The Issue The issue in this proceeding is whether DHRS should approve the application for certificate of need of any one or more of the January, 1987, applicants for community nursing home beds in Hillsborough County. STIPULATIONS The parties stipulated to the following facts: All applicants timely filed their respective letters of intent, applications and omission responses with DHRS and the appropriate local health council for the January, 1987, batching cycle. The petitioners each timely filed a petition requesting a Section 120.57(1) hearing and have standing in this proceeding. The parties agree the Division of Administrative Hearings has jurisdiction over this matter and the parties. The CON application content requirements of Section 381.494, Florida Statutes (1985), apply as that was the statute in effect at the time the applications were filed. The review criteria in Section 381.705(1) and (2), Florida Statutes (1987), apply to this proceeding. The following statutory criteria have been met orare not applicable in this proceeding: Section 381.705(1)(d), (f), (g), (j) and (k) and all of Section 381.705(2), Florida Statutes (1987). Except for the effects the project will have on clinical needs of health professional training programs, the extent to which services will be accessible to schools for health professionals and the availability of alternative uses of such resources for the provision of other health services, Section 381.705(1)(h) is in dispute and remains to be litigated.
Findings Of Fact SUMMARY DESCRIPTION OF THE PARTIES. HCR's application (CON Action No. 5000) is to construct a 120-bed nursing home consisting of 40,000 square feet at a cost of $3,964,000.00, or $33,033 per bed (including adult day care; $32,1127 when the cost for day care is excluded.) The HCR application describes special programs and services for Alzheimer's Disease and related disorder patients in a distinct special care unit and an Alzheimer's day care center, both Identified in the plans submitted by HCR showing special design elements. HCR also proposes to offer sub-acute care and respite care. The HCR nursing home will have 2.08 (120/57.6) patients per staff, which includes the assistant director of nursing and occupational therapy and recreational therapy aides listed by HCR in its application. FCP submitted an application for 30 nursing home beds to be constructed as a part of a retirement facility (CON Action NO. 4993). The 30 beds will comprise approximately 17,558 square feet at a cost of $1,549,599.00, or $51,653 per bed. The Florida Country Place application proposes a patient staff ratio of approximately 2.3 (30/13). Palm Court submitted an application for a 60-bed addition to its existing 120-bed facility (CON Action No. 4987). The 60-bed addition would consist of 15,260 square feet at a cost of $1,472,435.00, or $24,571 per bed. The Palm Court facility is located in Plant City in the far eastern portion of Hillsborough County, near the Polk County line. Palm Court proposed a ratio of 2.31 (60/26) patients per nursing staff. Manor Care submitted an application (CON Action No. 5006) to add 60 beds to an approved certificate of need for 60-beds for which construction has not yet begun. The area to be added would consist of 19,000 square feet at a cost of $2,187,045.00, or $36,451 per bed. The Manor Care addition would include a distinct special care unit for Alzheimer's Disease and related disorder victims and the 60-bed addition would provide a patient staff ratio of 1.98 (60/30.3), which includes a half-time physical therapy aide, a half-time recreational therapy assistant and an assistant director of nursing. Forum submitted an application (CON Action No. 4999) to construct a 120-bed nursing home as a part of a retirement complex. The nursing home element will consist of 49,283 square feet at a cost of $5,053,301.00, or $42,111 per bed. Forum proposes a staffing ratio of 3.0 patients per staff FTE. Forum proposed to provide respite care and hospice care, and adult day care and meals on wheels during or after the second year of operation. HHL submitted an application (CON Action No. 4978) for 120-bed nursing home consisting of 37,700 square feet at a cost of $3,900,000.00, or $32,500 per bed. The HHL facility proposes 2.27 (120/52.8) patients per staff, which includes the rehabilitation assistants and the assistant director of nursing listed by HHL. HHL proposes sub-acute care, respite care, programs for Alzheimer's Disease victims (but not a distinct special care unit) and an Alzheimer's adult day care program of from four to six patients. Cypress submitted an application (CON Action No. 5004) to construct a 60-bed nursing home in Sun City Center in southeastern Hillsborough County. The nursing home described in the application would contain 24,069 square feet at a cost of $2,125,000.00, or $35,419 per bed. But Cypress' estimated construction cost per square foot of $49.81 does not account for inflation and is unreasonably low. Median cost of nursing home construction in Florida is $55 per square foot. It is estimated that Cypress' construction cost estimate is 10-15 percent too low. Assuming that the cost estimate is 12.5 percent too low, the cost of construction would increase to approximately $2,274.485 or $37,914 per bed. Cypress did not detail any special programs in its application and proposed 2.45 (60/24.5) patients per staff. However, this ratio is questionable in view of the confusion surrounding Cypress' evidence regarding staffing and the apparent inaccuracy of the staffing presented by the application. DHRS is the state agency that preliminarily reviewed and passed on the applications and is responsible for final agency action on them. DHRS PRELIMINARY REVIEW AND ACTION. HCR, FCP, Palm Court, Manor Care, Forum, HHL, Cypress, and others filed their applications for community nursing home bed certificates of need for Hillsborough County in the January, 1987, batching cycle. On June 18, 1987, DHRS issued its State Agency Action Report (SAAR), in which it denied all of the applications except HCR's, FCP's and VHA/Oxford's (for 120 beds). Review of the SAAR in light of the evidence introduced at the final hearing indicates that DHRS erred in reviewing the applications in at least the following respects: Manor Care. -- The SAAR indicates that DHRS was not cognizant that Manor Care had a final approval for a 60-bed nursing home CON (No. 4155) to which to add the 60 beds applied for in this case, CON Action No. 5006. The SAAR was somewhat critical of the Manor Care proposal for being a two-story structure. It appears that DHRS confused the proposal to add 60-beds (CON Action No. 5006) with a parallel contingent proposal to build a new 120-bed facility (CON Action No. 5005), which Manor Care eventually withdrew during the final hearing. Actually, CON Action No. 5006, added to the approved CON No. 4155 for a new 60-bed nursing home, would result in a one-story 120-bed nursing home. On page 7 of the SAAR, DHRS indicated its understanding that Manor Care had not specified a location for its proposal. Later, on page 11, the SAAR acknowledges the true fact that Manor Care's proposed nursIng home would be located in the Northwest Hillsborough County subdistrict, which is the Local Health Plan's first priority for location of additional nursing home beds in DHRS District 6. HHL. The SAAR (p. 13) states that Convalescent Services, Inc. (CSI), the management corporation HHL and other limited partnerships for which the Kellett Brothers are the general partners, has no other nursing homes in Florida. While technically correct, Kellett limited partnerships do have other nursing homes in Florida. Staffing tables on page 17 of the SAAR are incorrect, attributing no LPNs to the HHL proposal instead of 6 and only 36 aides instead of 38. On page 18 of the SAAR, the table of patient privileges incorrectly states that the HHL applications had no patients' bill of rights. Also on page 18 of the SAAR, DHRS incorrectly omitted adult day care and community outreach from the table of programs provided by HHL. On page 26 of the SAkR, it gives HHL's private pay private room rate ($101) as its semi-private room rate (actually $69.92) The SAAR Review Matrix incorrectly omits adult day care, community outreach and sub-acute care from HHL's proposed programs and omits HHL's patients' bill of rights. Forum. -- The SAAR starts out on page 3 by misidentifying Forum as being affiliated with Hospital Corporation of America. On pages 4, 6 and 15, the SAAR incorrectly fails to recognize that a retirement living center (apartments) is part of the overall development Forum proposes. The semi-private room rate of $110 attributed to Forum's application on page 26 of the SAAR is wrong; it should have been $85. Cypress. -- The Review Matrix in the SAAR failed to identify several services and programs Cypress stated in its application that it would offer. The matrix did not recognize that Cypress would offer social activity functions within the community, would offer rehabilitation, would provide some Alzheimer's type services, (which Cypress called supportive care and mentally frail services) and physically frail services. Cypress also spoke of hospice care and respite care in its application, as well as specialized rehabilitation, physical therapy, and speech therapy. Cypress also spoke of community outreach programs, psychiatric services, home health agencies, and numerous other areas that were not recognized by DHRS in its matrix. However, there are valid reasons for some of these omissions. On May 9, 1988, the first day of the final hearing, VHA/Oxford withdrew its application. On the afternoon of May 17, 1988, DHRS announced it was supporting the grant of Palm Court's application since VHA/Oxford had withdrawn. But the only evidence to support the new DHRS position was through the testimony of Reid Jaffe, DHRS Health Services and Facilities Consultants Supervisor, who did not express a personal opinion but acted as a messsenger to relay the positions taken by others at DHRS who did not testify. NUMERIC NEED. Rule 10.5.011(1)(k), Florida Administrative Code, is a methodology for calculating net numeric need for nursing home beds. Under the methodology, gross numeric need is calculated essentially by multiplying the population of two age cohorts projected on the planning horizon by a use rate. The use rate is calculated by divIding current population by the current number of licensed beds. To obtain net need in a health planning sub-district, the methodology first prorates the gross need in the entire district, using the proportion of current licensed beds in the subdistrict to the current licensed beds in the district, and adjusts the resultant by a current occupancy rate factor (occupancy rate /0.90); then, the number of licensed beds, plus 90 percent of the number of approved beds in the subdistrict, are subtracted from the adjusted gross need in the subdistrict. With three exceptions, the parties agree on how net numeric need is calculated under the rule methodology. The parties disagree only on the current licensed bed count, the current approved bed count, and the occupancy rate at one facility that has both community nursing home beds and sheltered nursing home beds. (Sheltered nursing home beds generally are not factored into the formula.) As for the licensed bed count, the issue is whether The Home Association, a 96-bed facility in Hillsborough County, should be included as a licensed community nursing home facility or excluded as a sheltered facility. At hearing, all of the parties presenting evidence on the issue except Forum counted The Home Association's 96 beds as licensed community beds. Forum excluded The Home Association from the licensed bed count because it was not listed on the Department's Community Nursing Home Report for January 1, 1988. This same report reflects three other facilities in Hillsborough County in which the beds were formerly sheltered but as of August 1, 1987, began to be counted by the Department as community beds. Forum conceded, however, that if the Department recognizes The Home Association as a community facility, then it would be appropriate to include those beds in the licensed bed count under the rule formula. In its proposed recommended order, even Forum agrees that The Home Association beds are included in the licensed bed count. Two issues are presented relating to the inventory of approved beds under the rule formula: the date at which approved beds are to be counted; and whether the 120 beds under Careage CON #4714 and Manor Care's 60 beds under CON #4155 were approved at the pertinent time. On the first question, Forum again stands alone. In the face of a rule which is silent as to the date on which approved beds are to be counted, Forum suggests that they be counted cn the same day licensed beds are counted, December 1, 1986, for this batch. All other interested parties follow the Department's general practice of counting approved beds as of the date the State Agency Action Report for this batch was executed, June 18, 1987. Forum supports its position on the ground that use of the same date for both licensed and approved beds avoids the prospect that beds may be "lost" from the calculation if they are not licensed as of December 1, 1986, but become licensed before June 18, 1987, and therefore are no longer approved beds on that latter date. The argument is meritless. There is no evidence of any "lost" beds under this policy for this batch. Indeed, the evidence is that such beds are not lost: 120 beds at Carrollwood were licensed on December 15, 1986, after the December 1 licensed bed cut-off and before the June 18, 1987, SAAR date. These beds were included in the approved bed inventory on June 18, 1987. The Department's policy under its numeric need rule is to count approved beds as of the execution date of the SAAR. Under this policy, the need for beds in the future is predicated on the number of beds currently or soon to be available to meet the need. When more than seven months can elapse after licensed beds are counted but before the agency decision is formulated, it makes sense to count beds approved during this intervening period. A 120-bed award to Careage in the prior batch was published by DHRS in the Florida Administrative Weekly of January 23, 1987, reflecting approval on January 7, 1987. However, DHRS then received criticism.of the approval, and a new supervisor in charge initiated a second review of the circumstances and of the Careage approval. The second review did not conclude until after June 18, 1987. When it did, DHRS re- affirmed its decision to approve Careage and issued a CON for 120 beds on August 18, 1987. Although the Careage CON was issued after June 18, 1987, DHRS proved that there is a rational basis for including it in the approved bed count under these unusual circumstances. The Careage CON represents 120 beds approved in the batching cycle preceding the one at issue in this case. Counting the 120 beds as approved promotes sound health planning. The projection of net need on the planning horizon is predicated on the most accurate count of approved beds from prior batching cycles that can be anticipated to come on line in the near future. As of June 18, 1987, there were 308 other beds approved but not yet licensed in Hillsborough County. Included among these 308 approved beds are 60 beds awarded to Manor Care under CON 4155 by Stipulation dated March 30, 1987. By mistake, DHRS did not count Manor Care's 60-bed CON in the SAAR. This mistake was not discovered, and DHRS served discovery responses and took a final position on need, as required by prehearing orders, that did not count the Manor Care CON. But this mistake f fact should now be corrected, even if it could have been discovered earlier through the use of due diligence, so that the health planning decision resulting from these de novo proceedings will be predicated on the correct facts. See Gulf Court Nursing Center v. HRS, 483 So.2d 700, 712 (Fla. 1st DCA 1986). It is appropriate to include Manor Care's finally approved 60 beds in the rule formula. Adding Careage's 120 beds, the total approved bed count is 428. The final variation accounting for the differences in the parties' calculations under the formula is the manner in which the occupancy rate should be computed at John Knox Village, a facility containing both community and sheltered beds. The issue is whether the patient days in this mixed facility should be prorated between the two types of beds or whether the full patient days for both types of beds should be used in calculating the occupancy rate in the facility. There is no separate report of occupancy by bed type for this mixed facility. The number of patient days delivered in the community beds at John Knox is not known. If the patient days for the entire facility are prorated according to the percentage the community beds bear to the total number of beds, there is a necessary but wholly unsupported and speculative assumption that the proportion of patient days delivered in community beds is identical to the proportion of community beds. DHRS historically has been unwilling to make this assumption and has always included the total number of beds and patient days in mixed facilities to determine the occupancy rate under the community bed rule. The rationale supporting this policy has been appropriately explicated on the record. The use of prorated patient days to determine occupancy in mixed facilities, as suggested by DHRS for the first time at final hearing, also is a change from the position the Department took when exhibits were exchanged and the prehearing stipulation was executed and then relied on by the parties. Because the Department, as a party litigant, did not prorate in its prehearing submissions, it cannot do so at hearing in the absence of fraud, mistake of fact, or newly discovered evidence. No evidence of any such extenuating circumstances was presented. The only explanation DHRS gave for changing its treatment of the John Knox occupancy data was that more accurate recent data (using daily census data instead of first day of the month census data) furnished by the Local Health Council was prorated. But DHRS just as easily could have prorated the older, less accurate data if it had chosen to take that position at the time the parties were required to take final positions in prehearing procedures. The Department, therefore, is precluded from adopting a posture at hearing relating to the treatment of patient days in mixed facilities which is different from that reflected in the Department's prehearing stipulation and exchanged exhibits. In summary, the appropriate numeric need calculation must include The Home Association in licensed beds, count both Careage's 120-bed CON and Manor Care's 60-bed CON in the approved bed count, and use the full John Knox bed complement and patient days in determining the Hillsborough County occupancy rate. Using these factors in the rule methodology, the net need for community nursing home beds in Hillsborough County for the January, 1990, planning horizon is 231, as reflected in the calculation included in the attached Appendix To Recommended Order, Case Nos. 87-3409, etc. Rule 10-5.011(1)(k), Florida Administrative Code, provides that DHRS normally may not approve more beds than the numeric net need calculated under rule methodology. In this case, none of the circumstances specified in the rule that would justify exceeding the numeric net need were proven by the evidence. At the same time, the rule does not require DHRS to fill all, or as much as possible, of the numeric net need by attempting to "mix and match" applications to come as close as possible to the calculated number. LOCAL GEOGRAPHIC NEED PRIORITIES. The current, 1985 District VI Local Health Plan provides that, after consideration of numeric bed need under the rule need methodology, its "priority need rankings" should be considered in the competitive review for new nursing homes. Hil1sborough County, Northwest, is priority rank number one. HCR, FCP, Manor Care, Forum and HHL all propose to locate their nursing homes there. Cypress proposes to locate in Sun City Center and Palm Court is in Plant City, both in Hillsborough County, Southeast, an area ranked fifth in priority in District VI. Plant City is close to Polk County, which the Local Health Plan designates as the fourth ranked area in priority. Cypress proposes its 60-bed nursing home approximately 1/4 mile down the road from an existing nursing home called Sun Terrace, operated by CSI. Quality of care concerns have arisen due to rapid fill-up of 60 additional beds recently licensed at Sun Terrace and opened in September, 1987. See Findings of Fact 83-87, below. As a result, Sun Terrace has imposed on itself a moratorium on new admissions until quality of care concerns can be addressed. In part as a result of the moratorium, Sun Terrace's occupancy rate at the time of the final hearing was only approximately 65 percent, leaving 42 empty beds. MEDICAID NEED. One of the three major considerations for competitive review of nursing home CON applications in the Longterm Care section of the 1985-1987 State Health Plan is "resource access." Except as reflected in the priority rankings, geographic access is not an issue in this proceeding. (Priority/Policy 7 of the Local Health Plan, setting a goal of providing for nursing home services within 30 minutes travel time of 90 percent of urban residents and within 45 minutes travel time of 90 percent of rural residents, already has been achieved in District VI.) But, to address concern for financial access, Priority/Policy 2 of the Local Health Plan provides that applicants "should commit, at a minimum, to serve Medicaid eligible patients in proportion to the representation of elderly poor in the subdistrict." In Hillsborough County, Northwest, where all but two of the applicants propose to locate, the elderly poverty rate is 18.6; in Hillsborough County, Southeast, where Cypress and Pal:n Court would be located, the elderly poverty rate is 15.6 percent. The applicants propose to commit the following percentages of their nursing home beds to the care of Medicaid- 4 eligible patients: HCR, 70 percent; FCP, 70 percent; Manor Care, 30 percent; HHL, 45 percent; Palm Court, 70 percent; and Cypress, approximately 10 percent. Cypress proposed in its application to commit 10 percent of its beds for Medicaid use. It attempted to update its application to provide for a 15 percent Medicaid commitment. The update was said to have been the result of a decrease in the average age of the residents of Sun City Center, Cypress' proposed primary service area, from 73 to 70. But the percentage was calculated by first estimating 60 percent private pay and "backing down" to a Medicare percentage of 25 percent, leaving 15 percent Medicaid. The evidence was persuasive that this attempted update was not due to extrinsic factors. See Conclusions of Law 20 to 25, below. Forum has committed only to have 50 percent of its beds Medicaid- certified and to meet the requirements of Priority/Policy 2. Although Priority/Policy 2 is written as a minimum Medicaid percentage, no evidence was presented from which to determine how high a percentage of Medicaid commitment is desirable. There was, e.g., no evidence on which to find that a Medicaid percentage as high as four times the elderly poverty rate is more desirable than a percentage approximately equal to or perhaps just a bit higher than the elderly poverty rate. To the contrary, the only evidence on the subject was that DHRS does not now consider the Medicaid percentage to be as important as it was considered to be in the past and that DHRS now just checks to see that the percentage approximates the elderly poor rate in the County. NEED FOR ALZHEIMER'S DISEASE PROGRAMS. Description Of The Disease And The Need. There is a need in Hillsborough County for additional nursing home beds and services for Alzheimer's Disease and related disorder victims. There is no known nursing home in Hillsborough County which provides a distinct care unit for Alzheimer's Disease and related disorder victims. There is an estimated unmet need by Alzheimer's patients for nursing home care in Hillsborough County of approximately 1,271 by July, 1989. DHRS has recommended that "preference should be given to applicants for new nursing home beds which propose the development of special Alzheimer's units" and "greater preference should be given to units that will also provide adult day care and/or respite care." Alzheimer's Disease is a brain disorder that was discovered at the turn of the century. It primarily affects persons over the age of 60. The term "related disorders" is used because some non-Alzheimer's disorders mimic Alzheimer's Disease symptoms and create many of the same needs for specialized care. Typically, Alzheimer's Disease results in gradual memory loss and, as memory loss progresses, results in the need for ever- increasing personal care. In the earlier stages, the victim is often in reasonably good physical condition and simply exhibits signs of recent memory loss. However, as memory loss increases, various activities of daily living are disrupted. Victims encounter more serious physical problems and exhibit symptoms such as wandering, significant weight loss, clumsiness, incontinence and antisocial behavior. In the last stages of the disease, the victim requires increasingly intense medical attention, becomes totally dependent on others, and may eventually require total skilled nursing care. The intensity of care required for the Alzheimer's Disease and related disorder victim increases as the disease progresses. In early stages, the victims are typically cared for at home by a family member. The nature of care required for an Alzheimer's Disease or related disorders victim is very exhausting for the care giver. Toward the end of the first stage of the disease when the victim requires increasing supervision, the victim can be maintained longer in the home if there is available to the care giver some form of occasional rest, such as adult day care or respite care. Adult day care and respite care provide opportunities for the primary care giver to "take a break". See Findings of Fact 133 to 135, below. An Alzheimer's Disease patient usually requires inpatient nursing home care late in the second stage of the disease. If the patient is ambulatory, he often exhibits a wandering behavior. Approximately 50 percent of the Alzheimer's victims admitted to a nursing home have the potential to wander. Ultimately, Alzheimer's victims become bed-ridden and require skilled or sub- acute nursing home care, including tube feedings, cathethers, and artificial life support. Historically, ambulatory Alzheimer's patients in nursing homes have been mixed with other patients. The Alzheimer's victim has often disrupted life in the nursing home because of the victim's wandering, incontinence, confusion, and socially unacceptable behavior. Because of these characteristics, some nursing homes avoid admitting Alzheimer's patients and others control problem behavior with sedation and physical restraint. A separate Alzheimer's care unit enables the nursing home to utilize special techniques to manage the Alzheimer's disease victim and allows the victim to maintain his cognitive capabilities for as long as possible, without restraint and sedation. Nursing home patients who do not suffer from Alzheimer's and related diseases are often agitated and disrupted by the Alzheimer's patients' unacceptable social behavior. A separate unit for Alzheimer's Disease victims accommodates the needs of the non-Alzheimer's patient by eliminating unpleasant, often violent encounters between dementia victims and other patients. Distinct Alzheimer's special care units provide better care for Alzheimer's disease and related disorder victims for several reasons. A separate unit eliminates the tendency of the Alzheimer's disease patient to disrupt the remainder of the nursing home. A separate unit provides a smaller, safer, specially designed area with specially trained staff to address the unique needs of the Alzheimer's disease victim. A separate unit is preferable to mixing Alzheimer's patients with non- Alzheimer's patients. Traditional nursing home programs and activities are often inappropriate and counterproductive for the Alzheimer's patient. HCR's Proposal. The 120-bed nursing home proposed by HCR will help meet the needs in Hillsborough County for adult day care, respite care, sub-acute care and a special care unit for Alzheimer's Disease and related disorder victims. The programs and services will enable the HCR nursing home to provide at one location a complete continuum of care from the least intense level of care in adult day care to total (sub-acute) care. HCR's Alzheimer's special care unit will incorporate special design features, special patient activities and programs and higher staffing levels to meet the unique needs cf Alzheimer's disease victims. These features are intended to compensate for memory loss and provide a safe environment where cognitive capabilities can be maintained for as long as possible while patients enjoy personal freedom without the use of restraints and sedation which have typified the treatment of unmanageable Alzheimer's and dementia patients. The architectural design of the HCR nursing home will accommodate the tendency of Alzheimer's victims to wander by allowing the victims to ambulate in circular patterns through the facility and the adjacent court yard and by providing an electronic warning system to prevent inadvertent exit from the nursing home. Patient bathrooms are specially designed to avoid fright and confusion through the use of automatic lighting fixtures, appropriate coloring and distinctly shaped fixtures and waste baskets. Calming colors, color coding, carefully selected art work, special floor coverings and labeling are provided. Separate dining and activities areas enable the nursing home to provide programs and activities for Alzheimer's disease victims in a more effective and efficient manner than would be possible if the same areas also had to be used for non- Alzheimer's Disease victims. The proposed HCR nursing home includes a discreet area designed for an adult day care center, which will share some resources with the nursing home. The program will accommodate 12 persons and be operated in accordance with adult day care regulations. The physical spaces include an entry separate from the main nursing home entry, a lobby, an office, a therapeutic kitchen for use by the patients, toilet facilities, an activities center, and a lounge with an adjacent covered porch. The adult day care program will be staffed by a nurse director, an assistant and volunteers. The participants in this program will be provided with various activities of daily living in an environment developed for Alzheimer's Disease victiMs. This program is intended to provide placement for persons not yet in need of in-patient care and will provide an alternative to premature nursing home admission. Manor Care's Proposal. Manor Care proposes a dedicated 30-bed specialized unit for persons suffering from Alzheimer's disease and related disorders. In 1985, Manor Care perceived the need to treat Alzheimer's patients in a manner different than patients in the general nursing home population. Manor Care's task force of nurses, administrators, architects, and designers developed an Alzheimer's program which recognizes the special needs of the patient. Manor Care now operates 21 special dedicated Alzheimer's units throughout the country and is planning 16 additional Alzheimer's units. Manor Care's comprehensive Alzheimer's program encompasses five components: (1) environment, (2) staffing and training, (3) programming, (4) specialized medical services, and (5) family support. Environment. The proposed 30-bed Alzheimer's unit will be separate from the rest of the facility and self-contained, with its own dining room, activities room, lounge, quiet/privacy room, nurses sub-station, director's office, and outdoor courtyard. A separate dining room for Alzheimer's residents enables staff to provide individualized attention and special assistance. By providing a simple and separate dining environment, residents are no longer embarrassed by confusion and agitation displayed in the presence of non-Alzheimer's residents during mealtime. A separate lounge area is provided for families to visit with residents. In a typical nursing center, the family must visit a confused resident in the presence of other families; families of Alzheimer's residents can find this embarrassing. A separate lounge makes visitation more desirable for Alzheimer's residents and families. The quiet/privacy room can be used by families as a quiet area to visit with a family member, by residents who want to spend time alone, or by staff persons and residents for individualized programming away from the activity on the unit. The outdoor courtyard, which is enclosed and accessible to the unit through the activities room and hallway door, allows Alzheimer's residents to walk outside freely without wandering off. The Manor Care Alzheimer's unit is specially designed with features which reduce environmental stress by minimizing glare (using parabolic lenses), noise and bold patterns which increase agitation in Alzheimer's residents. Throughout the unit, a residential, uncluttered atmosphere is emphasized, using soft, contrasting colors and textures. The unit also contains visual cues to increase orientation. Furnishings are functional, durable and easy to maintain. Staffing and Training. The Alzheimer's unit has its own specialized staff including a Unit Director, Activities Director, and nursing staff. The unit is staffed at a higher "nurse to resident" ratio than the rest of the facility. Staffing patterns emphasizu continuity to ensure that residents receive individualized care. The nurses become f;i1iar with the behavior and abilities of each resident and are able to render care appropriately. Programming. The goal of programming and activities in the Alzheimer's unit is to improve the quality of life of the Alzheimer's resident. This specialized programming results in reducing the use of medications and restraints necessary to manage the Alzheimer's resident. The Manor Care Alzheimer's activity program is success-oriented; staff provide activities designed to allow Alzheimer's residents to succeed more frequently. (They usually fail when mixed in with the general nursing home population.) specialized Medical Services. The use of consultant medical specialists is an integral part of Manor Care's Alzheimer's Program. Specialists provide diagnostic and treatment services for Alzheimer's residents upon admission to the unit, and thereafter when deemed medically appropriate. Family support. Family support is another important aspect of the Manor Care Alzheimer's program. Families are very supportive of the unit's programming and have benef itted from the understanding and support available to them. The Others' Proposals. None of the other applicants propose specialized units for the care of patients with Alzheimer's disease and related disorders. Alzheimer's sufferers will be treated in an "open unit" at the HHL facility and will be placed as compatibly as possible with other residents. Although these residents will be able to intermingle with other residents, their movements will be monitored by the "wander guard" system and all doors will be equipped with buzzers connected to the nurse's stations. The HHL facility will be designed to incorporate secure courtyards and other areas where residents will be free to wander safely throughout the living areas. The facility's nursing personnel will be specially trained to provide services to Alzheimer's sufferers. The proposed HHL facility will also offer an adult Alzheimer's day care program. Although the program will be small (accommodating between four to six individuals) it will interface with the Alzheimer's program offered to the in-house residents. As with the respite program, the Alzheimer's adult day care program will give the families of Alzheimer's disease sufferers an opportunity to take a breather during the day, and the participants will benefit from the special Alzheimer's programs and activities offered. With its proposed 60-bed addition, Palm Court plans to add a program directed specifically at persons suffering from Alzheimers and related brain disorders. Currently, it does not have one. Neither FCP nor Forum make any particular provision for the care of Alzheimer's patients. FCP points out that its facilities in other states historically have cared for this special category of patient, primarily through use of high quality, thereapy-oriented programs, especially at the earlier stages of the disease. Cypress proposes to locate off of a central core: a 60-bed nursing home, offering both intermediate and skilled care, with its own recreation area and dining, serviced from the central kitchen; (2) a 20-bed assisted living unit (which Cypress also calls "supportive care") for mentally frail and physically strong individuals which has its own outdoor recreation area and dining area; and (3) another 40 assisted living beds broken into two 20-unit wings for mentally strong and physically frail individuals, with their own dining and recreation area, including outdoor recreation. The various levels of care are separate since each of the levels have different needs and methods of treatment. However, Cypress will only accept in the mentally frail, physically strong wing, Alzheimer's-type patients who are in the earlier stages of the disease. QUALITY OF CARE. Priority/Policy 9 of the 1985 Local Health Plan states: "Applicants should be evaluated as to their achievement of superior quality ratings by DHRS and other indications of quality as available." Track Record. At the time of application, three of the nursing homes operated by HCR in Florida had superior licenses and the remaining homes had standard licenses. FCP has one nursing home in Florida. It is rated standard by DHRS. None of the facilities operated by FCP's principals, the Phillipses, has ever been in receivership or had a Medicaid or Medicare certification revoked. The Phillipses have an excellent reputation in Ohio for their operation and management of nursing homes and have remained in positive standing with federal and state certification agencies. Manor Care's proposed 60-bed addition will be owned by Manor Care of Florida, Inc., a wholly-owned subsidiary of Manor HealthCare Corporation. Manor HealthCare Corporation is a publicly-held corporation which owns and operates about 130 nursing homes in various states. Manor Care owns and operates nine nursing homes and three adult congregate living facilities (ACLFs) in Florida. All nine Florida nursing homes exceed DHRS licensure standards; the majority of Manor Care's Florida facilities hold a superior license rating. Manor Care has never had a license denied, revoked, or suspended in Florida. Manor Care has opened three nursing homes in Florida in recent years. All three are superior rated. Palm Court Nursing Home has a superior license, with zero deficiencies, from DHRS' Office of Licensure and Certification with the most recent inspection having occurred between May 2 and May 4 immediately preceding the beginning of the final hearing. It is managed by National Health Corp., Murpheesboro, Tennessee. National Health Corp is an owner-operator of other facilities and either owns or operates some 19 facilities in Florida. It has managed Palm Court Nursing Home since its inception and, if the 60 bed addition is approved, will manage the addition. Forum has never had a license denied, revoked or suspended, nor had a facility placed in receivership. Forum has never had any nursing home placed in receivership at any time during its ownership, management or leasing. Forum has a history of providing quality of care and owns and operates facilities in other states which hold superior ratings. Forum has a corporate policy of seeking to attain a superior rating in those states which have such a system. Forum presently owns and operates one facility in Florida. That facility is rated standard and was acquired by Forum within the past two years. That facility, which only has 35 nursing beds, is not a prototype of what Forum proposes in this case. Seventeen (17) of the twenty-one (21) nursing homes currently managed by CSI are located in states which utilize a superior rating system. Of the facilities that are eligible to receive superior licenses, CSI maintains superior ratings in over 80 percent of its beds. CSI's Sun Terrace in Sun City Center was the subject of an extensive survey issued by the Office of Licensure and Certification, an arm of DHRS, in April, 1988, that cited numerous deficiencies in the areas of quality of care, staffing, and programs at the Sun Terrace facility. The licensure survey also cited violations of state and federal laws in the handling of controlled substances and problems with resident care plans at the facility. The findings of DHRS in its licensure survey of Sun Terrace appear to be serious matters, the resolution of which is clearly within the control of CSI. Following the opening of the second 60 beds at Sun Terrace in September, 1987, the facility experienced a shortage of nursing personnel which necessitated a greater use of agency personnel to staff the facility. The problems cited by DHRS at Sun Terrace were largely the result of the increased use of agency personnel, lack of documentation, a newly licensed administrator, and the unexpected resignation of the director of nursing. Even before the DHRS licensure survey, CSI had taken affirmative action to address the problems at Sun Terrace, including a voluntary moratorium on new admissions. In response to the recent problems at Sun Terrac, CSI has moved toward more centralized management of its facilities. CSI now requires administrators to adhere very closely to the corporate policies and procedures. Further, the addition of a second full-time nurse/consultant will double the frequency of quality of care monitoring visits at CSI facilities. The problems experienced at Sun Terrace are atypical of CSI-managed facilities. When CSI's policies and procedures are properly followed, the result is excellent nursing care and services. But the problems at Sun Terrace are examples of what can happen when an organization attempts to expand operations more rapidly than it should. In this connection, CSI has received seven CONs since July 1984. Two of the seven are preliminary approvals that have been challenged and have not yet gone to hearing. One was the 60-bed addition to Sun Terrace which is now licensed. Another is a 73-bed nursing home in Brevard County which is expected to open within the next several months, and another is a 21-bed addition project in Collier County. Cypress has never operated a nursing home and has no track record. Staffing. Staffing arrangments are important considerations in assessing the quality of care to be expected from a proposal, but there is not necessarily a proportional correlation between staffing and quality. How staffing affects quality also depends on the breadth and types of programs to be offered. For example, Alzheimer's programs and sub-acute care will require higher staffing ratios. HCR, FCP, Manor Care, Palm Court and Forum all propose staffing arrangments that meet or exceed state requirements. See Findings Of Fact 1-5, above. Cypress' application, on the other hand, leaves much to be desired in its proposed staffing. The staffing plan presented by Cypress on its Updated Table 11 fails to meet the requirements of Rule 10D-29, F.A.C. Specifically, no provision has been made for an activity director (10D-29.116), a medical director (10D-29.107), a pharmacy consultant (10D-29.112), or a medical records consultant (10D-29.118), all of which are required by rule. (Cypress attempted to explain that it would have a pharmacy consultant on contract who would bill patients separately.) Further, no provision has been made for utilization review to monitor the appropriateness of the placement of residents, as required by Rule 10D-29. Cypress' Updated Table 11 provides for LPNs of 1.5 FTEs on the first shift and night shift and 6.0 FTEs on the second shift. The second shift LPN coverage is over-staffed by 4 1/2 FTEs which will result in inefficiency. Rule 10D-29.108, F.A.C., requires staffing of nursing assistants on all shifts. The Cypress staffing plan makes no provision for nursing assistants on the second shift. In testimony, Cypress attempted to explain that Table 11 was wrong and that the second shift LPNs should have been aides. The proposes Cypress nursing home will not offer 24-hour RN coverage. The third shift has no RN coverage. Based upon the proposed staffing pattern appearing in Cypress' Updated Table 11, its proposed facililty would not qualify for licensure under Florida regulations, much less qualify for a superior rating. Cypress has not secured or identified the day-to-day management of the proposed nursing home. No medical director has been secured or identified. Quality Assurance programs. All of the applicants except Cypress have existing quality assurance (QA) programs that are adequate to assL're quality of care. From the evidence HCR's, Manor Care's, HHL's and Forum's QA programs are comparable and are the best among the applicants. Palm Court has had results comparable to or better than the others , which is itself evidence of an adequate QA program. Meanwhile, CSI, despite an evidently superior QA program, has experienced quality programs due to rapid fill-up of its 60 additiional beds at Sun Terrace. Cypress has no experience operating a nursing home. Not surprisingly, it professes to desire quality and to plan to implement stringent QA programs. But its plans at this stage are not as developed and detailed as the existing QA programs being used by the other applicants at other facilities. Other Factors. Whether Therapies Are In-House or Contracted. Assuming a need for it, and reasonable cost of providing it, provision of therapies--e.g., physical therapy, occupational therapy and speech therapy-- in-house generally is preferable to providing them by contracts with third parties. From an operational and administrative perspective, there are advantages to providing physical therapy services (PT) on an in- house basis. Contracted physical therapy staff tend to be available only for scheduled treatments; in-house staff are always available to assist staff and perform unscheduled maintenance therapy. In-house physical therapy staff work regularly with the nursing home staff. They are present within the facility anc learn the operation of the nursing home facility better than outside agencies. Manor Care proposes to provide in-house physical therapy staff, as opposed to employing outside physical therapy staff on a contract basis. The evidence was that the other applicants plan to provide all of these therapies through third- party contracts. Palm Court has one full-time PT assistant who works under the direction of a licensed physical therapist who now divides time among three 120- bed nursing homes managed by National Health Corp. The service of this licensed physical therapist is provided as part of National Health Corp's management services. Having to cover another 60 beds at Palm Court will spread the service even thinner. In addition, Palm Court's administrator conceded that the single PT assistant in Palm Court's application will not be enough once 60-beds are added to the facility; two will be required. Of course, the trade-off (implied in Finding of Fact 102, above) for providing in-house therapy is that it is less efficient if full use of the services is not required. De-institutionalization. FCP, Forum and Cypress have made special efforts to "de- institutionalize" nursing home care at their proposed facilities. All three proposals emphasize the provision of nursing care within aresidential development--a combination of retirement apartments, assisted living accommodations and nursing home. (See also this concept's impact on Continuum of Care concerns, Findings of Fact 114-127, below.) FCP's proposed facility is designed with a residential appearance to facilitate and implement the philosophy of de-institutionalization co:tained in its application. It reflects FCP's modular approach to care with residential units in wings tied to a common area of support services. The support services are extensive. There are activities areas, craft areas, exercise rooms, therapy areas, a beauty salon and barber shop, men's and women's recreational areas, private dining rooms, a community dining room, screened patios and porches, a newsstand, a bank, a post office, a library, a chapel, a screened-in gazebo, and a swimming pool. The exterior amenities of the design include a pond, an exercise course, a sitting deck, and a putting green. The center core and its recreation and therapy programs are designed to encourage interact ion among the residents in all the different levels of care. Although the third floor, where the nursing home is located, also has a secondary lounge and supplemental dining area, the primary dining area, as well as all of the other amenities, are on the first floor to enhance the interaction. The 30-bed size of FCP's proposed nursing home unit is a part of the original Phillips concept of a de- institutionalized setting, enabling the provision of more personalized care. Where there are fewer residents to care for, a better rapport between the residents and the care givers and a more family-type, personal atmosphere are achieved. This 30-bed concept previously has been approved by the Department in Lee and Polk Counties. Those projects are operationally, structurally, and physically identical to this proposed project. The symmetrical, 3-story design minimizes the amount of travel distance for the resident at the farthest unit to the amenities of the center core and its services. The nursing unit is on the third and smallest floor so that the distance by elevator to the central core for the nursing home iesidents is at a minimum'while still providing those residents with the greatest opportunity for quiet time. Privacy is an essential element in achieving high quality of care. The semi-private room plan utilized in this proposal is a unique approach to maximizing privacy for each resident. A permanent partial partition separating the two beds in each room effectively creates two private rooms. This provides a private space for each resident with his or her own thermostat, window, storage space, television, and telephone accommodation, and heightened auditory privacy. There will be equal access to and control of the vestibule and bathroom for each resident. The 585 gross square feet per bed in the FCP proposal is approximately one-third greater than standard nursing home room configuration. Forum's proposal's chief effort in furtherance of the goal of deinstitutiona1izationother than the continuum of care concept and overall residential appearance--is in the relatively large and "up-scale" living areas. The Cypress facility will include a central core dividing the two 60- bed portions of the project. The central core will include an administrative area, a chapel, a beauty and barber shop, enclosed courtyard, physical and occupational therapy, dining, a central kitchen, and a laundry area. One trade-off for de-institutionalization is cost. Both FCP and Forum generally cost more than the others. Cypress claims not to, but its projected construction cost of $49 per square foot is unrealistically low. See Findings of Fact 147 and 149, below. PROGRAMS (OTHER THAN ALZHEIMER'S). Continnum of Care. As just alluded to, several of the proposals emphasize the placement of their nursing home within a larger community of persons needing different levels of care. FCP. FCP proposes the construction of a 30-bed nursing unit as part of a family owned and operated, 120-unit, full continuum of care facility for the elderly. The facility also contains 60 independent living apartments and 30 adult congregate living units. The full continuum of care is proposed in a uniquely designed, de-institutionalized, home-like atmosphere. FCP offers a therapeutic community offering individualized, personalIzed care in small self- contained units, each specializing in various levels of care ranging from day care and respite care, through apartments for the elderly and assisted living, to skilled, post-hospital rehabilitation. The continuum of care will provide a homogeneous environment through which residents can move as their medical and personal needs change. Forum. Forum Group, Inc., is a national company which owns, develops and operates retirement living centers in a number of states. Forum's proposed nursing home will be part of a total retirement living center containing two other levels of care, assisted living (or ACLF units) and independent apartment units. Forum's proposal calls for provision of a continuum of care, from independent living to assisted living to nursing care, all on the same campus. Cypress. Cypress Total Care would be part of an overall medical project known as Cypress Park. The corporation was formed and a master plan was created, to be developed in two phases. Phase I is a 120-bed nursing facility consisting of 60 skilled and intermediate nursing beds, the subject of these proceedings, and 60 personal care units. Phase II would consist of a 290-unit adult congregate living facility (ACLF) and 143 units of independent villa housing on a golf course with nature trails and other amenities. Also proposed in Phase II would be units of medical offices and commercial health-related facilities to support the community. The area selected by Cypress is adjacent to the Sun Hill Medical Arts Building and the Community Arts Building, as well as a hospital owned by Hospital Corporation of America known as Sun City Hospital. These components would be worked into the overall master plan proposed by Cypress. Cypress proposes a multi-level assessment program. The 120-bed Cypress Park Community facility will have an independent level one facility in Sun City Center which will admit healthy elderly residents. These elderly may have canes, but no walkers or wheelchairs, and they will function normally in their activities of daily living. These individuals may prepare two meals a day in their apartments, or have them in the dining room. The main meal will be in the dining room. Social services and activities will be provided and recommended to the independent living residents to enhance their lifestyles. A home health agency is planned as a part of the center so that house calls can be made to insure that any necessary medications are taken and that residents receive the services they might need from time to time. (Cypress has not yet applied for a CON for its home health agency.) The next level of living is for patients who need more assistance. These are residents who require 24-hour companion service. These patients do not require skilled nursing care and do not require the institutional environment of a nursing home. Some of these paients may be in the first stage of Alzheimer's, or they may be physically frail, but not enough to require skilled nursing care. This level is primarily for those individuals who are physically frail and mentally strong or mentally frail and physically strong. The physically frail and mentally strong may have limited ambulatory capabilities, need assistance in activities of daily living, need medication, or need all their meals prepared. As noted above, this level of services also will be provided to individuals who are physically strong but mentally frail. The majority of these people will be Alzheimer's residents, they must be carefully monitored 24 hours a day and receive strong psychological support. The next level of care offered is for individuals who require some nursing care and no longer qualify for the level two care described above. This will be intermediate nursing care and will consist of care from certified nursing aides and licensed practical nurses. These individuals do not require skilled nursing care. Rehabilitation is the key to this portion of the plan, and the rehabilitative center will be involved to constantly push these individuals to the point of rehabilitation where they can reenter an independent lifestyle. If individuals progress further, they can move into the skilled nursing care center in which they will receive care not only from nursing aides and licensed practical nurses, but also from registered nurses. The final level would be acute hospital care which would be provided by the existing Sun City Hospital. The medical staff who are involved in the Cypress project also are on the medical staff of the Sun City Hospital and will be working and consulting with individuals both in the acute hospital care and the nursing home setting to provide appropriate levels of care to the individuals who need it. The nursing home will share IV teams, work with tracheotomy patients, A.D.A. dieticians, accounting services, and other services with the existing hospital in Sun City Center. Palm Court. Palm Court, while currently a free-standing 120- bed nursing home, is located on property where construction of a 360-bed adult congregate living facility (ACLF) is now starting. In addition, Palm Court has transfer agreements with area hospitals including Plant City Hospital, South Florida Baptist Hospital, Brandon Humana Hospital and Lakeland Regional Medical Center. It also has formal working relationships with home health agencies and with elderly programs in the area. The Others. The other applicants--HCR, Manor Care and HHL-- propose free-standing nursing homes. But all can be expected to make efforts to achieve transfer and other agreements with local hospitals, home health agencies and providers of care for the elderly where reasonable and appropriate. Sub-Acute Care. The HCR nursing home will be staffed and equipped to provide sub- acute care. The sub-acute care services provided by HCR will include high tech services such as ventilator care, IV therapy, pulmonary aids, tube feeding, hyperalimentation, and short and long term rehabilitation. HCR currently provides a wide variety of these sub-acute services in its existing nursing homes. CSI currently provides sub-acute nursing services at its existing Florida facilities. Those services include ventilators, hyperalimentation, intravenous therapy, Clinitron beds, heparin pumps, nosogastric and Jejunoscopy tube feedings, subclavian lines, and Hickman catheters. These service will be provided at HHL's proposed facility. Forum will provide skilled and intermediate care, and the following services will be offered at the proposed facility: Sterile dressing changes for decubitus care. Brittle diabetics on sliding scale insulin. Continuous administration of oxygen. Sterile case of tracheotomies. Ventilators. Continuous bladder irrigation. Hyper-alimentation or N-G feeding. IV treatment. Special medication monitoring (e.g. heparin, comadin). New post-operative cases facing hospital discharge as a result of D.R.G. reimbursement. The skilled nursing services to be provided by FCP include parenteral nutrition, internal nutrition, tracheostomy care, respirator care, skin wound decubitus care, ostomy care, and head trauma care. Palm Court also will provide sub-acute care. Adult Day Care Adult day care is a part of the specialized Azfleimer's program HCR proposes. In addition, HHL, FCP and Forum offer adult day care. Respite Care. HCR and Manor Care offer respite care as part of their Alzheimer's programs. Both will have no minimum length of stay and no extra charge over the regular daily rate for nursing home care. All the others except Palm Court also offer respite care, but Cypress' proposal for respite care is sketchy. HHL says it will offer respite care at no extra charge. D. Hospice. Only HCR, Forum and HHL offer hospice care as part of their nursing home programs. F. Rehabilitation and Community Outreach. All of the applicants propose rehabilitative (or restorative) care and some kind of community outreach programs. The distinctions among the ideas expressed by the applicants are not particularly competitively significant. However, the manner in which the therapies are delivered can be significant. See Finding of Facts 102 to 105, above. HOW SOON THE PROJECT BECOMES OPERATIONAL. Because there is a shortage of nursing home beds in Hillsborough County, there is a valid concern how long it would take for the holder of a CON to get its facility operational. Priority/Policy 3 of the 1985 Local Health Plan gives expression to this concern as follows: In competitive reviews, preference should be given to applicants with a documented history of implementing certificates of need within the statutory time frames. Of the applicants who have developed nursing homes in the past (i.e., excluding Cypress), all but Palm Court have a history of timely implementing their CONs. Palm Court had to request an extension of time in implementing its existing 120-bed facility. But Palm Court bought the CON for that project from the original owners in 1982 or 1983. Palm Court then had to secure another, more suitable location, re-design the facility, get construction financing and enter into a construction contract before construction could begin. This delayed the project and resulted in administrative litigation to decide whether Palm Court should lose the CON for failure to timely implement it or be given an extension of time. Palm Court prevailed, and the facility opened in September, 1985. HHL, through CSI, also has a history of timely implementing CONs but recent expansion in Florida raises some question whether it can continue to be as timely in implementing this CON, along with the others. See Findings of Fact 82-87,98, and 100, above. Generally, an addition of beds to an existing nursing home can be constructed more quickly than a new facility, giving Palm Court an advantage in potential speed of implementation. similarly, Manor Care, which is prepared to begin construction on its finally approved 60-bed CON, has an advantage over the others, as well as a potential construction cost savings over Palm Court. See Findings of Fact 146, below. COST OF CARE. Cost of Construction And Development. Advantage of Additions. Within limits placed on recovery of capital costs under the Medicaid and Medicare reimbursement programs now in place (which, to some extent, are emulated by private health care insurers and employers' health benefit plans), construction and development costs generally are reflected in the charges patients pay for nursing home care. Additions, such as Palm Court's and Manor Care's proposals, have a cost advantage over the other proposals. Construction sites already have been prepared, and it is not ncessary to duplicate some features already incorporated in the original structure, such as the kitchen, laundry and building plant. Due to delays in finalization of its approved CON for 60 beds, Manor Care has the fortuitous additional potential cost advantage of being able to construct both the "original facility" and the 60-bed "addition" at the same time. Quality vs. Cost Trade-Off. Other than the cost advantage of adding on, and of saving the contractor's fee by using an in-house construction team (as HCR does), reduced cost of construction generally will reflect reduced quality. For example, some of the quality features incorporated in the proposals of Forum, FCP and Cypress will cost more. See Finding of Fact 113, above. Put another way, lower costs may result in lower patient charges but also may result in lower quality, everything else being equal. The costs of construction of the various proposals may be found in Findings of Fact 1 to 7, above. It should also be noted at this point that Cypress' facility design has features--primarily unusual wall and roof angles and one water heater requiring larger pipe sizing-- which make its construction costs appear lower than they should be. Cost Overruns. The applicants' respective records for cost overruns in implementing CONs mirror their records for timeliness. See Findings of Fact 138-143, above. Cypress has no track record; all the others except Palm Court have experienced no cost overruns; Palm Court's $1.3 million cost overrun was precipitated by the need to secure another site and re-design the facility after it acquired the CON for 120 beds; and CSI, which would be responsible for implementing HHL's proposal, is involved in recent expansion which could affect its ability to bring all of its' CONs on line within budget. Cost of Operations. Economies of Scale--Size of Facility. In addition to construction and development costs, cost of operations are reflected in patient charges. It generally is accepted that a 120-bed nursing home is the optimal size for operational efficiencies. In this respect, the proposals by HCR, Forum and HHL have an advantage over the others. Manor Care has the advantage of proposing to expand a less efficient 60-bed nursing home to an optimally efficient 120-bed facility. To some extent, the generally accepted principle that 120-bed nursing homes are more desirable may have become dated. Two of the proposals--FCP's and Cypress'--combine some of the operating efficiencies of a 120-bed nursing home with the continuum of care and quality of care that can be achieved in a 120-bed living complex that incorporates a smaller nursing unit with other living units of different levels of care. By c(Jmparison, these type facilities are less institutionalized than a 120-bed nursing home, whether free-standing or incorporated within a larger complex with other living units. See Findings of Fact 106 to 113, above. Economies of Scale--Size of Organization. Economies of scale also can be realized from the size of the organization that owns or manages a nursing home. The proposals of all of the applicants except Cypress benefit from this principle, Palm Court to a lesser extent than the others, including in the area of quality assurance, nurse training and nurse recruiting. At the time of hearing, HCR operated nine nursing homes in Florida. HCR has approximately twelve nursing homes scheduled to begin construction in Florida within the next year. Nationwide, HCR operates more than 125 facilities containing approximately 16,000 beds. HCR has designed and built over 200 nursing homes and related health care facilities. HCR realizes substantial savings by using national contracts for the purchase of furniture, equipment, hardware and other operating supplies. Forum, as a national company, has the experience and purchasing power to cut operational costs through national purchase contracts and through economies and improvements experienced at the local level with a total retirement facility all on one campus. The Manor Care Florida Regional Office offers the services of a Regional Director, a Regional Nurse, a Nurse Recruiter, and a Comptroller to work with the corresponding departments of the Manor Care Florida nursing homes. FCP's long term plans are to develop homes in clusters, currently concentrating on the central west coast area of Florida. FCP has previously been granted certificates of need in Lee County and Polk County and has been recommended by the Department for a certificate of need in Hillsborough County. This cluster will operate under a unified local administration and share rehabilitative, medical, social, dietary and transportation personnel, enhancing economies of operation. CSI was formed in 1978 for the purpose of operating extended care facilities, including nursing homes and retirement centers. Since that time, the company has grown to its current operations of twenty-one (21) nursing homes, two (2) retirement centers and one (1) home for the aged located in seven states. Historically, much of this growth has occurred through the acquisition of existing facilities, although more recently the focus has shifted to the development of new facilities. Because CSI has established "national accounts" for the acquisition of movable equipment CSI can purchase nursing home equipment and furnishings and other operating supplies for HHL at reduced prices. (3) Patient Charges. The applicants propose the following room charges for semi-private rooms. Applicant Medicaid Medicare Private Pay HCR 60.94 76.00 75.00 FCP 60.00 65.00 80.00 Manor Care 1/ 69.37 ---- 72.57 HHL 66.30 109.33 2/ 72.76 Forum 67.18 80.67 79.50 Palm Court 77.00 100.00 77.00 Cypress 58.00 65.00 69.00 However, Cypress' charges are suspect; they probably are unrealistically low. Palm Court's charges also are suspect. It is difficult to understand from the evidence whether they are charges or Medicaid reimbursements. It also is difficult to tell if they are current or projected. In any event, they do not relate to the information in Palm Court's pro forma. As previously alluded to, patient charges do not necessarily proportionately reflect construction and development and operating efficiencies. They also are affected by programs and quality. BUILDING DESIGN AND ENERGY FEATURES. Patient Care and Safety. Overall, HCR's design is excellent. Functional elements are effectively inter-related, the building is designed to be open to landscaping, sunlight and court yards, and there is a wide range of amenities. Cypress' patient rooms are smaller than allowed under state requirments. The state minimum in Chapter 10D-29, Florida Administrative Code, is 80 net square feet per bed for multi-bed and 100 net square feet in a single room. Cypress' proposal only has approximately 65.58 gross square feet per bed. Cypress' building design also has rooms that are approximately 130 feet from the nurses' stations and clean utility and soiled utility rooms, 10 feet over the state maximum under Rule 10D-29.121(24), Florida Administrative Code. Forum's :4 floor plan also violates this standard. Rule 10D-29.121(6), Florida Administrative Code, requires a 20 foot clear view out room windows. Cypress' design also violates this standard. Manor Care's floorplan is the most compact one- story design. It has four compact wings off a central core. Forum proposes a two-story structure, creating a potential increased hazard for patients with reduced mobility. But DHRS rules provide for nursing homes of more than one floor, and required safety features, which Forum will provide, keep the potential to an insignificant minimum. FCP proposes a three-story facility with the nursing home on the third floor adjacent to the elevators connecting it to the first floor central core and amenities. FCP, too, adequately addresses DHRS safety concerns and actually could be more convenient to more nursing home patients than a one-story structure. Energy Conservation Features. All of the applicants propose to insulate their facilities for energy efficiency, some, e.q., HHL, somewhat better than others. Building design itself also affects energy consumption. Cypress' high exterior building surface area makes it a less energy-efficient design; Manor Care's compact design aces it a more energy-efficient design. FCP's three-story design also is a more energy-efficient design. Cypress' design incorporates only one water heater. This will produce line loss and lower energy efficiency, as well as potential total loss of hot water. (Cypress also has only one electrical plant.) Other Unique Design Features. Several unique features in FCP's room design helps "de- institutionalize" the facility and contributes to overall quality of care. Similarly, residents at FCP will be able to offer their guests refreshments from the kitchen at any time of the day or nights and children, spouses, and entire families will be encouraged to join residents for meals as often as they wish, assisting in the maintenance of ties with the community. Dining may be either communal or in the several lounge areas and private dining rooms. One of Cypress' unique design features is of the bizarre and morbid variety--a room designed to store deceased residents. FINANCIAL FEASIBILITY. The short-term and long-term feasibility of the proposals of HCR, FCP, Manor Care, Forum and HHL was never seriously questioned and was easily proven. Not so with Palm Court and Cypress. Palm Court. The duty to defend the immediate and long term financial feasibility of Palm Court's project rested with Steve Jones. Mr. Jones, who was not involved in the preparation of the application, offered his opinion that the Palm Court 60-bed addition would be feasible in the immediate and long terms. In giving his opinion of the project's financial feasibility, Mr. Jones stated he believed the pro forma in years 1 and 2 relate back to the corresponding tables in the application; but acknowledged he performed no analysis of his own, but rather he took the information provided him at face value. The pro forma is one of the key components of an application, as literally the heart of the application ties directly or indirectly into developing the pro forma, including Tables 1, 2, 3, 7, 8, 10, 11 and 25, as well as the amortization schedule. It is a required component of the application. Section 381.494(4)(e), F.S. (1985). Mr. Jones was asked to render an opinion on the reasonableness of Tables 8, 10, 11 and 25, which he did. On cross examination, however, Mr. Jones acknowledged he did not evaluate existing staff at Palm Court to determine the reasonableness of the pro forma. He did not verify the projected management fee and, in fact, stated he didn't know if it was included as a line item under "administration and general" on the pro forma nor how the management fee was computed. Mr. Jones, who has never prepared all the financial information in a CON application, also admitted he didn't know what current nursing salaries were in Hillsborough County, or any other salaries for that matter. He further acknowledged that he could not testify that the application's hourly wage times the number of working hours in a year would give you the stated nursing salaries. In sum, Mr. Jones admitted his opinion of the project's feasibility was based solely on his review of Tables 8, 11, 20 and 25 and his firm's involvement in the preparation of Palm Court's two most recent cost reports and not on the pro forma filed with Palm Court's application. Mr. Jones' accounting firm, in preparing Palm Court's cost reports, does not conduct an audit or express any opinion relating to the reasonableness of the statement of revenues and expenses. Joseph Lennartz, an expert in financial feasibility analysis, gave persuasive testimony outlining the inconsistencies in Palm Court's application. Palm Court's total revenue projections appearing in Table 7 for years 1 and 2 do correspond to the daily room and board revenues appearing in the pro forma, yet none of the Table 7 revenue projections correspond to the projected charges on Table 8. Assuming the salaries on Table 11 do not include fringe benefits, all FTE's and salaries on Table 11 are not accounted for in the pro forma. The pro forma salaries are significantly lower than on Table 11: RNs ,- understated by $12,426 LPNs - understated by $30,518 CNAS -understated by $239,541 Social Worker - understated by $2,983 Dietary - understated by $3,009 Maintenance - understated by $10,165 Activities - understated by $4,486 Housekeeping - understated by $6,365 Laundry & Linen - understated by $6,498 Admin & General - understated by $2,560 Palm Court's salary information on Table 11 is in 1987 dollars and needs to be inflated forward at least two to three years. Palm Court's current average salaries exceeded the proposed salaries on Table 11--including the administrator's salary, proposed at an annual salary of just over $31,000 when it actually was over $50,000 in 1987. Based on Palm Court's answers to interrogatories, Palm Court's management fee is not accurately reflected in the pro forma and is $44,559 too low in year 2; the projected dietary expense is understated by $112,386 in year 2; the projected housekeeping expense is understated by $46,609 in year 2; the projected laundry expense is understated by $35,308 in year 2; and plant expenses are understated by $100,116 in year 2. The terms of debt financing appearing on Table 2 of Palm Court's application do not conform to the amortization table, causing the interest expense line item on the pro forma to be understated. Cypress. As previously alluded to, the reasonableness of Cypress' projected Medicaid and Medicare rates appearing on its Updated Table 8 has not been established by competent substantial evidence. The Cypress pro forma fails to make provision for interest expense, depreciation, and property tax expense. These omissions represent an understatement of expenses as follows: YEAR ONE YEAR TWO INTEREST $177,818 $176,186 DEPRECIATION $110,000 $100,000 PROPERTY TAXES 2,200 25,000 (at assessed value 75 percent of market) TOTAL $290,018 $301,186 When interest, depreciation, and property taxes are included in the Cypress pro forma, the result is a loss of $90,000 in year one and $80,000 in year two. Furthermore, from a cash flow perspective, Cypress will incur a cash loss of $2,037 in year one and a cash gain of just $6,342 in year two. If property taxes are based on an assessed value at 100 percent of fair market value, there would be a $2,000 cash loss even in year two. It is not unusual for a nursing home to experience a negative cash flow in its first year of operation due to its low occupancy. However, it is unusual for a nursing home to experience a negative cash flow, as the Cypress facility will, while operating at optimal occupancy (95 percent). Cypress' owner/investors are willing to proceed with the project because they expect to be able to use some of the approximately $90,000 per year tax loss in years one and two to offset personal income, resulting in a cash on cash return of approximately $23,000 or 5.4 percent. Cypress' Table 1, "source of funds" states that the applicant has $425,000 "in hand". In fact, Cypress does not have those funds in hand. They are in the hands of the Cypress owner/investors. So far they have contributed $90,000 to the venture and will have to contribute not only an additional $425,000 to fund the nursing home but also an unspecified larger sum to fund Cypress planned ACLF and other projects. The evidence suggests that at least $425,000 more of equity contribution would be required for the rest of the project. Cypress did not prove that its proposed facility is financially feasible, either in the immediate or long term. BALANCED CONSIDERATION. Giving a balanced consideration to all of the statutory and rule factors addressed in the preceding findings, it is found that there is a net need for 231 community nursing home beds in Hillsborough County, that the applications of HCR, FCP and Manor Care should be granted and that the other applications should be denied.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that the Department of Health and Rehabilitative Services enter a final order granting the applications of HCR (CON Action No. 5000), FCP (CON Action No. 4993) and Manor Care (CON Action No. 5006) and denying the applications of Forum (CON Action No. 4999), HHL (CON Action No. 4978) Palm Court (CON Action No. 4987) and Cypress (CON Action No. 5004). RECOMMENDED this 14th day of November, 1988, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 14th day of November, 1988.
The Issue The issue presented is whether the applications for certificates of need filed by Petitioners Beverly Enterprises-Florida, Inc. d/b/a Beverly Gulf Coast- Florida, Inc.; JFK Medical Center, Inc.; and Manor Care of Boynton Beach, Inc., should be granted.
Findings Of Fact Petitioner Beverly Enterprises-Florida, Inc., d/b/a Beverly Gulf Coast- Florida, Inc. (hereinafter "Beverly"), is a wholly-owned subsidiary of Beverly- California Corporation which is a wholly-owned subsidiary of Beverly Enterprises, Inc., one of the largest providers of long-term care services in the country. Beverly operates 41 nursing homes in the state of Florida, with all of these facilities receiving substantial financial, managerial, operational, and program support from Beverly's Florida regional office. Three of those nursing homes are located in Palm Beach County, Florida. Beverly proposes in its certificate of need (hereinafter "CON") application #7372 to construct a 120-bed community nursing home in zip code 33414, which is the Wellington area of Palm Beach County, to be known as Wellington Terrace. The facility would provide high acuity nursing services with an emphasis on rehabilitation. The proposed special programs include an adult day care program, respite care services, and an Alzheimer's unit, and the facility will accept patients with AIDS. The proposed facility will encompass 53,348 square feet and will have a total project cost of approximately $5.6 million. The facility is designed to minimize institutional effects and emphasize a home-like atmosphere for residents, featuring such amenities as a large day room with an aquarium and wide-screen television and VCR, a screened gazebo, and a greenhouse. Quality of life enhancements will be a consideration in all aspects of the facility. The building will meet or exceed all licensure requirements for construction and safety codes. Beverly's goal is to achieve a superior-rated facility. Beverly has agreed, if it is awarded a CON in this proceeding, that its CON for this facility will be conditioned upon the facility having a 25-bed Medicare-certified sub-acute unit which will include 4 beds dedicated to ventilator-dependent care. Wellington Terrace's CON will also be conditioned upon the provision of 56 percent of its annual patient days to Medicaid patients, and Beverly will give Florida State University's Institute on Aging a grant in the amount of $10,000 to be used for gerontological research. Petitioner Manor Care of Boynton Beach, Inc. (hereinafter "Manor Care"), is a Florida-based operating subsidiary of Manor Care Healthcare Corporation, one of the largest operators of nursing homes in the country. Manor Care Healthcare Corporation is a wholly-owned subsidiary of Manor Care, Inc., a publicly-traded company listed on the New York Stock Exchange. Through its corporate structure, Manor Care, Inc., devotes substantial financial, manpower, and other resources to its individual nursing homes. The individual facilities are directed by corporate policies in the areas of finance, quality of care, quality assurance, prototype services, structural design, and all areas of nursing home operations. Manor Care's parent owns 10 nursing homes and 4 adult congregate living facilities in Florida. Two additional nursing homes are under construction in Florida, including one in Palm Beach County. In the last 4 years, Manor Care has constructed and opened 2 nursing homes in Florida, and both received superior-rated licenses as soon as they were eligible. Manor Care seeks in its CON application #7375 to construct a 120-bed community nursing home in the Lake Worth area of Palm Beach County. The facility is a one-story fully equipped nursing center, using a design which conforms with all federal, state, and local regulations. It incorporates residential features to meet the physical, social, and psychological needs of the residents and promote independence. The space-efficient design emphasizes a home-like atmosphere which ensures quality of care and quality of life. The design is patterned after Manor Care's "prototype" facility and is very similar to Manor Care's two newest Florida nursing centers in Hillsborough and Pinellas Counties. The facility encompasses approximately 49,500 square feet and has a total project cost of approximately $6.8 million. The facility will contain 16 private rooms and 52 semi-private rooms. The proposed facility includes a 30-bed self-contained unit for residents with Alzheimer's disease and a 15-bed self-contained sub-acute unit. The sub-acute unit will be adjacent to speech, physical and occupational therapy/rehabilitation/dining spaces to facilitate patient recovery. The therapy spaces are 50 percent larger than Manor Care's standard therapy spaces to better accommodate the sub-acute patients. Like Beverly's, the proposed facility will offer skilled care, intermediate care, rehabilitative care, respite care, restorative care, sub- acute care, and specialized care for Alzheimer's disease and related dementia. It will also provide the following support services: pre-admission screening, appropriateness review, resident care plans, discharge plans, quality assurance, pharmacy, consulting (for physician visits, and dental, radiology, podiatry, and other diagnostic evaluations), community outreach, family programs, and chaplaincy. Beverly offers similar support services. Manor Care has agreed, if it is awarded a CON in this proceeding, to condition its CON on its 30-bed dedicated, secured Alzheimer's unit and its 15- bed sub-acute unit. Manor Care has also agreed to condition its project on providing a minimum of 55.5 percent of its total patient days to Medicaid residents, and on providing an adult Alzheimer's day-care program, a respite care program, and 2.8 nursing hours per patient day for the Alzheimer's unit. Petitioner JFK Medical Center, Inc. (hereinafter "JFK"), is a general acute care hospital located in the Atlantis/Lake Worth area, in central Palm Beach County. It is licensed to operate 369 beds. JFK enjoys tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. JFK provides services to patients of high acuity. Its overall case mix index, which serves to measure acuity, is 1.56. The normal case mix for acute care hospitals is 1.0. JFK's case mix index places it among the top five percent of all hospitals in the state. JFK focuses its acute care services in three specific areas. It serves as a regional referral center for cardiovascular services. It serves as a regional referral center for oncology and is the only hospital in Palm Beach County accredited by the American College of Surgeons as a comprehensive cancer center. JFK also has a large orthopedic surgery program. JFK serves predominantly an elderly patient population. Approximately 75 percent of its patients exceed 65 years of age. JFK's patient population includes many patients with multiple system medical problems. Such patients are more difficult to care for than patients with single system problems. In addition to acute care services, JFK provides a full range of outpatient and ambulatory services. JFK operates a diagnostic breast institute, an ambulatory surgery center, an outpatient cancer center, and a home health agency. JFK also employs twenty-three primary care physicians. JFK's outpatient and physician services constitute a portion of JFK's continuum of care, as do its acute care services. Sub-acute services are the only link missing from JFK's continuum of care. By its CON application #7374, JFK seeks authority to convert 26 existing adult psychiatric and substance abuse beds to establish a 20-bed sub- acute skilled nursing unit. JFK proposes to treat patients: (1) who have experienced an episode of acute care; (2) who no longer have need for acute care; and, (3) whose medical needs require higher intensity of care than is provided in a community nursing home. These "sub-acute care" patients fit somewhere in the continuum between acute care and nursing home care. The project involves 14,100 square feet of renovated space, a capital expenditure of $633,285 to be funded from internal sources, and the conversion of underutilized beds to a highly-utilized service. Sub-acute care is a comprehensive inpatient care program designed for patients who have experienced an acute illness or injury. Sub-acute care is designed to treat complex medical conditions through coordinated complex medical treatments. The rendition of sub-acute care requires an interdisciplinary team of professionals and paraprofessionals. In order to render sub-acute care to its patient population, the JFK program will provide the following staffing and service components: 24-hour registered nurse coverage; 5-6 hours of hands-on nursing care daily per patient, which is twice the care required of a community nursing home; and, 7 day/week, 24-hour access to all of JFK's ancillary services, including laboratory, pharmacy, respiratory therapy, blood transfu- sions, emergency services, and physician services. The JFK program will provide a full range of rehabilitative, restorative, and therapeutic services to patients, including radiation therapy, intravenous therapy, chemotherapy, complex tracheotomy, ventilator, and hyperalimentation care. JFK will provide services to the following patient groups: orthopaedic patients including joint replacement, fracture or amputation patients, cerebrovascular patients including stroke and other CVA accident patients, post-operative open-heart surgery patients requiring transitional care, oncology/radiation therapy patients requiring high level sub-acute care, pulmonary disorder patients including respiratory/ventilator dependent or other chronic pulmonary disease patients, patients with drug resistant infections including MRSA or tuberculosis patients, HIV-infected patients, patients with severe decubitus ulcers, and psychiatric patients with skilled medical care requirements. The JFK program is not designed to compete with community nursing homes. JFK proposes in its application a condition that 90 percent of the patients served in the sub-acute unit will originate from within JFK. JFK also proposes a condition that 90 percent of the patient days provided in the unit be provided to Medicare patients, or non-Medicare patients requiring physician certified rehabilitative or restorative care. JFK also proposes a condition that it serve high acuity or "heavy care" patients. In order to be awarded a CON, an application must be evaluated to determine compliance with the priorities or preferences stated in the appropriate District or Local Health Plan and in the State Health Plan. The District 9 Local Health Plan includes 3 allocation factors to be used in evaluating nursing home applications. The first states that priority should be given to applicants for new nursing homes or expansion of existing homes who agree to provide a minimum of 30 percent Medicaid days to their patients. Both Manor Care and Beverly comply with this priority in that they have committed to a minimum of 55.5 percent and 56 percent, respectively. The slight difference in their commitments does not give Beverly an advantage. JFK is not specifically proposing to provide care to Medicaid patients in its sub-acute unit. JFK's proposal is to serve primarily Medicare patients with the remaining patients being without resources or having other insurance. Medicaid-eligible patients occasionally need sub-acute services, and Medicaid does reimburse currently for nursing services provided in hospital-based skilled nursing beds. However, at the time that JFK filed its CON application, Medicaid did not reimburse hospitals for such services. More importantly, the allocation factor does not apply to JFK's application since it only applies to applicants for new nursing homes or expansion of existing homes, and JFK is neither. The second allocation factor in the District 9 Local Health Plan provides that priority shall be given to applicants who demonstrate (a) a documented history of providing good residential care; (b) staffing ratios, particularly for registered nurses and aides, that exceed the minimum requirements; (c) provision for the treatment of residents with mental health problems; and (d) the inclusion of intensive rehabilitation services for those short-stay patients who require rehabilitation below the level of an acute care hospital. Manor Care meets this allocation factor better than Beverly. As to the first criterion in the second allocation factor, during some of the 36 months prior to the filing of its application, two of Manor Care's ten Florida nursing homes held a conditional license. Currently, nine of those ten nursing homes hold superior licenses, and the other holds a standard license. Manor Care's two nursing homes opened most recently received superior licenses as soon as they were eligible. On the other hand, during some of the 36 months prior to the filing of its application, 17 of Beverly's 41 Florida facilities held a conditional license. Beverly's most recent composite shows that 31 of its 41 Florida facilities are superior-rated, with three of those 41 facilities rated conditional. Hospitals do not provide residential care, and JFK, therefore, has no history of "residential care" to evaluate; however, JFK has met stringent quality of care requirements by obtaining accreditation by the Joint Commission on Accreditation of Healthcare Organizations. The second criterion in the second allocation factor is met by the staffing ratios of all three applicants. Similarly, all three applicants will treat residents with mental health problems, the third criterion. The last criterion of the second allocation factor seeks applicants offering intensive rehabilitation services below the level of an acute care hospital. All three applicants comply with this criterion since JFK's application is for a sub-acute unit including intensive rehabilitation services, and Manor Care and Beverly each include such a unit within their proposed nursing home facilities. The Local Health Plan's third allocation factor seeks applicants proposing to serve a distinct population that is currently not being served within the subdistrict, Palm Beach County. As written, none of the applicants meets the third allocation factor since none has identified a distinct patient population that is not being served. However, the Agency interprets this allocation factor as being fulfilled by an applicant who addresses a distinct population which is being underserved rather than unserved. As interpreted by the Agency, all three applicants meet this allocation factor, Manor Care and Beverly with their Alzheimer's units, and all three applicants with their sub- acute units. Both services are greatly needed by Palm Beach County residents. Beverly suggests that it meets the third allocation factor as it is written because it will provide Jewish services, Kosher food, care to AIDS patients, and bi-lingual services. However, there are facilities with bi- lingual and multi-lingual employees, and patients with AIDS are receiving services. Further, there are dedicated Jewish nursing homes in Palm Beach County, and Beverly's project design does not include a Kosher kitchen. Beverly also suggests that its application is more consistent with the Local Health Plan than Manor Care's. Beverly relies on language within the Plan which states an interest in increasing access to nursing home services to the westernmost region of Palm Beach County. First, that language is not contained in any of the allocation factors utilized by the Agency in reviewing CON applications. Second, Beverly does not include the westernmost regions of the county in its primary service area for the proposed facility. Third, Beverly's Royal Manor facility is already serving the area which Beverly proposes as the primary service area for its Wellington Terrace facility. The State Health Plan contains 12 allocation factors. The first states that preference shall be given to applicants proposing to locate a nursing home in areas within the subdistrict with occupancy rates exceeding 90 percent. Palm Beach County has an occupancy rate in excess of 90 percent, and all applicants meet this preference. The second allocation factor states that preference shall be given to an applicant who proposes to serve Medicaid residents in proportion to the average subdistrict-wide percentage of the nursing homes in the same subdistrict. It further provides that exceptions shall be considered for applicants who propose to exclusively serve persons with similar ethnic and cultural backgrounds, or who propose the development of multi-level care systems. The average percentage of nursing home Medicaid patients in the Palm Beach County subdistrict is 55.44 percent. Since Manor Care proposes a minimum of 55.5 percent and Beverly proposes a minimum of 56 percent, they both meet this preference. Beverly's reliance on a higher state-wide average to obtain an advantage over Manor Care as to this factor is misplaced since the factor does not call for any statewide average but rather speaks to the Medicaid commitment of the specific facility being proposed. Although JFK, as a hospital, does not meet the average subdistrict-wide percentage of Medicaid usage, JFK is still entitled to preference under this allocation factor since its proposal is specifically for the development of a multi-level care system. JFK specifically proposes its sub-acute unit to fill in the only gap in its vertical continuum of care. The third allocation factor in the State Health Plan gives preference to an applicant proposing to provide specialized services to special care residents, including AIDS residents, Alzheimer's residents, and the mentally ill. All applicants meet this allocation factor. JFK meets this factor with its unique hospital-based sub-acute unit proposal. Manor Care meets this factor with its dedicated, secured Alzheimer's unit, sub-acute unit, and comprehensive rehabilitation program. Beverly meets this factor with its sub-acute unit and comprehensive rehabilitation program and its Alzheimer's unit. Further, all three applicants will provide services to AIDS patients and to the mentally ill. Factor four gives preference to applicants proposing a continuum of services to community residents including, but not limited to, respite care and adult day care. Manor Care will provide Alzheimer's adult day care, respite care, a 30-bed Alzheimer's unit, and a 15-bed sub-acute unit. It will provide skilled and intermediate care, rehabilitative care, hospice care, restorative care, telephone re-assurance, referral and counseling services, and various community outreach programs. Manor Care meets this allocation factor. Beverly proposes a continuum of services, including its sub-acute unit, Alzheimer's unit, adult day care, and respite care. Beverly proposes an outpatient adult day care program for up to eight guests, with services available five days a week. The Wellington Terrace design allocates 735 square feet to multi-purpose space for adult day care. Direct care staff, consisting of a nursing assistant and a part-time activity aide along with volunteer programs staff, meals, and snacks will be offered in conjunction with the full array of recreational, personal care, therapeutic, and social services activities available at the facility. Manor Care also offers a full array of services to the participants in its Alzheimer's day care program. Although Manor Care has fewer slots available, its program will operate seven days a week. The respite care programs offered by both Beverly and Manor Care provide short-term nursing and therapeutic care for elderly adults who require care currently provided by family and other caretakers but whose caretakers require relief from their care-giving activities. All of the services available to in-patients will be available to respite residents. Although JFK's proposal does not include respite care or day care, its proposal would result in a continuum of services to community residents ranging from acute care services through home health care services. JFK, accordingly, also meets this preference. The fifth allocation factor gives preference to applicants proposing to construct facilities which provide maximum residents' comfort and quality of care. The factor states that the special features may include, but are not limited to, larger rooms, individual rooms, temperature control, visitors' rooms, recreation rooms, outside landscaped recreation areas, physical therapy rooms and equipment, and staff lounges. This allocation factor envisions services offered in a traditional community nursing home rather than services provided in a hospital-based skilled nursing unit. JFK, like any hospital, cannot meet the portion of this preference which evaluates the level of comfort in a residential, custodial setting, but it does meet the portion relating to quality of care. Beverly's facility seeks to minimize the effects of institutionalization on residents through patient rooms which exceed state requirements, private toilets in each room, a physical therapy suite with a physical therapy gym and hydrotherapy area, an outdoor ambulation court, outside courtyard with screened gazebo, and a solarium/greenhouse. Private dining space and separate areas for visitation are provided, and thermostat controls are placed in every room. Its Wellington Terrace facility will feature 50 semi- private rooms and 20 private resident rooms in a single-story structure. Manor Care's facility would have many of these amenities. Its design incorporates residential features that support the physical, social, and psychological needs of the residents and which emphasizes a comfortable atmosphere that ensures quality of care and quality of life for the residents. Both Beverly and Manor Care meet this factor. The sixth allocation factor in the State Health Plan gives preference to applicants proposing to provide innovative therapeutic programs which have been proven effective in enhancing the residents' physical and mental functional level and which emphasize restorative care. All three applicants meet this preference. Beverly's comprehensive rehabilitation program at Wellington Terrace will encompass physical therapy, occupational therapy, and speech/language pathology. Rehabilitation programs will be offered seven days per week in order to provide continuity, decrease the time associated with recovery and rehabilitation, and serve the increased needs for rehabilitation services attendant to the sub-acute patient. Upon admission, every resident will be screened by all therapies to assess the need for specific services with periodic screenings during all stays. Out-patient rehabilitation services will be offered to the community in a physical therapy suite with a separate entrance. Manor Care envisions a similar comprehensive rehabilitation program offering the same therapies with the same intended results. Its rehabilitation program for its sub-acute unit offers one advantage not proposed by Beverly, i.e., the patients in the sub-acute unit will receive care under the supervision of a physiatrist. Manor Care's physical and occupational therapy will be designed to increase tolerance and maximize function in relation to the disease process. The frequency and duration of therapy will increase as the patient's tolerance, skill level, and confidence improve. Manor Care will provide a restorative and normalizing program to enable each resident to achieve maximum functioning and independence. An inter- disciplinary team of specialists will develop an individualized resident care plan. Restorative care for sub-acute patients will incorporate the same approach and will focus on achieving medical stability and discharging patients to their homes. Beverly's Wellington Terrace will provide therapeutic programs which enhance the residents' physical and mental functioning and emphasize restorative care. Specialized rehabilitation programs, a restorative nursing program, and normalizing activities are three main components of Beverly's approach. Its therapists work as a team to develop a treatment program designed to improve the residents' ability. Training is provided in the use of prostheses, pain management, rehabilitative dining, and other restorative therapies. Allocation factor number seven gives preference to applicants proposing charges which do not exceed the highest Medicaid per diem rate in the subdistrict. Exceptions shall be considered for facilities proposing to serve upper income residents. Both Manor Care and Beverly meet this preference. JFK has not proposed a specific charge for Medicaid patients since it expects to serve few of them, and it is anticipated that its Medicaid charges would be higher than those in a community nursing home. JFK does not meet this factor in that it will be serving Medicare patients, and the cost of providing care to Medicare skilled patients is higher than the cost of providing services to Medicaid patients. Allocation factor number eight gives preference to applicants with a record of providing superior resident care programs in existing facilities in Florida or other states and calls for consideration of the current licensure ratings of Florida facilities. Nine of the ten Manor Care facilities in Florida are rated superior, and its two newest facilities received superior ratings as soon as they were eligible. Accordingly, Manor Care has a documented history of providing superior resident care programs to its residents in Florida. On the other hand, Beverly has a superior rating for 31 of its 41 Florida facilities, and three of the facilities are rated conditional. Manor Care better meets this allocation factor than Beverly. JFK does not have a record of providing residential nursing home care, but JFK does provide a high quality of patient care as evidenced by its accreditation by the Joint Commission on Accreditation of Healthcare Organizations. The ninth allocation factor gives a preference to applicants proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules and further provides that applicants proposing higher ratios of RNs and LPNs to residents than other applicants shall be given preference. All three applicants propose staffing levels exceeding state minimum standards. As to the higher ratios, Manor Care's Schedule 6 for Year 2 shows 8.4 RNs and 14.9 LPNs. In comparison, Beverly's schedule 6 for Year 2 shows 8 RNs and 10 LPNs. Thus, Manor Care has a greater number of RNs and LPNs even though Beverly projects more utilization than Manor Care, and Manor Care is entitled to preference over Beverly on this factor. Allocation factor number ten gives preference to applicants who will use professionals from a variety of disciplines to meet the resident needs for social services, specialized therapies, nutrition, recreation activities, and spiritual guidance. It provides that the professionals used shall include physical therapists, mental health nurses, and social workers. All three applicants propose an interdisciplinary approach to meet the residents' needs in nursing, all therapies, nutrition, social services, and spiritual guidance, and JFK is likely to have a wider variety of professionals available than the two community nursing home applicants. The eleventh allocation factor of the State Health Plan states that preference shall be given to an applicant who provides documentation as to how it will ensure residents' rights and privacy, use resident councils, and implement a well-designed quality assurance and discharge planning program. All three applicants ensure residents' rights and privacy, and all have a well- designed quality assurance program in addition to a detailed discharge planning program. All three applicants meet this preference. The twelfth allocation factor gives preference to an applicant proposing lower administrative costs and higher resident care costs compared to the average nursing home in the district. This factor is difficult to accurately assess because the terms "administrative costs" and "resident care costs" are not defined, and there is no uniformity in reporting by county nursing homes. For example, some facilities such as Manor Care include salary benefits as an administrative cost, while others such as Beverly include that considerable expense as a resident care cost. Although it is also unknown how those costs are reported by the "average nursing home" or even what an average nursing home is, it is apparent that this factor seeks to encourage nursing homes to devote resources for direct delivery of care. Manor Care and Beverly comply with this preference. However, their applications in Schedule 6 reflect that Manor Care will have more staff for nursing, ancillary, and dietary services than Beverly and that Manor Care will have overall more full-time employees than Beverly. JFK will have higher resident care costs than the average nursing home, but any hospital-based program will have higher administrative costs than a free-standing nursing home because of the infrastructure required to operate a hospital. To the extent that this factor is intended to apply to a hospital-based skilled nursing unit, JFK cannot meet this factor. There is a need for the proposed Manor Care facility in Palm Beach County. First, Manor Care proposes to locate its facility in the west Lake Worth area of Palm Beach County. This area has a very high concentration of elderly people. In zip code 33467 (the western Lake Worth area), 14.7 percent of the projected 1997 population will be 75 years of age or older. It is good health planning to locate a new facility there. Second, there is a great need for additional Alzheimer's nursing home beds in a dedicated, secured unit. While the demand for Alzheimer's beds is substantially increasing, there are only a few dedicated Alzheimer's units in the entire county. Manor Care's 30- bed unit would help meet this need. Third, there is a need for additional sub- acute beds. Manor Care's proposed 15-bed unit will help meet this need particularly where Manor Care proposes to locate its facility. Fourth, Manor Care's commitment to provide a minimum of 55.5 percent Medicaid will enhance access to nursing home services. Fifth, Manor Care's application includes many letters of support from health care providers and practitioners, which substantiate the need and demand for another Manor Care nursing home in the county. It is not required for a CON applicant to propose a specific site for its facility. However, Beverly's application asserts that its proposed facility, Wellington Terrace, will be located in zip code 33414, which is the zip code for Wellington, a planned unit development. Beverly's witnesses also asserted that the facility would be built in Wellington, and Beverly's vice president in charge of nursing home development offered in his testimony to add as a condition for the award of a CON in this proceeding that Beverly would build its facility in Wellington. Beverly's proposed facility is not needed in the Wellington area of Palm Beach County. First, Beverly's proposed facility would not promote Medicaid access. Zip code 33414 has the highest income per elderly resident in Palm Beach County. Locating nursing home beds in the wealthiest elderly section of the county does not promote Medicaid access. Second, the small elderly population in Wellington does not show need for a new nursing home. The 75+ age cohort is that population group which truly demands nursing home services. Only 2.5 percent of the zip code 33414 residents are 75+. In comparison, the Palm Beach County average is 10.8 percent and the Lake Worth area where Manor Care proposes to locate is 14.7 percent. The other four zip codes in Beverly's primary service area (33414, 33411, 33470, 33467, and 33413) do not show need for the facility in Wellington. Zip codes 33470 and 33413 are scantly populated. Zip code 33411 is where Beverly's Royal Manor facility is located. Zip code 33467 is where Manor Care proposes to locate. Third, the closest nursing home to the proposed Beverly facility is Beverly's Royal Manor facility, which is only five miles from the proposed facility. Royal Manor already serves the Wellington area. The two Beverly facilities would be inappropriately competing with each other and duplicating each other's services, which is not logical given the limited elderly population in that area of the county. Fourth, Beverly is currently developing a sub- acute unit at Royal Manor and has indicated that unit might include ventilator- dependent beds. Royal Manor, therefore, already serves the limited sub-acute care and ventilator-dependent needs of elderly patients in that area. There is no need for an additional 25-bed sub-acute unit just five miles from Royal Manor. Also, Royal Manor currently has in place the same rehabilitative program proposed by Beverly in its new facility. Fifth, maximizing the resources at Royal Manor is a better alternative than building a new facility in zip code 33414. Notably, Beverly's application includes letters of support for a bed addition at Royal Manor, not the new proposed facility at Wellington. Beverly proposes a condition of a 25-bed Medicare-certified sub-acute level unit as a integral part of its project, following a company-wide focus which began in 1991. The goal for sub-acute residents is functional improvement rather than wellness. The majority of sub-acute patients will be discharged home or into an assisted living center. Beverly describes its sub-acute program as a level of medical/rehabilitative health services rendered to individuals who have completed the acute phase of recovery. The individual is medically stable, but continues to require complex medical intervention from nurses and therapists. Frequent diagnoses/conditions include post-operative fractured hip, renal failure (dialysis), cardiac rehabilitation, spinal cord injury, and respiratory conditions. Many patients will need IV therapy, parenteral nutrition and chemotherapy. A physician specializing in pulmonary medicine serves as medical director of the unit. That physician supervises a unit staff consisting of an RN, clinical coordinator, licensed nurses with critical care experience, and respiratory services contractual staff. As a condition to the award of a CON in this proceeding, Beverly will dedicate four of its sub-acute beds to a respiratory recovery program for ventilator-dependent patients. An RN with critical care/ventilator experience and a respiratory therapist will be on duty at the facility seven days per week, 24 hours per day. The ventilator-dependent residents will be those with a strong potential for being weaned from the respirator, with an average length of stay from four to six months. The goal is to discharge these patients to their homes or to a setting offering a lower level of care. The four rooms in the sub-acute unit closest to the nursing station will be equipped with headwall units, containing oxygen, vacuum, and compressed air systems. Four beds for ventilator-dependent patients is a good aspect of Beverly's application but does not approach the need of Palm Beach County residents for ventilator beds. The proposed 15-bed sub-acute unit at Manor Care is patterned on its "prototype" sub-acute program. This prototype provides a progressive therapeutic environment for patients who require medical monitoring along with an aggressive rehabilitation program. The interdisciplinary approach establishes measurable functional outcomes while avoiding re-hospitalization. The program is individualized and geared toward assisting patients and their families in coping with traumatic injury and disease to assist them in their return home. There are six primary features to Manor Care's prototype. First is a special physical layout of the unit, including a separate entrance, which creates an atmosphere for short-term stay. The second is a separate unit director who has both clinical and administrative experience. The third feature is the staffing model of the unit, which provides a minimum of 5.0 nursing hours per patient day. Most of the nursing hours are provided by licensed staff. The fourth feature is a case manager who is assigned to insure individualized treatment for each resident. The fifth feature is a dedicated staff for the unit, who have specific education and background in sub-acute care. The sixth feature is a physiatrist who oversees the operation of the unit. Manor Care's clinical profile of diagnoses to be treated in its sub- acute include: cardiac disorders, wound/skin care, renal disorders, general rehabilitation needs, pulmonary disease, brain injury, neurological disorder, medical, post-surgical, and orthopedic. Manor Care's prototype has been very successful; 83 percent of all sub-acute residents are discharged directly home. Many of Manor Care's sub- acute units are accredited by the Commission for Accreditation of Rehabilitation Facilities. On the other hand, Beverly's witnesses did not even know that CARF accreditation was available for comprehensive rehabilitation services in nursing homes. Further, while Beverly is still in the development stages of its sub- acute program, Manor Care has an established prototype with measured outcome. Lastly, Beverly's prototype does not include a physiatrist, and Manor Care's does. Alzheimer's disease affects the ability to remember, to communicate properly, and to perform activities of daily living. The needs of Alzheimer's patients are distinct from other nursing home residents. Their special needs require them to be treated in specialized units. Beverly will offer Alzheimer's services in an 18-bed area specifically designed for Alzheimer's patients. The unit includes separate dining and activity areas with an enclosed courtyard. This design allows for controlled wandering, with Wanderguard alarms placed on all exit doors throughout the facility. The goal of the program is to maintain the resident's sense of dignity and improve his or her quality of life. Mealtimes and therapeutic activities will be focused in small groups and will allow for individual assistance and partialization of activities. The program will have its own dedicated staff, trained to understand the symptoms and manifestations of Alzheimer's residents. Beverly currently operates similar Alzheimer's programs in Florida. Manor Care created a task force which lead to the development of Manor Care's prototype Alzheimer's unit. Currently, the Manor Care group operates over 90 dedicated units throughout the country. Manor Care's prototype encompasses five components: environment, staffing and training, programming, specialized medical services, and family support. The proposed 30-bed unit is self-contained, with its own dining room, activities room, lounge, quiet/privacy room, nurses' sub-station, director's office, day care lounge, and outdoor courtyard. A separate lounge area is provided for family visits. The enclosed, outdoor courtyard allows residents to walk outside freely. The unit is especially designed to reduce environmental stress. Manor Care's Alzheimer's unit has specialized staff including a unit director, activities director, and nursing staff. The unit is staffed with a high "nurse to resident" ratio. The staffing patterns emphasize continuity to ensure that residents receive individualized care. The goal of programming and activities is to improve quality of life. This specialized programming results in reducing the use of medications and restraints necessary to manage these residents. The activity program is success-oriented. The use of consultant medical specialists is an integral part of Manor Care's program. Specialists provide diagnostic treatment services for the Alzheimer's resident upon admission to the unit and thereafter when deemed medically appropriate. Families are very supportive of the unit programming and have benefited from the understanding and support available to them. The benefits of Manor Care's prototype Alzheimer's unit include: minimizing the use of physical restraints, decreasing the use of medications, improvement in residents' nutrition, reduction in agitation and combative behavior, a freer and safer living environment, an increase in independence and functional abilities, enhancement of family involvement, and better guarantor satisfaction. The uncontroverted medical evidence is that Manor Care's Alzheimer's unit is state-of-the-art and Beverly's is not. In addition to being dedicated and self-contained, Manor Care's unit is secured, i.e., the doors are locked, preventing the Alzheimer's patients from leaving that unit unaccompanied. On the other hand, Beverly proposes to use the Wanderguard system which sounds an alarm when an Alzheimer's patient leaves the unit or facility. The alarm alerts staff that they must stop what they are doing and go after the Alzheimer's resident to return the patient to the proper location. Although other nursing homes use the Wanderguard system, such is done only when Alzheimer's patients are distributed throughout the facility. It is not used in conjunction with a dedicated unit where all the Alzheimer's residents are located in one area. Accordingly, Manor Care's Alzheimer's unit is superior to Beverly's. Manor Care establishes links with state and local health care providers to maintain a continuum of care for admissions, treatment, referral, and discharge coordination. In addition to building upon the linkages already established by Manor Care's two facilities in Palm Beach County, Manor Care will pursue working relationships, referral arrangements, and transfer agreements with advocacy groups, adult day care groups, home health services, hospitals, recreational and senior citizen organizations, and respite care centers. Beverly establishes similar links and can utilize the linkages already established by its nearby Royal Manor facility. Manor Care will affiliate with local nursing schools, such as the South County Vocational Technical Center, Palm Beach County Community College, and the North County Vocational Technical Center to promote clinical rotations and internship programs at its facility. Through working relationships with health professional training programs, students will benefit from the training and practical experience gained within an operating facility. The proposed facility will offer the advantage of training in specialty Alzheimer's care and sub-acute care programs. Additionally, the research programs at Manor Care's parent company will assist the proposed facility in its provision of nursing home services, particularly in the areas of Alzheimer's care and sub-acute care, by developing new programs and services for its nursing centers. Manor Care has a team of staff, outside consultants, and other research entities conducting studies of health care needs, including studies on rehabilitation programs, sub-acute programs, diabetes programs, wound care management, adult day care, and Alzheimer's disease. This multi-disciplinary task force researches new technologies, with the ultimate goal of providing the highest quality of care. Beverly will also use Wellington Terrace as a clinical rotation training site for long-term care nursing students. Arrangements for training rotations have been made with the Institute on Aging and School of Nursing at Florida State University. Further, if Beverly is awarded a CON in this proceeding, it will establish a research fund of $10,000 allocated to a long- term care issue to be determined in conjunction with the Institute on Aging. Manor Care's project cost of $6,835,130 is reasonable. The costs and methods of construction, including energy provision, are reasonable and appropriate. There are no less costly or more effective methods of construction available. Its project cost is similar to the cost of a 120-bed facility that Manor Care currently has under construction in Palm Beach County, which gives Manor Care a credible benchmark for estimating its project cost. The estimated project cost is broken out by cost items, which, in turn, are reasonable. Manor Care estimates a total land cost of $1.42 million. Of this, $900,000 is for the purchase of land, and $520,000 is for land improvement costs. In evaluating land, Manor Care considers the distribution of other Manor Care nursing homes in the county, whether there are utilities available to service the land, and whether there is sufficient zoning and land use approval to develop the land for a nursing home. There are several available 5-acre sites in the west Lake Worth area that meet these land eligibility requirements, all in the range of $900,000. The estimate of $520,000 for land improvement is based on Manor Care's experience in Palm Beach County. These improvement costs include water and sewer hook-up. Manor Care estimates approximately $3.87 million for the building cost and $840,000 for total equipment costs: $150,000 for fixed equipment and $690,000 for movable equipment. These costs are reasonable and based on Manor Care's experience in Florida, including the facility under construction in Palm Beach County. Equipping a sub-acute unit is more expensive than regular residents' rooms. It requires more expensive beds, diagnostic machines, special support tables, and expensive nurse station equipment. Manor Care's total equipment cost includes appropriate equipment for its 15-bed sub-acute unit. Manor Care reasonably projects $67,000 for development costs and $339,000 for construction interest. It estimates $300,000 in start-up costs: $125,000 for pre-opening salaries and recruitment, $125,000 for marketing, and $50,000 for pre-opening inventories and miscellaneous costs. The expenses are reasonable and consistent with Manor Care's recent experience in opening two nursing homes in Florida. To the contrary, Beverly's projected project cost is likely understated due to the questionable reasonableness of several components. First, Beverly commits to locating its facility in zip code 33414. There is no land available in that zip code with the necessary zoning and the necessary land use designation for nursing home development. Beverly would have to obtain a change in zoning and may also have to obtain a change in the land use designation which requires a modification of the Palm Beach County Comprehensive Land Use Plan, which requires approval of both the county and the state. Beverly's chances for success are speculative. Further, of the four sites which Beverly has considered for locating its facility, one of those sites is smaller than the five acres which Beverly requires to develop its facility. Another of those sites does not have utilities in place to service the site, an expense Beverly has not included in its projected costs. Two of the sites are not located in zip code 33414. Even if land is available in Beverly's selected zip codes, Beverly's estimate of $350,000 for the purchase of land is unreasonably low. Second, Beverly underestimated its land development costs. For example, Beverly included no monies for water, sewer, or utility hook-up. In comparison, Manor Care assumed $165,000 for such hook-ups. Third, Beverly's total equipment cost appears understated. Equipping a sub-acute room is substantially more expensive than a normal room. Beverly proposed ten more sub- acute beds than Manor Care, yet its total equipment cost is almost $200,000 less. Fourth, Beverly's building cost per square foot is significantly less than Manor Care's. In three applications for a CON filed six months later than the one involved in this proceeding, Beverly estimates its construction cost as being $400,000 greater than the instant project for the same nursing home design. In explanation of this disparity, Beverly presented evidence that the subsequent applications were for an improved facility which would have a steel frame instead of the wood frame to be utilized at Wellington Terrace, and the HVAC system would be enhanced. Constructing its intended facility at Wellington rather than using the improved construction materials Beverly will use elsewhere is not a reason to approve Beverly's CON application in this proceeding. Fifth, Beverly's start-up cost of $75,000 is unreasonably low. That figure does not represent a calculation of specific items; rather, it is simply an aggregate figure which Beverly used. Beverly did not adequately explain the disparity between its start-up cost and Manor Care's $300,000 start-up cost, which is a reasonable figure. Finally, Beverly's construction period interest has not been shown to be reasonable and its application is not consistent with regard to financing and equity contribution. Although the Agency can authorize a cost overrun of up to 10 percent of an applicant's project cost, it is uncertain that Beverly has underestimated its project cost by only 10 percent. It is not good health planning to approve a project which will, in turn, require further Agency approval to implement. Further, this proceeding is a comparative review of the applications filed and the representations made therein. It would be inappropriate to approve an application containing projections which are suspect. Since both Manor Care and Beverly are able to secure the financing necessary for project accomplishment, both of their proposals have immediate financial feasibility. Manor Care's proposal also has long-term financial feasibility. The financial projections for Years 1 and 2 are based on reasonable utilization, revenue, and expense assumptions. Manor Care reasonably projects that it will be profitable in Year 2 of operation. Beverly is a large corporation with substantial resources. Because of this, it can be expected that Beverly's project, which will likely cost substantially more than Beverly projected, will be financially feasible in the long term although perhaps not as early as Year 2. Either Manor Care's or Beverly's project would enhance the existing long-term care system in Palm Beach County by providing needed skilled nursing services, services for Alzheimer's and related dementia disorders, sub-acute services, respite care, and adult day care. Both applicants have a corporate quality assurance program which is utilized and implemented at all nursing homes operated by that applicant. Those programs are intended to promote quality of life and quality of care for the residents. Both facilities would enjoy high utilization, and both proposed charges which are reasonable. Both projects will utilize corporate resources in a cost-efficient and cost-effective manner. Both Manor Care and Beverly have committed as a condition to the award of a CON to provide more Medicaid patient days than the nursing home average for Palm Beach County. Thus, both proposals promote access to Medicaid residents for nursing home services. Although Beverly's county-wide and statewide Medicaid averages are higher than Manor Care's, each facility of either applicant has met its CON condition regarding its Medicaid commitment. As required, JFK's application has been reviewed against the state and local health plan allocation factors as set forth in this Recommended Order. Its application meets the majority of those allocation factors. Moreover, some of those factors require that preference be given to programs which are of the specific nature proposed by JFK. Patients with a documented need for sub-acute skilled nursing services of the type proposed by JFK have been denied access to licensed but unoccupied skilled community nursing home beds in Palm Beach County. Those patients' needs for sub-acute skilled nursing services are documented in physician orders and plans of care contained in the patients' medical records. Generally, patients requiring a high level of nursing and restorative care have been denied access. Further, there are several specific categories of patients who have been unable to obtain timely discharges to skilled nursing facilities in Palm Beach County. These categories include: patients with chronic illness; patients who are ventilator dependent; diabetic patients; terminally ill patients; patients who require chemotherapy; AIDS patients; and patients with chronic obstructive lung disease. The difficulty in discharging these patients is a "daily to weekly" issue at JFK. Ventilator-dependent patients requiring skilled nursing care are routinely denied access to licensed but unoccupied skilled nursing beds in Palm Beach County. There are no long-term care beds in Palm Beach County that provide ventilator services, although some purport to do so. Palm Beach County patients who require long-term ventilator care must seek admission to Vencor Hospital in Fort Lauderdale, which is approximately forty-five miles from JFK. During peak season, Vencor generally does not have beds readily available. Patients who require long-term ventilator care often remain in acute care beds at JFK longer than warranted by their medical condition because there are not available appropriate facilities in Palm Beach County for their post-acute care. Patients discharged from JFK to Vencor for long-term ventilator care lose contact with their attending physicians, which impairs the continuity of care rendered to those patients. Patients placed at Vencor are further compromised by their family and friends' inability to travel to Fort Lauderdale to visit them. The support of family and friends is important in helping ventilator-dependent patients to wean themselves from the ventilator. JFK has experienced and anticipates it will continue to experience a significant increase in the number of its patients whose care is reimbursed under managed care plans. JFK's 1995 budget projects that 33 percent of the hospital's patient days will be attributable to managed care patients. Managed care plans have exerted pressure on JFK physicians to discharge patients as quickly as possible. Accordingly, patients discharged from JFK are often in a more acute phase of illness or injury than were comparable patients in past years. Patients discharged from JFK who require a heavier level of care have not, as a rule, been adequately served by Palm Beach County skilled nursing facilities. Community nursing homes in Palm Beach County do not offer sub-acute care of the nature proposed by JFK. As a result of patients being discharged "quicker and sicker" from JFK to community nursing facilities, JFK has experienced an increase in the rate of readmissions from community nursing facilities to JFK. The number of readmissions has grown from 115 in JFK's fiscal year 1991 to greater than 200 during its fiscal year 1993. This evidence confirms that existing community nursing home facilities do not serve as adequate or appropriate discharge alternatives for many JFK patients who require sub-acute care. JFK has the ability to provide a high quality of care to patients requiring sub-acute services. The Agency has determined JFK's quality assurance, utilization review, and resident care plans to be acceptable. JFK proposes a substantially higher number of nursing hours than required by licensure rules. Moreover, JFK proposes to provide RNs on a 24-hour basis, and to make available on a 24-hour basis to sub-acute patients its full panoply of ancillary and support services. The development of JFK's sub-acute unit will enhance the post-acute care provided to patients discharged from JFK's acute care beds. JFK has available the financial resources necessary to implement its sub-acute program and will be able to recruit the nursing and technical staff necessary. There is sufficient demand for the JFK program to assure that the program will be highly utilized. JFK's project will be financially feasible in the immediate and in the long-term. JFK's program will result in several cost related benefits, both to JFK and to the community it serves. First, because JFK will be able to discharge certain patients more rapidly to the sub-acute unit, it will avoid substantial operational expenses associated with caring for those patients in acute care beds. Based solely on the sample of patients referenced in JFK Exhibit 5, JFK would have avoided approximately $600,000 in annual operational expenses had a sub-acute unit been available at the hospital during 1992 and 1993. A contractual adjustment is the difference between the amount a hospital charges for a service and the amount it actually receives in payment for the service. The contractual adjustment is exacerbated where a patient's acute care length of stay extends beyond the number of days necessary to care for the acute needs of the patient. During the period March 1992-March 1994, JFK experienced a contractual adjustment of approximately $3,000,000 relative to the sample of 287 patients reflected in JFK Exhibit 5. That contractual adjustment is significant from a health care reimbursement perspective. JFK's contractual adjustments relative to patients who require post-discharge sub- acute care would be reduced if JFK were to establish a sub-acute unit, which would ameliorate JFK's financial losses associated with that category of patients. The development of a sub-acute program at JFK will benefit the Palm Beach County health care delivery system. The marginal or operational cost per day of providing acute care services at JFK is $350-$400 higher than the projected marginal cost per day of providing sub-acute care services. For every day that a JFK patient receives services in JFK's sub-acute unit, rather than in an acute care unit, the health care delivery system will save money. As JFK will incur significantly less expense in providing services to patients in a sub-acute unit, JFK will not have to subsidize the care it currently provides to sub-acute patients in the acute care setting. Accordingly, the development of JFK's sub-acute unit will have a downward pressure on future JFK rate increases, promoting cost containment, and will lower the cost of providing the sub-acute care services proposed by JFK. The development of JFK's sub-acute unit will allow the hospital to allocate its resources more efficiently, which further promotes cost containment. Further, the development of JFK's sub-acute unit constitutes an innovation in the delivery of health care services, which innovation will have a positive effect on competition. JFK is a not-for-profit hospital. It is JFK's policy to care for all persons regardless of financial condition, and JFK has outreach programs for persons with limited financial resources. While JFK's general admissions policy will apply to the sub-acute unit, JFK does not propose to serve a large number of Medicaid and indigent patients in that unit. JFK anticipates that Medicare will be the primary payor for approximately 90 percent of the patients served in the unit, given the unit's emphasis on restorative and rehabilitative care. Beverly or Manor Care will provide a majority of its services to Medicaid patients, thereby complementing JFK's proposal. JFK provides a full array of inpatient and outpatient health care services, including a diagnostic breast institute, an ambulatory surgery center, an outpatient comprehensive cancer center, primary care physician services, and home health services. Each of those services constitutes part of JFK's continuum of care. Sub-acute care services are the only link missing. The approval of its application will allow JFK to achieve full "vertical integration" i.e., a multi-level health care system, in that JFK will be able to provide its patients with services appropriate to their needs from pre-admission to JFK through post-discharge. Achieving vertical integration will enhance JFK's ability to contract with managed care companies, who endeavor to contract with organizations that offer a full continuum of care. JFK's establishment of a sub-acute unit will allow it to meet managed care companies' demand for capitated relationships, wherein the insurer pays an organization a flat amount, per covered life, to provide complete health care to its insured. The establishment of a sub-acute unit at JFK will allow the organization to reduce the cost of providing health care services to patients throughout its multi-level health care system and allow it to respond to the growing capitation market. Placing patients in the sub-acute environment, where they will consume fewer resources, will enable JFK to decrease the cost of providing health care to managed care companies and their subscribers. Finally, approval of JFK's application will allow JFK's patients to be followed by the same physicians who attended to them during their acute care hospitalization. Those patients who are capable of being transported elsewhere and are transferred to a sub-acute unit at a nursing home will seldom receive follow-up care from the physicians who performed their surgeries and otherwise attended to them during their acute episode. The overwhelming support of JFK's proposed sub-acute unit by the primary care and other specialized physicians at JFK, as evidenced by their testimony during the final hearing or by deposition admitted in evidence, is based upon their concern for their inability to follow up on their patient's care if those patients are elsewhere than in JFK. Those doctors who run office practices and work at JFK cannot spend a great deal of their day traveling around Palm Beach County from nursing home to nursing home to assure that their patients' recovery is progressing in addition to the time they spend visiting patients in the hospital and performing surgery and otherwise treating patients. Those physicians do not favor retaining the patients in acute care beds longer than is necessary, and that concern is not a result of concern for their personal incomes as was suggested by the Agency. Physicians are reimbursed at a higher rate for hospital visits than for visits to patients in skilled nursing units. Both continuity of care and successful outcome for the patient relate to continued care by the same physician.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered Granting Manor Care's CON application # 7375; Denying Beverly's CON application # 7372; and Granting JFK's CON application # 7374. DONE and ENTERED this 7th day of March, 1995, at Tallahassee, Florida. LINDA M. RIGOT 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 7th day of March, 1995. APPENDIX TO RECOMMENDED ORDER Beverly's proposed findings of fact numbered 5, 6, 8, 9, 13-19, 21, 23, 25-27, 31, 32, 34-43, 45-47, 51-54, 57, 60, 61, and 81 have been adopted either verbatim or in substance in this Recommended Order. Beverly's proposed findings of fact numbered 1, 3, 4, 63, and 67 have been rejected as not constituting findings of fact. Beverly's proposed findings of fact numbered 2, 24, 28, and 80 have been rejected as being irrelevant. Beverly's proposed findings of fact numbered 7, 22, 44, 48, 59, 64-66, 69-72, 75, 76, 82, and 84 have been rejected as not being supported by the weight of the evidence. Beverly's proposed findings of fact numbered 10, 11, 20, 29, 30, 33, 49, 50, 55, 56, 58, 62, 68, 73, 74, 77, and 78 have been rejected as being subordinate to the issues to be determined. Beverly's proposed findings of fact numbered 12, 79, and 83 have been rejected as being unnecessary. JFK's proposed findings of fact numbered 14-59 have been adopted either verbatim or in substance in this Recommended Order. JFK's proposed findings of fact numbered 1-13 have been rejected as being unnecessary. Manor Care's proposed findings of fact numbered 1-6, 13-42, 44-57, 59- 78, 82, 83, 89-114, 116, 118-120, 122-125, and 128-131 have been adopted either verbatim or in substance in this Recommended Order. Manor Care's proposed findings of fact numbered 8-12, 43, 115, and 117 have been rejected as not constituting findings of fact. Manor Care's proposed findings of fact numbered 7, 79, 80, 87, and 88 have been rejected as being unnecessary. Manor Care's proposed finding of fact numbered 58 has been rejected as not being supported by the weight of the evidence. Manor Care's proposed findings of fact numbered 81, 84-86, 121, 126, and 127 have been rejected as being subordinate to the issues to be determined. The Agency's proposed findings of fact numbered 1-6, 9-26, 28, 34, 38, 39, 53, 54, 57-61, and 65-69 have been adopted either verbatim or in substance in this Recommended Order. The Agency's proposed findings of fact numbered 7, 41, 55, 62, and 63 have been rejected as being subordinate to the issues to be determined. The Agency's proposed finding of fact numbered 8 has been rejected as being unnecessary. The Agency's proposed findings of fact numbered 27, 29-33, 35-37, 40, 42-46, 48-52, 56, and 70 have been rejected as not being supported by the weight of the evidence. The Agency's proposed finding of fact numbered 47 has been rejected as not constituting a finding of fact. The Agency's proposed finding of fact numbered 64 has been rejected as being irrelevant. COPIES FURNISHED: James C. Hauser, Esquire Parker, Skelding, Labasky, Corry, Eastman & Hauser, P.A. 318 North Monroe Street Tallahassee, Florida 32301 Douglas L. Mannheimer, Esquire Broad & Cassel 215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302 Robert A. Weiss, Esquire 118 North Gadsden Street, Suite 200 The Perkins House Tallahassee, Florida 32301 Lesley Mendelson, Esquire Agency for Health Care Administration The Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303-4131 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303-4131
The Issue Which of three competing applicants for a certificate of need to construct a nursing home in health planning District 4, Subdistrict 3, best meets the statutory and rule criteria for approval.
Findings Of Fact The Agency for Health Care Administration (AHCA) is the department of state government which administers the certificate of need (CON) program for health care facilities and services in Florida, pursuant to Section 408.034, Florida Statutes. For the planning horizon beginning July 2001, AHCA published a numeric need for an additional 121 community nursing beds in nursing home planning District 4, Subdistrict 3, for southeast Duval and St. Johns Counties. Sawgrass Care Centers, Inc. (Sawgrass), Woodlands Extended Care, Inc. (Woodlands), and National Healthcare Corporation (NHC) are competing, mutually exclusive applicants for a CON to construct a 120-bed nursing home in District 4, Subdistrict 3. After reviewing the applications, AHCA preliminarily approved the issuance of CON No. 9125 to NHC. In the Prehearing Stipulation, filed on November 2, 1999, the parties agreed that the following criteria are either not applicable or are not in dispute: Subsections 408.035(1)(d), (e), (f), (g), (j), and (k), and Subsections 408.035(2)(a), (b), (c), and (d), Florida Statutes; Rule 59C- 1.036, Florida Administrative Code; and allocation factors 1, 3, 4, and 9 of the local health plan. During the final hearing, the parties also stipulated that all letters of intent were legally sufficient. The issues requiring resolution in this proceeding, the parties agreed, are: Subsections 408.035(1)(a), (b), (c), (h), (i), (l), (m), (n), and (o); and Subsection 408.035(2)(e), Florida Statutes; allocation factors 2, 5, 6, 7, and 8 of the local health plan; and Section 408.037, Florida Statutes. Sawgrass is the applicant for CON No. 9126 to construct a 120-bed nursing home in northern St. Johns County for approximately $3,967,000 in construction costs for a 56,800 square-foot building. The total project will cost approximately $6.4 million. Mr. S. W. Creekmore, Jr., who is the sole shareholder and president of Sawgrass, has been in the nursing home business over 30 years. Currently, Mr. Creekmore owns and operates between 30 and 40 nursing homes in Arkansas, California, Missouri, New York, Tennessee, Texas, and Nevada. Sawgrass is currently constructing Sawgrass Care Center of North Duval, an 84-bed addition to a 60-bed facility in Duval County. If CON No. 9126 is issued to Sawgrass, it will be on condition that Sawgrass: locate the 120-bed nursing home in northern St. Johns County within zip codes 32082, 32092, 32095, and 32259, in District 4, Subdistrict 3; provide a minimum of 63.51 percent total annual patient days to Medicaid patients; establish a 20-bed Alzheimer's care unit, a 20-bed Medicare unit, hospice services and respite care; admit AIDS patients; and construct the facility according to the schematic drawings. Sawgrass contends that its application should be approved primarily because of its proposed location in northern St. Johns County. An increase of beds in St. Johns County will correct what Sawgrass' expert health planner described as a maldistribution of nursing home beds within the district. Sawgrass also presented evidence questioning the financial feasibility of NHC's proposal. Woodlands is the applicant for CON No. 9123 to construct a 120-bed nursing home in southeast Duval County for approximately $5.2 million in construction costs for 53,155 gross square feet, and $7.9 million in total project costs. Woodlands currently operates Woodlands Terrace Extended Care Center (Woodlands-Deland), a 120-bed nursing home located in Deland, Florida. Woodlands is owned by Mr. Morris Esformes, who also owns EMI Enterprises, Inc. (EMI), a nursing home management company, with its headquarters in Illinois. EMI manages almost 3,000 nursing home beds in Missouri, Illinois, and Florida, including Woodlands-Deland. EMI provides bookkeeping, payroll, purchasing, insurance and other contract negotiation services for the nursing homes it manages. If its CON application is approved, Woodlands is committed to constructing the facility in southeast Duval County, to serving 63.01 percent Medicaid, 1 percent AIDS, and .5 percent indigent care, and to establishing units of 24 beds for subacute care and 20 beds for Alzheimer's care. Woodlands contends that existing nursing home occupancy levels support its decision to build and to condition its CON on a location in southeast Duval County. Woodlands presented evidence intended to demonstrate that the design of its Alzheimer's unit, and its proposed staffing levels are superior to those of NHC. Woodlands also maintained that its estimated construction cost is more reasonable and its design preferable to that of Sawgrass. Woodlands presented evidence to support the accuracy of Schedule 2 of its application and of its projected financing costs. NHC, the applicant for CON No. 9125, started in 1971, with fourteen nursing homes. Currently, NHC owns or manages approximately 100 facilities in nine states, 42 of those in Florida. Ten of the 42 Florida facilities are also owned by NHC. The new facility, NHC HealthCare, St. Augustine, will cost approximately $6.7 million to construct the building with 63,104 gross square feet, and $10.2 million in total project costs. NHC's CON would be issued on condition that NHC (1) provide 63.05 percent of total facility patient days to Medicaid at stabilized occupancy; (2) establish, as special programs, a 16-bed subacute unit and a 30-bed Alzheimer's/Dementia unit, provide adult day care through an existing provider, and offer respite and HIV/AIDS care. In addition, NHC commits to selecting a highly accessible site within one mile of a major artery or within three blocks of a bus stop. Although NHC presented evidence that St. Johns County is the preferable location for a new nursing home, it is not willing to have a condition on the county in which it will build as a condition for the CON. NHC, through the testimony of its assistant vice president for health planning, specifically reserved the right to locate anywhere within the subdistrict so long as the location complies with the local health plan description of a highly accessible site. NHC contends that approval of its CON will bring possibly the first and, among the competing applicants, the largest Alzheimer's unit to St. Johns County. NHC also challenged the financial feasibility of the Sawgrass and Woodlands proposals. 408.035(1)(a) - need for the facility and services proposed in relation to the district plan At issue in this proceeding, from the district health plan for District 4, are the following preferences or allocation factors: 2) For urban areas, applicants who will locate in an area highly accessible in terms of public and private transportation - within one mile from a major artery or within three blocks from a bus stop. Applicants who include in their CON application specific plans detailing how they intend to address the mental health needs of their clients, including having a provider skilled in the recognition and treatment of mental health problems. Applicants who document that their project addresses an unmet need for the nursing home placement of persons with a specific debilitating illness. Applicant must document that a need exists. (In November 1992, hospital discharge planners reported having difficulty placing ventilator and tracheotomy patients). Applicants who have JCAHO accreditation and superior ratings from AHCA in existing facilities. Applicants who propose to locate in a county or defined subcounty area within a subdistrict (such as north, southwest or southeast Duval; east or west Volusia) with a licensed bed occupancy rate of at least 91 percent for the most recent six-month period (January-June or July-December) prior to the start of the current CON review cycle and no additional beds are approved. Sawgrass described the area of St. Johns County in which it will locate as not urban and concluded, therefore, that allocation factor two is inapplicable to the Sawgrass application. Woodlands, which proposed locating in southeast Duval County, identified three alternative sites, all within a mile of major county, state, or interstate roads and highways, and within three blocks of public bus stops. Woodlands is not, however, committed to selecting any of those three sites. NHC's CON would include compliance with preference two as a condition for approval. If it chooses to locate in St. Johns County, NHC cannot comply with the alternative of locating within three blocks of a bus stop because there is no public transportation system in St. Johns County, but NHC can meet the preference by choosing a site in the County which is near a major artery. The three applicants included, in their CON applications, letters from mental health services providers who are willing to enter into agreements to care for residents of the facilities. While an expert witness raised an issue regarding the dates of the supporting letters, which are 1998 and early 1999 for Sawgrass, early in 1999 for Woodlands and, by contrast, late 1997 for NHC, there is no evidence that the services proposed are not still available. Overlapping to some extent with allocation factor five, for providing mental health services, is six, for meeting unmet needs of persons with specific debilitating illnesses, such as Alzheimer's/Dementia. The proposed 20-bed units dedicated to Alzheimer's/Dementia care at Sawgrass and Woodlands, and 30-bed unit at NHC comply with the that factor. Sawgrass and NHC, based on their evaluations of the subdistrict, particularly of St. Johns County, noted an absence of Alzheimer's care in a dedicated unit. There was credible evidence, however, that 40 residents have been placed in a locked 60-bed dedicated dementia unit, established at a facility called Bayview in St. Johns County, subsequent to the filing of these CON applications. There was also evidence that an estimated 50 percent of all nursing home residents suffer from some form of dementia. Ratings by AHCA and the Joint Commission on Accreditation of Health Organizations (JCAHO), are not yet available for the 84-bed Sawgrass facility in Duval County, because it is still under construction. Sawgrass relied on the experience of its principal, Mr. Creekmore, and of Mr. Donald Fike, the president and owner of RFMS, a corporation which manages nursing homes in Florida, Nevada and Illinois. RFMS has an agreement with Mr. Creekmore to manage Sawgrass. Mr. Creekmore, who resides in St. Johns County, owns facilities in Tennessee, California, New York, Nevada, Arkansas, Texas, and Missouri, none of which has had a license revoked or suspended or been in receivership within 36 months prior to the hearing. Currently, RFMS manages and Mr. Fike has a controlling interest in partnerships that own two nursing homes in Florida, 120-bed Surrey Place of Ocala (Surrey Place), which also has 36 assisted living units, and Hawthorne Care Center of Brandon (Brandon) with 90 existing beds, 30 approved beds, and 64 assisted living units which are under construction. An additional facility managed by RFMS and owned by Mr. Fike is under construction in Lakeland. RFMS' employees at its corporate headquarters in Galesburg, Illinois, provide management, budgetary, accounting, and recruiting services. RFMS has never managed a facility for Sawgrass or Mr. Creekmore, but its two Florida facilities, Surrey Place and Brandon, were rated superior until the state eliminated superior licenses on July 1, 1999. Woodlands operates one Florida facility, Woodlands- Deland, which had been rated superior as long as it was eligible for that designation. Woodlands-Deland is not JCAHO-accredited. Woodlands relied on the experience of its owner, Mr. Esformes, and his management company, EMI. Mr. Esformes has been in the nursing home business for approximately 30 years. No specific information on the ratings of the facilities owned by Mr. Esformes or managed by EMI was provided. Of the 42 Florida nursing homes operated by NHC, ten are also owned by NHC. Three of the ten were rated superior, one was not yet eligible, and one was also JCAHO-accredited at the time the CON application was submitted. By February 1999, five of the ten NHC owned and operated facilities in Florida were rated superior. Twenty-eight of the 32 NHC-operated Florida nursing homes were rated superior. From January through June 1998, the average occupancy was 90.84 percent in the subdistrict, 91.3 percent for southeast Duval County, and 89.36 percent for northern St. Johns County. Woodlands is committed to establishing its facility in southeast Duval County, Sawgrass is committed to the northern four zip codes in St. Johns County, and NHC is not committed to either but, in general, supported the need for a nursing home in St. Johns County. Subsequent data on occupancy shows consistency with past levels. In the second six months of 1998, the occupancy levels in nursing homes in St. Johns County was 88 percent, and in southeast Duval, 93 percent. From January through June 1999, St. Johns was 89 percent and southeast Duval was 92.8 percent occupied. Suggesting that occupancy percentages are not the sole indicators of the availability of beds, a health planning expert for Sawgrass noted that significantly more empty beds are available in southeast Duval County as compared to St. Johns County due to the larger total number of beds in the Duval area. Three CONs were issued in 1998 and 1999 to Vantage Health Care Corporation, which was identified as a Beverly Corporation, the first one for 60 beds in St. Johns County, a second one to add 56 beds to the first CON with Duval/St. Johns as the county on the face of the CON, and the third to add four skilled nursing beds to the first two CONs, or a total of 120 beds all together. Although, counties are indicated on each CON, none is specifically conditioned on a particular location within the subdistrict. AHCA lists the Vantage beds in its inventory for St. Johns County, which is supported by the testimony of the Executive Director of the Health Planning Council of Northeast Florida and by the most restrictive location on the face of the first 60-bed CON. Although of questionable value due to the arbitrariness of using zip codes for health planning purposes and due to the relatively minor, 2 percent difference in occupancy rates, preference eight favors a proposal to locate in southeast Duval County. More important in determining the preference for a southeast Duval location is the prior approval of 120 beds for St. Johns County, even though Vantage could build its facility in southern St. Johns County. 408.035(1)(b) - availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of existing facilities and services in the district In addition to the comparison of occupancy levels in St. Johns and Duval Counties, other factors affecting the availability and utilization of nursing beds have been considered. The total population 65 and over in Duval county was 79,986 as compared to 17,294 for St. Johns County in 1995. Population growth, however, has been and is projected to be greater in St. Johns than in Duval County. From 1998 to 2003, the population 65 years and older is expected to increase from 36,988 to 39,790, or 7.5 percent, in southeast Duval County, and from 8,506 to 9,922, or 17 percent, in the northern four zip codes in St. Johns County. Despite the fact that St. Johns is relatively sparsely populated currently, the data supports a conclusion that the trend from 1990 to 1995, when the over 65 population increased by 12 percent in Duval County and by 26.3 percent in St. Johns County, is continuing. The lower occupancy in St. Johns County was attributed, in part, to two facilities with occupancy rates consistently in the 87 to 88 range which occupy over 30 year-old concrete block buildings with survey problems. Although, in 1998, all of the facilities in St. Johns County were rated superior. Another explanation was the fact that one 57-bed facility, in northern St. Johns County, reserves five beds for residents of its retirement community. A second nursing home, near Ponte Vedra Beach in St. Johns County, is also a sheltered facility, which is limited to residents of the retirement community. Migration patterns, in a study done around 1996, showed significantly more St. Johns County residents placed in Duval County facilities than Duval County residents in St. Johns County facilities. Bed-to-population ratios in St. Johns and southeast Duval Counties are also factors which may indicate the relative availability and accessibility of nursing home services. The health planning experts for Sawgrass and NHC determined that a maldistribution of beds is indicated by the bed-to-population ratio, showing that St. Johns County is underserved as compared to the rest of the district. NHC's health planner testified that, for every one thousand people over the age of 65, there are 32 beds in St. Johns County as compared to 42 beds in Duval County. Sawgrass' health planner noted that 72 percent of the beds but only 66 percent of the district population is located in southeast Duval County, while four percent of the beds and 15 percent of the population are in northern St. Johns County. The discrepancy in bed-to-population ratio is more significant, according to the experts for Sawgrass and NHC, than the two percent difference in occupancy levels between the two areas of the subdistricts. Bed-to-population ratio analyses, however, assume uniform need which is not necessarily valid due to demographic variances in the population. The bed-to-population analysis also assumed that what was, at the time, 116 approved beds for Vantage would be constructed in southern St. Johns County. Considering the Vantage CONs together, the more reasonable conclusion is that Vantage could build the new nursing home anywhere in the County. Woodlands' proposed location was criticized by the health planner for NHC as contributing to a clustering of facilities in Duval County. As a part of that cluster, Woodlands might not greatly enhance accessibility although it does meet the local health plan preferences related to accessibility and occupancy. In addition, NHC argued, that the area is growing in young families not older people due in part to its proximity to Mayport Naval Station, and as indicated by the construction of three new elementary schools in the last six years. Accessibility and availability to specialty programs was another consideration evaluated by the health care planners. There is a need for more complex subacute care in nursing homes. The evidence indicated that Alzheimer's care in a dedicated unit was available in St. Johns County at the time of hearing although it had not been at the time the applications were filed. See also Finding of Fact 18. 408.035(1)(c) - history of providing and ability to provide quality of care As a legal entity, the applicant Sawgrass has no history of providing nursing home care in Florida. Sawgrass, however, through the experiences of Mr. Creekmore and Mr. Fike, has established that the owner and operator have histories of providing high quality of care. Based on the descriptions of operational styles and the policies of RFMS, Mr. Fike's management company, Sawgrass demonstrated the ability to provide a high quality of care if its CON application is approved. See Findings of Fact 20. Woodlands, as to a legal entity operating in Florida, has a limited but excellent history, with a superior rating at Woodlands-Deland beginning in 1997. Woodlands asserted, but without specific information on their other facilities, that its principal, Mr. Esformes, and his management company, EMI, have the ability to provide a high quality of care if CON 9123 is approved. See Findings of Fact 21. NHC has a more inconsistent but improving history, based on licensure, of providing quality of care in its Florida facilities. It is the only applicant with JCAHO accreditation but in only one of its ten Florida nursing homes. NHC has significantly more experience operating nursing homes than either of the other two applicants. See Findings of Fact 22. To determine quality of care, an additional factor urged for consideration is staffing, which overlaps with the following critera: 408.035(1)(h) - availability of resources, including health personnel, management personnel On Schedule 6, the table in the CON application which shows staffing patterns, NHC showed a total of 11.2 full-time equivalent (FTE) registered nurses (RNs). On Schedule 8, which listed the projected income and expenses for the proposal, NHC allocated RN salaries for 7.0 FTEs. NHC's 7.0 FTEs for RNs providing direct patient care is comparable to 5.6 for Sawgrass, and 8.4 for Woodlands. The comparison is valid because NHC included administrative as well as direct care positions in the total of 11.2 FTEs for RNs, including unit directors or managers and an assistant director of nursing. An NHC witness conceded that the RNs in these positions do not, as a routine responsibility, provide direct care. NHC also included a central supply clerk and nursing secretary in the FTEs for nurses aides or CNAs. NHC's regional administrator for Florida, Tennessee and Kentucky testified that staff in these positions also do not, as a routine, provide direct care to patients. NHC included one FTE for a medical director on Schedule 6, but indicated, at hearing, that the position is not full time. When the administrative positions are excluded, NHC's total direct hours of care per patient day (ppd) is approximately 3.18 hours, not 3.29 as described in the CON, as compared to 3.39 for Woodlands, and 3.29 for Sawgrass. When broken down based on the type of nurse providing the care, NHC's 3.18 total hours combines 2.38 hours by certified nurse assistants (CNAs) and 0.8 by licensed nurses (RNs and LPNs). Woodland's total of 3.39, combines 2.32 hours by CNAs and 1.07 hours by licensed nurses. For the Alzheimer's unit, NHC, in the CON application, erroneously described its proposal as providing 5.0 hours of care per resident day, but that was corrected at hearing by NHC's expert in health care financial feasibility and reduced to 2.58 hours. Woodlands provided at its current facility and proposed to provide at a new one approximately 3.9 hours ppd in the Alzheimer's unit. The staffing levels proposed by Sawgrass, NHC, and Woodlands all exceed the minimum state requirements of .06 ppd for licensed staff and 1.7 ppd for CNA, or 2.3 hours ppd total. Direct care staff at NHC perform some functions which would be performed by different personnel in the other two proposals. These duties include evening housekeeping, setting up and cleaning dining tables in the Alzheimer's unit, and answering evening telephone calls. Another indication of the demands on staff time is reflected in NHC's proposal to employ 7 FTEs in housekeeping for a 63,000 square foot building, as contrasted to Woodlands' use of 8 FTEs in its housekeeping department for 53,000 square feet. The staff at Woodlands will provide more direct resident care by higher level staff and reasonably, therefore, presumptively a higher quality of care than Sawgrass or NHC. NHC asserted that it can attract and retain quality staff by paying higher salaries. Using NHC's salary levels, NHC's expert determined that Sawgrass and Woodlands underestimated salary expenses by $573,000 and $522,000 respectively. NHC's total for projected salaries is $2,864,000, as compared to $2,386,653 for Woodlands and $2,318,119 for Sawgrass, although NHC will have seven fewer FTEs than Woodlands and six more than Sawgrass. NHC's comparison used 1998 average salaries, inflated forward, from Palm Gardens of Jacksonville (Palm Gardens), a facility managed by NHC for the owner, Florida Convalescent Centers (FCC). The average salary, for example for nurses, including administrators, such as the assistant director of nursing and Alzheimer's director, was applied to each nurse's position proposed by Woodlands and Sawgrass. NHC's methodology, particularly without any comparison of patient mix and acuity at Palm Gardens to that projected by the applicants, and the use of five percent annual inflation as compared to an actual annual inflation rate of three percent, when two statistical outliers are excluded, renders the analysis unreliable. The testimony of NHC's witness that the opening of new centers forces salaries to go up also indicates that the salary comparison includes some factor over and above actual inflation. 408.035(1)(h) - funds for capital and operating expenses, for project accomplishment and operation; 408.037(1)(a)1. - listing of all capital projects; and 408.035(1)(i) - immediate and long term financial feasibility The ability of Sawgrass to fund and finance the project was, in part, established by the deposition testimony of Jackie Garrett, Vice President, for Commercial Lending, First National Bank, Fort Smith, Arkansas, who is accepted as an expert in banking and finance as well as a fact witness. Having been involved for 30 years in financing projects for the Sawgrass owner, Mr. Creekmore, Ms. Garrett, in her letter of December 28, 1998, and in her testimony expressed the interest of the Bank in financing the Sawgrass project. Ms. Garrett also confirmed the possibility of financing up to 100 percent of the cost at better than an 8 percent fixed rate, as well as providing working capital as long as the loan is guaranteed by Mr. Creekmore. Ms. Garrett's letter to Mr. Creekmore offering to work out any contingencies with him and the inclusion of his personal financial statement in the application, lead to a reasonable conclusion that he can and will guarantee the financing for Sawgrass. Although a specific letter of commitment or the testimony of Mr. Creekmore could have provided a clearer commitment on his part, the documents in the application are sufficient to establish the short-term financial feasibility of Sawgrass. The accuracy of Schedule 2 of the Sawgrass CON application was questioned because it does not include an assisted living facility (ALF) for Duval County, which was proposed for construction on the campus with the nursing home. A financial expert for Sawgrass testified that the ALF is no longer planned, although AHCA was led to believe, in the prior nursing home CON, that an ALF would be built in conjunction with the nursing home. Comparing the historical payer mix and occupancy rates from similar facilities in the service area to staffing, salaries, and other fixed and variable expenses, the financial expert for Sawgrass demonstrated that the project is also financially feasible in the long term. To develop Woodlands-Deland, the general partner, Mr. Esformes, obtained financing primarily from AmSouth Bank in Orlando. The AmSouth loan was guaranteed by Mr. Esformes, who proposes similarly to finance the new Woodlands facility. In a letter dated December 30, 1998, and in her deposition testimony of October 26, 1999, an AmSouth assistant vice president indicates the availability of a loan to cover 75 to 85 percent of the total project cost. On behalf of EMI Enterprises, Inc., Mr. Esformes committed to funding the equity and working capital required from funds which are on deposit. AmSouth's lending limit for a borrower with Mr. Esformes' assigned risk rating is $15 million. NHC argued that Woodlands is not financially feasible in the short term because Mr. Esformes cannot borrow $8 million given his outstanding debt of $12,669,382. That position erroneously ignores the testimony of the bank officer when she stated that such projects, with liquidation of the property as a secondary source of repayment, can be treated separately, not grouped together and not aggregated to come to the $15 million total. She specifically considered Woodlands-Deland, saying, "And his other loan with the Deland property would be isolated for the same reason." See Deposition of Melissa Ann Ledbetter, October 26, 1999, page 11. In addition to the letter from AmSouth Bank, Woodlands presented a letter from and the testimony of Mr. Esformes on his commitment to the project. The evidence showed that Mr. Esformes has sufficient funds available to honor that commitment. Woodlands' proposal is, therefore, financially feasible in the short term. Woodland's long-term financial position was criticized based on Woodlands-Deland's not having achieved the utilization projected as quickly as projected. Utilization goals were adversely affected by the opening or expansion of other nursing homes at approximately the same time in the Deland area, an undesirable consequence which the District 4 health plan seeks to avoid. At the time of the hearing, Woodlands had a 1999 year-to-date profit of $106,000. Considering projected revenues and expenses, based on actual reimbursement rates at Woodlands- Deland, which are extremely high for Medicare, Woodlands' proposal is expected to be profitable in the long term. An expert for Sawgrass questioned NHC's short-term financial feasibility based on the sufficiency, commitment dates and changing investment policies of its funding sources. Schedule 2 of the NHC application lists total capital projects exceeding $436.6 million with approximately $397 million in "funds assured but not in hand and funds currently being sought." The application also includes letters of commitment establishing lines of credit from related companies National Health Investors, Inc. (NHI) for $260 million, and National Health Realty, Inc. (NHR) for $200 million. The letters are expressly valid through December 31, 1999, although what Sawgrass' expert estimated as the 12-month construction period for this project would begin approximately May 1, 2000, to end when operations commence on May 1, 2001. In addition, an examination of documents filed with the Securities and Exchange Commission (SEC) by NHI and NHR, according to the expert for Sawgrass, shows declining available funds and changing company objectives. As real estate investment trust (REIT) companies, NHI and NHR identify their typical financing arrangements mortgages and lease-back agreements, but do not specifically mention the extending of lines of credit. The SEC documents also indicate that NHI had approximately $136.9 million, available to fund health care real estate projects as of December 1998, not $260 million as committed for the line of credit to NHC. By June 1999, the SEC disclosures report a decrease to approximately $15.3 million available to fund health care real estate projects, of which approximately $12 million was available for the next 12 months. NHR's disclosures also indicate that the company will maintain its existing portfolio, not expand further. NHC's net income after taxes decreased from $23.7 million in 1997, to $8.2 million in 1998, adversely affected by declining Medicare reimbursements and increased taxes. The decline in profit from $37 million in 1997 to the projected $14 million for 1999 resulted largely from the expiration, on December 31, 1997, of special tax benefits for corporations. SEC disclosures indicate possible additional declines due to lawsuits over management contracts and a former employee, "whistle-blower" action, neither of which had been finalized at the time of the hearing. NHC's plan to reduce its taxes included the transfer of assets to NHI and NHR. NHC has also off-set losses by providing some therapies in-house and by group purchasing of pharmacy entical and medical supplies. In response to the loss of management agreements with FCC, NHC has successfully secured other management contracts and has eliminated certain regional positions. Reserves of approximately $31 million have been set aside for potential liability resulting from pending litigation, with FCC and in the former employee's qui tam action related to Medicare costs. Despite the efforts of NHC to adjust to changes in its financial position, the termination dates in the NHR and NHI letters of credit are troubling. The position of NHC, as investment advisor to NHI and NHR, and the ability of their Boards of Directors to change investment policies, without stockholder approval, suggests the likelihood of their funding the NHC project, if approved. Stronger support for a determination that at least NHR continues to be a source of funds for NHC comes from the deposition testimony of NHR's Senior Vice President, who signed the NHR line of credit letter. He noted that any projects submitted by NHC in the past have been approved by NHR and thinks it unquestionable that NHC would obtain financing for this project. That testimony rises to the level of the letters of interest by lending institutions submitted on behalf of the other applicants and establishes the short-term financial feasibility of the NHC proposal. NHC projected a net operating profit of $57,000 in year two which, with depreciation of about $350,000, results in a cash flow in excess of $400,000. NHC's proposal is financially feasible in the long term. 408.035(1)(l) - impact on costs; and 408.035(1)(m) - costs and methods of construction The estimated construction cost for Sawgrass is $70 a square foot for a 56,800 square foot building. By comparison NHC's estimated construction cost is $106 a square foot for the nursing home and a separate storage/maintenance building, totaling 63,104 square feet. Woodlands' 53,000 square foot facility will cost an estimated $98 a square foot. Sawgrass' construction costs were considered unreasonably low by some expert. The construction costs were developed by an expert in construction supervision and costs, who works for Medical Holdings Limited, another company which is owned by the Sawgrass President, Mr. Creekmore. The architects for the project work for another related wholly owned subsidiary of Medical Holdings Limited, Healthcare Builders, Incorporated (Healthcare Builders). Healthcare Builders is also owned by and only builds facilities for Mr. Creekmore. The estimated cost, $70 per square foot, is based on the use of local materials and subcontractors and excludes any profit, which alone would add from 8 to 10 percent to the cost. All of the salaries for the supervisors of the project, the general construction superintendent, the regular superintendent, and bookkeeper are paid by Healthcare Builders and excluded from constructions costs. Only one Sawgrass project, over the past 15 years, has required an application for a cost overrun. On this basis, Sawgrass established the reasonableness of the costs for its company. NHC's building is the largest and most expensive, with 71 resident rooms and 9-foot wide corridors, as compared to 66 rooms and 8-foot wide corridors for Woodlands and Sawgrass. NHC has 22 private rooms, but Woodlands and Sawgrass have 12 private rooms in each of their designs. NHC's private rooms range in size from 196.8 to 277 net square feet, as compared to 220 net square feet for Sawgrass, and 194 net square feet for Woodlands. Semiprivate rooms range in size from 196 to 246.7 net square feet for NHC, 198 to 218 for Woodlands, and 220 for Sawgrass. All three exceed the state minimums of 100 square feet for private rooms, and 160 square feet for semiprivate rooms. The schematics for NHC and Woodlands demonstrate more concern for safe outside spaces, with two separate enclosed courtyards, one designated for wandering which is typical of Alzheimer's residents. Woodlands' design also provides for two separate entrances, one for the main facility and one for the subacute unit. The subacute entrance is particularly desirable because the busier pattern of visitors is more akin to that in a hospital setting. NHC has 57 rooms with showers in the bathrooms, as compared to 53 for Woodlands and 18 for Sawgrass. The experts debated the benefits of privacy and the enhanced dignity and the reality that safety necessitates, for many, assistance in bathing. On the one extreme, NHC has unnecessarily included showers on the Alzheimer's unit for residents who are least likely to use them safely and most likely to need assistance, but Sawgrass has so few that the use of central bathing facilities will be necessary for most of its residents and will not enhance their privacy and dignity. Woodlands' design for the purposes intended, is the most reasonable, and its type of construction is the highest rated of the three. Despite the differences in size and construction costs, all three applicants propose relatively similar charges in a very narrow range of lows for Sawgrass and highs for NHC, from $105 to $115 a day for semiprivate rooms to $120 to $130 for private rooms. Reimbursement rates, primarily from Medicare, differ based on differences in acuity levels. 408.035 (1)(n) - past and proposed Medicaid and indigent care Sawgrass has received one CON in Florida with a Medicaid commitment of 87.4 percent of total resident days. Other CON applications prepared for Mr. Creekmore have offered to meet or exceed the prevailing community Medicaid occupancy levels. Woodlands committed to providing a minimum of 63.01 percent Medicaid and 0.5 percent indigent resident days. Woodlands has reached 63 percent but not its committed level of 66 percent Medicaid in its Deland facility, although it expected to do so when final data at full occupancy becomes available for 1999. NHC's proposal includes the provision of 63.05 percent of total resident days to Medicare. AHCA has determined that NHC is not in compliance with its Medicaid commitment in two of its facilities, located in Daytona and on Merritt Island, but due to its extensive operations in Florida, NHC provides substantial Medicaid care. 408.035(1)(o) - continuum of care in multilevel system All three of the applicants plan to offer Alzheimer's hospice, respite and subacute care. Sawgrass included a 60-unit ALF on its schematic design and on its Schedule 2 for a cost of $4 million. The ALF will be connected to the nursing home by a covered entrance. Sawgrass also planned but is not constructing an ALF with its Duval County project. See Finding of Fact 45. Woodlands stated its intention to build an ALF on the same campus with the proposed nursing home in a misleading narrative on page 114 of the application, but did not include it as part of the project in either the schematics or on Schedule 2 of the CON application. At the hearing, Woodlands' witness conceded that an ALF would not be built, if at all, for several years until the nursing home proves to be financially viable and then, by a separate corporation. In addition to the services provided by the other applicants, NHC plans to offer adult day care through existing providers. Only Sawgrass meets the criterion for proposing a multilevel system of care, based on the assumption that it will build the ALF as planned. 408.035(2)(e) - consisting with plans of other state agencies responsible for providing or financing long term care All three proposals are consistent with the policies of other responsible state agencies, including the Department of Elder Affairs. Summary Comparison of Applications This case is difficult, in part, because there is not a great difference among the applicants based on any one of the criteria. In terms of location, southeast Duval has a slight advantage due to its larger population, occupancy levels, and the approved CON for St. Johns County. Woodlands promises to provide a higher quality of care than NHC and Sawgrass based on proposed staffing, but has only operated one other Florida facility, albeit a superior one. Woodlands provided less detailed information on its owner's and manager's operations of out-of-state facilities. All three applicants have what appear to be at this relatively early stage of the process, reliable funding sources and plans to operate profitably. Woodlands' construction cost and design are the most reasonable for the purposes intended, although no appreciable differences in patient room charges were demonstrated. Based on past history and current proposals, all of the applicants will provide adequate and appropriate levels of Medicaid care. Only Woodlands will also provide a small percentage of indigent care. Sawgrass, by offering to construct an ALF in conjunction with nursing home and by designating a funding source to do so, offers the greatest continuum of care in a multilevel setting. On balance, the application submitted by Woodlands is superior.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order of the Agency for Health Care Administration issue CON No. 9123 to Woodlands Extended Care, Inc. to construct a 120-bed nursing home in southeast Duval County on the conditions set forth in the application and in Findings of Fact 10 of this Recommended Order; and deny CON No. 9125 to National Healthcare Corporation, and CON No. 9126 to Sawgrass Care Center, Inc. DONE AND ENTERED this 14th day of August, 2000, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of August, 2000. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Julie Gallagher, General Counsel Agency for Health Care Administration 2727 Mahan Drive Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Richard Patterson, Esquire Agency for Health Care Administration 2727 Mahan Drive Building 3, Suite 3431 Tallahassee, Florida 32308-5403 Robert D. Newell, Jr., Esquire Newell & Terry, P.A. 817 North Gadsden Street Tallahassee, Florida 32303-6313 Gerald B. Sternstein, Esquire Frank P. Rainer, Esquire Sternstein, Rainer & Clarke, P.A. 314 North Calhoun Street Tallahassee, Florida 32301-7606 Theodore E. Mack, Esquire Powell & Mack 803 North Calhoun Street Tallahassee, Florida 32303
Findings Of Fact Petitioner proposes to operate a nonprofit home health agency in Alachua County to provide both skilled care and custodial care. Although the evidence was weak on this point, it appears that Petitioner is offering to provide home health services to Medicare, Medicaid, private, and indigent patients in Alachua County by obtaining grants from federal and local sources to pay for the indigent and costs not covered by Medicaid. No evidence was presented that these funds would be made available to Petitioner if this certificate of need is granted. There is a need for home health services in Alachua County for those patients' services not covered by Medicare and who cannot afford to pay for these services. Intervenor Upjohn Healthcare Services, Inc. (Upjohn) has a certificate of need to provide home health services in Alachua County and four surrounding counties. Upjohn is presently serving some 50 patients in Alachua County, 88 in the other four counties served and has a total capacity to provide home health services to 300 patients. No witness testified Upjohn was unable to provide home health services to any patient for whom funds to pay for the services were available. Upjohn recently received a provider number to provide services to Medicaid patients and has agreed to provide services to Medicaid patients. Upjohn would not commit itself to serving all Medicaid patients in view of the net loss to the provider each time such care is provided. Payments for skilled home health services are provided for Medicare patients which are adequate to cover the costs to the provider. However, the limit of payments for similar care for Medicaid patients is about one-half that allowed for Medicare and is not adequate to defray the costs to the provider. Many Medicare patients have need for home health services for which Medicare will not reimburse the provider. No evidence was presented by Petitioner that this need will be fulfilled if this application is granted. The Older Americans Council is a public funded agency in Gainesville that provides care for older residents. This organization receives funds from HRS and from local charities such as United Way. With these funds, services, including Meals-on-Wheels, are provided. The Older Americans Council has contracted with Upjohn to provide some services to its beneficiaries for which Medicare funds are not available. These are primarily unskilled home health services. Petitioner indicated (but no testimony was presented in this regard) that it would use CETA funds to pay trainees to perform some of the needed home health services not presently available in Alachua County. The only evidence presented respecting CETA employees was that Santa Fe Community College is the only organization in Alachua County authorized to provide the training proposed by Petitioner with federally provided CETA funds. Alachua County Health Department provides skilled home health services to indigents in Alachua County. These services are available to homebound patients when ordered by the attending physician. Such orders are good for only two months unless renewed, and the attending nurse submits a report to the doctor every two months. No indigent fitting into the policy requirements for home health care established by Alachua County has been denied skilled home health care. Skilled home health care to qualifying patients is provided by the county nurse responsible for the area in which the patient lives. This service is provided in conjunction with other services in the area for which this nurse is responsible. Until 1978 Alachua County Health Department held a provider number for Medicaid patients. When it learned payments would be made only to a licensed home health agency, it gave up this number. Five Medicaid patients in Alachua County have been identified, and now that Upjohn has received a provider number, Upjohn is providing care to one Medicaid patient and discussions between Upjohn and the County are under way with regard to some of these Medicaid patients. Upjohn has never turned down a Medicare patient referred to them by the County Health Department. When Petitioner'S application was presented to the Health Systems Agency for review, the staff by a one-vote margin opted for granting the certificate, the Executive Committee, to whom the staff report was submitted for final action, voted to disapprove the application, and this recommendation was followed by Respondent in denying the application.
The Issue The issues are whether Petitioner, Agency for Health Care Administration (“Petitioner” or “AHCA”) is entitled to recover Medicaid funds paid to Respondent, Covenant Hospice, Inc. (“Respondent” or “Covenant”), pursuant to section 409.913(1), Florida Statutes, for hospice services Respondent provided during the audit period between January 1, 2011, through December 31, 2012; and the amount of sanctions, if any, that should be imposed pursuant to section 409.913(15) and (17).
Findings Of Fact Based on the evidence presented at the final hearing and the record in this matter, the following Findings of Fact are made. Parties Covenant is a provider of hospice and end-of-life services and at all times relevant to this matter, the program was an authorized provider of Medicaid services pursuant to a valid Medicaid provider agreement with AHCA. AHCA is the state agency responsible for administering the Florida Medicaid Program. Medicaid is a joint federal/state program to provide health care and related services to qualified individuals, including hospice services. AHCA is authorized to recover Medicaid overpayments, as deemed appropriate. § 409.913, Fla. Stat. Medicaid Audit Process The U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services (“CMS”), contracted with Health Integrity, a private vendor, to perform an audit of Covenant. Health Integrity retained a company called Advanced Medical Reviews (“AMR”) to provide peer physician reviews of claims to determine whether an overpayment occurred. On or about December 3, 2013, Health Integrity commenced the audit of Covenant. The scope of the audit was limited to Medicaid recipients that received hospice services from Covenant during the period of January 1, 2011, through December 31, 2012. Generally speaking, the files were identified for review using the following criteria: a) the recipient was not dually eligible (eligible for both Medicaid and Medicare); and b) Covenant provided hospice services for 182 days or longer, based on the recipient’s first and last day of service within the Audit Period. Thus, the objective of the audit was to determine whether certain Medicaid patients were eligible for hospice benefits provided by Covenant. When Health Integrity applied the audit criteria to the Medicaid claims paid by AHCA to Covenant, Health Integrity determined that Covenant had provided hospice services to 62 Medicaid recipients for 182 days or longer during the Audit Period. Covenant provided Health Integrity with medical and related financial records (“Covenant’s Records”) in order to support the eligibility of these 62 patients for Medicaid benefits paid by AHCA. To qualify for the Medicaid hospice program, all recipients must, among other things: a) be certified by a physician as terminally ill with a life expectancy of six months or less if the disease runs its normal course; and b) voluntarily elect hospice care for the terminal illness. See Florida Medicaid Hospice Services Coverage and Limitations Handbook, January 2007 ed. (“Handbook”) at page 2-3, as adopted by Fla. Admin. Code R. 59G-4.140 (effective Dec. 24, 2007); see also § 400.6095(2), Fla. Stat. (2010-2012). Health Integrity employs claims analysts who performed an initial review of Covenant’s medical records to determine if the recipients were eligible for Medicaid hospice benefits. All Health Integrity claims analysts are registered nurses. If the Health Integrity claims analyst is able to assess that the patient’s file contains sufficient documentation to justify eligibility for hospice benefits for the entire length of stay under review in the audit, there was no imposition of an overpayment for that file and, thus, the claim is not evaluated further. If the Health Integrity claims analyst is unable to assess whether the patient’s file contains sufficient documentation to determine eligibility for hospice benefits, or if only a portion of the patient’s stay could be justified by the Health Integrity claims analyst, the file is then forwarded to an AMR physician to make the ultimate determination as to eligibility for Medicaid hospice benefits and whether an overpayment is due the Florida Medicaid program. With respect to the Covenant audit, the Health Integrity claims analysts reviewed Covenant’s medical files for the 62 initially identified recipients and determined that no further action was warranted with respect to 10 recipients. As a result, 52 files were referred for physician peer review by AMR. AMR maintains a secure portal (“AMR Portal”) that Health Integrity personnel access to transmit all received provider files to AMR. AMR’s peer review physicians, in turn, use the AMR Portal to review the totality of the provider’s submitted documentation, including all medical case records, and provide their comments. As required by section 409.9131, AHCA referred Petitioner’s records for peer review to determine whether there was a medical necessity for a hospice program. Section 409.9131(2) sets forth the following definitions: “Medical necessity” or “medically necessary” means any goods or services necessary to palliate the effects of a terminal condition or to prevent, diagnose, correct, cure, alleviate, or preclude deterioration of a condition that threatens life, causes pain or suffering, or results in illness or infirmity, which goods or services are provided in accordance with generally accepted standards of medical practice. For purposes of determining Medicaid reimbursement, the agency is the final arbiter of medical necessity. In making determinations of medical necessity, the agency must, to the maximum extent possible, use a physician in active practice, either employed by or under contract with the agency, of the same specialty or subspecialty as the physician under review. Such determination must be based upon the information available at the time the goods or services were provided. “Peer” means a Florida licensed physician who is, to the maximum extent possible, of the same specialty or subspecialty, licensed under the same chapter, and in active practice. “Peer review” means an evaluation of the professional practices of a Medicaid physician provider by a peer or peers in order to assess the medical necessity, appropriateness, and quality of care provided, as such care is compared to that customarily furnished by the physician’s peers and to recognized health care standards, and, in cases involving determination of medical necessity, to determine whether the documentation in the physician’s records is adequate. Peer Review Each AMR peer reviewer retained to review the respective recipient’s patient records prepared a written report, which was based on the reviewer’s opinion regarding whether the patient had a terminal diagnosis, with a life expectancy of six months or less to live if the recipient’s terminal illness followed its natural course. The peer reviewers formulated their opinions based on their own training, experience, and the generally accepted standards in the medical community within the respective specialty. After the AMR peer review physicians reviewed the 52 Covenant recipient files loaded into the AMR Portal, the AMR physicians determined that 25 recipients were eligible for Medicaid hospice services and 29 patients were ineligible. The peer review physicians determined that 29 patients were ineligible for Medicaid hospice services. On February 12, 2016, Health Integrity presented the Draft Audit Report (“DAR”) to Covenant for comment and response. Covenant provided a response to the DAR and contested the overpayments for each of the 29 recipients. Covenant’s response was provided to the AMR peer physicians, who, after reviewing the response, revised their opinions for four recipients. Therefore, the number of recipients in dispute was reduced to 25 patients. Health Integrity then prepared a Revised Draft Audit Report (“RDAR”), which assessed an overpayment amount of $714,518.14, relating to 25 recipients. Health Integrity presented the RDAR to CMS and AHCA for approval. Once the RDAR was approved by CMS and AHCA, Health Integrity then prepared and issued the Final Audit Report (“FAR”), upholding the overpayments identified in the RDAR and submitted it to CMS. CMS provided the FAR to AHCA with instructions for AHCA to initiate the state recovery process and to furnish the FAR to Covenant. The FAR determined that Petitioner was overpaid $714,518.14 for services provided to the 25 recipients during the Audit Period. The FAR also imposed a fine of $142,903.63 and assessed costs of $131.38. Prior to the final hearing, the parties reduced the number of ineligible patients from 29 to 17 patients. As a result, AHCA is seeking a revised amount of overpayment in the total amount of $677,023.44, with a corresponding revised fine amount of $135,404.68, for the remaining patients in dispute. To be eligible for Florida Medicaid hospice services, a recipient must be certified by a physician as terminally ill with a life expectancy of six months or less, if the disease runs its normal course. The Handbook also requires: Documentation to support the terminal prognosis must accompany the initial certification of terminal illness. This documentation must be on file in the recipient’s hospice record. The documentation must include, where applicable, the following: Terminal diagnosis with life expect- ancy of six months or less if the terminal illness progresses at its normal course; Serial physician assessments, laboratory, radiological, or other studies; Clinical progression of the terminal disease; Recent impaired nutritional status related to the terminal process; Recent decline in functional status; and Specific documentation that indicates that the recipient has entered an endstage of a chronic disease. Experts AHCA Peer Reviewers The four peer review physicians assigned to review claims in this matter were Florida-licensed physicians, who were matched by specialty or subspecialty to the claims they were reviewing. Each physician testified as to his or her medical education, background, and training. Petitioner offered each physician as an expert, and the undersigned accepted each expert in their field of specialty. Todd Eisner, M.D., is an expert in Internal Medicine and Gastroenterology. He is a physician licensed in Florida and maintains an active practice. He has been actively practicing in Florida for more than 22 years and treats patients with liver disease daily as part of his practice. He has seen thousands of patients with liver disease over his career and, based upon his experience, Dr. Eisner understands what factors are properly considered when estimating a patient’s life expectancy. Dr. Eisner reviewed and rendered his opinion as to the hospice eligibility of two patients remaining at issue. Charles Talakkottur, M.D., practices in the area of internal medicine. He is a physician licensed in Florida, who is board-certified in Internal Medicine, and maintains an active practice in internal medicine. Dr. Talakkottur has more than 13 years of practice, where he evaluates and treats patients with a variety of illnesses including: leukemia, cancer, heart disease, lung disease, chronic liver disease, and respiratory disease. In addition, Dr. Talakkottur routinely makes prognoses related to whether a patient has a terminal disease. Dr. Talakkottur rendered his opinion as to the hospice eligibility of 11 patients remaining at issue. Nada Boskovic, M.D., is an expert in internal medicine and hospice and palliative care. She is licensed in Florida and maintains an active practice. She is currently a hospice medical director for VITAS, a large hospice provider in Florida. Dr. Boskovic has certified or recertified approximately 1,000 patients in a hospice setting throughout her career. Dr. Boskovic reviewed and rendered her opinion regarding three of the patients remaining at issue. Finally, Kelly Komatz, M.D., is an expert in hospice and palliative care. She is a physician licensed in Florida and maintains an active practice. Dr. Komatz has been an associate medical director of a Florida hospice and has evaluated patients for hospice initial certification and recertification. Dr. Komatz reviewed one patient’s claim in dispute. The AHCA peer reviewers used their clinical experience, generally accepted medical standards, and the eligibility standards set forth in the Handbook. Covenant Expert Covenant offered one expert at hearing, David McGrew, M.D. Dr. McGrew reviewed the medical records and provided reports for each of the 17 patients at issue. Like the AHCA peer reviewers, Dr. McGrew did not examine or provide certification for the 17 patients at issue. Dr. McGrew has been a hospice medical director since 1985. Dr. McGrew has practiced in the hospice and palliative medicine for approximately 23 years and has experience with overseeing over 5,000 hospice certifications. Dr. McGrew is a certified hospice medical director who trains other physicians in hospice care. Dr. McGrew’s distinguished career in palliative medicine is highlighted by his membership on the board for the American Academy of Hospice and Palliative Physicians for 12 years, where he served as president in 2013. Specific Patient Review At the time of the hearing, the hospice service claims related to 17 patients remained at issue. The Findings of Fact regarding eligibility of each patient for hospice services are set forth below in the following order: 1, 2, 3, 5, 7, 8, 9, 10, 12, 13, 14, 15, 16, 17, 20, 22, and 23.1/ Patient 1 (C.S.) Patient C.S., a then 53-year-old female, was admitted with a terminal diagnosis of lung cancer with suspected metastasis to the liver. The audit period dates reviewed were January 1, 2011, through August 29, 2011. The dates in dispute are January 1, 2011, through April 5, 2011. Patient C.S. had an abnormal palliative performance scale (“PPS”) score of 30 percent, had severe ascites, experienced significant fatigue, required oxygen, had possible low levels of encephalopathy, had a significant edema, low appetite, and shortness of breath. Dr. McGrew opined that the Patient C.S. had a life expectancy of six months or less, if the disease ran its normal course based on his determination that the symptoms did not show improvement, stability, or a reason for discharge. However, there was no evidence of decline in her condition. The preponderance of evidence demonstrates that Patient C.S. was not eligible for hospice services for the period of January 1, 2011, through April 5, 2011. Thus, Petitioner is entitled to recover an overpayment of $12,692.00 for hospice services rendered during the disputed period. Patient 2 (J.R.) Patient J.R., a 55-year-old female at the time she was admitted to hospice on September 14, 2011, had a terminal diagnosis of end-stage leukemia and pulmonary hypertension. The disputed period for Patient J.R. is September 14, 2011, through December 12, 2011. Dr. McGrew opined that Patient J.R. had both a terminal illness and a terminal prognosis based on records showing a gastrointestinal bleed, an anemia from the leukemia, a very low white blood cell count, a depressed platelet count, ongoing chest pain, and need for substantial oxygen during her hospitalization. Dr. Talakkottur, on the other hand, focused on the combination of pulmonary hypertension and leukemia and noted that the condition of the combination of leukemia and pulmonary hypertension demonstrated improvement of her condition. The undersigned finds Dr. McGrew more persuasive and finds that the preponderance of the evidence supports that Patient J.R. was eligible for hospice during the disputed period of September 14, 2011, through December 12, 2011. Thus, AHCA is not entitled to repayment of $12,206.50 for hospice services rendered to Patient J.R. Patient 3 (D.M.) Patient D.M., a 45-year-old female, was admitted to Covenant on December 20, 2011. Patient D.M. was admitted to hospice with a diagnosis of HIV/AIDS with Kaposi's sarcoma, coupled with complications of psychosocial issues and addiction problems. The disputed period for D.M. is June 17, 2012, through December 31, 2012. Dr. McGrew opined that Patient D.M. had a low CD4 cell count, was suffering from Kaposi's sarcoma, and was experiencing continued infections. Dr. Fitzgerald, the referring oncologist for Patient D.M., noted that she was appropriate for hospice based on her condition. While there was no documented confirmation of the Kaposi’s sarcoma in the record by lab results, such as a biopsy, the patient’s records reflect that Dr. Fitzgerald, an oncologist, confirmed the diagnosis. Furthermore, Patient D.M.’s treating nurse at Covenant noted that the patient had multiple lesions on her face and extremities. While Kaposi’s sarcoma is more common in certain aged males, it is a common condition for patients who suffer from HIV/AIDS. Dr. Talakkottur testified that a simple biopsy could have been completed to confirm the diagnosis, but the patient did not submit to the biopsy. Although the diagnosis of Kaposi’s sarcoma was not confirmed by a biopsy, a preponderance of the evidence supports a finding that the patient suffered from the condition. The HIV/AIDS terminal diagnosis, coupled with Kaposi’s sarcoma, supports a finding that Patient D.M. had a documented terminal illness with a life expectancy of six months or less, if the disease ran its normal course during the disputed period. Thus, the undersigned finds that AHCA is not entitled to repayment of $26,843.84 for hospice services rendered to Patient D.M. during the disputed period of June 17, 2012, through December 31, 2012. Patient 5 (P.W.) Patient P.W., a 54-year-old male upon admission to Covenant, was admitted on October 24, 2011. The patient presented to hospice with a diagnosis of metastatic squamous cell cancer of the pharynx. The disputed period for Patient P.W. is October 24, 2011, through January 21, 2012. Dr. McGrew opined that if a patient was diagnosed with squamous cell cancer of the pharynx and was not being treated, hospice would be appropriate for that patient. Dr. Talakkottur testified as follows: (a) the patient was highly functional, ambulatory, and not using any assistive devices; (b) the patient only used oxygen as needed, and not continuous; and (c) the patient had no nutritional impairment. The more telling picture of the patient’s condition was that the patient had no reported or demonstrated mass presence or growth, and there were no medical records to support the patient’s claim that his cancer had metastasized. The preponderance of the evidence demonstrates that Patient P.W. was not eligible for hospice services during the disputed period of October 24, 2011, through January 21, 2012. Thus, AHCA is entitled to repayment of $12,249.00 for hospice services rendered to Patient P.W. Patient 7 (J.B.) Patient J.B., a 62-year-old male at the time of his admission to hospice, was admitted with a diagnosis of end-stage liver disease with a medical history of hepatitis C and ascites. The disputed recertification period is January 1, 2011, through June 3, 2011. Based on the records, the patient had stabilized during the recertification period. He was independent with self-care and activities of daily living. One of the physician assessments reflected that the patient had shown slow, steady improvement to the point of riding his bicycle. In addition, the records reflect that during the disputed period, nursing documentation indicated that the patient was able to ambulate independently, without shortness of breath, and had no residual apparent ascites. While Dr. McGrew noted that Patient J.B. experienced multiple urinary tract infections, reported dizziness and fatigue, and had very poorly controlled blood sugars during the disputed period, the records consistently reflect that Patient J.B.’s condition had improved during the disputed period. The records presented at hearing did not support a finding that Patient J.B. was eligible for hospice services during the disputed period of January 1, 2011, through June 3, 2011. Thus, AHCA is entitled to repayment of $20,574.40 for hospice services rendered to Patient J.B. Patient 8 (E.H.) Patient E.H., a 59-year-old male at the time of his admission, was admitted to Covenant on January 27, 2011. Patient E.H. was admitted to hospice with a diagnosis of adult failure to thrive and a medical history of schizophrenia and bipolar disorder. The disputed period for E.H. is January 22, 2012, through March 21, 2012. Dr. McGrew opined that Patient E.H. was eligible for hospice services on the basis that the patient presented to Covenant with history of significant weight loss and a PPS score of 30 percent, which was complicated by underlying conditions, including schizophrenia and bipolar disorder. Dr. Talakkottur opined that the patient gained weight, was ambulatory, was oriented to self, had no recurrent or retractable infections, and had normal vital signs. In addition, the patient had gained 18 pounds since his original admission in hospice and had a body mass index (“BMI”) of 21. The greater weight of the evidence demonstrates that Patient E.H. was not eligible for hospice services during the disputed period of January 22, 2012, through March 21, 2012. Thus, AHCA is entitled to repayment of $6,029.66 for hospice services rendered to Patient E.H. Patient 9 (K.W.) K.W., a 53-year-old male at the time of his admission to hospice, was admitted with a terminal diagnosis of heart disease. The disputed period for K.W. is October 31, 2011, through June 26, 2012. The patient records reflect that Patient K.W. was still smoking, taking drugs, breathing room air, only had shortness of breath with exertion, was highly functional and ambulatory, could perform most of his activities of daily living, and traveled regularly. K.W. reported nine previous myocardial infarctions in the past 11 months; ejection fractions measured at six percent on one occasion and under 20 percent on a separate occasion, was hypotensive, short of breath, had a low heart rate and sodium level, and had elevated liver function tests consistent with hepatic stasis. Dr. Talakkotur noted that the patient’s nine alleged heart attacks were self-reported by the patient. Based on the evidence presented at hearing, Dr. Talakkotur credibly opined that Patient K.W. was not eligible for hospice treatment during the disputed period of October 31, 2011, through June 26, 2012. Thus, AHCA is entitled to repayment of $32,664.00 for hospice services rendered to Patient K.W. during the disputed period. Patient 10 (K.H.) Patient K.H. was a 58-year-old male when he was admitted to Covenant on October 15, 2010, with a terminal diagnosis of chronic airway pulmonary obstruction disease (“COPD.”) The disputed period is August 11, 2011, through December 9, 2011. The patient was involved in a car accident in 2008, which caused significant injuries. He also suffered a closed-brain injury and COPD. Dr. Talakkottur opined that the records contained no evidence of progression of the diagnosed terminal condition. Dr. Talakkottur testified that the medical records reflected that Patient K.H. was improving during the disputed period. Additionally, the patient was receiving physical therapy and occupational therapy. Dr. Talakkottur credibly testified that Patient K.H. was not eligible for hospice services during the disputed period of August 11, 2011, through December 9, 2011. Thus, AHCA is entitled to recover overpayment of $16,240.60 for the hospice services rendered to Patient K.H. during the disputed period. Patient 12 (T.O.) Patient T.O., a 57-year-old male, was admitted to hospice on September 9, 2011, with a terminal diagnosis of end- stage chronic heart failure. The patient’s diagnosis was based on two separate echocardiograms reflecting a 53-percent and 55-percent ejection fraction. Dr. Talakkottur opined that the echocardiogram readings would be considered normal. At one point during the disputed period, Edward Fletcher, M.D., a Covenant physician, changed Patient T.O.’s hospice diagnosis from end-stage chronic heart failure to debility. In addition, Dr. Fletcher noted that the patient had no heart palpitations or chest pain and had a good appetite and normal respiratory exam. The greater weight of the evidence demonstrates that Patient T.O. was not eligible for hospice during the disputed period of September 9, 2011, through November 14, 2011. Thus, AHCA is entitled to recover overpayment of $9,063.70 for the hospice services rendered to Patient T.O. during the disputed period. Patient 13 (M.L.) Patient M.L., a then 39-year-old female, had a diagnosis of end-stage liver disease. The patient also had a medical history of esophageal varices, ascites, and paracentesis. However, Dr. Talakkottur credibly testified that Patient M.L. was not eligible for hospice services. Patient M.L. had no recurrent or intractable infections nor any encephalopathy or peritonitis, and showed no progression of her disease. Patient M.L. was also highly functioning and ambulatory. The greater weight of the evidence demonstrates that Patient M.L. was not eligible for hospice services during the disputed period of January 1, 2011, through January 11, 2011. Thus, AHCA is entitled to recover an overpayment of $1,469.60 for the hospice services rendered to Patient M.L. during the disputed period. Patient 14 (D.K.) Patient D.K. was a 59-year-old man when admitted to Covenant with a terminal diagnosis of end-stage liver disease on August 6, 2010. The disputed period is January 1, 2011, through April 2, 2011. The patient had a fair to good appetite, exhibited no real pain or discomfort, and showed no signs of a significant decline. Dr. Boskovic further indicated that although the patient had some ascites, the condition was being well managed, and the patient showed no signs of encephalopathy because he remained alert and oriented. Finally, Dr. Boskovic opined, and the records support, the patient generally had a good nutritional status with no sign of the patient’s disease progressing. Respondent contends that Dr. Boskovic's testimony supported Covenant's position because she admitted that the hospice physician could reasonably disagree with her conclusion regarding D.K. and neither physician would be wrong. Here, however, the undersigned finds that Dr. Boskovic’s opinion is more persuasive and demonstrates that Patient D.K. was not eligible for hospice services during the disputed period of January 1, 2011, through April 2, 2011. Thus, AHCA is entitled to recover an overpayment of $12,291.20 for hospice services rendered during the disputed period. Patient 15 (S.S.) Patient S.S. was a 52-year-old female at the time of her readmission to Covenant. On December 26, 2009, Patient S.S. was admitted with a terminal diagnosis of COPD. Dr. Komatz opined that Patient S.S. was not eligible for hospice services during the denied period on the basis that the patient’s illness was not progressing, she was stable and did not demonstrate decline, and she had experienced weight gain over the period in dispute. She also noted that the patient remained ambulatory and took outings with her family. To the contrary, Dr. McGrew contended that the patient was eligible for hospice due to the progression of her illness that led to hospitalization during her hospice admission. The most telling of the patient’s condition was that the physician who treated the patient during a hospital admission noted that Patient S.S. did not suffer from end-stage COPD. Based on the foregoing, the greater weight of the evidence demonstrates that Patient S.S. was not eligible for hospice services during the disputed period of February 19, 2011, through December 15, 2011. Thus, AHCA is entitled to recover an overpayment of $40,270.00 for hospice services rendered during the disputed period. Patient 16 (R.W.) Patient R.W., a 53-year-old male at the time of his admission to Covenant Hospice, had an initial terminal diagnosis of adult failure to thrive. The patient’s diagnosis was changed to HIV/AIDS in May 2012. The disputed period for R.W. is April 29, 2012, through June 27, 2012. Dr. Talakkottur opined that Patient R.W. was not eligible for hospice and relied upon medical records that showed the patient was not losing weight, he was ambulatory, had adequate nutrition, and did not show any infections that would demonstrate terminal progression of his disease. Dr. McGrew noted that the patient suffered from an episode of toxoplasmosis, and experienced weight loss and lack of appetite. However, he also noted that, during the disputed period, the patient was getting better and gaining weight. The preponderance of the evidence supports a finding that Patient R.W. was not eligible for hospice services during the disputed period. Thus, AHCA is entitled to recover an overpayment of $8,166.00 for hospice services rendered during the disputed period. Patient 17 (E.M.) Patient E.M. was a 60-year-old female at the time of her admission to Covenant on April 28, 2010, with a terminal diagnosis of debility. The disputed period was January 1, 2011, through February 21, 2011. Dr. Boskovic opined that the patient did not have refractory edema, her chest pain was well managed, there was no evidence of impaired nutritional status (no weight loss or low BMI), her albumin level was good, she ambulated with a walker or wheelchair, and her overall condition was stable. Dr. McGrew opined that the patient was eligible for hospice services and noted that the patient was taking a high daily dosage of Lasix. The undersigned finds Dr. Boskovic’s testimony more persuasive regarding whether Patient E.M. was eligible for hospice services during the disputed period. Dr. Boskovic credibly testified that Patient E.M. was not eligible for hospice services during the disputed period. Thus, AHCA is entitled to recover an overpayment of $6,947.20 for hospice services rendered during the disputed period. Patient 20 (P.G.) Patient P.G. was a 53-year-old female at the time of her admission to Covenant on June 8, 2010. Patient P.G. had a terminal diagnosis of end-stage liver disease. The denied dates at issue are January 1, 2011, through February 2, 2011. Dr. Eisner, a gastroenterologist for more than 20 years, testified that Patient P.G. had measured albumin and INR scores within the normal range for liver function. During the denied period, the patient also maintained a stable weight and her ascites were controlled. Dr. Eisner also noted that the patient’s nutritional status remained stable. The greater weight of the evidence establishes that the patient was not eligible for hospice services during the disputed period. Thus, AHCA is entitled to recover an overpayment of $4,408.80 for hospice services rendered during the disputed period. Patient 22 (C.D.) Patient C.D. was an 8-year-old male when he was admitted to hospice following a hospitalization for respiratory distress with an underlying diagnosis of spina bifida. The disputed period of hospice services was April 25, 2011, through November 25, 2011. Dr. Talakkottur, who is board-certified in pediatrics, opined that Patient C.D. had a chronic condition but was not terminal. He noted that the patient’s weight had increased, his PPS was 50 percent, and he was playing ball with his siblings. In addition, the patient was receiving physical therapy and active rehabilitation, both of which are inconsistent with hospice palliative care. The patient did not show any signs of being at the end-stage of his chronic disease. Finally, Patient C.D. remained oriented to self and had no recurrent or intractable infections. Although Patient C.D. was at risk for pneumonia or sepsis as noted by Dr. McGrew, he did not show any symptoms of the two conditions. The greater weight of the evidence establishes that Patient C.D. was not eligible or hospice treatment during the disputed period of April 25, 2011, through November 25, 2011. Thus, AHCA is entitled to recover an overpayment of $30,827.69 for hospice services rendered during the disputed period. Patient 23 (C.M.) Patient C.M., a 59-year-old female, was admitted to Covenant on November 15, 2010. The patient was admitted with a terminal diagnosis of malignant neoplasm of the liver. The period in dispute is January 1, 2011, through April 1, 2011. Dr. Talakkottur opined that Patient C.M. was not eligible for hospice service because there was no progression of her disease. Dr. Talakkottur noted that the patient had cancer, but she was functioning well, was ambulatory, and stable enough to take a long-distance trip with her family. Dr. Talakkottur also noted that the patient had a PPS of 60-70 percent at times, and her vital signs remained stable. The greater weight of the evidence establishes that the patient was not eligible for hospice services during the disputed period. Thus, AHCA is entitled to recover an overpayment of $12,157.60 for hospice services rendered during the disputed period. Summary of Findings of Fact Regarding Overpayment At the time of the hearing, the parties had stipulated that AHCA was entitled to overpayment of $411,571.65. The Findings of Fact above upheld AHCA's entitlement to additional overpayment of hospice services as indicated. Respondent rebutted the evidence regarding eligibility of Patients 2 and 3. Therefore, in addition to the amount the parties agreed upon, AHCA is entitled to recover an additional overpayment of $226,060.50 for services rendered to patients who were not eligible for hospice services during the Audit Period. Thus, AHCA is entitled to recover a total overpayment of $637,632.15. As indicated in the Findings of Fact above, each expert provided the requisite support to both the RDAR and FAR for the patients where there was a finding of ineligibility for hospice services. Fine Calculation When calculating the appropriate fine to impose against a provider, MPI uses a formula based on the number of claims that are in violation of Florida Administrative Code Rule 59G-9.070(7)(e). The formula involves multiplying the number of claims in violation of the rule by $1,000 to calculate the total fine.2/ The final total may not exceed 20 percent of the total overpayment, which results in a fine of $127,526.43.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that that the Agency for Health Care Administration enter a final order directing Covenant to pay $637,632.15 for the claims found to be overpayments and a fine of $127,526.43. The undersigned reserves jurisdiction to award costs to the prevailing party. DONE AND ENTERED this 15th day of August, 2018, in Tallahassee, Leon County, Florida. S YOLONDA Y. GREEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of August, 2018.
Findings Of Fact Petitioner, Thelma S. Malmberg, is a 47-year old director of nursing at Americana Health Care Center (Americana) in Winter Park, Florida. Americana is a 138-bed skilled nursing facility. She has been employed at that facility since October, 1984. Prior to that time, she served as both director and assistant director of nursing at New Horizon Rehabilitation Center (New Horizon), a nursing home facility in Ocala, Florida, for approximately two years. Before that, she was manager of the quality assurance department at Marion Community Hospital in Ocala from 1974-1982, and at Munroe Memorial Hospital in Ocala from 1971-1974. Malmberg was also a registered nurse from 1968 to 1971. Using her lengthy experience in the health field, Malmberg made application for licensure as a nursing home administrator on April 26, 1984, with respondent, Department of Professional Regulation, Board of Nursing Home Administrators (Board). After reviewing the application and supporting documentation, the Board issued its proposed agency action in the form of a letter on May 30, 1984, advising Malmberg that her application was being denied on the grounds her "work experience and education appears to be limited to nursing," and that "additional detailed administrative experience is required to meet Florida's administrative standards in the health care area." The denial prompted the instant proceeding. According to statutory requirements, as codified in Section 468.1695, Florida Statutes, an applicant for licensure by examination must be 18 years of age or older, a high school graduate or equivalent, and meet one of four criteria in the educational and work experience areas. As is pertinent here, Malmberg contends she has had "24 years of practical experience in a related health administration area," and is therefore eligible to take the examination. The Board has promulgated Rule 21Z-11.09, Florida Administrative Code, which describes the practical experience in a related health administration area as follows: (2) function in a position of total responsibility for the operation and administration of a health care facility which treats and houses patients such as a hospital (or a major subunit thereof), adult congregate living facility of at least 50 beds, hospice, or infirmary. The applicant must show evidence of the performance and practical application of executive duties and management skills including planning, organizing, staffing, directing and controlling. The parties agree it is this experience which Malmberg must possess in to take the examination. In her present position as director of nursing at Americana, Malmberg supervises a 100-employee nursing department. She interfaces with all other departments of the nursing home, reports directly to the administrator, and acts as administrator in the administrator's absence. To date, however, the administrator has not been absent. While serving as director and assistant director of nursing at New Horizon, she supervised an 80-employee department, and reported directly to the nursing home's administrator. She also performed the duties of an administrator in the administrator's absence, which occurred for approximately 1 1/2 months during her total tenure with New Horizon. In both Americana and New Horizon, Malmberg has been responsible for planning, organizing, staffing, directing and controlling the nursing department. From 1974 till 1982, Malmberg was the manager of the quality assurance department of a large hospital in Ocala. The quality assurance department is considered a major department within the hospital and Malmberg had responsibility for planning, organizing, staffing, directing and controlling its various functions as well as interfacing with other departments. On this job, she reported directly to the hospital administrator. Malmberg has also attended various seminars in the health field area over the last ten years or so, and served for six years on the Board of Directors of the Marion-Citrus Mental Health Center, a community mental health board. According to uncontroverted testimony of the Board's chairman, a director of nursing is not in a position of "total responsibility" within the meaning of the rule unless she is designated as a designee to act in the absence of the administrator. Further, the administrator must be absent for at least four years in order for the designee to fulfill the four years of practical experience requirements. In Malmberg's case, she has acted in the administrator's stead for only a few months which is far short of the necessary time. Similarly, her supervision of a single hospital department for a number of years does not qualify for "total responsibility," nor does attending seminars add to her credentials. Therefore, she has not been in a position of total responsibility for the operation and administration of a health care facility for the requisite period of time and is presently unqualified for licensure.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Thelma Malmberg for licensure by examination as a nursing home administrator be DENIED. DONE and ORDERED this 27th day of November, 1984, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative 2009 Apalachee Parkway Tallahassee, Florida 32301 (904)488-0675 FILED with the Clerk of the Division of Administrative Hearings this 27th day of November, 1984. COPIES FURNISHED: John S. Lynch, Esquire Post Office Box 696 Ocala, Florida 32678 Lawrence S. Gendzier, Esquire Room 212, 400 West Robinson St. Orlando, Florida 32801
The Issue This proceeding involves Certificate of Need (“CON”) Application No. 10400 filed by Petitioner, PruittHealth-Alachua County, LLC (“PruittHealth”), and CON Application No. 10397 filed by Alachua County HRC, LLC (“Alachua HRC”). The applicants each seek to establish a new community nursing home in District 3/subdistrict 3-2, Alachua County, Florida. PruittHealth is seeking a 94-bed nursing home, consistent with the projected bed need for that subdistrict; Alachua HRC seeks to aggregate nine additional beds from subdistrict 3-3 for a total of 103 beds. The nature of the controversy is whether, on balance, PruittHealth’s or Alachua HRC’s application best satisfies the applicable criteria for approval.
Findings Of Fact (Facts 1 through 6 are as stipulated by the parties.) On October 2, 2015, the Agency published a need for 94 additional community nursing home beds in Nursing Home Subdistrict 3-2, which consists of Alachua County. In that same publication, the Agency published a need for nine additional community nursing home beds in subdistrict 3-3, which consists of Putnam County. See Florida Administrative Register, Vol. 41, No. 192 (Oct. 2, 2015); Fla. Admin. Code R. 59C-2.200(3)(f)5. Putnam County is adjacent to Alachua County. In response to the October 2, 2015, fixed need pool announcement, Alachua HRC filed CON Application No. 10397 and PruittHealth filed CON Application No. 10400. Alachua HRC’s and PruittHealth’s applications were co- batched and comparatively reviewed. On February 19, 2016, the Agency preliminarily approved Alachua HRC’s CON Application No. 10397 and preliminarily denied PruittHealth’s CON Application No. 10400. The Agency published official notice of its decision on February 22, 2016, in the Florida Administrative Register, Vol. 42, No. 35. On March 7, 2016, PruittHealth timely filed a petition for formal administrative hearing to contest the Agency’s preliminary approval of Alachua HRC’s CON application. On March 18, 2016, Alachua HRC timely filed a cross- petition supporting the Agency’s preliminary decision to approve its CON application and to preliminarily deny PruittHealth’s CON application. (The following findings of fact are based on the evidence presented at final hearing, both oral testimony and documentary in nature.) The Parties Alachua County HRC, LLC Alachua HRC was established to apply for a CON in Alachua County. Alachua HRC will be supported by its management company and operator, Clear Choice. Alachua HRC was formed by experienced nursing home administrators and health planning professionals with significant experience in the establishment, construction, and operation of nursing homes. Alachua HRC is primarily owned by Samuel B. Kellett, an owner of several nursing homes in Florida which contract with Clear Choice for management. Through his companies, including SBK Capital, Mr. Kellett has a long track record of successful nursing home ownership and operation. Mr. Kellett, through predecessor and subsidiary companies, originally obtained certificates of need for most of the nursing homes now operated by Clear Choice, primarily in central Florida. Mr. Kellett has never failed to build and operate a nursing home after receiving a CON. Mr. Kellett has continuously invested in renovations and maintenance of his nursing homes. Since 2013, Mr. Kellett has invested millions of dollars in renovations and expansion construction at his Florida nursing homes. Several more facilities are planned for similar renovations in the near future. The expansions typically include the addition of upscale amenity space, an increase in the number of private rooms, outdoor living spaces, and significantly enhanced gym and rehabilitation areas. These renovations have attracted higher numbers of short-term rehabilitation patients, while continuing to allow Clear Choice to offer long-term care, primarily to Medicaid nursing home residents, in Mr. Kellett's facilities. PruittHealth-Alachua County, LLC PruittHealth is likewise a single purpose entity formed for the purpose of pursuing a CON to operate a skilled community nursing facility in Alachua County. PruittHealth is affiliated with PruittHealth, Inc. That company was founded in 1969 as the Toccoa Nursing Center in Toccoa, Georgia. PruittHealth, Inc. provides administrative related services to all of its affiliated healthcare providers in Florida, Georgia, North Carolina, and South Carolina. PruittHealth (the applicant) would benefit from those same services. The parent company of PruittHealth, Inc. is United Health Services, Inc., which includes in its structure 94 skilled nursing and rehabilitation centers, four assisted living facilities, one independent living facility, 29 hospice agencies, 19 home health agencies, one adult day care center, six pharmacies, and several other health care related businesses. PruittHealth, Inc. is a family-owned health care provider. It is the 11th largest provider of skilled nursing services in the United States. It cares for about 24,000 nursing home residents and has about 16,000 employees, referred to as “partners.” Because PruittHealth, Inc. is family-owned, it does not have the pressures (or, conversely, the oversight) associated with reporting to shareholders or meeting outside expectations. Among the skilled nursing facilities operated by PruittHealth, Inc. are five facilities dedicated to caring for war veterans, a facility dedicated to caring for the medically underserved, and a facility that serves the developmentally-disabled children population. PruittHealth, Inc.'s corporate philosophy centers around its continuum of care by which one provider that is really good at providing services across a multitude of service lines can do a better job than a lot of different providers that have to transition the same patient across the service line(s). PruittHealth, Inc. currently owns and operates one nursing home in Florida, PruittHealth – Santa Rosa, and has received certificates of need to construct three more. Agency for Health Care Administration AHCA is the state agency responsible for, inter alia, regulating the CON program and monitoring CON approvals. As recognized by AHCA, both the applicants are more than able to successfully and appropriately operate their project if approved. The Proposals Alachua HRC/Clear Choice Alachua HRC proposes to build a 103-bed nursing facility to be located in Alachua County on the eastern side of Gainesville. The facility would meet the need of subdistrict 3-2 (94 beds in Alachua county) and the need of subdistrict 3-3 (9 beds in Putnam county). Subdistricts 3-2 and 3-3 are contiguous, and Alachua HRC proposes to build the project in subdistrict 3-2, as close to subdistrict 3-3 as practicable. Alachua HRC's proposed site is reasonably located to provide services to both Alachua County and Putnam County. The proposed site is on Highway 20, which is the main road between Gainesville and Palatka, the major city in eastern Putnam County. The site was chosen to promote ease of access to both Alachua County and Putnam County residents by auto and via bus route. In Alachua and Putnam counties, existing nursing homes are clustered in western Alachua County around Gainesville, and in eastern Putnam County around Palatka, a significant distance apart. There are currently no nursing homes located between downtown Gainesville and Palatka. Alachua HRC's skilled nursing facility will be located in this geographic gap and will meet the needs of nearby populations. A large over-age-sixty-five population resides on the western side of Putnam County adjacent to Alachua County. Some therapy patients from Putnam County are already receiving care at hospitals in Gainesville. Alachua HRC's facility will provide care to patients in Alachua County, as well as patients on the western side of Putnam County. Regardless of the ease of access to the proposed site, Alachua HRC proposes to provide transportation for residents and families who are not able to reach the facility on their own. Alachua HRC is proposing to construct a facility consisting of 75,641 square feet of new construction with a construction cost of $12,586,662 and a total project cost of $19,675,000. The proposal envisions over 55 percent of the patient days being provided to Medicare residents and 41 percent of the patient days being provided to Medicaid residents. Seventy-four percent of the beds (i.e., 77) will be private, i.e., single-bed rooms. Alachua HRC proposes to condition its CON on having a left ventricular assist device program; providing the Lee Silverman Voice Treatment Loud and Big programs; having two hydrotherapy pools; providing infusion therapy services; having an anti-gravity treadmill; obtaining HUR therapy equipment; having a wellness check program; performing home assessments, medication reconciliations, and rehabilitation team assessments, as necessary; and transportation as needed from home to therapy treatment. Alachua HRC's architectural design focuses on providing a variety of destinations under one roof so that patients are encouraged to get out and about, rather than spending time solely in their rooms. Destinations include a second-floor gym, a number of bistro options, a theater, a chapel, and attractive outdoor living spaces. Though most of the rooms are private rooms, even the semi-private rooms have walls separating the beds. Alachua HRC also designed its facility to be a more appropriate setting for hospice care. PruittHealth PruittHealth applied for a CON to construct a 94-bed nursing home in Alachua County, Florida. The facility would involve 66,077 square feet at a construction cost of $9,449,739 and a total project cost of $15,873,409. Sixty-two percent of its beds (58 beds) would be in private, single-bed rooms. PruittHealth proposes to provide 66 percent of its patient days to Medicaid patients. The proposed Medicaid projection is slightly above the current Alachua County average. Twenty-nine percent of its patient days would be for Medicare patients. PruittHealth proposes to condition its CON on seeking Joint Commission accreditation of its facility; implementing a program to reduce hospital readmissions; having a minimum of 62 percent of its beds located in private rooms; participation in a corporate-wide quality assurance and performance improvement initiative; implementing a medical records system with point right technology and clinical kiosks throughout the facility; installation of resident safety features such as Wanderguard and Call Guard; and implementation of the top five special amenities and the top five clinical initiatives identified as needed in the Alachua County market. Statutory and Rule Review Criteria Section 408.035(1)(a): The need for the health care facilities and health services being proposed. Rule 59C-1.030(2)(a): The need that the population to be served . . . and the extent to which all residents of the district, and in particular . . . the elderly, are likely to have access to those services. There is no argument that the fixed need pool established a need for additional nursing home beds in District 3, subdistricts 3-2 and 3-3. PruittHealth seeks to satisfy the need in subdistrict 3-2, i.e., 94 beds; Alachua HRC seeks to address the need in both subdistricts (103 beds). Alachua HRC relied on its management company’s experience and on letters from the proposed locality to identify specific needs in the area. Alachua HRC's application suggests the existence of a gap in the availability of high intensity rehabilitative services and equipment in Alachua County. Because hospitals are now incentivized to discharge patients “quicker and sicker,” a majority of nursing home patients discharged from hospitals are patients that require robust rehabilitative care. As a result, nursing homes are now required to provide a stronger and broader portfolio of services to maximize their patients' potential. PruittHealth conducted a survey and met with local citizens to identify what it considered the most needed design features, special operational initiatives, clinical services, and special amenities that formed the basis of what would be offered at its proposed Alachua County nursing home. The top bed and program mix factors it identified were offering a high percentage of private rooms, providing Medicare and short-term rehabilitation services, and providing Medicaid services. The top five special operational initiatives that were identified were offering a high percentage of private rooms; implementing programs to reduce hospital readmissions; providing electronic medical records; possessing resident safety technologies; and maintaining a high ratio of total nursing hours per patient day. The top clinical programs identified as needed were providing mental health/behavioral services; diabetes care; medication management; hospice care; and HIV/AIDs care. Finally, the top special amenities that were identified as needed were providing specialized care staff; possessing state-of-the-art rehabilitation suites and a therapy pool; and offering custom meal planning and multiple dining options. The survey also had a specific question in regard to access issues by payor source; it was observed that that 60 percent of the Respondents believed that subdistrict 3–2 residents currently have access issues for Medicaid services. No other competent or persuasive evidence was presented to substantiate that survey finding. Neither of the methods utilized by the parties was particularly helpful in determining whether there was a specific need for one proposal over the other. Alachua HRC supplied support letters from past users or persons knowledgeable about its provision of services. Not surprisingly, the letters included glowing reports about Clear Choice. PruittHealth, on the other hand, did some informal surveys of the public in general, including some persons generally associated with the provision of health care services. It also conducted a “meet and greet” session where informal conversations about long-term care in general were conducted. Again, it is not surprising that the people who attended the free food and drink sessions were supportive of PruittHealth. Neither of the “need determinations” had a high degree of sophistication or statistical validity. Nonetheless, the findings by both parties were considered in the decision rendered herein. The conclusion that can be drawn from the information provided by the parties is that there is a desire for certain services or amenities in the service area, including: 1) A high percentage of private rooms within the facility; 2) Short-term, robust rehabilitative services; 3) A high ratio of nurse hours per patient day; 4) State of the art rehabilitation suites, including therapy pools; and 5) Provision of service to persons whose care is paid by Medicaid. Each of the applicants, to some extent, proposed to meet those desires expressed within the community. Both propose a high percentage of private rooms, although Alachua HRC has more private rooms than PruittHealth (77 to 62, respectively). Both project the provision of intensive short-term rehabilitation care. Again, Alachua HRC has a larger focus in this area than does PruittHealth. Each of the applicants proposes a ratio of nurse hours per patient day that is admirable. Both applicants include rehabilitation suites, though the equipment proposed by Alachua HRC seems more state of the art than does PruittHealth’s equipment. And while both propose therapy pools, Alachua HRC will have two pools (in recognition of the fact that pools can often be soiled by human accident or be out of service due to maintenance. Having two pools provides assurance that there will not be a loss of that service when something such as that occurs). Both applicants propose to serve Medicaid residents. PruittHealth projects that 66 percent of its patients will be Medicaid eligible, closely matching the existing Medicaid percentage in the service area (64 percent). Alachua HRC proposes to serve a lower percentage of Medicaid residents due to its primary focus on short-term rehabilitative care, i.e., those with a payor source of Medicare. The Agency no longer accepts Conditions in a CON application relating to Medicaid, so the proposals are not as strictly monitored as they once were. Section 408.035(1)(b): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. Rule 59C-1.030(2)(d): When determining accessibility, consideration of service to the medically underserved, Medicare, Medicaid and the indigent, and “the extent to which the applicant offers a range of means by which a patient will have access to its services”. There is no real dispute that either of the applicants can provide exceptional care in the facilities they propose. Though they each raised questions of whose facilities had the most awards or recognitions, which had experienced bad surveys, and that kind of thing, the differences were insignificant. Both can provide a high quality of care to residents. The range of services proposed by each applicant is similar, as they are in most skilled nursing facilities. Some facilities concentrate more on one area, some on another, but all the services generally exist. The applicants here are no exception. Other providers in the area will compete for residents in all payor classes and all levels of care. Each of the applicants will likely realize its projected payor mix as it directs its marketing efforts accordingly. Section 408.035(1)(c): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As noted in the previous section, both applicants are capable of and expected to provide quality care to their residents. Some of the support for this was set forth in the CON applications and via testimony at final hearing. Some examples follow. One measure of the ability to provide quality of care is the staffing being proposed. It is generally recognized that the more nursing hours of care that are provided per patient day, the better the care is likely to be. PruittHealth proposes to provide 1.72 hours of nursing care and Alachua HRC is proposing 1.70 hours per patient, so the difference is negligible. The fact that Alachua HRC proposes a higher level of services and should be expected to have higher levels of nursing care gives PruittHealth the advantage in this one area. There are some differences in other areas of staffing as well: Alachua HRC has considerably more therapy staff, 30.5 to 9.3 full-time equivalent employees (“FTEs”), which is to be expected based on the applicants’ different payor mix projections. Alachua HRC also has more administrative staff, to 6.4, but some of that may be attributable to the fact that some of the FTEs in PruittHealth’s nursing staff could also be deemed administrative. The total nursing staff, including RNs, LPNs, and aides, is 82.5 for Alachua HRC and 72.2 for PruittHealth. The total FTEs for the applicants is 165 for Alachua HRC and 113 for PruittHealth. PruittHealth, Inc.'s lone Florida facility, PruittHealth - Santa Rosa, is rated 5 stars by both the Center for Medicaid and Medicare Services (“CMS”) and AHCA. It has been recommended for the Gold Seal award by AHCA. It has been awarded the Silver Star by the American Health Care Association. PruittHealth - Santa Rosa's most recent survey, and three of its past five surveys, have been deficiency free. Its administrator was named Administrator of the Year for Florida in 2013. Its hospital readmission rate is consistently lower that the state and national average. Finally, it was recently named as one of the “Best Nursing Homes in the U.S.” by U.S. News & World Report. This facility will be the template for the PruittHealth project in Alachua County. The PruittHealth, Inc. consolidated group of companies have a well-developed corporate headquarters infrastructure that provides regional oversight and consulting and management systems to monitor, correct and improve quality of care throughout the chain. The company has been growing steadily over the years and has developed effective programs and human resources to ensure quality of care. PruittHealth, Inc.'s efforts in other facilities have resulted in it delivering a high quality of care. This is demonstrated by PruittHealth, Inc.'s pursuit and receipt of industry-quality awards, its licensure record, and its survey history. As part of its management practices for facilities, PruittHealth, Inc. has several well-defined and effective programs to promote quality; significant evidence and testimony was provided as to its “Go for the Gold,” “Committed to Caring Campaign,” and “Quality First Pledge” initiatives and company- wide goals. The PruittHealth, Inc. chain does regularly pursue quality designations through recognized industry quality award programs or designations, such as: The American Health Care Association's national quality award program is one such program to which PruittHealth, Inc. has made a firm commitment. PruittHealth, Inc. has been able to achieve the Silver Award for its facility in Santa Rosa County, Florida. For its other facilities, it has obtained nine silver awards and 65 bronze awards. The PruittHealth, Inc. companies have achieved Joint Commission accreditation at 12 of their facilities. PruittHealth has offered as a Condition on its CON a requirement that the proposed facility shall achieve such designation. Lastly, the PruittHealth, Inc. facilities have obtained the distinction by the U.S. News & World Report by having 22 of its facilities designated “Best Nursing Homes in the U.S.” PruittHealth, Inc. has an excellent regulatory survey history. It has a significant number of its facilities which have been deficiency free in the last four years. While PruittHealth, Inc. has had some facilities in the past which have received I and J-tags, i.e., those which indicate immediate jeopardy, it was demonstrated that (1) for several of the facilities, those tags were incurred before PruittHealth, Inc. owned the facilities, and (2) in all instances, it responded promptly and corrected the matters or events which generated such tags. Clear Choice operates three facilities that have received the Governor's Gold Seal designation. Only five percent of all nursing homes obtain a Gold Seal designation. A fourth Clear Choice facility was eligible for Gold Seal status and was making its application complete at the time of final hearing. Clear Choice provides higher quality care than PruittHealth, Inc. according to CMS's star rating system, especially in the area of staffing. On a scale of 1 to 5, Clear Choice offers better ratings than PruittHealth, Inc. for health inspection rating (3.2 to 3.1), staffing rating (4.4 to 2.6) and RN staffing rating (4.3 to 2.9). On average Clear Choice rates at 3.8 stars and PruittHealth, Inc. at 3.4. Clear Choice has a higher percentage of five-star facilities than PruittHealth, Inc. Conversely, PruittHealth, Inc. has a higher percentage of one-star and two-star facilities than Clear Choice. Clear Choice has a track record of providing state-of- the-art rehabilitation equipment, gyms, and pools that are not provided by other nursing homes. As noted above, the application contains strong documentation of the rehabilitative services and equipment Alachua HRC will provide. Specifically, Alachua HRC conditioned its application on the provision of an array of rehabilitative services and equipment. It also conditioned its application on provision of clinical staff to support such services and on providing at least $150,000 of charity care annually, as in common in its facilities. Clear Choice offers therapy programs in pulmonary rehabilitation, physical therapy and respiratory therapy. It offers a stroke program with nine certified specialists and plans to certify more specialists. Clear Choice offers LVAD for cardiac care; mist therapy for wound care; Lee Silverman Voice treatment focused on the Parkinson's population; a program with certified specialists in lymphedema treatment; VitalStim to strengthen muscles for swallowing; aquatic therapy; and FEES therapy to assess swallowing capability. Clear Choice expends substantial funds providing continuing education and training to its therapy staff and certified specialists for facilities it manages. That will include the project at issue here for Alachua HRC. Alachua HRC proposes an array of state-of-the-art rehabilitation equipment such as wheelchair-accessible HUR equipment for building strength; two therapy pools by Hydroworx; an AlterG Anti-Gravity Treadmill which allows patients to exercise while only bearing a portion of their body weight instead of their full body weight; a portable BioSway for balance training; a wheelchair accessible Kinesis pulley system for exercise; NuStep and SCIFIT systems and an Omnicycle for cardiac rehabilitation; and E-Stim and VitalStim for swallowing treatment. Alachua HRC plans to offer all of its therapy services and its equipment to both long-term and short-term patients. Because it offers several options and a fresh Bistro- style dining approach, Clear Choice facilities spend more per patient on food than the average nursing home. Clear Choice facilities implement robust quality assurance programs such as welcome meetings to go over medications and therapies, Care Plan meetings, AdvaCast program, Team TSI, and medication reconciliation. During Care Plan meetings, specialist physicians, such as Dr. Medina-Sanchez, collaborate with facility staff regarding the results of their patient visits. They also discuss outcomes, prognoses, goals, and other medical issues, to assure that patients, families and physicians all understand the same expectations after discharge. These Care Plan meetings occur for both short-term and long-term care patients. Clear Choice has also been selected as a nursing home partner to hospitals paid under a bundled system. Clear Choice was selected for the bundled programs based on its quality measures and readmission rates. During quality surveys, PruittHealth, Inc. has received 50 J and K-tags and 36 G-tags across 19 facilities, or roughly 20 percent of PruittHealth, Inc. facilities. Of PruittHealth, Inc. facilities, 17 have received I-tags and J-tags under PruittHealth, Inc.'s watch. Since its inception nine years ago, only one Clear Choice facility has ever received an immediate jeopardy tag, and it was from a single incident and survey. There was considerable testimony at final hearing concerning readmission rates, i.e., the external benchmark utilized by CMS to measure the number of hospital-discharged patients admitted to a skilled nursing facility who return to a hospital within 30 days. CMS has developed sophisticated statistical techniques to adjust raw data (observed rates) for the acuity of the patients seen at different facilities and management styles (adjusted rates). Unfortunately, CMS has not disclosed exactly how it makes the adjustments, so it is virtually impossible to make comparisons between different providers. In the present case, PruittHealth provided credible evidence that its readmission rates are measurably better than Clear Choice’s readmission rates for existing facilities. This could be, in part, due to Clear Choice’s patient mix which includes considerably more short-term intensive rehabilitation residents. Clear Choice conducts a number of activities to avoid readmissions. Clear Choice's interdisciplinary team reviews all admissions and discharges within the 30-day readmission time slot. Clear Choice partners with the Medicare-contracted group advising on readmissions, Health Service Advisory Group, and the Nursing Home Collaborative to track data used to track readmissions. Clear Choice has achieved relatively low readmission rates for the medically complex patients it serves. Clear Choice has concerns about PruittHealth’s policies on readmissions to the extent they appear to incentivize holding patients longer in skilled nursing facilities rather than releasing them to a hospital for care. Specifically, the statement by PruittHealth’s medical expert that “part of our bonus structure . . . is based on readmission rates,” could lead to conclusions that patients’ needs are being manipulated. However, in general, both applicants had reasonable and seemingly effective plans for keeping their admission rates at or near the State average. Section 408.035(1)(d); The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. AHCA determined that both applicants fulfilled this criterion equally. However, PruittHealth points out that it provided the audited financial statements of its parent company even though it was not required. PruittHealth questioned the commitment of Mr. Kellett to the Alachua HRC project because his personal or business financial statements were not included with the application. The totality of the evidence and testimony by Ms. Kennedy proves otherwise. Section 408.035(1)(e): The extent to which the proposed services will enhance access to health care for residents of the service district. Both applicants will provide services to persons within the service area who require skilled nursing care, whether it is traditional long-term care, subacute care and rehabilitation, or other kinds of care. Alachua HRC’s proposed location, east of the existing cluster of nursing homes in Alachua County, will be in closer proximity to residents of Putnam County. Section 408.035(1)(f): The immediate and long-term financial feasibility of the proposal. Both of the applicants (through parent companies or affiliates) are experienced in the business of owning and operating skilled nursing facilities. While the single purpose entities which filed the CON applications have not independently financed construction of a facility, they are each related to companies with vast experience and financial wherewithal. Notwithstanding, each applicant raised concerns about the other, some of which will be discussed herein. PruittHealth, on the Source of Funds form in Schedule 3 of the CON application, chose section 2 – Operating Cash Flows, and Section 4 – Non Related Party Financing, as its source of funding for the project. As documentation in support of its source of funds, PruittHealth provided: (1) a letter from an institutional lender, Synovus Bank indicating an interest in financing the project; (2) a letter from PruittHealth, Inc.’s senior vice president of Treasury Management and Treasurer addressing a $36 million working capital line of credit which, as of the date of the CON application, had an unused balance of $26,100,000 and had $19.8 million at the time of the hearing; and (3) another letter of its senior vice president formally committing the funds of PruittHealth under the capital line of credit to finance the equity portion (25 percent) of the Synovus Bank financing, and also the internal cash flow and cash on hand of PruittHealth, Inc. as shown on its audited financial statement. There is some evidence that PruittHealth’s estimated land costs and construction costs, and therefore its amortization and depreciation expenses, are understated. Further, PruittHealth is in the midst of a large nursing home bed expansion, including three CONs approved in the State of Florida: a 77-bed facility in Bay County; a 97-bed CON in Clay County; and an 86-bed facility in Leon County. The Bay and Clay County projects have a commence-construction deadline of September 2016, but neither project is currently financed. The Leon County project is scheduled to commence construction within nine months, but financing, land purchase, permitting, and such have not yet been accomplished. The three facilities will require a total of about $33 million, with two thirds of that required almost immediately. Obtaining those loans may be impaired by PruittHealth’s need to refinance approximately $150 million in debt during the next three years. Further, its debt ratios seem to exceed the benchmarks set forth in the Dodd-Frank Act, creating a potential impediment to acquiring additional loans. Although the size and strength of PruittHealth, Inc. seem sufficient to handle the financial concerns set forth above, the existence of three pending CONs in Florida creates some doubt. That those projects are on such short timelines for construction also indicates a need for PruittHealth, Inc. to focus on them without incurring additional obligations. Long Term Financial Feasibility Both applicants, with support from their respective mentor organizations, will likely realize long-term financial feasibility in their proposed projects. However, neither of the applicants’ proposals was without fault. PruittHealth used reasonable methodologies and assumptions for its project cost, utilization and fill-up rates, staffing, and pro forma financial statements, i.e., Schedules 1, 4, 5, 6, 7, and 8 of the application. Using its actual operating results at other related facilities is reasonable and demonstrates a legitimate basis for legitimacy of the projections. However, many of the financial projections relied upon by PruittHealth were derived from unverified information. While the projections appear reasonable from an overview perspective, there were many items that appeared to be guesstimates or plucked from other, perhaps dissimilar types of projects. There appears to be insufficient nursing staff to cover both the skilled and long-term patients, but the numbers could be increased as needed (but would require additional costs). And, because the salaries for nurses were pulled from a public website, they may be suspect. Alachua HRC's financial schedules were based on Clear Choice's actual experience at another Clear Choice facility, Sun Terrace, which is very similar to the Alachua HRC proposal. The pro forma presumably captured every expense Alachua HRC is expected to incur and appears reasonable. On the revenue side, the pro forma is also based on actual experience of Clear Choice facilities. A projection of 97-percent occupancy is unusual. But, due to Alachua HRC's high percentage of private rooms, the projected occupancy of 97-percent is reasonable and achievable. Two Clear Choice facilities, Melbourne Terrace and Spring Lake, currently experience over 97-percent occupancy. Both facilities recently underwent renovations to add the private rooms and large gyms like the ones planned for the Alachua project. Additionally, several other Clear Choice facilities achieved greater than 95-percent occupancy, even in facilities that do not yet boast a compliment of private rooms. Clear Choice's projected occupancy rate is only three percent higher than PruittHealth's and is reasonable. Clear Choice projects a total of 165 FTEs to staff the Alachua HRC project versus only 113.1 FTEs that PruittHealth projects for its project. Clear Choice’s staffing projection is also based on the Sun Terrace facility, which is similar to the Alachua HRC proposal. The projected staffing is based on actual Florida experience and is reasonable. There is little difference between the applicants for the per diem projections for the larger payor groups of Medicare and Medicaid. The difference in the overall revenue between the two applicants is primarily a function of Clear Choice's higher proportion of Medicare patients. Its higher expenses than PruittHealth are due to the higher level of care being offered to the Medicare/short-term rehabilitation patients. However, on aggregate, both of the applicants would likely achieve positive long-term financial results. Section 408.035(1)(g): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. Neither applicant currently has a nursing home in Alachua County. Therefore the approval of either applicant will, to some extent, increase competition. Both applicants propose high-quality nursing home programs at competitive costs. Section 408.035(1)(i): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. Rule 59C-1.030(2)(a) . . . The need that the population to be served . . . and the extent to which all residents of the district, and in particular low income persons . . . and the elderly, are likely to have access to those services. This criterion no longer holds the weight it once held in nursing home CON cases. The advent of Medicaid managed care for nursing home residents changed the dynamic of traditional Medicaid care, and AHCA no longer views this criterion as vastly important. Clearly, PruittHealth proposes a higher Medicaid census (64 percent) that does Alachua HRC (41 percent). However, when including dual eligible residents (i.e., those patients who are admitted into the facility as Medicare patients but would qualify for Medicaid at the end of their qualifying stay), Alachua HRC’s percentage of Medicaid residents increases to about 58 percent. Presumably, employing the same stratagem for PruittHealth would increase its Medicaid census as well. AHCA no longer accepts conditions on the CON for provision of a specified percentage of Medicaid care. Unlike days of yore, applicants are not granted any special consideration on the basis of their Medicaid projections. PruittHealth points out that it is attempting to be consistent with the percentage of Medicaid care currently extant in the service area. It did not provide persuasive evidence that meeting that percentage was especially significant.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by Respondent, Agency for Health Care Administration, approving CON Application No. 10397 filed by Alachua County HRC, LLC, for a 103-bed skilled nursing facility in Alachua County, AHCA District 3, subdistrict 3-2. DONE AND ENTERED this 16th day of September, 2016, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of September, 2016. COPIES FURNISHED: Jay Adams, Esquire Broad and Cassel Post Office Box 11300 Tallahassee, Florida 32302 (eServed) Seann M. Frazier, Esquire Parker, Hudson, Rainer and Dobbs, LLP Suite 750 215 South Monroe Street Tallahassee, Florida 32301 (eServed) Jonathan L. Rue, Esquire Parker, Hudson, Rainer and Dobbs, LLP Suite 3600 303 Peachtree Street Northeast Atlanta, Georgia 30308 (eServed) Richard Joseph Saliba, Esquire Agency for Health Care Administration Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32303 (eServed) Kevin Michael Marker, Esquire Agency for Health Care Administration Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308 (eServed) Frank P. Rainer, Esquire Broad and Cassel Suite 400 215 South Monroe Street Tallahassee, Florida 32301 (eServed) Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 (eServed) Stuart Williams, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 (eServed) Elizabeth Dudek, Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 1 Tallahassee, Florida 32308 (eServed)
The Issue The issues under consideration concern the request by Petitioner, Brookwood-Jackson County Convalescent Center (Brookwood) to be granted a certificate of need for dual certification of skilled and immediate care nursing home beds associated with the second review cycle in 1987. See Section 381.494, Florida Statutes (1985) and Rule 10-5.011(1)(k) , Florida Administrative Code.
Findings Of Fact On October 5, 1987 Brookwood filed an application with HRS seeking to expand its facility in Graceville, Jackson County, Florida, one with 120 licensed beds and 30 beds approved effective June 12, 1986, to one with 30 additional beds for a total of 180 beds. Beds being sought in this instance were upon dual certification as skilled and intermediate nursing home beds. The nursing home is located in Subdistrict A to District II which is constituted of Gadsden, Holmes, Jackson and Washington counties. This applicant is associated with Brookwood, Investments, a Georgia corporation qualified to do business and registered in the State of Florida and other states in the southeastern United States. That corporation has as its principal function the development and operation of nursing homes and other forms of residential placement of the elderly. The actual ownership of the applicant nursing home is through a general partnership. Kenneth Gummels is one of two partners who own the facility. The Brookwood group has a number of nursing home facilities which it operates in the southeastern United States. Florida facilities that it operates are found in DeFuniak Springs, Walton County, Florida; Panama City, Bay County, Florida; Chipley, Washington County, Florida; Homestead, Dade County, Florida; Hialeah Gardens, Dade County, Florida, as well as the present applicant's facility. The applicant as to the beds which it now operates, serves Medicare, Medicaid, Veteran Administration, private pay and other third party pay patients. The number of Medicaid patients in the 120 licensed beds is well in excess of 90 percent. The ratio of Medicaid patients with the advent of the 30 approved beds was diminished. As to those beds, 75 percent were attributed to Medicaid. If the 30 beds now sought were approved, the projection is for 87 percent private pay and 13 percent Medicaid for those new beds. The nursing home administration feels that the new beds must be vied for under those ratios in order for it to continue to be able to serve a high number of Medicaid patients, an observation which has not been refuted by the Respondent. Nonetheless, if these beds are approved the percentage of Medicaid patients would be reduced to the neighborhood of 80 percent within the facility which compares to the approximately 81 percent experience of Medicaid beds within the district at present and the approximately 88 percent of Medicaid beds within the subdistrict at present. The cost of the addition of the 30 beds in question would be $495,000. Financial feasibility of this project has been stipulated to by the parties assuming that need is found for the addition of those beds. The basic area within the Florida panhandle wherein the applicant facility may be found, together with other facilities in the Florida panhandle is depicted in a map found at page 101 of Petitioner's Exhibit 1 admitted into evidence. This map also shows that a second licensed nursing home facility is located in Jackson County in Marianna, Florida, known as Marianna Convalescent Center. The applicant facility is directly below the Alabama-Florida border, immediately south of Dothan, Alabama, a metropolitan community. The significance of the relative location of the applicant's facility to Dothan, Alabama concerns the fact that since 1984 roughly 50 percent of its nursing home patients have been from out-of-state, the majority of those out-of-state patients coming from Alabama. Alabama is a state which has had a moratorium on the approval of new nursing home beds for eight years. The proximity of one of that state's relatively high population areas, Dothan, Alabama, has caused its patients to seek nursing home care in other places such as the subject facility. The applicant has encouraged that arrangement by its business practices. Among the services provided by the nursing home facility are physical therapy, physical examination and treatment, dietary services, laundry, medical records, recreational activity programs and, by the use of third party consultants, occupational and social therapy and barber and beauty services, as well as sub-acute care. The facility is adjacent to the Campbellton-Graceville Hospital in Graceville, Florida. The nursing home was developed sometime in 1978 or 1979 with an original complement of 90 beds expanding to 120 beds around 1983 or 1984. The Chamber of Commerce of Marianna, Florida had held the certificate of need upon the expectation that grant funds might be available to conclude the project. When that did not materialize, the County Commissioners of Jackson County, Florida sought the assistance of Brookwood Investments and that organization took over the development of the 90 beds. The original certificate holder voluntarily terminated and the Brookwood partnership then took over after receiving a certificate of need for Brookwood-Jackson County Convalescent Center. The nursing home in Marianna, Florida which is located about 16 miles from Graceville has 180 beds having undergone a 60 bed expansion several years ago. Concerning the Brookwood organization's nursing home beds in Florida, the Walton County Convalescent Center was a 100 bed facility that expanded to 120 beds at a later date and has received permission to expand by another 32 beds approved in the same review cycle associated with the present applicant. Gulf Coast Convalescent Center in Panama City, is a 120 bed facility of Brookwood. Brookwood also has the Washington County Convalescent Center in Washington County, in particular in Chipley, Florida which has 180 beds. That facility was expanded by 60 beds as licensed in October, 1987 and those additional beds have been occupied by patients. Brookwood has a 120 bed facility in Homestead and a 180 bed facility in Hialeah Gardens. With the exception of its two South Florida facilities in Homestead and Hialeah Gardens, recent acquisitions under joint ownership, the Brookwood group has earned a superior performance rating in its Florida facilities. No attempt has been made by this applicant to utilize the 30 beds which were approved, effective June 12, 1986. Its management prefers to await the outcome in this dispute before determining its next action concerning the 30 approved beds. The applicant asserted that the 30 beds that had been approved would be quickly occupied based upon experience in nursing home facilities within Subdistrict A to District II following the advent of nursing home bed approval. That surmise is much less valuable than the real life experience and does not lend effective support for the grant of the certificate of need in this instance. The waiting list for the 120 licensed beds in the facility has been reduced to five names. This was done in recognition of the fact that there is very limited patient turnover within the facility. Therefore, to maintain a significant number of people on the waiting list would tend to frustrate the sponsors for those patients and social workers who assist in placement if too many names were carried on the waiting list. At the point in time when the hearing was conducted, the facility was not in a position to accept any patients into its 120 licensed facility. This condition of virtually 100 percent occupancy has been present since about 1984 or 1985. The applicant has transfer agreements with Campbellton-Graceville Hospital and with two hospitals in Dothan, Alabama, they are Flower's Hospital and Southeast Alabama Medical Center. The applicant also has a transfer agreement with the Marianna Community Hospital in Marianna, Florida. The referral arrangements with the Alabama hospitals were made by the applicant in recognition of the proximity of those hospitals to the nursing home facility and the belief in the need to conduct its business, which is the provision of nursing home care, without regard for the patient origin. Early on in its history with the nursing home, Brookwood promised and attempted in some fashion to primarily serve the needs of Jackson County, Florida residents, but the explanation of its more recent activities in this regard does not portray any meaningful distinction between service to the Jackson County residents and to those from other places, especially Alabama. This reflects the concern expressed by Kenneth Gummels, owner and principal with the applicant nursing home, who believes that under federal law the nursing home may not discriminate between citizens in Florida and Alabama when considering placement in the nursing home. In this connection, during 1987 the experience within the applicant nursing home was to the effect that for every patient admitted from Florida five Florida patients were turned away. By contrast, to deal with the idea of priority of placing patients some effort was made by Gummels to explain how priority is still given to Jackson County residents in the placement for nursing home care. Again, in the end analysis, there does not seem to be any meaningful difference in approach and this is evidenced by the fact that the level of out-of-state patients in the facility has remained relatively constant after 1984. If there was some meaningful differentiation in the placement of Florida patients and those from out-of-state, one would expect to see a change in the number of patients from out-of-state reflecting a downward trend. As described, historically the experience which Brookwood has had with the facility occupancy rates is one of high utilization except for brief periods of time when additional beds were added at the facility or in the Marianna Nursing Home. At time of the application the primary service area for the applicant was Jackson County with a secondary service area basically described as a 25 mile radius outside of Graceville extending into Alabama and portions of Washington and Holmes Counties. As stated, at present the occupancy rate is as high as it has ever been, essentially 100 percent, with that percentage only decreasing on those occasions where beds come empty based upon transfers between nursing homes or between the nursing home and a hospital or related to the death of a resident. Those vacancies are filled through the waiting list described or through recommendations of physicians who have a referral association with the facility. The patients who are in the facility at the place of consideration of this application were 50 percent from Florida and 50 percent from out-of-state, of which 56 of the 60 out-of-state patients were formerly from Alabama, with one patient being from Ohio and three others from Georgia. More specifically, related to the history of out-of-state patients coming to reside in the nursing home, in 1984 basically 25 percent patients were from Alabama, moving from there into 1985 at 47 percent of the patient population from Alabama, in 1986 50 percent from Alabama, in 1987 48 percent from Alabama and in 1988 the point of consideration of the case at hearing the figure was 47 percent of Alabama patients, of the 50 percent patients described in the preceding paragraph. Of the patients who are in the facility from Florida, the majority of those are believed to be from Jackson County. Those patients who come to Florida from Alabama, by history of placement, seem to be put in the applicant's facility in Graceville as a first choice because it is closest to the Dothan, Alabama area. The next preference appears to be Chipley and the Brookwood nursing home facility in Chipley, and thence to Bonifay and then to other places in the Florida panhandle, in particular Panama City. In the Brookwood-Washington County facility at Chipley, Florida 35 percent of the patients are from Alabama which tends to correspond to the observation that the Alabama placements as they come into Florida are highest in Graceville and decrease in other places. This is further borne out by the experience in the Brookwood-Walton County facility at DeFuniak Springs, Florida which has an Alabama patient percentage of approximately 10 to 12 percent. When the nursing home facilities in Chipley and Bonifay received 60 additional beds each in October, 1987, they began to experience rapid occupancy in those beds as depicted in the Petitioner's Exhibit 1 at pages 228 through 230. The other facility in Jackson County, namely Jackson County Convalescent Center, within the last six months has shown an occupancy rate in excess of 98 percent, thereby being unavailable to attend the needs of additional Jackson County patients who need placement and other patients within the subdistrict. This same basic circumstance has existed in other facilities within Subdistrict A to District II. When the applicant is unable to place patients in its facility it then attempts placement in Chipley, Bonifay, DeFuniak Springs, and Panama City, Florida, and from there to other places as nearby as possible. The proximity of the patient to family members and friends is important for therapeutic reasons in that the more remote the patient placement from family and friends, the more difficult it is for the family and friends to provide support which is a vital part of the therapy. Consequently, this is a significant issue. Notwithstanding problems in achieving a more desirable placement for some patients who must find space in outlying locales, there was no showing of the inability to place a patient who needed nursing home care. Most of the Alabama referrals are Medicaid referrals. Those patient referrals are treated like any other resident within the nursing home related to that payment class for services. Effectively, they are treated in the same way as patients who have come from locations within Florida to reside in the nursing home. Notwithstanding the management choice to delay its use of the 30 approved beds dating from June 12, 1986, which were challenged and which challenge was resolved in the fall, 1987, those beds may not be ignored in terms of their significance. They must be seen as available for patient placement. The fact that the experience in this service area has been such that beds fill up rapidly following construction does not change this reality. This circumstance becomes more significant when realizing that use of the needs formula for the project at issue reveals a surplus of 19 beds in Subdistrict A to District II for the planning horizon associated with July, 1990. See Rule 10-5.011(1)(k), Florida Administrative Code. The 19 bed surplus takes into account the 30 approved beds just described. Having recognized the inability to demonstrate need by resort to the formula which is found within the rule's provision referenced in the previous paragraph, the applicant sought to demonstrate its entitlement to a certificate through reference to what it calls "special circumstances." Those circumstances are variously described as: Patient wishing to be located in Jackson County. Lack of accessibility to currently approved CON beds. High rate of poverty, Medicaid utilization and occupancy. Jackson County Convalescent Center utilization by out-of- state patients. The applicant in asking for special relief relies upon the recommendation of the Big Bend Health Council, District II in its health plan and the Statewide Health Council remarks, whose suggestions would modify the basis for calculation of need found in the HRS rule with more emphasis being placed on the adjustment for poverty. Those suggestions for health planning are not controlling. The HRS rule takes precedence. Consequently, those suggestions not being available to substitute for the HRS rule, Petitioner is left to demonstrate the "special circumstances" or "exceptional circumstances" in the context of the HRS rule and Section 381.494(6), Florida Statutes (1985). Compliance per se with local and statewide planning ideas is required in the remaining instances where those precepts do not conflict with the HRS rule and statute concerning the need calculations by formula. Turning to the claim for an exception to the rule on need, the first argument is associated with the patient wishing to be located in Jackson County. This would be preferable but is not mandated. On the topic of this second reason for exceptions to the need formula, the matter is not so much a lack of accessibility to currently approved CON beds as it is an argument which is to the effect that there are no beds available be they licensed or approved. This theory is not convincing for reasons to be discussed, infra. Next, there is an extremely high rate of poverty in District II. It has the highest rate of poverty in the state. Moreover Subdistrict A to District II has an even greater degree of poverty and this equates to high Medicaid use and contributes to high occupancy. This coincides with the observation by the Big Bend Health Council when it takes issue with the HRS methodology rule concerning recognition of the significance of poverty within the HRS rule and the belief by the local health council that given the high poverty rates in District II some adjustments should be made to the need formula in the HRS rule. Under its theory, 161 additional beds would be needed at the planning horizon for July 1990 in Subdistrict A. Concerning the attempt by the applicant to make this rationalization its own, the record does not reflect reason to defer to the Big Bend Health Council theory as an exception to the normal poverty adjustment set forth in the HRS rule. When the applicant describes the effects of the out-of-state patients, in particularly those from Alabama in what some have described as in-migration, it argues that Rule 10-5.011(1)(k), Florida Administrative Code makes no allowance for those influences. The applicant chooses to describe these beds, the beds used by out-of-state residents, as unavailable or Inaccessible. This concept of inaccessibility is one which departs from the definition of inaccessibility set forth at Rule 10-5.011(1)(k)2.j., Florida Administrative Code. The specific exception to the requirement for compliance with the numeric need methodology in demonstration of a net need is set forth in that reference, and the proof presented did not show entitlement to the benefits of that exception. That leaves the applicant arguing in favor of recognition of its entitlement to a certificate of need premised upon a theory not specifically announced in that reference. This is the in-migration idea. It ties in the basic idea of poverty but does not depend on rigid adherence to the Big Bend Health Council idea of a substitute element in the HRS needs formula related to poverty. It also promotes the significance of problems which a number of physicians, who testified by deposition in this case, observed when attempting to place patients in the subject nursing home and other nursing homes in the surrounding area. They found high occupancy rates in the present facility and others within Subdistrict A to District II. These problems with placement as described by the physicians can have short term adverse effects on the patient and the family members, but they are not sufficient reason to grant the certification. In considering the formula for deriving need as promulgated by HRS, the proof does not seem to suggest that the nursing home residents themselves who came from out-of-state are excluded from the population census for Florida. On the other hand, unlike the situation in Florida in which the population at large is considered in trying to anticipate future nursing home bed needs, it make no assumptions concerning the Alabama population at large. Ultimately, it becomes a question of whether this unknown factor, given the history of migration of patients from Alabama into Florida and in particular into the subject nursing home, together with other relevant considerations, may properly form the basis for granting the certificate of need to the applicant. It is concluded that there is a fundamental difference in the situation found within this application compared to other planning areas within Florida which do not have to contend with the level of poverty, the proximity to Alabama and the advent of Alabama placements in this nursing home, the high occupancy rates in the subdistrict and the resulting difficulty in placement of patients near their homes. Posed against this troublesome circumstance is the fact that the applicant has failed to use its 30 approved beds or to make a decision for such use, that it had invited and continues to invite the placement of Alabama residents through the referral arrangements with the two Dothan, Alabama hospitals, realizing that such an arrangement tends to exclude opportunities for Florida residents to some extent, and the recognition that patients are being placed; that is patients are not going without nursing home care. The two Alabama hospitals with whom the applicant has referral agreements provide a substantial number of the patients who are admitted. This recount acknowledges what the ownership considers to be their obligation in law and morally to serve the interest of all patients without regard for their home of origin; however, the thrust of the certificate of need licensing process in Florida is to develop the apparatus necessary to service the needs of Florida residents, not Alabama residents. This does not include the necessity of trying to redress the circumstance which appears to exist in Alabama in which the government in that state is unable or unwilling to meet the needs of its citizens. On balance, the applicant has not demonstrated a sufficient reason to depart from the normal requirements of statute and rule, which departure would have as much benefit for Alabama residents as it would for Florida Residents. Contrary to the applicant's assertions it could legitimately de-emphasize its association with Alabama. It has chosen not to and should not be indulged In this choice in an enterprise which is not sufficiently related to the needs of Florida residents to condone the licensure of the beds sought, even when other factors described are taken into account. The applicant has also alluded to a certificate of need request made by Walton County Convalescent Center, a Brookwood facility in District I which sought a certificate of need in the same batch which pertains to the present applicant. The application and the review and comment by HRS may be found within Composite Exhibit 2 by the Petitioner admitted as evidence. Petitioner asserts that the Walton County experience in which 32 beds were granted is so similar to the present case that it would be inappropriate for the agency to act inconsistently in denying the present applicant after having granted a certificate of need to the Walton County applicant. Without making a line-by- line comparison, it suffices to say that in many respects these projects are similar. In other respects they are not. On the whole, it cannot be found that the agency is acting unfairly in denying the present applicant while granting a certificate to the applicant in the Walton County case. The differences are substantial enough to allow the agency to come to the conclusion that the present applicant should be denied and the applicant in Walton County should have its certificate granted. Likewise, no procedural impropriety on the part of HRS in its review function has been shown.
