1976. The Certificate of Incorporation was issued July 1, 1976. The Schacks incorporated as "Associated Home Health Agency, Inc." Thereafter, the Collisters continued to operate in Palm Beach County as "A Associated Home Health Agency, Inc." (Petitioner). The Schacks continued to operate in Broward County, Florida, as "Associated Home Health Agency, Inc." (Intervenor). The parties had not entered into any agreement as to who would retain the provider identification numbers that had been issued by the Federal Department of Health, Education and Welfare. The Palm Beach County office could not continue to operate under Provider No. 10-7305 because it was a provider number for a suboffice. After July 1, 1976, the Palm Beach County office could not have been considered a suboffice of the Broward County office. The parties apparently quarreled about this with the federal agency. The federal agency recognized that the original provider number (10-7093) could have been assigned to the original corporation, then housed in Palm Beach County. In order to minimize confusion, however, it assigned the original provider number to Intervenor and issued a new provider number (10-7154) to Petitioner. It appears that the federal agency's reason for assigning the original provider number to the Intervenor was simply to avoid confusion. It does not appear that the federal agency had any intention of granting any special rights to either party by choosing to assign the original provider number to Intervenor. The Schacks and the Collisters operated thereafter for some years without bothering each other. The Intervenor annually applied for licensure to operate in Broward County in 1978 and 1979. In 1980, however, despite its covenant not to compete in Palm Beach County, the Intervenor applied for a license to operate in Broward, Dade and Palm Beach Counties. The application was denied. The Intervenor did the same thing with respect to the year June 1, 1981, to May 31, 1982. This application was also denied. Intervenor did the same thing for the June 1, 1982, to June 30, 1983, year. Intervenor's application for licensure in Dade and Palm Beach Counties was denied by letter dated May 5, 1982. Intervenor requested an administrative hearing to challenge that denial. Intervenor provided some additional documentation to the Department and ultimately submitted a new application to be licensed to operate in Palm Beach County. The Department issued a license allowing Intervenor to operate In Broward and Palm Beach Counties on July 8, 1982. The executive director of the Petitioner became aware sometime in July, 1982, that Intervenor was operating in Palm Beach County. He wrote to the Department, which replied that on July 8, 1982, Palm Beach County was added to the service area of Intervenor. The Department's reply was dated July 19, 1982. It did not advise Petitioner that it had any right to a hearing respecting the licensure of Intervenor in Palm Beach County. Through counsel, Petitioner requested a clarification and stated that misrepresentations had been made in Intervenor's application. Further correspondence with the Department did not generate any explanation until, by letter dated October 26, 1982, the Department advised Petitioner that it had a right to request an administrative hearing with regard to the licensure of Intervenor in Palm Beach County. This letter was the first notification to Petitioner that it had a right to hearing with respect to Intervenor's licensure in Palm Beach County. The letter advised Petitioner that it could request a hearing within thirty days of receipt of the letter. Petitioner requested a formal hearing within that period and also filed a Petition for Writ of Mandamus in Circuit Court in Leon County, Florida. Upon the filing of the request for hearing, the Department forwarded the matter to the office of the Division of Administrative Hearings, and this proceeding ensued. The Intervenor has been operating in Palm Beach County since the Department issued a license on Jul 8, 1982. Petitioner has suffered a loss of business and a loss of revenue as a result of Intervenor's operations in Palm Beach County. There is no evidence from which it could be concluded that Intervenor has suffered from its reliance upon licensure by the Department so that the Department should now be estopped from denying licensure in Palm Beach County. While money has been spent to set up Intervenor's business in Palm Beach County, it was not Intervenor's money. There is no evidence that Intervenor or any government agency made any expenditures for Intervenor to operate in Palm Beach County prior to the time that Petitioner requested a hearing. Furthermore, it was Intervenor itself which euchred the Department into issuing a license without notifying Petitioner and others. In its application for licensure to operate in Palm Beach County, Intervenor stretched the facts and stated that it had done business in Palm Beach County prior to April 30, 1976. This was not true.
Findings Of Fact Numeric Need HRS projects a need for one additional Medicare-certified home health agency in District V for the January, 1991, planning horizon. District V includes Pinellas and Pasco counties. Mease and Adventist filed certificate of need (CON) applications in September, 1989, to meet this need. After its initial review of the applications, HRS determined that Mease's application was complete upon filing. HRS projects that population growth in District V will generate a need for 31,000 new home health patient visits by January, 1991. HRS has determined that a cost-efficient agency should make at least 19,000 patient visits annually. Mease's Proposal Mease proposed a Medicare-certified home health agency to be located at Mease Hospital Dunedin. Mease proposed to provide 24,000 patient visits the first year (1991) at a projected per visit cost of $34.00 and charge of $62.00. In its second year (1992), Mease proposed to make 30,000 patient visits at a cost of $32.00 and a charge of $64.00. Mease proposed to provide these services through hospital employees, as opposed to agency staff. Mease's application estimated that the net income would be about $57,000 the first year and about $86,000 the second year. For the first and second years of operation, Mease proposed a payor mix of 85% Medicare, 13% insurance and private pay and 2% Medicaid and charity. Adventist's Proposal Adventist proposed a Medicare-certified home health agency at the East Pasco Medical Center ("EPMC") in Zephyrhills in Pasco County. Adventist projected 11,660 patient visits in 1991 and 16,772 the following year. Adventist proposed charges ranging from $75.00 to $125.00 per hour for nursing visits and $45.00 for home health aides and projected increases of 5% in the second year. Adventist projected a loss of about $70,000 in 1991 and a profit of about $14,000 in 1992. Adventist proposed a payor mix of 65.4% Medicare, 25.3% insurance, private pay, and HMO/PPO, and 9.3% Medicaid and charity. This payor mix was projected for both years. Adventist proposed providing all patient services through agency staff. Adventist did not include its average weighted costs and charges for the first two years of operation. However, the evidence was that the weighted cost is about $67-72 per patient visit. Statement As To Adventist's Capital Projects In its application, Adventist stated under the heading "Capital Projects": As required by Section 381.707(2)(a), Florida Statutes, the applicant has determined that there are no projects which are applied for, pending, approved, or underway in any state as of the time of this application which would have any potential impact upon the ability of the applicant to provide the project proposed in this application. The Adventist application also included audited financial statements as of December 31, 1988, from which the dollars Adventist had committed to construction in progress as of that date could be ascertained. As of December 31, 1988, approximately $23 million had been incurred on construction in progress, and approximately $10,065,000 was expected to be spent to finish these projects. No other information concerning capital projects is contained in the Adventist application. In fact, at the time Adventist submitted its application, it had about $40-50 million in capital projects pending or approved. As a matter of policy, HRS does not require applicants to list all projects as of the date of the application, in addition to the impact statement required by the statute, but HRS does interpret the statute to require at least a statement of an aggregate dollar amount of the projects. Since the capital investment required for opening a home health agency is relatively small, rarely will existing capital projects of a responsible applicant impair the financial feasibility of a home health agency CON application. But HRS interprets the statute as not providing for exceptions for home health agency CON applications. HRS has not by rule exempted Adventist from the requirement of including statements of capital projects and their impact in Adventist CON applications. Adventist's consultants conferred with HRS personnel concerning the "capital projects" requirement before the Adventist application was submitted. Adventist did not want to go to the effort of developing a list of all Adventist capital projects. But Adventist did not prove that HRS personnel told its consultants that it would be sufficient for Adventist to address the "capital projects" as set forth in Finding 11, above. On reviewing the Adventist application, HRS did not notice the manner in which the application addressed the "capital projects" requirement. This is because HRS' consultants were familiar with Adventist and understood it to be sound financially, and they also knew that both the capital requirements of a home health agency and the potential for substantial operating losses were relatively small. Indeed, until the submission of its Proposed Recommended Order, HRS supported the Adventist application. Description of Mease Mease is a corporation comprised of two non-profit acute care hospitals and four clinics. Mease Hospital Dunedin is a 278-bed acute care hospital located in Dunedin, Florida. Mease Hospital Countryside is 100-bed acute care facility located in Safety Harbor, Florida. The four clinics are located in Dunedin, Safety Harbor, New Port Richey, and Palm Harbor. While the two acute care hospitals and three of the four clinics are located in Pinellas County, the fourth clinic is in Pasco County. The two acute care hospitals admit around 12,000 patients per year. The four clinics report approximately 320,000 patient visits per year. There are about 30,000 visits per year to the two emergency departments at the hospitals. About 210 physicians are on the staff of the hospitals and clinics. Mease has existed as a non-profit health care facility in District V for 52 years. All profits are retained by the corporation to expand and improve services. Mease's proposed Medicare-certified home health agency is part of its plan to provide comprehensive health services. Location of Medicare-Certified Home Health Agencies In a home health agency, all of the patient services are provided in the patient's home. Some Medicare certified home health agencies provide all services through a headquarters office. Other Medicare-certified home health provide services through branch offices. The primary purpose of a branch office is to provide a more convenient focus and location for an agency's field staff. TGC in Zephyrhills, for example, has an office of about 3,000 square feet with a nurses' room, supply room, kitchen, conference room, bathroom, and manager's room. Because most referrals to home health care are by phone, a branch office does not greatly affect access to referral sources. It is not terribly significant where a home health agency is located, as long as it has the capability of serving the patients in its service area. However, there are some benefits to the physical presence of a home health agency in the area to be served. With a physical presence in an area, a home health agency can more easily participate in community outreach and can better know the services available to its patients in the community. Medicare Funding of Medicare-Certified Home Health Agencies The Medicare program is funded by the federal government through tax dollars. A CON for a Medicare-certified home health agency is a permit to access the Medicare Trust Fund. Without a CON to provide home health services to Medicare patients, agencies cannot obtain any reimbursement for services to these patients. Irrespective of the cost of providing services to Medicare patients, the Medicare program will only pay a home health agency its reasonable costs up to the Medicare cap. The Medicare cost cap for the Tampa MSA is $78.83. Mease's actual cost per patient visit will be about $44-50, including allocated costs that were not reflected in the application, significantly below the Medicare cap. Mease's costs are likely to be fully reimbursable by Medicare, inasmuch as they appear to be reasonable and below the Medicare cap. Payor Mix of Medicare-Certified Home Health Agency There is no direct correlation between an acute care hospital's payor mix and the payor mix that is predictable for a Medicare-certified home health agency. Medicare-certified home health agencies in District V typically serve less than 2% Medicaid and charity patients. The two hospital-based agencies in District V (Morton Plant and St. Joseph's) reported serving just below 2% Medicaid and charity patients. About 80% of Florida's home health care expenditures under the Florida Medicaid Program are for patients who are also eligible for Medicare. Since Medicare is the primary payor, these patients are ordinarily counted as Medicare, not Medicaid, patients. The percentage of Medicaid patients typically served by a Medicare- certified home health agency is much lower than the percentage of Medicaid patients served in an acute care hospital. Payor Mix Proposed by Mease Historically, of Mease's discharges to home health care about 85-92% are Medicare. For the full 1988 year before its application was filed, Mease referred 85% Medicare. Mease's application reasonably proposed to serve 85% Medicare and 2% Medicaid and charity patients. These numbers are in line with District V historical data. Its payor mix is reasonably based on its referral history. Mease will annually serve approximately between 24 and 30 Medicaid and charity patients--2% of 24,000 projected patient visits in 1991 and 30,000 projected in 1992, at 20 visits per patient. (These projections in the Mease application may be somewhat optimistic for the first two years of operation, but Mease probably can come close to that volume with its inherent referral base.) Whether Either Applicant's Primary Service Area Will Be Unserved in 1991 TGC has operated a Medicare-certified home health agency branch office in Zephyrhills for three years. It primarily serves the Zephyrhills and Dade City areas of east Pasco County. TGC's Zephyrhills office employs 7 nurses, 4 physical therapists, 1 physical therapist assistant, 3 speech therapists, 3 home health aides, 1 occupational therapist, and a social worker. Of these 20 employees who provide home health services, only three are contract employees. About half of TGC's referrals come from East Pasco. In addition to TGC, four other Medicare-certified home health agencies serve the east Pasco County area. Global is one of them. It is a hospital-based (Morton Plant Hospital) agency, also located in Zephyrhills. Rest Care and Gulf Coast are located in Dade City, about ten miles north of Zephyrhills. One of these has its headquarters there. The fifth agency serving the east Pasco County area is in New Port Richey. The five agencies that serve the east Pasco County area are the same number that serve the five-county Jacksonville area. TGC is active in the community, responding positively to monthly requests to appear before the Chamber of Commerce. TGC's Branch Manager has responsibility for the care being provided at the Zephyrhills office. TGC accepts Medicaid and charity patients. In 1989, it provided care to 22 such patients. Through the third week in June, 1990, it served 10 Medicaid and charity patients. However, Medicaid and charity patients are accepted with some reluctance, as the agencies prefer Medicare and private pay patients. The Medicaid and charity patients have theoretical access to the full range of TGC's services, and the number of visits for all patients is determined by the diagnosis. But there is a financial disincentive, to which most home health agencies respond, against providing services not reimbursed by Medicaid East Pasco has two Medicare-certified home health agencies in the same town as the hospital and an agency with its headquarters in nearby Dade City. There are no Medicare-certified agencies headquartered in Dunedin, but there are several nearby in Clearwater and Tarpon Springs. More growth in the Medicare population will occur in the service area of Mease than that of East Pasco. The demand for home health care services will be greater in north Pinellas County than in east Pasco County in January, 1991. Mease, too, has had difficulty placing Medicaid and charity patients with local home health care providers. The Director of Social Services at Mease sometimes cannot successfully talk an agency into taking a purely indigent patient. While EPMC's Home Health Liaison Discharge Planner also sometimes has difficulty in promptly making referrals for Medicaid and charity patients, she successfully placed all but two of these patients in the last two years. The primary service area of East Pasco is not presently underserved. Medicaid and charity patients have geographic access to the full range of home health services in the East Pasco County service area, including: (a) I.V. therapy, (b) chemotherapy, (c) hyperalimentation, (d) parenteral/enteral nutrition, (e) wound care, (f) catheter and colostomy care, (g) diabetic and cardiac teaching, (h) medical supplies, (i) medical equipment, and (j) bilingual personnel. The TGC branch office in Zephyrhills provides the full range of services. By 1991, the geographic area more likely to be underserved due to growth is that in Mease's primary service area. Ability of Applicants to Obtain Projected Patient Volume Adventist and Mease both reasonably project that they will be able to capture at least 60-65% of the referrals that they are now making to home health agencies. Additionally, both will draw from local sources, including nursing homes. Mease will also draw from its four clinics. Consequently, the 24,000 patients visits proposed by Mease in 1991, and the 30,000 patients visits proposed in 1992 are reasonable although on the optimistic end of the range of reasonableness. Mease's proposal contains an estimate of 20 visits per patient. While 20-30 visits per patient is reasonable, the trend is at the lower end of that range. Mease's proposal is within the reasonable range of five to six nursing visits a day. This number reasonably results in an acceptable quality of care. The proposal indicates that social workers would make eight visits a day, which is too high, but this could and would be adjusted when the home health agency becomes operational. Staffing Mease proposes to utilize full- and part-time staff, but no contract staff. There are advantages in having regular staff: (a) commitment to the agency; (b) availability during working hours when not making visits, allowing flexibility for purposes such as training; (c) willingness to see all types of patients, wherever located; (d) generally less expensive; (e) better capability to properly complete Medicare paperwork; and (f) ability to provide continuity of care, which is particularly when patients have to taught how to help care for themselves. Contract staffing, either in whole or in part, can afford financial and operational benefits for a small home health agency or one just starting up, especially if it is community based. Mease proposes a reasonable number of staff (FTE's). Although the proposed salary for Mease's director appears to be somewhat high, other positions' salaries appear low. Overall, Mease provides sufficient salary and benefit dollars. Mease's projected salaries are comparable to those on its own pay scale, effective through June 30, 1990. Benefits available to Mease's full-time staff include: (a) tuition reimbursement, (b) grant and aid program, (c) interest-free scholarship loans, (d) reimbursement for seminars, (e) affiliations with local colleges that do clinical rotations at the hospital, including Pasco Hernando Community College, St. Petersburg Junior College, and LPN students from Pinellas Technical Institute, (f) program for nursing students where they can work while going to school, and (g) internship programs so that new nurses can specialize. Including 25% figured as benefits for its home health care staff, the total salaries in January, 1991, will be $658,640. The application proposed $698,551. At these salaries, Mease would have no recruitment problems. Mease would provide adequate training programs for those who provide home health services. Mease is a large health care provider that has access to many resources for purposes of training. Mease has an active training program. There are four nurses who provide education and in-service training. Periodically, outside experts are hired to provide supplemental education. Mease has an audio-visual department that prepares training tapes and other materials. Financial Feasibilty The cost per patient visit of approximately $45-50 for the Mease proposal is close to the cost at a similar-sized hospital-based agency in Jacksonville. Mease should have included in its pro forma the hospital's administrative and general costs that Medicare requires to be allocated. Inclusion of the appropriate allocation of $150,000 per year in Mease's application does not materially affect the financial feasibility of the project. There will be a direct reimbursement for those costs for Medicare patients, as Mease will be operating under the Medicare cost cap, (even with the hospital- allocated overhead.) Besides, the hospital-allocated overhead would have to be absorbed by Mease, regardless of the source of funds. Adventist's financial expert was refreshingly forthright and candid about the financial objective of a hospital-based home health agency (HHA). The object is for the hospital to allocate as much overhead as possible to the home health agency, up to the cap. The "profitability" of a Medicare-certified HHA is in the additional hospital overhead that can be reimbursed through Medicare payments by its allocation to the HHA. Except in this way, there is no prospect of great profits or, so long as costs are within the cap, risk of great losses in the operation of a Medicare-certified HHA. Since expenses are highly variable and capital costs are low, it is relatively easy to keep costs within the cap, and financial feasibility is not even a real issue in this case. Mease's projected travel cost are reasonable, and Mease has relatively low costs because: (a) an agency making more visits can spread fixed cost farther; (b) administrative efficiency, and (c) Mease plans to use hospital- salaried staff and no contract staff. Mease's project is financially feasible. Its discipline-specific charges, gross revenue, Medicare contractual allowance, salaries, rent, and charity and bad debt write-offs are reasonable. Effect of Proposed Projects on Existing Providers of Medicare-certified Home Health Services There was no evidence from potential competitors concerning any adverse impact if Mease is awarded the CON. Mease will predictably affect the agency to which it refers most of its patients, Independent Global, the hospital-based agency operating near Morton Plant Hospital, which has a branch office in Zephyrhills. The potential impact on Independent Global could be 10%; however, this would not reduce Global's volume below 100,000 patient visits a year. Other Information Relevant to State, Local, and Rule Preferences AIDS Mease commits to serve any patients who present, including persons with AIDS. Mease has "no reluctance whatsoever" to serve AIDS patients. However, as a practical matter, since most of Mease patients will be referrals from a medical community serving a relatively affluent area, and because AIDS patients generally are Medicaid or charity patients, rather than Medicare patients, Mease cannot be expected to serve significant numbers of AIDS patients in its HHA. Range of Services Mease commits to offer the full range of home health care services. Through its two hospitals and four clinics, Mease has a natural cooperative arrangement with area physicians. It also has cooperated with other area hospitals to provide non-Medicare certified home health services. Charity Care Physicians in the Mease system are aware of Mease's policy for treating charity patients. While Mease does not have a sliding fee scale, per se, it only seeks payment consistent with a patient's ability to pay. This policy is advertised primarily through Mease's medical staff. Consumer data Mease commits to continue to provide consumer data to local and state agencies. Quality/Assurance Mease will provide effective quality assurance programs. It must do so to retain its JCAHO accreditation. JCAHO's rigorous standards will have to be met. Referrals Most referrals for home health care, irrespective of the methods of advertisement, come from the medical community, not the public. Mease's medical community includes its two hospitals (378 beds) and four clinics, staffed by 210 physicians. Disproportionate Medicaid Provider Neither Mease nor Adventist has been designated by the state as a disproportionate Medicaid provider. Mease's Capital Projects The capital projects listed in Mease's application are accurate and complete. Mease has asserted and proved that its project is financially sound in spite of these obligations. The capital projects will not adversely impact Mease's proposal.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order granting the Mease application (CON Action No. 6022) and denying the Adventist application (CON Action No. 6024). RECOMMENDED this 9th day of October, 1990, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON 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 9th day of October, 1990. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-1524 To comply with the requirements of Section 120.59(2), Florida Statutes (1989), the following rulings are made on the parties' proposed findings of fact: Mease's Proposed Findings of Fact. 1.-2. Accepted and incorporated. First sentence, accepted and incorporated. Second sentence, unnecessary. Subordinate and unnecessary. 5.-11. Accepted and incorporated. 12. First sentence, accepted and incorporated. Second sentence, accepted but subordinate to facts found. 13.-14. Accepted and incorporated. 15.-17. Accepted but unnecessary. 18.-19. Accepted and incorporated to the extent not subordinate or unnecessary. 20.-22. Rejected to the extent that it ignores and totally discounts the benefits of a physical presence in an HHA's service area; otherwise, accepted and incorporated. 23.-25. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but unnecessary. Accepted and incorporated to the extent necessary. Accepted but unnecessary. Rejected as contrary to the evidence and not proven. Once operational, all hospital-based HHAs will try to allocate as much hospital overhead to the HHA up to the cap. As a result, the size of "drinks" from the Medicare Trust Fund will tend to equalize. First sentence, accepted and incorporated; rest, accepted but subordinate and unnecessary. Accepted and incorporated. Accepted but unnecessary. Accepted and incorporated. Accepted but subordinate to facts found. 35.-38. Accepted and incorporated. 39. Accepted but unnecessary. 40.-44. Accepted that demand for Medicaid and charity home health is being met, although not without some difficulty, but there probably is some unmet need, especially for services not covered by Medicaid. Adventist's projection for Medicaid and charity referrals probably is too high, and Mease's projection for Medicaid and charity referrals to the proposed Adventist HHA probably is too low. But Mease's projections are tied to more timely and complete published District V data for Medicare-certified HHAs, while the Adventist projections turn to less timely and less complete data that includes non-Medicare-certified HHAs. In any event, in light of the Conclusions of Law, these facts are irrelevant and unnecessary. 45. See 40.-44., above. Otherwise, generally accepted but in part cumulative. 45. First sentence, accepted and incorporated as to Mease but unnecessary as to Adventist. Rest rejected as to Adventist as not proven by the evidence. See 40.-44., above. 46.-48. Accepted and incorporated. 49. Rejected as not proven that Medicaid and charity patients get the full range of services (in particular, services not covered by Medicaid.) Also, some difficulty is experienced in placing these patients, although virtually all eventually are placed. 50.-53. Accepted and incorporated. 54.-55. Rejected, to the extent that they infer that there are no financial barriers at all, as not proven. Accepted as to geographic accessibility. 56.-57. Accepted. As to Mease, incorporated; as to Adventist, unnecessary. First two sentences, accepted and incorporated to the extent that they refer to nursing personnel. The evidence is that some of the other personnel may be understaffed in Mease's proposal. Accepted and incorporated. 60.-62. Generally, accepted but unnecessary. However, there can be advantages to the use of contract staff, especially for a small HHA or one that is just starting up, especially if community-based. There is no reason to believe that Adventist would not shift to the use of hospital-employed personnel as appropriate. There also is no reason to believe that Adventist would try to operate in such a way as to make its HHA ineligible for licensure. Accepted. Incorporated as to Mease; unnecessary as to Adventist. Accepted but unnecessary. 65.-67. Accepted and incorporated. First sentence, accepted and incorporated. Second sentence, rejected as not proven that Mease has access to more resource. It is clear that Mease is larger than EPMC, but it was not proven that Mease is larger than Adventist. Accepted and incorporated. First sentence, accepted and incorporated. Second sentence, accepted but unnecessary. Third sentence, rejected as not proven (except in the case of private pay patients.) Accepted. Incorporated as to Mease; unnecessary as to Adventist. 72.-75. Accepted. Incorporated as to Mease; unnecessary as to Adventist. 76.-77. Rejected as not proven. (It is a "better deal" for "charge-based payors" only.) Accepted and incorporated. Last sentence, rejected as not proven. Rest, accepted as to the branch office only, but not as to the entity as a whole. Unnecessary. 80.-81. Accepted. Incorporated as to Mease; unnecessary as to Adventist. 82.-83. Accepted and incorporated. 84. Accepted but unnecessary. 85.-88. Accepted. Incorporated as to Mease; unnecessary as to Adventist. 89. Accepted but subordinate to facts found. 90.-95. Accepted and incorporated to the extent not subordinate or unnecessary. 96. Accepted and incorporated. Adventist's Proposed Findings of Fact. 1.-5. Accepted and incorporated to the extent not subordinate or unnecessary. Second sentence, rejected as not proven. Rest, accepted but unnecessary. Accepted but subordinate and unnecessary. 8.-10. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted. First sentence, incorporated; rest, unnecessary in light of the Conclusions of Law. Accepted but unnecessary in light of the Conclusions of Law. First sentence, accepted and incorporated. Rest, accepted but unnecessary. 14.-18. Accepted and incorporated to the extent not subordinate or unnecessary. 19. Second and third sentences rejected as not proven. Hospital payor mix does not directly correlate to home health payor mix. Rest, accepted and incorporated to the extent not subordinate or unnecessary. 20.-21. Accepted and incorporated to the extent not subordinate or unnecessary. Rejected as not proven. Except as to services other than nursing, last two sentences, rejected as not proven. Rest, accepted and incorporated to the extent not subordinate or unnecessary. 24.-26. Accepted but subordinate and unnecessary. Last sentence, unintelligible. Otherwise, accepted but subordinate and unnecessary. Accepted but subordinate and unnecessary. Bracketed portion, rejected as not proven. Rest, accepted but subordinate and unnecessary. Last sentence, rejected as not proven. Rest, accepted but subordinate and unnecessary. (East Pasco is not geographically underserved, either.) 31.-32. Accepted but subordinate and unnecessary. 33. Last sentence, rejected. Rest, accepted but subordinate and unnecessary. 34.-35. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted and incorporated. (Mease has the same kind of informal arrangement in the nature of a sliding fee scale as Adventist now has.) Accepted but subordinate and unnecessary. Last sentence, rejected as not proven. Rest, accepted but subordinate and unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. Last sentence, rejected as not proven. Rest, accepted but subordinate and unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate and unnecessary. 43.-44. Accepted but subordinate and unnecessary in light of the Conclusions of Law. First sentence, accepted and incorporated. (However, the numbers probably are not significantly high.) Second sentence, rejected as not proven. Accepted and incorporated. First, sentence rejected as contrary to the evidence and not proven (although the capital costs are minimal.) Second sentence, accepted and incorporated. Accepted and incorporated. Accepted and incorporated to the extent not subordinate or unnecessary. First sentence, accepted except to the extent that it may be a legal conclusion. Rest, rejected because the information that can be obtained from the application predated the application by nine months. Accepted but subordinate and unnecessary. Second sentence, rejected as not proven. As to the rest, Mease's proposed eight visits a day was proven only as to non-nursing personnel. Otherwise, accepted and incorporated. First sentence, accepted but unnecessary. As to second and fourth sentences, generally accepted that contract staff can save some overhead expenses in some situations, especially in low volume (usually community- based) operations. But, in other circumstances, contract staff generally is more expensive than staff. In any event, differences in overhead expense is not as significant in the context of cost-based reimbursement of home health care under Medicare where the applicants will be comfortably within the cap, as in this case. Last sentence, accepted, but some positions are overstated. To the extent accepted, this paragraph is incorporated to the extent not subordinate or unnecessary. HRS' Proposed Findings of Fact. 1. To the extent this is a statement of agency policy, not a conclusion of law, accepted and incorporated. 2.-5. Accepted and incorporated to the extent not subordinate or unnecessary. 6.-7. Adventist's projection on Medicaid and indigent utilization is reejected as being too high. But EPMC's Medicaid and indigent utilization probably still would exceed Mease's, both in percentages and in raw numbers. However, this is unnecessary in light of the conclusions of law. Accepted but unnecessary. Subordinate to facts not proven. Accepted. (However, there also are branch offices in the East Pasco area, and the population and projected population growth is less than in Pinellas and West Pasco. Subordinate to facts in part accepted and in part not proven. Specifically, given the population and utilization in Pinellas and West Pasco, both current and projected, it was not proven that the area is "saturated" with HHAs. Last sentence, rejected. Rest, accepted but unnecessary in light of the conclusions of law. Accepted and incorporated to the extent not subordinate or unnecessary. In part accepted, and in part rejected. Specifically, rejected that Pinellas and West Pasco is "saturated" with home health agencies. A good part of the "need" for home health services calculated by HRS is generated by the population and population growth in Pinellas and West Pasco. Some of the HHAs operating in Pinellas and West Pasco operate at volumes far in excess of what HRS says is optimal. This proposed finding is not a valid basis for denying Mease's application. Last two sentences, rejected as not proven. Mease will increase access to AIDS patients although the increase will not be large. The Mease application does not restrict access to AIDS patients. It just candidly states the fact that, as a practical matter, home health is referred by doctors and that Mease expects most of its referrals to come from doctors on staff at its hospitals and clinics. Otherwise, accepted but unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. But the data shows that volumes in some HHAs in Pinellas far exceed the optimal level, as determined by HRS. Accepted and subordinate to facts found. The implication that Mease plans to "capture" 77% of the "new visits" is rejected as contrary to the greater weight of the evidence. It makes more sense that Mease plans to "capture" referrals from doctors at its hospitals and clinics now going to other providers, freeing those other providers to make some of the "new visits." For this reason, although the Mease projections for the first two years of operation may be somewhat optimistic, they probably are not too far off the mark. Accepted and incorporated that non-nursing positions are understaffed on the pro forma. But adjustments easily can be made when the HHA becomes operational, and there is no reason to think that Mease will not make necessary adjustments to the pro forma. Accepted and incorporated that the salary assigned to some positions by the Mease pro forma are low. But others are high. There is no reason to think that Mease will not make adjustment necessary to pay its staff reasonable salaries. The Mease proposal is financially feasible. The visit projection may be somewhat optimistic but not so as to in any manner jeopardize financial feasibility. COPIES FURNISHED: Patricia A. Renovitch, Esq. Oertel, Hoffman, Fernandez & Cole, P.A. 2700 Blair Stone Road, Ste. C Tallahassee, Florida 32301 Edward T. Labrador, Esq. Department of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, Florida 32308 H. Darrell White, Jr., Esq. McFarlain, Sternstein, Wiley & Cassedy 215 South Monroe Street Suite 600 Tallahassee, Florida 32301 Sam Power, Esquire Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Suite 407 Tallahassee, FL 32399-0700 Linda K. Harris, Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, FL 32399-0700
Findings Of Fact Background Respondent published a fixed need pool for Medicare- certified home health agencies for the certificate-of-need (CON) review cycle commencing in March, 1992, and determined that Service District XI did not need any additional home health agencies. On February 17, 1992, Petitioner timely notified Respondent that the fixed need pool calculation was in error. On March 6, 1992, Petitioner timely filed a petition challenging the fixed need pool determination, thereby commencing DOAH Case No. 92-2289. On February 24, 1992, Petitioner filed a letter of intent to submit a CON application for the development of a Medicare-certified home health agency in District XI. On March 24, 1992, Petitioner timely submitted an application for CON 6951 to establish a home health agency in Service District XI. On July 17, 1992, Respondent notified Petitioner of the intent to deny the application. Petitioner timely filed a petition challenging the intent to deny, thereby commencing DOAH Case No. 92-4795. Petitioner is adversely and substantially affected by Respondent's decisions concerning the fixed need pool and intent to deny Petitioner's CON application. Need for Proposed Health Care Facilities and Services in Relation to Applicable District Plan and State Health Plan Fixed Need Bed Pool Respondent calculated the fixed need bed pool based on Rule 59C-1.031, which is set forth in the Conclusions of Law. The purpose of the rule is to determine the required number of home health agencies by finding the cost efficient agency size (CEAS) "in number of visits at which economy of scale is achieved." Once the optimal number of visits is thereby determined, Respondent can calculate how many home health agencies are required in a specific service district. Pursuant to the rule, Respondent divided 181 nonexcluded home health agencies into four equal groups of equal numbers of agencies. These groups were divided by median numbers of visits and arrayed, as required by the rule, into groups from the lowest to the highest number of visits. Respondent then calculated for each group the median number of visits and mean cost per agency. The results of these calculations are as follows: Group Median # of Visits Average Cost Per Visit 1 5,000 $42.14 2 15,000 $45.88 3 31,000 $46.93 4 64,000 $45.95 Pursuant to Rule 59C-1.031, Respondent determined the percentage reductions, comparing "each grouping to the previous grouping." Respondent next checked for a cost reduction of at least 5 percentage points between two groups, as required by the rule. Between groups 1 and 2, there was no reduction of cost, but rather an increase of 8.88 percent. Between groups 2 and 3, there was no reduction, but an increase of 2.29 percent. Between groups 3 and 4, there was a reduction, but only of 2.09 percent. Under the rule, the only role of the first group, and its average cost per visit, is to serve as a standard against which the second group can be measured. Thus, Respondent did not calculate the percentage reduction between the average cost of the first group, which has the lowest average cost, and the average cost of any other group. Petitioner contends that the rule requires or permits a rolling comparison of group 4 with group 1. If so, the reduction between groups 4 and 1 would be 8.29 percent. There are no mean visit cost reductions of at least 5 percent between groups 1 and 2, 2 and 3, or 3 and 4. Under the rule, Respondent is required to choose the median number of visits of the grouping for which the average cost per visit was at least 5 percent less than the average cost per visit of the "previous grouping." If two or all three of the comparisons yield at least 5 percent reductions, then, rather than take the grouping corresponding to the greatest reduction or the lowest average cost per visit, the rule identifies the last of the qualifying reductions as the CEAS. As noted above, the CEAS is used to calculate the fixed need pool. In the absence of any 5 percent reduction between groups 1 and 2, 2 and 3, or 3 and 4, Respondent identified two alternatives. First, it could find that there was no fixed need pool. As Respondent's Health Services and Facilities Consultant Supervisor testified, Respondent could have declined to publish a fixed need pool because it could not apply the rule. "And at that point, the certificate of need reviewer would have to rely on other criteria other than fixed need-pool in determining whether there was a need." Tr., p. 87. In the second alternative identified by Respondent, it could select group 4 as the CEAS because the comparison between it and group 3 resulted in the only positive reduction in average costs per visit, unless group 1 was compared with some other group. An unfortunate concomitant of this alternative is that group 4 represents the second highest cost per visit. Despite this fact, Respondent chose the second alternative and proceeded to calculate the fixed need pool for home health agencies accordingly. The effect of Respondent's selection of group 4 was to calculate the fixed need bed pool based upon a relatively high number of visits per facility. The CEAS in this case was 64,000 visits. Thus, roughly 1/13th of the agencies would be needed under Respondent's fixed need pool than would have been needed if the CEAS had been set at 5000 visits, which corresponds to the least expensive group--group 1. The practical effect of Respondent's selection of group 4 was that the fixed need pool for Service District XI was zero. If group 1 had been selected, the fixed need pool would have been 14. The interpretation given the rule by Respondent lacks reason, as does the interpretation for which Petitioner contends. The correct interpretation requires the adoption of the first alternative in which Respondent acknowledges the inapplicability of the rule and leaves parties free to litigate the issue of need without regard to any published fixed need pool. Both rejected interpretations ignore the plain language of the rule. Respondent's argument falters by setting up group 1 as a "previous group" to group 4. The rule leaves no doubt that the groups are to be arrayed in ascending order of size. Given the rule's obvious reliance upon the principle of economies of scale, there is no reasonable basis for inferring the authority for a final comparison of group 4 to group 1. On the other hand, Petitioner's interpretation disregards the requirement that a substantial reduction of 5 percent triggers the identification of the CEAS group. Petitioner's argument that this interpretation most closely follows the intent of the rule is erroneous. In fact, two contradictory intentions emerge from close study of the rule. The more evident is that the rule intends to restrict market access without substantial regard to the principle of cost containment. In the absence of a rule challenge, the rule must be applied without regard to this feature. But Respondent's unchallenged disregard of the critical principle of cost- containment does not militate strongly in favor of allowing Respondent to extend the reach of this dubious aspect of the rule by engrafting upon it layers of nonrule policy to cover contingencies, which, incidentally, Respondent should have easily foreseen. The rule reflects a bias toward restricting market entry by home health agencies without regard to cost efficiency. As noted above, the rule precludes the possibility that the group with the lowest number of visits (and thus generating the largest fixed need pool) could ever be selected as the CEAS. Also as noted above, the rule's preference for later reductions of at least 5 percent, without regard to comparing average costs or even percentage reductions, again encourages the selection as the CEAS of the group with the larger number of visits (thus generating the smallest fixed need pool). Third, as Respondent contends, in no way can Rule 59C-1.031 be interpreted to require Respondent to select the CEAS based on the group with the lowest average cost per visit. As Respondent's Health Services and Facilities Consultant Supervisor testified, "the only reason why we regulate home health agencies under the certificate of need program and why we restrict market entry is based on the argument that larger size agencies are more cost-effective." The Supervisor added: "If that assumption were no longer true generally, then there would be actually no reason for us to control market entry for home health agencies." Tr., p. 81. In fact, Respondent has detected a decreasing correspondence between the size of a home health agency in number of visits and its average cost per visit, as agencies' costs migrate toward applicable cost ceilings. This was easily predictable and means that many more cases can be anticipated in which no CEAS will emerge from the rule's formula because no later group represents a 5 percent reduction in cost from a previous group. Implicitly acknowledging this practical problem with the rule, as well as hopefully the counterproductive effect of the rule upon the attainment of cost-containment, Respondent has also proposed the deregulation of home health agencies in terms of the issuance of CON's. The other source of the intent of the rule is derived from the definition of the CEAS, which is the objective of the rule's calculations. The CEAS is the "cost efficient agency size . . . at which economy of scale is achieved." "Economy of scale" is defined in the following statement: The behavior pattern of costs recognizes that gains in operating efficiencies act to reduce costs per unit to a certain point (economies of scale) and that[,] as the level of production continues to increase[,] operating inefficiencies take effect (diminishing returns). Respondent's interpretation of the rule, which stresses the intention to restrict market access without substantial regard for the principle of cost containment, fails to account adequately for the fact that diminishing returns or diseconomies of scale may actually have already begun before the second group is considered. The intent of the rule is to find the cost efficient agency size at which economies of scale are achieved. If, as here, the economies of scale are only encountered within the first group (i.e., the group with the agencies with the smallest number of visits), then it is impossible to justify Respondent's interpretive nonrule policy that exacerbates the tendency of the rule to restrict market access without substantial regard to the principle of cost containment. Thus, Respondent's claim that its interpretation of the rule is most consistent with the intent of the rule is flawed. In fact, the rule contains contradictory intentions, and Respondent, at best, has adopted the interpretation most consistent with the more dubious intent inferable from the rule. Petitioner's interpretation is most consistent with the better intent inferable from the rule--i.e., the CEAS is the "cost efficient agency size . . . at which economy of scale is achieved." However, Petitioner's interpretation fails to take into account the intent of the rule favoring larger providers. Petitioner's deemphasis of this aspect of the rule commendably pursues the critical principle of cost containment. But Petitioner's contrivance of the rolling comparison in which group 4 is compared to group 1 suffers from a disregard of the language of the rule regarding the arraying of the groups in ascending order and the comparison of each of the three largest groups with its previous group. There is no other reasonable conclusion than that the rule could not produce a fixed need pool, Respondent's determination of a fixed need pool of zero is incorrect, and the parties should have been allowed to litigate the question of need without regard to Respondent's incorrect determination of a fixed need pool of zero and without a showing of not-normal circumstances. Need in General The absence of the fixed need pool does not mean that the inputs to the formula are without value. To the contrary, the above-described calculations under the rule clearly justify determining need on the basis of the finding that the most cost efficient agency size is the agency in which the median number of visits is 5000. To achieve this most cost-efficient agency size, the number of home health agencies in District XI could be expanded by 14. Thus, Petitioner has proved the need for another home health agency. The applicable district and state health plans fail to identify any groups with a quantifiable lack of services or special need for home health care services. Plan language regarding preferences implies a comparative evaluation process, which is, at most, not readily applicable to the present situation involving a single applicant. In any event, it appears that Petitioner would serve a variety of subgroups of District XI that are specified in the district plan as medically underserved, even though the plan does not indicate that any of these groups currently has unmet needs in terms of home health agency services. It also appears that Petitioner would serve a greater percentage of Medicaid-eligible and medically indigent patients that is typical for existing home health agencies in District XI. Based on the findings of the preceding paragraph, Petitioner was entitled to full compliance with the corresponding preferences of the district plan, rather than the noncompliance and partial compliance that it was given for these preferences in the State Agency Action Report (SAAR). Respondent should have given Petitioner full compliance on the remaining preferences under the district plan, although several of them appear to have little to do with need. Petitioner has a working arrangement with the prime referral source, physicians. Also, by virtue of its acquisition of an existing home health agency, Petitioner will also have working arrangements with various health care providers in the area. The deficiency with the district plan cited in the SAAR concerning working arrangement with AIDS referral networks is of little importance as the AIDS referral networks, which have their own home health agencies, will be competitors of Petitioner. The SAAR likewise incorrectly gives Petitioner partial or no compliance with preferences in the State plan with respect to AIDS patients, which Petitioner clearly proposes to serve; counties underserved by existing home health agencies, which includes Dade County based on the above-described calculations concerning the most cost efficient agency size; and the proposal of a comprehensive quality assurance program and the seeking of accreditation by the Joint Commission on Accreditation of Healthcare Organizations, both of which Petitioner proposes to do. Based on the foregoing, Petitioner has clearly demonstrated a need for the proposed project without regard to not-normal circumstances and despite the absence of a valid fixed need pool for home health agencies in the subject batching cycle. Availability, Quality of Care, Efficiency, Appropriateness, Accessibility, Extent of Utilization, and Adequacy of Like and Existing Health Care Services According to the SAAR, there are sufficient home health agencies in District XI. However, Petitioner has proved that the proposed project will increase the availability or access of home health agency services based on the above-described calculations concerning the most cost efficient agency size. Ability of Applicant to Provide Quality of Care The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Availability and Adequacy of Other Health Care Facilities and Services According to the SAAR, there are sufficient home health agencies in District XI. However, Petitioner has proved that existing home health agencies are not adequate or sufficiently available based on the above-described calculations concerning the most cost efficient agency size. Probable Economies and Improvements in Service that May Be Derived from Operation of Joint, Cooperative, or Shared Health Care Resources The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Need for Special Equipment and Services Not Reasonably and Economically Accessible in Adjoining Areas The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Need for Research and Educational Facilities The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Availability of Resources for Project Accomplishment and Operation, Effects of Project on Clinical Needs of Health Professional Training Programs, Extent to which Services Will Be Accessible to Schools for Health Professions, Availability of Alternative Uses of Such Resources for the Provision of Other Health Services, and Extent to which the Proposed Services Will Be Accessible to All Residents of the Service District The parties have stipulated that these criteria are either not applicable to Petitioner's application or that the application has adequately addressed the criteria. The sole exception concerns the extent to which the proposed services will be accessible to all residents of the service district. Petitioner has proved that the proposed services would be accessible to all residents of the service district. Immediate and Long-Term Financial Feasibility of Project The parties have stipulated that these criteria are either not applicable to Petitioner's application or that the application has adequately addressed the criteria. The sole exception concerns the extent to which the long-term financial feasibility of the project is a function of Petitioner's utilization assumptions. The SAAR predicates its assignment of only partial compliance with this criterion upon Petitioner's failure to demonstrate access problems and justify the projected patient volume. However, to the extent that these criticisms reflect an incorrect need determination, Petitioner has proved that the proposed project satisfies the criterion of long-term financial feasibility based on the above-described calculations concerning the most cost efficient agency size. Special Needs and Circumstances of Health Maintenance Organizations The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Needs and Circumstances of Entities Providing a Substantial Portion of Their Services or Resources to Individuals Not Residing in the Service District in which the Entities Are Located or in Adjacent Service Districts The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Probable Impact of Proposed Project on Costs of Providing Health Services Proposed by Applicant Based on Effects of Competition on Supply of Health Services Being Proposed and Improvement or Innovations in the Financing and Delivery of Health Services which Foster Competition and Service to Promote Quality Assurance and Cost-Effectiveness The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Costs and Methods of Proposed Construction The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion. Applicant's Past and Proposed Provision of Health Care Services to Medicaid Patients and the Medically Indigent The parties have stipulated that this criterion is either not applicable to Petitioner's application or that the application has adequately addressed the criterion.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Agency for Health Care Administration issue a final order approving the application for CON 6951. ENTERED on September 8, 1993, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 8th day of September, 1993.
