The Issue This case arises out of a petition filed by Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., challenging the validity of Respondent's Rule 10- 5.11(23), Florida Administrative Code. The challenged rule was promulgated by the Department of Health and Rehabilitative Services to provide a uniform methodology for determining the need for acute care beds in the various IRS districts in Florida. Subsequent to the filing of the petition and the scheduling of this matter for hearing, the Intervenor, University Community Hospital, filed a petition to Intervene and was permitted to intervene upon the same issues raised by the original petition. At the formal hearing, the Petitioners Humana, Inc., Humedicenters, Inc., and Humhosco, Inc., called as witnesses Brad Sexauer, David Petersen, Ira Korman, Richard Alan Baehr, Frank Sloan and James Bruce Ryan. Petitioners offered and had admitted into evidence nine exhibits. The Intervenor, University Community Hospital, called as witnesses Warren Dacus and George Britton. The Intervenor offered and had admitted into evidence three exhibits. The Respondent, the Department of Health and Rehabilitative Services, called as witnesses Stanley K. Smith, Stephen Williams and Phillip C. Rond. The Department offered and had admitted into evidence 36 exhibits. Respondent's Exhibits 5, 6, 14, 15, 16 and 17 were not admitted for all purposes but were admitted as hearsay for the purpose of corroborating or explaining other admissible evidence in the record. Counsel for each of the parties submitted proposed findings of fact and conclusions of law for consideration by the Hearing Officer. To the extent that those proposed findings of fact and conclusions of law are inconsistent with this order, they were rejected as not being supported by the evidence or as unnecessary to the resolution of this cause.
Findings Of Fact STANDING The Petitioners and Intervenor are corporations engaged in the business of constructing and operating hospitals in the State of Florida. Humedicenters, Inc. and Humhosco, Inc., are wholly owned subsidiaries of Humana, Inc. Humana, Inc., and its corporate subsidiaries presently have seven (7) pending applications for Certificates of Need for acute care hospital facilities. At least one of those applications for a facility in Jacksonville, Florida, was denied by HRS on the basis that no need existed under the challenged rule methodology. The Intervenor, University Community Hospital, is located in HRS Service District 6A in northern Hillsborough County. On June 29, 1982, University Community Hospital applied for a Certificate of Need for additional medical surgical beds and on December 1, 1982, HRS denied that application. HRS has taken the position that the challenged rule is applicable to that application and under the rule, there is no need for additional medical-surgical beds in District 6. DEVELOPMENT OF THE RULE As early as 1976, the Department began its effort to identify alternative approaches to acute care bed need determinations and at that time, the Department contracted with a consultant to review and assess various bed need approaches. An analysis was made of the then current methods or models used for projecting short-term bed requirements. This analysis was provided to a Bed Need Task Force which had been formed to consider appropriate bed-need methodologies. In early 1977, the Bed Need Task Force was appointed to review current bed-need methodologies and to recommend necessary changes to the methodologies in use. The Bed Need Task Force was formed for the primary purpose of recommending a general approach to be used in bed need determinations and to identify key policies to be followed in development of an acute care methodology for the State of Florida. This task force was composed of a variety of representatives from various groups including local planning agencies, hospital associations, the statewide health council, and the health industry itself. An outside consultant was used by the Task Force to aid them in their review. In February 1978, the Final Report of the Bed Need Task Force was issued. Subsequent to the Bed Need Task Force, the Task Force on Institutional Needs, (hereafter TFIN) was established. The purpose of the TFIN was to present a recommended methodology and policies related to that methodology for purposes of the initiation of implementation activities. The TFIN issued its final report in December 1978. This report contained a number of policies to be used in conjunction with the methodology. These policies stated that: The population composition should not include tourists but should include seasonal residents who reside in Florida greater than six months and these migrants who were in Florida on April 1, the date of each census. The methodology should deal with the differences in need for acute care services by age and sex. The use rates utilized should be based on a statewide normative standard. These standards should be based on statewide use rates for which data can be obtained and should be subject to periodic review. Methodology should eventually address need for various levels of care. Need determinations should be for specific geographical areas, the area of the Health Systems Agency (hereafter HSA). These areas are new the HRS districts. Patient flows should be taken into account but should not be binding on future determination in terms of expansion or addition of new facilities. The hospital service area concept should be rejected and a temporal accessibility criterion utilized. At the HSA level, a minimum volume standard should be developed for each service. The standards within the methodology should be applied uniformly all over the state in all HRS districts or service areas. The standards should not be applied to individual facilities. In terms of role and responsibility, the Department of HRS should be responsible for the need methodology with the local health agencies having responsibility for the facilities configuration model for its district. Having developed a recommended methodology and a set of policies to be used in conjunction with that methodology, the Department contracted with Research Triangle Institute (RTI) to develop a sampling design to be used in the data collection activity so that the methodology could be operationalized. A second contract was let to implement the data collection necessary to the methodology and to develop statewide estimates based on the data collected. The 1978, 1979, 1980, and 1981 State Health Plans each discussed the objective of achieving a certain ratio of nonfederal licensed acute care beds per 1,000 population in Florida. The 1981 State Health Plan adopted a goal to ensure a supply of licensed nonfederal, short-stay beds (including psychiatric beds) in Florida equivalent to 4.24 beds per 1,000 residents. Also, in 1981, the State Health Council adopted a "normative" bed-to-population ratio of 4.24 beds per 1,000 population. "Normative" means a statement of what "ought to be" as opposed to some historical standard. In the Spring of 1982, HRS actually began drafting the rule and in the September 3, 1982, issue of the Florida Administrative Weekly, HRS gave notice of its intent to adopt Rule 10-5.11(23) relating to acute care hospital beds. That notice also set a time, date and place for a public hearing on that proposed rule. Before a public hearing on that proposed rule was held, however, Petitioners Humana of Florida, Inc., Humedicenters, Inc., and Humhosco, Inc., and others, challenged it in D.O.A.H. Case 82-2561R. The intervenor in this proceeding was also an intervenor in that challenge. A public hearing on that initial rule was held September 20, 1982. Neither the Petitioner nor the Intervenor made any statement at the public hearing in opposition to the rule or in opposition to the expected economic impact. No written comment was submitted by these two parties following the public hearing. At the public hearing, there were eight oral presentations made by interested parties and 14 written comments were received. From the time the initial rule was promulgated until the time it was finally adopted, there were numerous other comments that were received. Two sets of changes were subsequently made to the proposed rule which reflected discussion and input the Department received both from the public hearing process and from challenges to the rule. The first set of changes was published April 1, 1983 in the Florida Administrative Weekly. Several issues were raised which were dealt with by the Department. Psychiatric bed need was removed and placed in a separate rule, the methodology was incorporated into the rule, language regarding the use of the formula was clarified, data updating provisions were added, a provision was made to consider peak demand, the district utilization adjustment procedure was changed and subdistrict bed allocation procedures were changed. Although there was also objection to the use of statewide use rates, the Department because of strong policy considerations, made no change in the statewide use rates. These changes were made in response to the comments at the public hearing, written comments submitted, and other input from the health industry. After the Department published its first set of changes to the initial rule, but before the publication of the second set of changes, Petitioners voluntarily dismissed their rule challenge in D.O.A.H. Case No. 82-2561R. The second set of changes was published in the Florida Administrative Weekly on May 13, 1983. At the time of their voluntary dismissal of their rule challenge and prior to the adoption of the challenged rule, Humana, Inc., and its subsidiaries, Humedicenters, Inc. and Humhosco, Inc. were aware of the economic impact the proposed rule would have on their operations in Florida. THE RULE Rule 10-5.11(23), Florida Administrative Code, is founded on a basic methodological approach to projecting the need for health care services which is commonly accepted and utilized among health planners. In its most generic form, this methodological approach may be expressed as follows: The population of the geographic planning unit is projected for some point in the future (usually five years); i.e., how many people will live in the planning area at the end of five years. The projected population is multiplied by a utilization rate in order to project how many days of hospital care the projected population is likely to need during the target year. A utilization rate is the measure by which hospital services are consumed within a given geographic entity and is determined by dividing the total number of hospital patient days in a year in a given area by the total population of that area for that year. Restated, a utilization rate is equivalent to the ratio of the number of days of care received by the population to the population as a whole. As noted above, multiplying a projected population by a utilization rate produces the projected number of-patient days during the target year. This number is then divided by 365 to derive an average daily census i.e., the average number of patients which one would expect to be in area hospitals on any given day of the year. The average daily census is then converted into beds by dividing the average daily census by an optimal occupancy standard for a given service. The optimal occupancy standard contemplates that hospitals cannot and should not operate at 100 percent occupancy in that some reserve capacity is necessary to meet seasonal or even weekly fluctuations and variations in patient characteristics and mix. The product of this generic methodology is the total number of beds needed in the planning area at the end of the planning horizon. Application of the methodology set forth in the rule is basically a three-step process. The initial step is the forecast of the District Bed Allocation (DBA), which is accomplished as follows: The population of each Department service district is forecast by age cohort (a cohort is a given subgroup of the total population) five years into the future. The age cohorts utilized in the rule are: (1) under 65; (2) 65 and older; (3) under 15; and (4) females 15-44. Total patient days are then forecast for each age cohort. Patient days are forecast by applying statewide, service-specific discharge rates and average lengths of stay to the age cohort projections. The specific hospital services included in the Rule are medical/surgical, intensive care, coronary care, obstetrical and pediatric. Projected patient days for persons age 65 and older are adjusted to account for the migration flew of elderly patients both to and from Florida and to and from Department districts within Florida. This flew adjustment is based upon historical migration patterns derived from 1977 Medicare data. The service-specific patient days by age cohort is then converted to projected bed need by dividing each component by 365 to arrive at an average daily census and then by applying a service-specific occupancy standard to derive the total bed need for each given service and age cohort. The sum of the bed need forecasts for each service/cohort is the DBA. The second step is an adjustment to the DBA under certain circumstances based on the projected occupancy of the beds allocated to a given district. This is known as the Adjusted District Bed Allocation (ADBA), and it is composed of the following steps: A Projected Occupancy Rate (FOR) for each district is calculated by multiplying the entire forecast population of the district by a Historic Utilization Rate (HUR), which is derived over the most recent three year period. The product is then divided by 365 times the DBA. The product of this computation is the POR which would result if the district contained the number of beds projected by the DBA and the population continued to utilize hospital services in accordance with the HUR. If the POR is less than 75 percent, the ADBA is determined by substituting a 90 percent occupancy standard in the formulation of DBA instead of the service-specific occupancy standards which would otherwise be applied (ranging from 65 percent for obstetrics to 80 percent for medical/surgical). If the POR is greater than 90 percent, the ADBA is determined by substituting a 75 percent occupancy standard in the calculation of DBA instead of such service- specific standards. In other words, when the POR is less than 75 percent, a a downward bed need adjustment results. When POR is greater than 90 percent, an upward need adjustment results. This part of the methodology is used to make an adjustment for those districts which for whatever reason lie outside the range of-expected utilization. The 75 percent and 90 percent thresholds are based upon an ideal operating range of 80 to 85 percent. The actual standard utilized by HRS is 80 percent, at the low or conservative end of that range. The third step involves the calculation of a Peak Demand Adjustment (PDA) which is accomplished as fellows: The average daily census for a given district is calculated by dividing the total number of projected days by 365. Peak demand is calculated by adding the average daily census to the square root of tic average daily census multiplied by a given standard deviation (1.65 for low peak demand districts or 2.33 for high peak demand districts) referred to as a "Z" value in the methodology: Peak demands utilized as the projected district acute care bed need if it is greater than the bed need for the district reflected by DBA or ADBA as calculated in steps one and two above. The purpose of this peak demand adjustment is to ensure that each district will have sufficient bed capacity to meet service-specific peak demands. Each subdistrict is to be identified by the Local Health Council as having high or low peak demand. These designated as high peak demand utilize a "Z" value; of 2.33 in the methodology in order to assure sufficient capacity to meet 99 percent of their peak capacity. These subdistricts designated as low peak demand areas utilize a "Z" value in the methodology of 1.65 and this assures sufficient total bed capacity to meet 95 percent of the peak demand. The rule also includes an accessibility standard which provides that in each district acute care hospital beds should be available and accessible to 90 percent of the residents within 30 minutes driving time and 45 minutes driving time in urban and rural areas respectively. The rule provides for periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors as data becomes available. The historical use rate used in arriving at the adjusted district bed allocation is updated annually through the use of the most recent three years. Although the rule provides that a Certificate of Need will not "normally" be granted unless need is shown to exist under the methodology in the rule, this need calculation is not determinative of the issue of whether a Certificate of Need should be granted. The rule also provides that even if no bed need is shown to exist under the methodology a Certificate of Need may still be granted if the criteria, other than bed need, under Section 381.494(6)(c), Florida Statutes, demonstrate need. Likewise, the rule states that a Certificate of Need may be denied, where bed need is shown to exist under the rule, but other criteria in Section 381.494(6) are not met. The rule also specifically permits the approval of additional beds in a subdistrict where the accessibility requirements of the rule are not being met. Additional beds may also be approved where there is a need in a subdistrict but a surplus in the district as a whole. The rule utilizes population projections by age cohort in determining the number of hospital patient days by service which will be needed five years in the future. These population projections are based upon the projections made by the Bureau of Economic and Business Research (hereafter BEBR) at the University of Florida. BEBR makes three projections--low, midrange, and high-- for each year. The rule utilizes the midrange projection and the inherent margin of error in these projections is typically plus or minus 5 percent. Although these projections have systematically been low in the past, BEBR now uses a different method which utilizes six different techniques in arriving at ten projections which are then averaged. The flow adjustment used in arriving at the DBA is based upon 1977 MEDPAR data. This data was for Medicare recipients 65 years of age and elder and therefore the flow adjustment is only for that portion of the population over 65 years of age. No data was available from which flow factors could be determined for age cohorts or groups from o to 64 years of age. No data for either age group was available after 1977. ECONOMIC IMPACT STATEMENT An economic impact statement (EIS) was prepared for the challenged rule. The EIS contains an estimate of the Department's printing and distribution cost. The EIS was-- prepared by Phillip Rond, an employee of the Department of Health and Rehabilitative Services. In preparing the EIS, Mr. Rond did a comparison of the health system plans (HSP) with the results under the rule. This comparison was for projected need for the year 1987 and was done for each HRS District. The comparison generated the following results: HRS DISTRICT HSP RULE 1 0 0 2 3 0 3 0 0 4 0 0 5 0 0 6 0 0 7 0 0 8 0 87 9 0 137 10 0 0 11 0 0 3 224 The need calculations under the rule do not change substantially the short term projections under prior methodologies. The rule calculations for 1987 showed need for 221 more beds than was shown to exist under the methodologies used in the health systems plans. Mr. Rond also reviewed the background literature that led to the analysis contained in the state health plan as well as the reports from the Hospital Cost Containment Board. With regard to the rule's affect on competition and the open market the EIS notes that the rule will restrain the development of costly excess acute care bed capacity and in doing so will foster cost containment. Where need is indicated by the methodology or other criteria within the rule then competitive new beds will be allowed. In terms of economic benefit to persons directly affected the EIS points out that there will be a positive impact for some facilities and a negative impact for others. The rule will negatively impact facilities which wish to expand or add new beds if no need for those beds exists under the methodology of the rule. Existing facilities, however, will not be exposed to expansion of the bed supply in those districts where no need for additional beds exist. This benefit will be particularly positive for those facilities providing indigent care. It is a general estimate that operating costs for a health facility will be approximately 22 cents for each dollar of capital expenditure. The rule is intended to support a supply of beds to meet need while preventing excess or unused beds, thus reducing annual operating costs. The EIS notes that by reducing operating costs, the operating cost per bed will be lower and should result in a slower escalation of costs to consumers as well as third party payers such as insurers, taxpayers, and employers. Prior to adoption of the challenged rule, the Department considered and evaluated each of the factors listed in Section 120.54(2), Florida Statutes. There has been traditionally in Florida a surplus of acute care beds. The 1977 medical facilities plan indicated a surplus of beds ever need of 7,253 beds. Using the rule methodology and projecting to 1987, there is a surplus ? 5,562 beds and for 1988, a surplus of 4,044 beds. In both 1980 and 1982, there were significant numbers of licensed beds in the state which were not in use. In 1980, there were 4,923 beds out of the total bed stock in acute care hospitals not in use. This was about 10.7 percent of the total licensed in bed stock. In 1982, there were 5,093 or about 10.6 percent of such beds licensed and not in use. In 1976, the occupancy rate for acute care hospitals in Florida was 60.3 percent. In 1982, the occupancy rate in such facilities was 67 percent. The target occupancy rate under the challenged rule and its methodology is 80 percent.
The Issue This case involves the issue of whether the certificate of need law applies to Whitehall Boca's intended conversion of 100 beds in an adult congregate living facility to skilled nursing beds. The second issue is, in the event that it is determined that the certificate of need law does apply, whether Whitehall Boca is entitled to convert a limited number of its adult congregate living facility beds to skilled nursing beds without the need for obtaining a certificate of need in accordance with Section 381.494(1)(d), Florida Statutes. At the final hearing Petitioner called Carol J. Wortham, Steve Mulder, and Jeffrey W. Smith. The Respondent called as its only witness Gene Nelson. The Petitioner offered and had admitted into evidence seventeen exhibits. The Respondent offered and had admitted into four exhibits. Subsequent to the final hearing, the parties submitted proposed findings of fact and conclusions of law for consideration by the Hearing Officer. To the extent that those proposed findings and conclusions of law are inconsistent with this Recommended Order, they were rejected by the Hearing Officer as unsupported by the evidence or as unnecessary to the resolution of this cause.
Findings Of Fact Whitehall Boca is a 187-bed health care facility located in Boca Raton, Palm Beach County, Florida. Sixty-nine (69) of Whitehall Boca's beds are licensed by the Department of Health and Rehabilitative Services as skilled nursing beds in accordance with Chapter 400, Part I, Florida Statutes. One hundred eighteen (118) of Whitehall Boca's beds are licensed by the Department as an adult congregate living facility (hereafter ACLF) in accordance with Chapter 400, Part II, Florida Statutes. Whitehall Boca is seeking to convert 100 of its adult congregate living facility beds to skilled nursing beds. Whitehall Boca holds two separate licenses for the nursing home beds and for the ACLF. Whitehall Boca was opened on December 17, 1982, and was the culmination of the owner's goal of attempting to build the finest nursing home that has ever been built. The Whitehall Boca facility has received a superior rating from the Department of Health and Rehabilitative Services' office of licensure. The cost of construction of Whitehall Boca was approximately five and one-half million dollars. The funds for this construction were obtained from 100 percent private funds, which was arranged by Oak Park Trust Bank in Illinois and invested capital provided by the Mulder family. The loans were not guaranteed by the federal government or any governmental entity whatsoever. The 100 existing ACLF beds which Petitioner seeks to convert fully comply with all applicable federal, state and local license requirements for skilled nursing beds in their present condition. Only a few ancillary items such as medicine carts would be needed in order to make the conversion. Such items would involve a capital expenditure of no more than $5,000 to $6,000. The Respondent conceded at the formal hearing that cost of conversion is not an issue. It has been the policy of Whitehall Boca since 1955 not to accept federal funds nor to accept Medicaid or Medicare patients. Whitehall Boca does not accept Medicare and Medicaid patients in any of its homes because they offer an elite type of nursing home care which is not offered in other existing nursing homes. Whitehall Boca did not obtain its initial certificate of need for the 69 skilled nursing home beds by the usual statutory procedure. Whitehall Boca purchased Health Care Corporation, the entity who had originally obtained the certificate of need. However, after Whitehall Boca obtained the certificate of need, it applied for a license from DHRS and specifically informed them in its application that it would not accept Medicare or Medicaid patients. Whitehall Boca, an Illinois limited partnership, owns and operates the 187-bed nursing home complex in Boca Raton, Florida. At present, this is the only home owned by the Petitioner in the State of Florida. Whitehall Boca is owned by a father and a son, Paul and Steve Mulder. They own three nursing homes in Chicago, Illinois. Daily rates for the skilled nursing home beds at Whitehall Boca are $68 per day for three persons to a room, $80 per day for two persons to a room, with private rooms beginning at $125 per day. These rates are substantially higher than most other nursing homes in the area. Whitehall Boca caters to a very small segment of the population that is able to afford the luxuries and amenities available at Whitehall Boca. For most residents who have chosen the luxury accommodations at Whitehall Boca, the only alternative which would provide comparable care and maintenance of their lifestyle, would be private duty nursing arrangements at home. In the alternative to a total exemption from certificate of need review, Whitehall Boca contends it is entitled to convert 18 of its ACLF beds to skilled nursing beds without CON review pursuant to the provisions of Section 381.494(1)(d), Florida Statutes. DHRS does not consider an ACLF a health care facility and contends therefore that Section 381.494(1)(d) is not applicable to Petitioner's request.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That a final order be entered by the Department of Health and Rehabilitative Services denying an exemption for Petitioner to convert ACLF beds to skilled nursing home beds and requiring that such a request be subject to review under Sections 381.493, et seq., Florida Statutes. DONE AND ENTERED this 6th day of July, 1984, at Tallahassee, Florida. MARVIN E. CHAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of July, 1984. COPIES FURNISHED: Jean Laramore, Esquire G. Steven Pfeiffer, Esquire Laramore & Clark, P.A. 325 North Calhoun Street Tallahassee, Florida 32301 Douglas L. Mannheimer, Esquire Culpepper, Turner and Mannheimer Post Office Drawer 11300 Tallahassee, Florida 32301-3300 David H. Pingree, Secretary Department of Health and Rehabilitative Services 1321 Winewood Boulevard Tallahassee, Florida 32301
The Issue Whether Rule 59C-1.038, the acute care bed need rule, is an invalid exercise of delegated legislative authority. Whether this rule challenge should be dismissed as an untimely attack on a published fixed need pool.
Findings Of Fact In August 1994, the Agency for Health Care Administration ("AHCA") published a numeric need of zero for additional acute care beds in AHCA District 9, Subdistrict 5, for southern Palm Beach County. Pursuant to Subsection 408.034(3), Florida Statutes, AHCA is the state agency responsible for establishing, by rule, uniform need methodologies for health services and facilities. In September 1994, NME Hospitals, Inc. d/b/a Delray Community Hospital, Inc. ("Delray") applied for a certificate of need ("CON") to add 24 acute care beds for a total construction cost of $4,608,260. AHCA published its intent to approve the application on January 20, 1995, in Volume 21, No. 3 of the Florida Administrative Weekly. By timely filing a petition, Bethesda Memorial Hospital, Inc. ("Bethesda") challenged AHCA's preliminary decision in DOAH Case No. 95-0730. Bethesda is also located in AHCA District 9, Subdistrict 5. On May 24, 1995, Bethesda also filed the petition in this case challenging Rule 59C-1.038, Florida Administrative Code, the acute care bed need rule. Pursuant to the acute care bed need rule, AHCA's August 1994 notice published its finding that zero additional acute care beds will be needed in the southern Palm Beach County subdistrict by July, 1999. The data, formulas, and calculations used in arriving at the number zero were not published. AHCA and Delray argue that the publication put persons on notice to inquire into the population data, occupancy rates, or the calculations leading to the published need number. An AHCA rule bars a person from seeking, and AHCA from making, any adjustments to the fixed need pool number if the person failed to notify AHCA of errors within ten days of publication. Still another rule defines "fixed need pool" as the " . . . numerical number, as published. " Bethesda is not contesting and, in fact, agrees that the fixed need pool number as published, zero, is correct. Using AHCA's definition of the fixed need pool, Bethesda's challenge is not barred because it failed to notify AHCA of an error in the fixed need pool number within 10 days of publication. Bethesda is challenging as irrational and invalid subsections (5), (6), and (7) of the acute care bed need rule. Subsection (5) directs the local health councils to determine subdistrict bed need consistent with the methodology for determining district bed need. Under that provision, total projected patient days of acute care needed in a district is calculated by adding together the projected patient care days needed in medical/surgical, intensive care, coronary care, obstetric, and pediatric beds. Each of these separate bed need projections is computed, in general, by multiplying projected population in the district for the appropriate age or gender group times a factor which is the product of the statewide discharge rate and the average length of stay for that particular type of care. After the total projected acute care patient days for district residents is computed, the number is adjusted to reflect historical patient flow patterns for acute care services, for out-of-state residents served in the district, for residents of other districts served in the district, and for residents of the district served outside the district. The rule includes specific percentages to apply for each patient flow group for each of the eleven districts. After the total number of beds needed in the district is derived, that number is decreased by the number of existing licensed or approved beds to get the number of additional acute care beds needed in the district, if any. Bethesda is challenging subsections (7)(a), (b), and (c) of the acute care rule, which authorize adjustments to the calculations from subsections (5) and (6) to achieve desired occupancy levels, based on historic utilization of acute care beds in a district. Bethesda is also seeking a determination that subsections 7(d) and (e) are invalid. Each of those subsections of the rule refer to (5)(b), although AHCA's expert witness testified that they should refer to (6)(b). Subsection (7)(d) requires at least 75 percent occupancy in all hospitals in the district before new acute care beds normally are approved, regardless of the net need projected by the formulas. Subsection (7)(e) allows approvals under special circumstances if net need is projected by the formulas and the applicant facility's occupancy rate equals or exceeds 75 percent. Subsection (7)(e), the provision directly related to the Delray application, is as follows: (e) Approval Under Special Circumstances. Regardless of the subdistrict's average annual occupancy rate, need for additional acute care beds at an existing hospital is demonstrated if a net need for beds is shown based on the formula described in paragraphs (5)(b), (7)(a), (b), (c), and (8)(a), (b), (c), and provided that the hospital's average occupancy rate for all licensed acute care beds is at or exceeds 75 percent. The determination of the average occupancy rate shall be made based on the average 12 months occupancy rate made available by the local health council two months prior to the beginning of the respective acute care hospital batching cycle. Phillip C. Rond, III, Ph.D., was the primary architect of the rule, beginning in 1981. The rule was initially published in 1982, and adopted in 1983. Constants in the rule formulas, including use rates, average lengths of stay, occupancy standards and patient flow patterns were taken from a 1979 survey of some state hospitals. Because data used for the constants in the formulas was expected to change, subsection (6) also provides, in pertinent part, that: Periodic updating of the statewide discharge rates, average lengths of stay and patient flow factors will be done as data becomes available through the institution of statewide utilization reporting mechanisms. Patient flow factors were updated in March 1984 to reflect a change in the realignment of counties in Districts 5 and 8. No other constants have been updated since the rule was adopted in June 1983. More current data is available. The Hospital Cost Containment Board ("HCCB") began collecting statewide hospital inpatient discharge data in the fourth quarter of 1987, which became available by the fall of 1988. AHCA now collects the data. Using the rule, the projected net need for acute care beds in 1999 in District 9 is 1,442 additional beds. By contrast, with the factors updated by Dr. Rond, the projected net need is a negative 723 or, in other words, District 9 has 723 more acute care beds than it will need in 1999. The updated formulas show a need for a total of 3,676 beds in District 9, which already has 4,399 licensed or approved acute care beds. Since 1983, hospital utilization has declined in both rates of admissions or discharges, and in average lengths of stay. Although the occupancy goals in the rule are 75 to 80 percent, depending on the type of hospital service, the occupancy rate achieved by using the number of beds projected by the rule methodology is 45 to 52 percent. The statewide occupancy rate in acute beds is approximately 50 percent in 49,215 licensed beds. The formulas in the rule show a statewide net need for 6,000 more beds in 1999, but updated constants in the same formulas result in a total statewide need for approximately 36,000 acute care beds in 1999, or 13,000 fewer beds than currently exist. Statewide utilization of acute care hospital beds declined from 1187.2 days per 1000 population in 1983 to 730.5 days per 1,000 in 1993, despite increases in the percentage of the elderly population. By 1987, AHCA's predecessor realized that the need methodology in the rule was grossly overestimating need and inconsistent with its health planning objectives. Subsection (7)(d) was added to the rule to avoid having a published fixed need based on the outdated methodology in subsections (5), (6) and 7(a)- (c). The occupancy data is also, as the 1987 amendment requires, that reported for the most recent 12 months, available 2 months before the scheduled application cycle. In August 1994, AHCA published a numeric need of zero for District 9, Subdistrict 5, rather than 1,442, the calculated net need predicted by the formulas in the rule, because all subdistrict hospital occupancy rates did not equal or exceed 75 percent. Elfie Stamm of AHCA, who is responsible for the publication of fixed need pools, confirmed that the 1987 amendment to the rule was an efficient and cost-effective way to avoid publishing need where there was no actual need. She confirmed Dr. Rond's conclusions that the formulas are no longer valid and produce excessive need numbers, as in projecting a need for 6,000 or 7,000 more acute care beds in the state. She also confirmed that none of the constants in the formula have been updated as required by subsection 6. Ms. Stamm claims that the information needed to update the formulas cannot be obtained easily from any statewide utilization reporting mechanism. One problem, according to Ms. Stamm, is the possibility of including patients in acute care beds with comprehensive rehabilitation, psychiatric, or substance abuse problems, although it is not lawful for acute care providers to place patients with these primary diagnoses in licensed acute care beds and all data bases have some miscoding of diagnoses. She also testified that some factors required in the formulas are not included in HCCB data base. In addition, she testified that AHCA is in the process of filing a notice to repeal the acute care bed need rule. The filing of the notice of repeal, published in Volume 21, Florida Administrative Week, pp. 4179-4180 (6/23/95) was confirmed by Bethesda's Request For Official Recognition, which was filed on July 20, 1995, and is granted. Ms. Stamm also noted that rules for other need-based health services have facility-specific special circumstances provisions, which are not tied to numerical need, otherwise the special circumstances are not really facility- specific. Need rules make no sense, according to Ms. Stamm, without an exception in the absence of a determination of need. Subsection (7)(e) of the acute care rule requires a finding of numeric need and a 75 percent occupancy rate at the applicant facility. Ms. Stamm's records indicate that AHCA's predecessor adopted the facility-specific provisions tied to net need at the same time it adopted the 75 percent average district occupancy standard to overcome the problems with the net need formula. AHCA asserts that the admittedly irrational need methodology when combined with the 1987 amendment achieves a rational result. Because the need methodology always over estimates numeric need, facilities exceeding 75 percent occupancy have an opportunity to demonstrate special circumstances. Daniel Sullivan, Delray's expert, also testified that problems exist in extracting acute care bed from specialty bed utilization data, in hospitals which have both. He also agreed with Ms. Stamm that the 1987 amendment corrects the erroneous projections of the formula to give a rational outcome from the rule as a whole when not all hospitals in a subdistrict equal or exceed 75 percent occupancy and when one hospital, over 75 percent occupancy, attempts to establish a special circumstance, despite the fact that the need methodology itself is always wrong in projecting numeric need. Ms. Stamm testified that one district is approaching 75 percent occupancy in all hospitals. Mr. Sullivan testified that, if and when that occurs, then the formula is intended to, but does not, reflect the number of additional beds needed. An alternative methodology is required to determine bed need. AHCA, with its responsibility for the data base formerly collected by the HCCB, receives discharge data and financial worksheets from every hospital in the state. The claim that AHCA cannot update the formulas because its data may be unreliable is rejected as not credible. The data now available is more reliable than the 1979 data used in developing the rule, which was not collected from a formalized statewide reporting system, but from a sample of hospitals. The claim that AHCA cannot use its data base from mandatory statewide reporting mechanisms to extract the data needed to update the formulas is also rejected. The rule contemplated ". . .the institution of statewide utilization reporting mechanisms." Dr. Rond's work to update the formulas before the final hearing began on May 23, 1995. Dr. Rond used a total of approximately 1.5 million acute care discharges from the AHCA (formerly, HCCB) data base for the 1992 calendar year. At the time of the final hearing, Dr. Rond had not separated days of care for medical/surgical, intensive and coronary care. The data can be taken from hospital financial data, including detailed budget worksheets which are submitted to AHCA. Separate data are anticipated in the formula because the computation of need for the different bed categories is based on different occupancy goals. For medical/surgical and intensive care beds, the goal is 80 percent occupancy, but it is 75 percent for coronary care for persons age 0 to 64. For persons 65 and older, the rule applies a combined occupancy standard of 79.7 percent for all three bed categories, which assumes that approximately 4 percent of the combined days of older patients will be spent in coronary care. Dr. Rond reasonably applied the 79.7 percent occupancy standard to the combined days for persons under 65, in arriving at the total district bed need for 3,676 beds. To check these results and to assume a worse case scenario of all patient days attributable to coronary care beds, for which more beds are needed to maintain a lower occupancy, Dr. Rond worked the formula using 75 percent occupancy as the goal for medical/surgical, intensive and care coronary care beds combined. Although the base number increased by 100, the calculations and adjustments in the rule yielded the same number of total acute care beds needed in the district, 3,676. That reliably confirms that the maximum number of acute care beds needed in District 9 is 3,676 by 1999. AHCA could use its data base to update formulas and achieve rational results in the rule by using the hospital financial data to distinguish coronary care days for patients 0-64 to include in the formula, or by using a rational blended occupancy standard in a rule amending the existing methodology. AHCA demonstrated that the 1987 amendment overrides the exaggerated numeric need number to yield a rational published fixed need pool in the absence of 75 percent occupancy in all acute care beds in a subdistrict. AHCA also demonstrated that because the projected need is always excessive under the formula, hospitals are allowed to demonstrate special circumstances, although it is absurd to include a requirement of numeric need in a provision for special circumstances. AHCA's claim that the excessive need projection is, therefore, irrelevant is rejected. Net need under the rule formula fails to give any rational indication of the number of beds needed when all hospitals in a subdistrict reach 75 percent occupancy.
The Issue Whether CON 8241, Palm Beach Regional's application to convert its 200 bed acute care hospital to a 60 bed long-term care hospital should be granted or denied?
Findings Of Fact The Parties The applicant in this case is The Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital. A subsidiary of Columbia Hospital Corporation, ("Columbia,") Palm Beach Regional is a licensed general acute care hospital with 200 beds located in Palm Beach County, AHCA District 9. Palm Beach Regional's license is issued pursuant to Chapter 395, Florida Statutes, the chapter of the Florida Statutes entitled, "Hospital Licensing and Regulation." The agency is "designated as the single state agency to issue ... or deny certificates of need ... in accordance with the district plans, the statewide health plan, and present and future federal and state statutes." Section 408.034(1), F. S. Integrated is a licensed 120-bed skilled nursing facility, also known as a long-term care facility, located in Palm Beach County, AHCA District 9. Its license is issued pursuant to Chapter 400, Florida Statutes, the statute entitled "Nursing Homes and Related Health Care Facilities." Columbia Hospital Corporation The parent company of petitioner, Columbia has a stock market capitalization of between $15 and $20 billion and enjoys a profitability of over $1 billion per year. It owns approximately 340 hospitals, well over 100 ambulatory surgical centers, and an extensive number of home health agencies. As to be expected of a Fortune 500 company, Columbia generates substantial annual revenues. In 1994, for example, the annual revenues generated by Columbia exceeded $17 billion. Columbia also lays claim to being the largest hospital system in the state. It has five divisions with approximately 60 hospitals in its "Florida Group," the organizational title for its Florida operations. The net revenues of the Columbia Florida Group is approximately $4.5 billion. One of five divisions of Columbia's Florida Group, the South Florida Division is a $1.2 billion operation. The division encompasses Dade, Broward and Palm Beach Counties and consists of 15 hospitals, six surgery centers, and one dozen home health agencies. The South Florida Division, of course, includes Palm Beach Regional. Background to the Application Palm Beach Regional was purchased by Columbia shortly after Columbia had purchased JFK Hospital, a 300-bed tertiary hospital approximately three miles from Palm Beach Regional. In August of 1995, as a business decision, Columbia consolidated the operations of the two facilities. The consolidation resulted in a patient census drop at Palm Beach Regional. Shortly thereafter, with the permission of the agency, Palm Beach Regional ceased operations at its emergency room. The result of the consolidation and limitation of the services offered was that it cost only about $100,000 a month to keep Palm Beach Regional running with its small census. Even with the small census, and the relatively low monthly operational expense, the operational expense was more than $1 million per year. In June of 1996, Palm Beach Regional and the agency entered a stipulation which authorized the hospital to suspend the acute care operations in contemplation of this proceeding. Palm Beach Regional's hospital-based skilled nursing unit has since been transferred. Palm Beach Regional is now closed and empty. The reason Palm Beach Regional had been kept operating at all after the consolidation with JFK was to preserve the opportunity to convert the license as proposed in the application. The Application Certified for accuracy on September 18, 1995, under the signature of its authorized representative, Robert L. Newman, CEO of Columbia/HCA, South Florida Division, the application was submitted to the agency bearing a date of September 20, 1995. The application describes what it seeks in the section titled "Project Summary" as follows: Hospital Corporation of Lake Worth (Palm Beach Regional) proposes in this Certificate of Need Application to convert 60 acute care hospital beds to 60 long-term acute care hospital beds and to delicense 128 existing acute care beds. (At a later date the existing 12 skilled nursing beds will be located to another Columbia/HCA hospital in District IX.) Palm Beach Regional Exhibit No. 1, AHCA Form 1455A, Oct 92, AHCA 4600-0005 Aug 93. The transfer of the 12 skilled nursing beds has already occurred and therefore is not at issue in this proceeding. Nor is the delicensure of the 128 beds really at the heart of the agency's denial and Integrated's opposition. In contrast, what is contested is the conversion of the 60 acute care hospital beds to 60 long- term acute care hospital beds. Such a conversion would make Palm Beach Regional a long-term acute care hospital. Long-term Acute Care Hospitals Referring to a hospital as both "long-term" and "acute," is confusing. The two terms have divergent meanings both in terms of average length of stay and the traits of the illness suffered by the acute and the long-term patient. In the context of hospitals, "long-term" refers to a patient with an average length of stay of greater than 25 days. By comparison, the acute patient's stay is typically much less than 25 days, with the average length of stay being between 5 and 6 days. As is the patient in need of acute care, the typical long-term hospital patient is very ill. The difference in the type of illness suffered by the acute care patient as opposed to the long-term patient, however, lies in other characteristics. Unlike the acute care patient, the long-term patient is not in the urgent, emergent or desperately critical state of patients in the acute care setting. The two terms, "long-term" and "acute" have been used together with reference to the type of hospital to which Palm Beach Regional proposes to convert because of the history of the long- term care hospital’s development. Originally in Florida, long-term hospitals were licensed as acute care hospitals and were referred to, therefore, as "long-term acute," hence the combination of terms with disparate meanings. In the context of a study conducted by the Hospital Cost Containment Board, however, the agency examined the issue of whether long-term hospitals should be subject to CON review as long-term hospitals apart from other acute hospitals. As a result, long-term hospitals came to be reviewed in their own separate category under certificate of need review, subject to the same licensure requirements as a specialty acute care hospital. Because they had been licensed earlier as acute care hospitals, the term "acute" was carried over into the new category. At present, there is a recommendation to refer to long-term acute care hospitals simply as "long-term hospitals" to clear up any confusion caused by the terminology. This recommendation will be followed for the most part in the remainder of this order when reference is made to acute and long-term facilities and acute and long-term care. Long-term Care Hospital-based long-term care is a distinction established in federal Medicare regulations that describes a hospital with patients having an average length of stay of greater than 25 days. The distinction allows an exclusion from the Medicare prospective payment system so that reimbursement is received by the long-term hospital on the basis of cost. The distinction is of great import financially because of the distinction between "cost-based" Medicaid and Medicare reimbursement systems and another payment system used by Medicaid and Medicare: the prospective payment system. Before the prospective payment system was instituted, hospitals generally were well utilized, in fact, “filled to the brim.” The high utilization was due to the "cost-based" reimbursement system which contained a financial incentive for the hospital to keep patients in the hospital. Under the cost-based system, the more a hospital spent, the more reimbursement it would receive from Medicare and Medicaid. The prospective payment system was instituted to save taxpayers the high cost of the cost-based reimbursement system. Under the prospective payment system, the hospital receives a flat fee for Medicare and Medicaid patients depending on the diagnostic category, or diagnostic-related group, ("DRG,") into which falls the illness treated. The flat fee is figured on the basis of average length of stay for that diagnostic category. Under this system, unlike the cost-reimbursed system, the hospital receives the same reimbursement for Medicare and Medicaid patients who stay for less than the average length of stay assigned to the patient's DRG as for those who stay longer. With regard to a patient who stays in the hospital longer than the average length of stay for the patient's DRG, the hospital, in many cases, not only profits less the longer the patient stays but begins to lose money at some point in the stay. If the average length of stay for an appendicitis patient is four days, for example, then the hospital profits more in the case of an appendicitis patient who stays only two days because it has incurred only two days of costs instead of the expected four days of costs. In the case of another appendicitis patient, who stays longer than the average length of stay, the hospital makes less money and reaches the point eventually in some cases where the hospital actually loses money for treating the patient if the patient stays long enough. Medicare provides additional payments for both "day-outliers" and "cost-outliers," but not enough to prevent financial pressure on hospitals to discharge acute patients as soon as possible. The prospective payment system has succeeded in forcing hospitals to operate more efficiently; the average utilization of hospitals has declined dramatically. Today, about half of the hospital beds in Florida on any given day go unused. The system does not have the same effect on long-term hospitals; they are exempt from the prospective payment system. Instead, long-term care hospitals are reimbursed under a cost-based system. A long-term hospital well located geographically is particularly attractive to a large hospital system, such as Columbia. Not only will it likely be a financial success in its own right but it will assist Columbia’s sister acute care hospitals in relieving them of patients too sick to be discharged to a subacute setting yet finished with the acute episode which required the acute care hospital’s service in the first place. Development of Long-term Care Hospitals in Florida The first long-term care hospital was instituted in Florida in the 1980's. Fairly soon thereafter there were three long-term care hospitals in Florida, but then there was a lull in the attempt to establish long-term care hospitals. With the advent of the prospective payment system, however, there eventually came the closing of a number of small hospitals in Florida because of their inability to continue to operate in sound financial condition. At the same time, four or five applications for the conversion of small hospitals to long- term care hospitals were filed with the agency. In the early part of the present decade the agency conducted a study of long-term hospital care. The study took place within a larger study by the Hospital Cost Containment Board. Ultimately, it was recommended that long-term care hospitals be regulated separately from acute care hospitals and that they be subject to separate certificate of need review. The recommendation was made for a number of reasons. First, long-term hospitals were viewed by the agency as very different from acute care hospitals because of the patients' average lengths of stay. Second, long-term care hospitals were found to be expensive for the type of care given in them which was of great concern to the state since cost control is an objective of the certificate of need program. Third, long-term hospitals were found to experience high mortality rates. As the result of the study and recommendation, the agency made the creation or conversion of hospitals into long-term hospitals subject to certificate of need review. Admission Criteria In the study, the agency also found that there are no clear admission criteria for long-term hospitals. To date, neither the Health Care Finance Administration (“HCFA”), nor the Joint Commission on Accreditation of Hospital Organizations ("JCAHO,") or any of its sub-organizations have developed any criteria to define a long-term care hospital. It is not clear, therefore, exactly what type of patients are suitable for care in a long-term hospital. Sub-acute Care The parties are in agreement that sub-acute care is a level of care that is below acute care. Palm Beach Regional claims, however, that the care provided by long-term care hospitals is not subacute but rather falls into a category of care between acute and sub-acute. An understanding of this claim requires some discussion. Unlike other classes of hospitals which are exempt from the prospective payment system, like cancer, children's or psychiatric hospitals, patients in long-term care hospitals do not have a specific type of illness nor are they limited to serving a specific age group. Generally, however, they are patients who have had an acute episode, whose program of care has been identified and who need a longer term of care to recover or to be rehabilitated because of an acute illness or surgical procedure. And, although they are not limited to a specific age group, the experience of long-term care hospitals is that a major part of their patient population is elderly, virtually all of whom are covered by Medicare. In these respects, long-term care hospital patients are not much different from patients in other "subacute" settings: comprehensive rehabilitation hospitals, acute care hospital skilled nursing units, skilled nursing facilities in free-standing nursing homes, and, even, in some cases, home health care, assisted living and outpatient services for the elderly. If there is a difference between the long-term hospital patient and patients in other subacute settings, it is that the long-term hospital patient has more at-risk types of physical problems, is more likely to be medically unstable or is, in fact, medically unstable. But this difference is not strictly observed because of the financial pressure on hospitals to discharge patients from the acute setting into a subacute setting. Medically unstable patients, therefore, are found in subacute settings such as skilled nursing facilities whether hospital-based or in free- standing nursing homes. In contrast to what has become commonplace practice, Dr. Kathleen Griffin, an expert in health care planning with a specialty in long-term acute care and subacute care, testified that it would not be appropriate for a medically unstable patient to be transferred to a skilled nursing bed. In her opinion it would be best for a medically unstable patient about to be discharged from acute care to be admitted instead to a long-term care hospital. Despite the reality that there are no admission criteria for long-term care hospitals, Dr. Griffin maintains that if a hospital discharge planner believes through information gathered from the medical and nursing staffs that the patient "is highly acute and at risk, and there is a long-term care acute hospital available, then that would be the placement of choice." (Tr. 523.) If a long-term care hospital is not available, however, the alternative is to keep the at-risk, medically unstable patient in the acute care hospital rather than discharge the patient into a nursing facility. Dr. Griffin's opinion is shared by the physician practicing in long-term hospitals. Representative of such a physician is Dr. Wendell Williams, presently the Medical Director of a long-term care hospital, Specialty Hospital of Jacksonville. Dr. Williams sees a distinction between long-term acute care and subacute care. Long-term hospital care is acute care without the need for "highly technical diagnostic capabilities," and "high surgical capabilities," but still care in the "medically complex case that requires frequent physician direction [and] high skill level of caregivers." (Petitioner's Ex. No. 16, pg. 13.) In Dr. Williams view, long-term hospital care occupies a level of care between acute and subacute care. The views of Dr. Griffin and Dr. Williams find support in analyses of nursing hours per patient. In a typical nursing home, the number of hours per patient is about 4.5 hours per day, while in a long-term care hospital, the number is around 6.5 hours per patient day. At Specialty Hospital of Jacksonville, the nursing hours per patient day for non-ventilator patients is 6.75 hours, and for ventilator patients is 10 hours. In contrast, Integrated, a nursing home, provided nursing hours per patient day in its "med-surg unit" at 4.34 hours in March of 1996, 4.60 hours in April and 4.52 hours in May although at times Integrated's nursing hours per patient day have reached as high as 6 hours. The opinions of Dr. Griffin and Dr. Williams have not yet been generally accepted. Following the agency's study in the earlier part of the 1990's, the federal government, under the auspices of HCFA, launched a major study that addresses what AHCA viewed as the "whole gamut of what is marketed as subacute care," (Tr. 272). The study included long-term care hospitals, as well as those settings which the parties all agree are clearly in the category of "subacute": hospital-based skilled nursing facilities, free-standing nursing homes, comprehensive rehab hospitals and home health care. The report was issued in November of 1995. It confirmed that there was a great deal of overlap among the settings studied including between the long-term care hospital and other settings unquestionably subacute. Moreover, it confirmed that many of the services are "primarily driven by reimbursement," (Tr. 275), and not by which provides the best or most cost-effective health care for the very ill, elderly patient no longer in need of acute care. In other words, the financial pressure on hospitals to discharge patients from the acute care setting was what accounted for the tremendous growth of subacute services and the move toward more long-term care hospitals rather than what is actually best for the patient or the health care system. The study concluded that there is insufficient data to determine the cost effectiveness of subacute care as defined in the study. As for overlap in the various settings, the extent of overlap was not precisely determined. But just as long-term care hospitals provide ventilator treatment, skilled nursing units specialize in ventilator patients. Nursing home subacute units specialize in wound care, infectious disease programs and IV antibiotic therapy programs, as well, just as would Palm Beach Regional if approved. The HCFA study also confirmed that the cost of care and mortality rates at long-term care hospitals are high, $2,000 per day and 40 percent, respectively. The average cost per discharge at a long-term care facility was between $150,000 and $250,000. Despite the long-term hospital's recognition by the federal government, the presence in Florida for more than eight years, and separate CON regulation for the last several years, it remain unsettled which patients should be treated and cared for in long-term hospitals. While for some, such as Dr. Griffin and Dr. Williams, the question is one which discharge planners, after consultation with nursing and medical staff, ably make, it is not generally accepted that it is clear which patients should be cared for in long-term care hospitals. It is not generally accepted as evidenced by the wont of admission criteria for long-term hospitals. Furthermore, it is not clear whether long-term hospitals represent the best means or the most cost-effective way of treating patients ready for discharge from an acute care setting. Specialty Hospital of Jacksonville: the Model The Palm Beach Regional proposal to convert to a long- term care hospital is modeled after another Columbia long-term care hospital, Specialty Hospital of Jacksonville, the hospital of which Dr. Williams is the medical director. Opened in 1992, Specialty offers four major program areas: ventilator and other respiratory complications, infectious diseases, wound management and complex medical and rehabilitative services. The typical ventilator patient is quite ill; often with other attendant system breakdown such as cardiac or renal failure. The goal is to free the patient from ventilator dependence. If the patient is judged to be a lifetime custodial ventilator patient, the patient would not be appropriate for Specialty. A variety of infections are treated in the infectious disease program. Often the primary antibiotic treatment has failed and there may be other conditions attendant. The typical wound care patient admitted to Specialty has severe wounds that may derive from circulatory problems. Often admission is from a hospital or nursing home. The patient may be diabetic, paraplegic or quadriplegic. The patient may have experienced a surgical intervention which has not healed. Or the patient may have a distressed digestive system which inhibits the body's ability to absorb the proper nutrients to support the healing process. The typical complex medical and rehab patient includes the spinal cord injured patient and the multiple system failure patient. The patients at Specialty are under the management of an attending physician but typically four or five different specialties are involved in each patient's care. Specialty Hospital has experienced approximately five percent Medicaid and one percent charity care. A representative patient at Specialty Hospital has an average length of stay of 23 days. The representative patient in the infectious diseases program would experience an average length of 18, 20 days in the pulmonary program, 29 days in the ventilator program, 36 days in the wound program, 18 days in the physical medicine and rehabilitation program and 26 days in the medicine program. These lengths of stay resemble acute or Medicare certified skilled nursing bed lengths of stay more than the historical 90 day lengths of stay experienced in Florida at long- term care hospitals. A representative patient at Specialty Hospital will experience an average daily charge of $1,122 and an average charge per case of $25,810, the highest averages incurred by the ventilator program at $1,848 per day and $52,781 per case. From a medical standpoint, all of the patients treated at Specialty Hospital could be treated in an acute care hospital. There is one difference between Specialty's patient profile and the one expected at Palm Beach Regional. The approach proposed by the applicant will include patients with greater levels of instability. Whereas Specialty has taken the approach that patients at the intensive care level should be in a general acute care hospital, Palm Beach Regional expects to treat patients in need of services from an intensive care unit. Palm Beach Regional, therefore, has planned for an intensive care unit at the facility should its CON application be approved. Integrated's Existing Programs Sixty of Integrated 120 beds are dedicated to meet the needs of patients requiring subacute care. Although they may differ slightly in intensity of application because of slightly lower acuity levels of the patients, the programs offered in this sixty-bed skilled nursing unit encompass the four programs proposed for Palm Beach Regional's long-term care hospital: ventilator and respiratory complications; infectious disease; wound management; and complex medical and rehabilitation service program. Integrated uses its own method to measure the acuity of its patients. Within this method, two of the levels require active treatment of co-morbidities, multiple diseases which complicate the primary diagnoses. By whatever means acuity is measured, it is reasonable to expect that the average level of acuity would be somewhat higher among patients treated at a Palm Beach Regional long-term care facility. (Although without criteria to measure acuity for admission or to know for sure what patients are actually being treated at long-term hospitals, this is not certain.) Nonetheless, considering both diagnosis and treatment, Integrated's patients at Integrated's two highest levels of acuity, even if not at quite as high an acuity level on average, would be similar to the patients Palm Beach Regional might serve if its application were granted. Patients at a Palm Beach Regional's long-term care facility who would exceed the highest level of acuity of those patients at Integrated are patients appropriate for treatment in an acute care hospital. Ventilator Care at Integrated Ventilator patients are treated in skilled nursing facilities both in hospitals and in free-standing nursing homes like Integrated. Some skilled nursing units even specialize in ventilator care. There is clearly overlap between ventilator services in skilled nursing facilities and long-term care hospitals. The precise extent of the overlap is not clear. While the overlap may not be 100%, it is certainly significant. Twenty of Integrated's 60 subacute beds are capable of assisting ventilator patients. Within this 20 bed unit, Integrated provides oxygen, air, and wall suctioning just like in a hospital setting. Additionally, Integrated can provide respiratory services outside of its specific unit by using portable suction machines and oxygen concentrators. The ventilator patients treated at Integrated are similar to the ventilator patient treated in intensive care units in hospitals. Some of Integrated ventilator patients are in need of acute care. All are hemodynamically stable but some are medically unstable. Nonetheless, there are patients who would be too unstable to allow them to be suitable for admission into Integrated's respiratory unit. Patients who would need to remain in acute care in the hospital would be patients who, for example, were bleeding or having trouble with a post-surgical trach placement. The medical director at Integrated is a pulmonologist. Integrated has a 24-hour respiratory staff. The ventilator program at Integrated meets the description in the application of the proposed ventilator program at Palm Beach Regional. Comparison of the respiratory services offered at Integrated to the services proposed to be offered in Palm Beach Regional's ventilator program reveals significant overlap between the two. Integrated primarily uses a Bear 3 Ventilator. Other equipment used by Integrated includes pulse oximeters and pneumatic blood pressure cuffs to provide hemodynamic monitoring. The respiratory unit is able to obtain an assessment of the patient's arterial blood gases within two hours through an arrangement with a courier service and nearby JFK Hospital. On average the blood work results are received within an hour of the blood being drawn from the patient. An interdisciplinary team of therapists, including respiratory therapists, physical therapists, occupational therapists and speech therapists, work together on the plan of care and recovery of the ventilator patient including weaning the patient from the ventilator. Of those ventilator patients determined to be weanable, 75% are actually weaned from the machines. Ninety-two percent of the tracheotomy patients achieve decannulation. The average length of stay in the respiratory unit for Integrated's ventilator patients is 37 days, an average length of stay that meets that which defines the long-term care hospital patient, that is, in excess of 25 days. Infectious Disease Treatment at Integrated Just as long-term care hospitals, nursing homes offer infectious disease programs employing IV anti-biotic therapies. Integrated provides its patients with multiple antibiotic therapies. Among the IV anti-biotic therapies used at Integrated are cepo, fortaz and vancomycin. Integrated treats patients with pulmonary edema, pleural affusion, pulmonary embolus and pulmonary infarcts and patients with bi-lobar and multi-lobar pneumonia. Patients are treated with intravenous cortico steroids, intravenous bronchodilators, intraveous diuretics and intramuscular antimedics. Wound Care at Integrated Nursing homes offer wound management programs. There is significant overlap between patients treated for wounds at nursing homes and at long-term care hospitals. Limitations in care of the wound patient are similar as well. Just as a patient in need of surgical intervention for wound care, for example, would be discharged to an acute care hospital from a nursing home so would that patient be discharged to an acute care hospital from Specialty Hospital of Jacksonville, the model hospital for Palm Beach Regional's long-term care facility. Integrated offers wound and skin management treatment of the type described by Palm Beach Regional's proposal. Many of Integrated's patients recieve wound care upon admission. For instance, respiratory patients who have tracheotomies receive care for their wounds throughout the day. Integrated treats all levels of decubitous ulcers, including the most severe, Stage III and IV ulcers, as required by law in order to qualify for Medicare Certification. Complex Medical and Rehabilitative Care Integrated offers radiology and other imaging services on campus: mobile chest x-rays, normal x-rays, and video flouroscopy as well as an in-house staff of rehabilitation professionals: physical and registered occupational therapists and registered speech therapists. The rehabilitation programs proposed by Palm Beach Regional and those programs of other long-term care hospitals overlap significantly with those programs already offered at Integrated. The difference between the complex medical and rehabilitative care offered at Integrated and that proposed for Palm Beach Regional lies in the expected acuity of the patients. One would reasonably expect the patients to be slightly higher in acuity at Palm Beach Regional if approved than as are presently at Integrated. Nonetheless, the patients at Integrated are similar to those Palm Beach Regional would care for, in that Integrated treats patients with co-morbidities, including combinations of congestive heart failure, post-open heart surgery, arteriosclerotic heart disease and renal failure. Integrated's Services in General On an average month, Integrated offered 7.28 hours per day of nursing and respiratory, physical and occupational therapy care per day to the patients within its subacute unit. Forty percent of Integrated's subacute nursing hours are provided by registered nurses, 20% by licensed practical nurses, and the remaining 40% by certified nurse aides. A sample of Integrated's admissions noted numerous patients admitted with cardiopulmonary vent and ventilator needs. Integrated also maintains a large number of orthopedic patients in need of complex rehabilitation. Integrated treats patients with congestive heart failures, patients recovering from recent open- heart surgery, patients requiring specialized wound care, patients with post-operative cranial head injuries, and patients requiring tube feedings, IVS, ventilator and tracheostomy care. Integrated offers the equipment that is listed in the application as equipment to be purchased by Palm Beach Regional if approved. Integrated accepts patients who are medically unstable. These include patients admitted to Integrated's cardiopulmonary unit, patients with recent tracheostomies, patients on ventilators, patients with hemodialysis and peritoneal dialysis who have co- morbidities. Palm Beach Regional's application lists diagnoses of patients to be treated through long-term care which it claims are not appropriate for skilled nursing facilities. The application alludes to various types of comprehensive therapies, care and resources available for these patients. Yet, despite the application's claim that care of these patients is not appropriate for the skilled nursing facility, present at Integrated for the benefit of patients with the same diagnoses are very nearly all, if not all, of these therapies, care and resources. These include: IV antibiotic therapy, IV drips, plasma pheresis, management of severe decubitus ulcers, tracheotomy care with hourly suction, treatment with chest tubes and PCA pumps, cardiac monitoring, dialysis and an on-site pharmacy. Moreover, Integrated's roster of consulting physicians credentialed at the facility included the range of specialists listed in Palm Beach Regional's application. Integrated's roster of physician ranges from family practitioners to practitioners specializing in internal medicine, dermatology, neurology, and infectious disease control, to orthopedic specialists, physiatrists and psychiatrists, nearly the "full gamut" of specialties in medicine. Adverse Impact There will be adverse impact on Integrated if Palm Beach Regional's proposal is approved. The impact occurs as the result of a combination of significant overlap of services offered by Integrated and proposed for Palm Beach Regional and the likely loss of admissions to Integrated's subacute unit generated by patients discharged from JFK Hospital. JFK Hospital and Palm Beach Regional are each approximately 2 miles from Integrated. Approximately 85% of Integrated's subacute admissions come from JFK. A good estimate of how many patients JFK refers to Integrated's subacute unit on an annual basis is 460. It is reasonable to assume that many of these patients would be referred to Palm Beach Regional by its sister Columbia Hospital, JFK, if the application were approved. If only two-thirds of these patients were lost to Palm Beach Regional, using a conservative figure for contribution margin of $100 per patient day, the loss to Integrated would be about $1 million in contribution margin per year. Furthermore, if the application is approved, Integrated will also have to either raise salaries to keep qualified staff for ancillary staff or risk losing them because Palm Beach Regional proposes to offer ancillary staff salaries higher than those paid by Integrated. Certificate of Need Criteria The criteria to be used in evaluating the application are found in statutes, and in rules of the agency which implement these statutes. Section 408.035(1)Health Plans Neither the District 9 Treasure Coast Health Plan nor the State Health Plan contain any mention of long-term acute care beds. Both plans were written before there were any CON requirements for this type of bed. (b) Availability, Quality of Care, Efficiency,Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Services There is no agency rule regarding need determination for long-term acute care beds. Neither is long-term hospital care defined by agency rule as a referral service, one dependent upon other hospitals to refer patients. The service area for a referral hospital is larger than just one district. Patients are referred from districts 9 and 11 to the long-term care hospitals in District 10. This is certainly not surprising for patients in district 9 since there is no long- term hospital in the district and referrals are the common way for long-term hospitals to gain patients. Patients are referred from Districts 3, 5, 6 and 8 to the long-term care facility in Tampa. With the exception of the long-term care hospital in District 11 where the largest proportion of patients came from within the District 11, all of the long-term hospitals in the state, "had referrals from all over the place." (Tr. 288.) Palm Beach Regional itself proposes to serve patients from Districts 7 and 10. The reality is that long-term care hospitals are primarily referral hospitals. Nonetheless, since there is no agency rule defining long-term care hospitals as referral hospitals and since there is no agency rule defining the service area of a long-term care hospital, District 9 may be the appropriate service area for the health planning purposes of Palm Beach Regional's application. In order for the district to be the appropriate service area, however, the application must demonstrate that there is a need for a certain number of beds based on the data collected from District 9. Since there is no need methodology applicable to long- term care acute beds, Palm Beach Regional developed three different methodologies for the agency's consideration. The agency found the "components," (Tr. 910,) of the methodologies to be reasonable. Indeed, the agency never offered any other need methodology which it claimed was superior to those offered by the agency. Instead the agency criticizes the methodologies for failing to take into consideration the availability of like and existing services and alternative to the proposed services. Patients who will be served in the proposed facility are currently being served in either the short-term acute hospitals or skilled nursing facilities in nursing homes such as Integrated, both of which are less costly alternatives to this proposal. Palm Beach Regional anticipates referrals from other Columbia Hospitals in the districts; however, six of the eight Columbia Hospitals have skilled nursing units which propose to treat the same patients and conditions the applicant proposes to treat. Furthermore, at the time of hearing, five Columbia hospitals in the districts had 56 approved skilled nursing beds not then operational. Included among the 56 were the 12 skilled nursing unit beds transferred from Palm Beach Regional. Palm Beach Regional's presents arguments in favor of improved quality of care to the patient in need of care following stabilization of an acute episode. There is, however, no data to support a conclusion that outcomes are better in long-term care hospitals. As for the applicant’s ability and record to provide quality of care, there is little doubt. The testimony of Dr. Ron Luke as to the high quality of care to be provided by Palm Beach Regional was not challenged. The patients proposed to be served by the applicant are currently being served in hospitals, subacute units at nursing homes or hospitals, or in rehabilitation facilities. Some may even be in home health with high technology equipment. Transferring these patients to a long-term care facility has significant financial implications costly to the health care system. The 60 beds proposed in the application will, in all likelihood, be adequately utilized. In the case of long-term care hospitals, demand follows the supply because of the strong financial incentive to fill the beds. There is nothing to indicate, however, that acute care beds are not an alternative to long-term hospital beds. There are plenty of empty beds in acute care hospitals to be filled by patients who would be treated by the applicant. That these patients proposed to be treated by Palm Beach Regional might receive treatment, if the application is denied, in hospital-based skilled beds or, perhaps inappropriately at times, in nursing home skilled nursing units is not due to lack of alternatives. Rather, it is the product of financial pressure on the acute care hospitals to discharge patients from the acute setting. Effective utilization of at least 85 percent of cost- based services such as long-term services is an important consideration because fixed costs can be spread over more patient days, thereby decreasing the costs per patient day. The average utilization rate in Florida for long-term care beds is 66 percent. The most recent occupancy rate for Specialty Hospital is only 41 percent. The record of long-term care hospitals would indicate that the utilization projections by Palm Beach Regional are unreasonable. But, there was nothing established that indicated the three methodologies used by Dr. Luke were unreasonable in any way. Given that Palm Beach Regional will be able to draw patients from its sister Columbia acute care hospitals, all of whom will be anxious to provide patients to this long-term hospital, and given that long-term hospital care is a kind of care for which demand follows the supply, it is likely that utilization at Palm Beach Regional, if approved, will be strong. Despite the record of other long-term care hospitals, Palm Beach Regional’s utilization projections are reasonable. Need for Research and Educational Facilities There are no plans to provide research or education at this facility. Availability of Manpower, Management Personnel and Funds for Capital and Operating Expenditures The State Agency Action Report shows that the agency believes that there will be adequate levels of staffing available. The adequacy of the staffing levels was confirmed by the administrator of Specialty Hospital of Jacksonville. Palm Beach Regional will be able to adequately staff the hospital at the salary levels proposed in the application. Long-term acute care hospitals treat the very old. Since almost all of these people have Medicare coverage, economic access is not a problem for the individuals the applicant proposes to serve. The applicant has a 1% indigent commitment and a 5% projected Medicaid utilization. Geographic access is also served well by this facility. The facility is located where the population base of the elderly population is in District 9. Financial Feasibility The immediate financial feasibility of Palm Beach Regional is evident from its ability to open and operate for the first two years with a positive cash flow with a financing letter in the amount of $407,000 from Columbia. Palm Beach Regional, in its pro formas and the analysis underlying its pro formas concluded that it would be under the prospective payment system for six months before it could transer to a facility exempt from the prospective payment system. This conclusion is reasonable. Palm Beach Regional has two months to get the necessary certification changed prior to the end of its fiscal year. Palm Beach Regional will be able to institute the necessary six month evaluation, within CON constraints, when it chooses. Furthermore, Palm Beach Regional could change the end of its fiscal year so that the six-month time period could be accommodated. Finally, short-term financial feasibility was demonstrated by the pro forma which properly shows reimbursement levels for patients who were treated in the first six months, and who were discharged after the first six months. Under Medicare regulations, the hospital would be reimbursed on a cost basis for these patients. Palm Beach Regional projected an occupancy level of 85% in the first year of operation and 87% in the second year of operation. Neither Specialty Hospital of Jacksonville, the model for Palm Beach Regional, nor the other long-term care hospitals in Florida have occupancy levels that high. Comparison, however, is not valid. The long-term care hospitals that converted from acute care facilities converted their entire complement of beds which resulted in overbedding. In contrast, Palm Beach Regional seeks to convert only 60 of its 200 beds. The situation of Specialty is very different. It is a converted 105 bed facility which was in bankruptcy when it first started, limiting its ability to attract patients. Within its district, Specialty competes with Vencor of North Florida, a 60 bed facility. Not only does Palm Beach Regional not have any in-district competition, but it will benefit greatly from being a member of the Columbia system. Palm Beach Regional's application demonstrates financial feasibility, both immediate and long-term. Special Needs and Circumstances of HMOs Whether the facility provides an additional level in the continuum of care available to HMO patients is uncertain. It is not generally accepted that the level of care Palm Beach Regional argues it will provide, that is, a level between acute care and subacute care, even exists let alone whether such a level of care is necessary, cost-effective or the best means of treating patients. Needs and Circumstances of Entities Providing Substantial Portion of Services to Individuals Residing Outside the District There are no facilities in the district which provide a substantial portion of its service to individuals residing outside the district. Probable Impact on Costs of Providing Health Services Total property costs for Palm Beach Regional amount to $3.572 million per year, or approximately $250,000 per month. This includes depreciation, interest, insurance and all other property costs. Because Palm Beach Regional would enjoy cost- reimbursement from Medicare instead of being paid on the basis of the prospective payment system, Medicare would pay as much as $190 per patient day for simple property costs and not for patient care, if Palm Beach Regional's utilization projections prove true. Were Palm Beach Regional's utilization projections to turn out to be incorrect and Palm Beach Regional's occupancies were more in the range of other long-term care facilities, (50% the first year and 60% the second), the cost would be "into the $3-400 a day cost range for the cost of [the] ... property allocated per patient day, which would be picked up in their entirety or close to their entirety [by Medicare.]" (Tr. 782.) Either way, the high property costs of Palm Beach Regional would result, should the application be approved, in shifting a huge financial burden to Medicare. The result would be to "wind up costing the Federal government, the Medicare program, multiples of what it now cost[s] ... to treat those same patients in acute care hospitals." (Tr. 792). The Applicant's Past and Proposed Provision of Services to Medicaid and the Medically Indigent Palm Beach Regional projected a 5% Medicaid utilization but its commitment is to indigent care only and that being a mere 1%. The commitment to indigent care (as opposed to the projection for Medicaid care) is meager. Furthermore, Palm Beach Regional has little established pattern accepting patients in these payor classes. Given the savings to Columbia acute care hospitals which would feed patients to Palm Beach Regional, and ultimately, the profit to be enjoyed by the applicant, a commitment of 1% is lacking. That recognized, it must be said that the modesty of the commitment is consistent with the advantage Medicare's cost- reimbursement system provides long-term care hospitals. It is not to be expected that there will be many Medicaid or indigent patients utilizing long-term care hospitals. "The vast majority of the population utilizing the facility will be the elderly, virtually all of whom are covered by Medicare." (Palm Beach Regional's Proposed Recommended Order, p. 23, Tr. 339.) Still, a greater commitment, more along the lines of the commitment provided by St. Petersburg Health Care Management, Inc., with which Palm Beach Regional has drawn comparison, (See Findings of Fact, 123- 128, below,) would lend this criterion to favor the application rather than disfavor it. The Applicant's Past and Proposed Provision of Services Which Promotes a Continuum of Care There is no long-term hospital available in District 9. But whether that means Palm Beach Regional is adding a level to the continuum of care available for patients in the district is uncertain. There is no data to support the conclusion that long- term care hospitals provide a level of care between that of acute and subacute. Despite the earnestness with which Dr. Griffin and Dr. Williams hold their opinions to the contrary, their opinions are simply not yet accepted widely enough at this point to support such a conclusion. That Less Costly, More Efficient, or More Appropriate Alternatives to Such Inpatient Services are not Available Long-term care hospitals have existed for years by Act of Congress. "[W]hile there has been an active discussion of alternatives, so far they have not come up with one which has been moved into rule or legislation." (Tr. 421). Certainly keeping long-term care hospital patients covered by Medicare in acute care hospitals would be a less costly alternative. Whether caring for these patients in one facility or another is more cost-efficient, however, is unknown. At bottom, there is no determinative data on the issue of cost-efficiency. As for more appropriate alternatives, there is a group of long-term care hospital patients for whom it is less appropriate to be in a free-standing skilled nursing unit. But, the size of this group is uncertain. Certainly, from the point of view of care to the patient, it is at least equally appropriate for all long- term care patients to remain in acute care hospitals rather than be discharged to long-term care. Alternatives to New Construction As the result of renovations, the facility requires little capital to convert it to a 60 bed long-term care hospital. The capital outlay of $500,000 is an indication of how little actual construction is necessary to complete the project. Problems in Obtaining the Proposed Inpatient Care in the Absence of the Proposed New Service With the exception of inappropriately premature discharges of patients from the acute care hospital's acute care setting, there are beds available for appropriate care in the absence of approval of the application. There is an abundance of beds in acute care hospitals available to patients who might otherwise be discharged to the long-term care hospital. As for the patient for whom discharge from the acute care setting is appropriate who might be admitted to a long-term care hospital, there are available for inpatient care skilled nursing beds in one type of facility or another. Administrative Due Process Palm Beach Regional contends that it has been treated differently by the agency, without reasonable explanation, from St. Petersburg Health Care Management, Inc., a successful applicant for the conversion of a general acute care hospital to a long-term care hospital in another district. Initially approved by the agency, the "St. Petersburg" application, CON 8213, was not subjected to the scrutiny of a formal administrative hearing at the Division of Administrative Hearings. Nonetheless, in support of its claim of unfair treatment, portions of the St. Petersburg application and omissions response for Certificate of Need number 8213 were introduced into evidence by petitioner as well as the State Agency Action Report. There are similarities between the two applications. For example, both proposed conversion of underutilized facilities to long-term acute care beds, as well as reduction of the hospitals' complements of 200 acute care beds to 60 long-term care beds. But there are differences as well. The St. Petersburg commitment to indigent and Medicaid care is 500% of the commitment by Palm Beach Regional. St. Petersburg's commitment is a combined 5%: 2% to indigent and 3% to Medicaid. In contrast, Palm Beach Regional's commitment is 1%, to indigent care only. Palm Beach Regional stated in its application that "[p]atients classified as Medicaid payers are projected to equal 5.0% of total patient days in 1999, 2000, and 2001." Petitioner's Ex. No. 1, p. 79. As reasonable as this projection may be, it is just that: a projection, nothing more and a projection is a far cry from a commitment. There is another difference between the two applications. While the facilities from which Palm Beach Regional's application received letters of support were limited to Columbia's affiliated facilities, St. Petersburg received letters of support from three disproportionate share providers as well as numerous unaffiliated hospitals and nursing homes in the Pinellas and Pasco County areas. The difference is critical to an understanding of the likelihood that the facility will, in fact, meet its commitment to the historically underserved. As Ms. Elizabeth Dudek, Chief of the Certificate of Need and Budget Review Office at the Agency for Health Care Administration testified, "You have, in the case of having the support of all the disproportionate share providers ... more of an assurance that the historically underserved, the Medicaid and the indigent patients, will be served and get access to the service." (Tr. 902). Such an assurance is omitted unfortunately from Palm Regional’s application.
Recommendation ACCORDINGLY, it is recommended that the application of Palm Beach Regional to establish a long-term acute care hospital by delicensing 128 beds and converting 60 acute care beds to 60 long- term acute care beds be denied.DONE AND ORDERED this 24th day of March, 1997, in Tallahassee, Florida. DAVID MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 COPIES FURNISHED: Eric Tilton, Esquire Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1997. Gustafson, Tilton & Henning, P.A. 204 South Monroe Street, Suite 200 Tallahassee, Florida 32301 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Thomas F. Panza, Esquire Seann M. Frazier, Esquire Panza, Maurer, Maynard & Neel, P.A. 3600 North Federal Highway Fort Lauderdale, Florida 33308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403
Findings Of Fact The Parties FRTC is a wholly-owned subsidiary of Charter Medical Corporation (Charter) which proposes to construct and operate a freestanding, 60 bed, 24- hour-a-day, Intensive Residential Treatment Program for children between the ages of 6 and 18 in Palm Beach County within HRS District IX, pursuant to Rule 10-28.152(8), F.A.C. and Chapter 395, F.S. Although FRTC represents it will construct its proposed facility with or without CON licensure, which it is entitled to do, given the peculiarities of this type of health care entity, it is clear that a prime motivator in FRTC's CON application is that with CON licensure, FRTC potentially will have greater access to insurance reimbursement because it may then call itself a "hospital." FRTC will seek JCAH accreditation. HRS is the state agency with the authority and responsibility to consider CON applications, pursuant to Chapter 10-5.011, F.A.C. and Sections 381.701-381.715, F.S. (1987). HRS preliminarily approved FRTC's application, and supported it through formal hearing and post-hearing proposals. RTCPB is an existing 40 bed residential treatment center for adolescents between the ages of 12 and 18, located in Palm Beach County, on the campus of Lake Hospital of the Palm Beaches. It provides services similar or identical to those services proposed to be offered by FRTC. It is JCAH accredited through an extension of Lake Hospital's accreditation and is close to JCAH accreditation in its own right. RTCPB is a subsidiary of Psychiatric Hospitals, Inc. (PIA) . PIA operates two residential treatment centers in Florida. RTCPB is not CON licensed as an IRTP, under Chapters 381 and 395, F.S., but is licensed as a child care facility under Chapter 395, F.S., as a provider of services to HRS under Chapters 10M-9 and 10E-10, F.A.C. RTCPB accepts substance abusers in residency. RTCPB has also applied for CON licensure as an IRTP in a batching cycle subsequent to the present one. That application has been preliminarily denied by HRS and RTCPB is awaiting a Section 120.57(1), F.S., formal administrative hearing thereon. RTCPB now estimates its current patients' average length of stay (ALOS) as 106 days but projects a 315 day (10 1/2 months) ALOS in its subsequent CON application. RTCPB is charging $185 per day or HRS patients and $255 with $23-26 ancillaries [sic] per day for private pay patients. Like FRTC, it uses a "levels" system of behavior modification and patient control. Humana is a 250 bed JCAH accredited hospital located in Palm Beach County, Florida. Of Humana's 250 beds, 162 are traditional acute care beds and 88 are psychiatric beds. The 88 psychiatric beds are administratively divided into different units, one of which is a 27 bed adolescent psychiatric unit; this unit opened January 20, 1987, and has an average length of stay of nine months. Humana's existing CONs are for short-term adult psychiatric beds and do not authorize an adolescent unit with an average length of stay of over 30 days. Ninety days is the demarcation, by rule, between short- and long-term psychiatric beds. Humana recently applied for a CON for more psychiatric beds and also applied for an IRTP CON in a subsequent batch to the present one. Humana's present 27 bed adolescent psychiatric unit provides grossly similar services to those proposed to be offered by FRTC, but its emphasis is more medical-psychiatric than emotional-behavioral. Like FRTC, Humana does not accept in residency adolescents with a primary diagnosis of substance abuse. Like FRTC and RTCPB, Humana uses a "levels" system. Eighty percent of Humana's patient mix are commercial pay, and the unit is running at a 15 to 20 percent profit margin. Humana usually charges $325 per day on their adolescent unit plus ancillaries [sic] amounting to 10 percent of the patient's bill, but HRS contract patients pay only $225 per day. Humana has lost a number of adolescent unit referrals to RTCPB since RTCPB opened June 1, 1987, but the unit continues to be almost fully occupied. Humana's main referral asset, as well as the source of the confusion of referring entities, appears to be the reputation of its director, Dr. Kelly. Dr. Kelly previously directed a program at Lake Hospital which was identical to the program that he now directs at Humana. Lake Hospital currently has RTCPB operating under its auspices, but not Dr. Kelly. Nature of the FRTC Program FRTC's proposed program is designed to serve those persons in the designated age group who have psychiatric diagnoses of a severity requiring a long-term approach in a multidisciplinary structured living setting to facilitate recovery. It will not, however, treat adolescents with an active diagnosis of chemical dependency or substance abuse. It also only commits to 1.5 percent indigent care. The proposed FRTC program differs from an acute care setting in significant quantitative and qualitative ways, the most visible of which is that acute care psychiatric settings (either long- or short-term) are geared toward dealing with patients actively dangerous to property, themselves, or others, but patients whom it is reasonably assumed will respond primarily to physiologically-oriented physicians and registered nurses administering daily medication, treatment, and monitoring, as opposed to a long-term living arrangement emphasizing behaviorally-oriented group interaction as an alternative to parental care at home. FRTC will, however, accept patients with psychiatric diagnoses of effective disorders, depression, schizophrenia and impulse disorders and those who may be potentially harmful to themselves, others, or property for whom no other less intensive or less restrictive form of treatment would be predictably helpful. FRTC would fall on the continuum of care below an acute psychiatric facility such as Humana. Assessment of such a target group on a patient by patient basis is obviously subject to a wide variation of interpretation by qualified health care professionals, but FRTC anticipates both verifying referral diagnoses and assuring quality of care by insuring that each new patient is seen by a psychiatrist within 24 hours of admission, and by having each case reviewed by an independent utilization review committee. FRTC also plans to complete appropriate patient assessments and develop and update individual, integrated treatment programs. FRTC will provide, where appropriate, for continuity of care from previous acute care institutions through the FRTC program and out into more normal individual or family living arrangements. Parents will have to consent to their child's placement at FRTC. FRTC's program proposes an average length of stay of 365 days (one year) with a range of six months to two years. Based upon all the credible record evidence as a whole, including, but not limited to, the protestants' respective ALOS, this is a reasonable forecast despite contrary evidence as to Charter's experience at its "template" Virginia institution, Charter Colonial. FRTC's program components will include individual therapy, recreational therapy, occupational therapy, and general education. The general education component in FRTC's proposed program is more general and more open than that offered in acute care settings, such as Humana. FRTC's overall program will utilize a "levels" system of behavioral management based upon patients earning privileges, which levels system has a good patient rehabilitation and functional administrative track record in many different kinds of psychiatric health care facilities, including Humana and RTCPB. FRTC intends that each patient's program will be individualized according to age and program component directed to his/her diagnosis and each patient will receive individual, resident group, and family therapies. As to assessment, types of therapy, continuity of care, and general education provisions, FRTC's proposal is grossly consistent with that of its "template." To the extent there is evidence of inconsistencies between the two programs in the record, the FRTC proposal represents either improvements over, or refinements of, its template program which have been developed as Charter/FRTC has learned more about what actually "works" for the IRTP form of health care, or it represents changes to accommodate Florida's perception of what less restrictive but still intensive residential treatment should be, or it anticipates local community needs. Quality of Care The applicant's parent corporation is an experienced provider of many types of accredited psychiatric facilities. The type of quality assurance program proposed and the staff mix provide reasonable quality care assurances. Design, Construction, and Personnel Refinements to FRTC's original schematic take into consideration the influence that physical structure has on an Intensive Residential Treatment Program. Those refinements include modification of a multipurpose room into a half-court gymnasium, addition of a classroom, addition of a mechanical room, modification of the nursing station to decrease the amount of space, and the deletion of one seclusion room and addition of a four to six bed assessment unit. The modifications resulted in the addition of approximately 1,000 square feet to the original design. A minimum of four to six acres would be necessary to accommodate the modified design which totals approximately 32,000 square feet. Public areas, such as administration and support services, dining room, and housekeeping areas, are to the front; private areas, such as the nursing units, are to the back. The facility's middle area houses gym, classrooms, and occupational therapy areas. The location encourages residential community involvement. Each of three, 20-bed units is made up of a group of two consultation rooms, a galley, a laundry, a day room and core living space located directly across from the nursing station for maximum observation and efficiency. Each unit comprises a separate wing. Six handicapped accessible patient beds are contemplated; the building will be handicapped-accessible. The staffing projections have increased and the pattern has been minimally altered in the updates. The updated pro forma also modified the initial financial projections so as to increase salary expense and employee benefits based on this change in staffing. An increase in the total project cost impacted on depreciation, and interest expense changed with time. All these changes are reasonable and insubstantial. FRTC's design is adequate for providing a suitable environment for intensive residential treatment for children and adolescents even though it is not identical to Charter's "template" for residential treatment and even though Charter's extensive experience with acute care facilities has focused these changes in its residential treatment concepts. The parties stipulated to the adequacy of FRTC's proposed equipment list and costs. Total construction cost was demonstrated to be reasonably estimated at $2,078,000. The square footage costs of $64.86 per square foot represet an increase from the square footage costs contained in the original CON application. The original budget was updated based upon a three percent inflation factor and the addition of the approximately 1,000 square feet. The additional space is not a significant construction change. The total project costs of $4,728,000 are reasonable. The testimony of HRS Deputy Assistant Secretary for Regulation and Health Facilities, John Griffin, who testified by deposition, (RTCPB's Exhibit 8, pp. 21-22) revealed no firm policy on what the agency, within its expertise, views as substantial and impermissible amendments to a CON application; HRS did not move at hearing to remand for further review; and the undersigned concludes that the changes in facility design, costs, and staffing do not represent significant changes which would be excludable as evidence and that they do represent permissible minor modifications and refinements of the original FRTC application. Site Availability No party contended that FRTC's application was a "site specific" application, that a residential treatment program is otherwise required to be "site specific," or that an IRTP CON is governed by a "site specific" rule or by "site specific" statutory criteria. Therefore, it was only necessary for FRTC in this noncomparative proceeding to establish that several suitable sites were available within the required geographic parameters at the financial amount allotted in FRTC's projections. FRTC did establish financially and geographically available and suitable sites through the testimony of Robert H. Ellzey, a qualified expert in commercial real estate values. The Non-Rule Need Policy There are no hospital licensed Intensive Residential Treatment Programs in Palm Beach County or in District IX. IRTPs are in a separate licensure category by law from psychiatric beds, acute care beds, and rehabilitation beds. There is a separate need methodology for long-term psychiatric beds and there are no CON licensed long-term psychiatric programs for children and adolescents in District IX, unless one considers Humana which is treating adolescents well beyond 30 or 90 days residency. HRS has no promulgated rule predicting need for IRTPs seeking specialty hospital licensure under Chapter 395, F.S. Subsequent to advice of its counsel that a CON must be obtained as a condition of IRTP licensure pursuant to Chapter 395, F.S., HRS elected to evaluate all IRTP CON applications in the context of the statutory criteria of Chapter 381, F.S., and in the context of HRS' non-rule policy establishing a rebuttable presumption of need for one "reasonably sized" IRTP in each HRS planning district. The May 5, 1988 Final Order in Florida Psychiatric Centers v. HRS, et al., DOAH Case No. 88- 0008R, held this non-rule policy invalid as a rule due to HRS' failure to promulgate it pursuant to Section 120.54, F.S., but that order also held the policy not to be invalid as contrary to Chapter 381, F.S. That Final Order intervened between the close of final hearing in the instant case and entry of the instant Recommended Order, however, it does not alter the need for the agency to explicate and demonstrate the reasonableness of its non-rule policy on a case by case basis. HRS was unable to do so in the formal hearing in the instant case. Notwithstanding the oral testimony of Robert May and Elizabeth Dudek, and the deposition testimony of John Griffin, it appears that the non- rule policy is not based upon generally recognized health planning considerations, but solely on the agency's statutory interpretation of recent amendments to Chapter 395 and some vague perception, after internal agency discussions, that the policy is consistent with certain promulgated need rules and with certain other non-rule policies for other types of health care entities, which other non-rule policies were never fully enunciated or proved up in this formal hearing. The HRS non-rule policy was also not affirmatively demonstrated to be rational because it does not take into account the reasonableness of a proposed facility's average length of stay, referral sources, geographic access, or other factors common to duly promulgated CON rules. Numerical Need and Conformity to Applicable Health Plans FRTC sought to support HRS' non-rule policy on numerical need for, and definition of, a "reasonably sized" IRTP through the testimony of Dr. Ronald Luke, who was qualified as an expert in health planning, development of need methodologies, health economies, survey research, and development of mental health programs. In the absence of a finding of a rational non-rule policy on numerical need, Dr. Luke's evidence forms the cornerstone of FRTC's demonstration of numerical need. Through the report and testimony of Dr. Luke, and despite contrary expert health planning testimony, FRTC established the numerical need for, and reasonableness of, its 60 licensed IRTP beds in District IX with projected 60 percent occupancy in the first year and 50 percent in the second year of operation using two bed need methodologies. Dr. Luke ultimately relied on a utilization methodology based upon 1991 population projections. Dr. Luke used a census rate per 100,000 population of 21.58. This is appropriately and reasonably derived from national data for residential treatment patients aged 0-17, regardless of the fact that the types of residential treatment considered by the NIMH data base employed by Dr. Luke greatly vary in concept and despite HRS having not yet clearly defined the nature of the programs and services it expects to be offered by a Florida specialty hospital licensed IRTP. Therefrom, Dr. Luke derived an average daily census of 52 in 1991. That figure yields a bed sizing of between 58 and 61 beds, depending on whether an 85 percent or 90 percent occupancy factor is plugged in. Either 58 or 61 beds is within the range of ratios calculated by Dr. Luke's other methodology for currently licensed Florida IRTPs in other districts. Assuming a target occupancy rate of 85 percent and an ALOS of one year, Dr. Luke considered the gross District IX IRTP bed need to be 60. In the absence of any like program to assess occupancy for and in the presence of similar programs such as Humana operating at nearly full occupancy now and RTCPB forecasting its occupancy at 88 percent in 1990 if it were IRTP-licensed, it is found that 60 beds are justified. Since there are no IRTP beds licensed as specialty hospitals in the current district bed inventory, no adjustment of this figure must be made to account for existing licensed IRTP beds. Simply stated, this is a CON application for an IRTP, nothing more and nothing less, and the subtrahend to be subtracted from gross district bed need is zero when there is a zero specialty hospital licensed IRTP bed inventory. Luke's calculated gross need of 60 bed is also his net need and is accepted. Fifty beds is generally the minimum size HRS will approve to be feasible for any free standing facility to be eonomically efficient and to be able to benefit from economies of scale. This 50 bed concept is within the wide range of bed ratios that HRS implicitly has found reasonable in, previously- licensed IRTP CON approvals. Conformity With Applicable Health Plans Section 38l.705(1)(a), F.S., requires HRS to consider CON applications against criteria contained in the applicable State and District Health Plans. In this regard, neither the applicable State Health Plan nor the applicable District IX Local Health Plan make any reference to a need for intensive residential treatment facilities. The District IX Health Plan addresses the need for psychiatric and substance abuse services to be available to all individuals in District IX. FRTC's project addresses this goal only in part. The District Health Plan states that priority should be given to CON applicants who make a commitment to providing indigent care. FRTC proposes only 1.5 percent indigent care which works out to only 1/2 of the ALOS of one patient at the proposed facility and is hardly optimum, but in a noncomparative hearing, it stands alone as advancing the given accessibility goal within the plan. Objective 1.3 of the State Health Plan provides: Through 1987, additional long-term inpatient psychiatric beds should not normally be approved unless the average annual occupancy for all existing and approved long-term hospital psychiatric beds in the HRS District is at least 80 percent. FRTC's project is neutral as to this goal. The District Plan also contains a goal for a complete range of health care services for the population of the district. FRTC advances this goal. The State Health Plan further provides: Goal 10: DEVELOP A COMPLETE RANGE OF ESSENTIAL PUBLIC MENTAL HEALTH SERVICES IN EACH HRS DISTRICT OBJECTIVE 10.1: Develop a range of essential mental health services in each HRS district by 1989. OBJECTIVE 10.3: Develop a network of residential treatment settings for Florida's severely emotionally disturbed children by 1990. RECOMMENDED ACTION: 1.03A: Develop residential placements within Florida for all SED children currently receiving ing treatment in out-of-state facilities by 1990. The FRTC project advances these goals in part. To the extent SED patients placed outside the state for residential treatment services are HRS patients whom FRTC as yet has not contracted to treat, the FRTC project does not advance this goal. However, increased insurance reimbursement will advance accessibility for those SED children and adolescents in need of this type of care whose families have insurance coverage. The State Plan also emphasizes a goal for a continuum of care. The FRTC plan advances this goal. Financial Feasibility William S. Love, Senior Director of Hospital Operations for Charter, was accepted as an expert in health care finance. Mr. Love prepared the pro forma financial statement contained in the original CON application and the update of the pro forma in response to HRS' completeness questions. Mr. Love also had input into the updated financial information which increased salary and benefit expense. (See FOF No. 11). The revised pro forma utilized an assumption of gross patient revenues of $300 per day and a 365 day ALOS, both of which are reasonable and both of which support the rest of FRTC's assumptions (See FOF No. 9). Routine revenues are based on the types of routine services patients normally receive on a daily basis. Ancillary revenues are support revenues such as pharmacy charges, X-rays, lab charges, and other charges not generally utilized on a routine basis. The only charges to patients at the proposed FRTC facility are the routine and ancillary charges. The assumptions with regard to contractual adjustments are that there will be no Medicare utilization since the facility is projected for children and adolescents and no Medicaid since freestanding facilities in Florida are not eligible for Medicaid. Two percent of gross patient revenues are estimated to be contractual adjustments which relate to HMOs and PPOs. FRTC addresses indigent care by 1.5 percent of gross revenues which will be dedicated to Charter Care which is free care. The assumptions with regard to bad debt are that 8 percent of gross revenue will be the allowance for bad debt. An assumption of 20 percent of salaries was used for employee benefits which include the FICA tax, health insurance, dental insurance, retirement plans, and other benefits. Supplies and expenses were calculated as a function of patient day with a $90 per day estimate. Included in supplies and expenses are supplies utilized in the delivery of health care services as well as medical professional fees such as the half-time medical director and purchased services such as laundry, linen, speech and hearing services, utilities, telephone, malpractice insurance, repairs and maintenance. The depreciation assumptions are that the building would be depreciated over 40 years, fixed equipment over 20 years and major movable equipment over 10 years. Pre-opening expenses for the first 45 days of operation have been capitalized over 60 months with low amortization costs over 15 years. There is no income tax assumed in the first year but the assumption in subsequent years is that the tax rate will be 38 percent. The failure to assume a hospital tax is inconsequential. The assumptions for the second fiscal year are basically the same. Although staffing remained the same, the FTEs per occupied bed increased, and a 7 percent inflation factor was added. The project will be financially feasible even though the facility is pessimistically projecting a loss of $102,000 for the first year because a facility can suffer a loss in its first year of operation and remain financially feasible. The facility projects a $286,000 profit in its second year of operation. With regard to utilization by class of pay, FRTC has assumed that the insurance category represents 65.5 percent of total revenues projected and includes such things as commercial insurance, Blue Cross and any third party carrier other than Medicare and Medicaid. Assumptions with regard to the private pay are that 25 percent of the total revenues will be generated by private pay patients and would include the self pay portions of an insurance payor's bill, such as deductible and co-insurance. Bad debt was assumed to be 8 percent, and Charter Care or free care, 1.5 percent. FRTC's projected utilization by class of pay is reasonable and is supported by the protestants' current experience with commercial insurance utilization and reimbursement and the predicted recoveries if RTCPB were IRTP-licensed. In the second year of operation, the assumptions with regard to utilization by class of pay demonstrated an increase in the insurance category from 65.5 to 66.5 percent with everything else remaining the same except for a decrease in bad debt to 7 percent. The assumption with regard to a decrease in bad debt is based upon the establishment of referral patterns from acute psychiatric facilities, outpatient programs, mental health therapists, and miscellaneous programs. The assumption is that 65 percent of the patients would be covered by insurance, not that 65 percent of each bill would be paid by insurance. Charter's experience has been that a good portion of the deductible and co-insurance payments are collectible. FRTC did not assume payment from any governmental contracts or HRS reimbursement. FRTC's projected self pay percentages assumption reasonably contemplates the percentage of households in the district which can afford its projections for self pay. For purposes of evaluating the financial feasibility of this proposal, a management fee was not included because in looking at the financial feasibility of a facility the expenses of a corporate home office are incurred whether or not the facility is built. It was not appropriate to allocate a management fee to the hospital because it showed a loss in its first year of operation and a profit in its second. When the facility becomes profitable, FRTC anticipates passing the profit through to the corporation to help reduce the corporate overhead. If a management fee had been allocated to this facility, allocations would have had to have been made to the other Charter facilities to show where their management expense had decreased and their profitability increased. It would have been inappropriate to take these fixed expenses and allocate a portion of them to the proposed FRTC facility. In addition to the fact that the failure to include a management fee in the pro forma should not affect the feasibility of the project, Charter has good cause not to apply a $44 per patient day management fee in its IRTP. FRTC's categories of payor class are generally reasonable based in part on the results of a survey performed in Florida. FRTC's assumptions and calculations are reasonable, based upon the testimony of William S. Love and Dr. Ronald Luke, notwithstanding the testimony of Dan Sullivan, Donald Wilson, and Christopher Knepper, also qualified as experts. Specifically, it is found that Dr. Luke's assessment that the designation of a facility as a licensed specialty hospital has a beneficial effect on its ability to obtain insurance reimbursement for services, that reimbursement impacts to increase ALOS, and that the breakdown of sources of payment that FRTC has used is reasonable, is a credible assessment, supported elsewhere in the record. It is also found that Mr. Knepper's assessment for bad debt is inadequately supported and inconsistent with other evidence, and therefore not credible. Mr. Sullivan's testimony is not persuasive. Staffing and Recruitment Dr. Brett, a Charter regional director for hospital operations, was accepted as an expert in staffing psychiatric facilities including residential treatment centers. His distinctions between the acute care and residential types of facilities are corroborated and explained by other witnesses and evidence. Mr. Joyner was accepted as Charter's expert recruiter. Although the depth of Mr. Joyner's hands-on involvement in active recruitment is not extensive, the Charter network of manpower referrals and "head hunting" will obviously support this project. Upon the combined testimony of Dr. Brett, Mr. Joyner, and Paul Bodner, Charter's senior director of physician relations, there is sufficient evidence that FRTC can recruit a suitable staffing pattern to ensure quality of care (see FOF Nos. 9 and 10) in its proposed program, even if it has to hire from out of state and pay somewhat higher salaries due to some qualified manpower shortages in certain categories in Palm Beach County. In making this finding, the undersigned has considered the testimony of Donald Wilson concerning certain institution-specific recruiting problems of his principal, RTCPB, and the "step down" status of residential treatment as testified by Mary Certo, of Humana. Impact on Costs and Competition The FRTC project can reasonably be expected to attract patients with insurance coverage who would otherwise go to existing facilities for care, however, in light of the relatively consistent occupancy rates at Humana and RTCPB despite both their geographical proximity and the unique confusion of referrals arising over the relocation of Dr. Kelly, this impact is not altogether clear. Dr. Kelly's reputation will not be impacted by granting of a CON to FRTC. It is also not possible upon the basis of the record created in this hearing to factor out reimbursement differences inherent in Humana's current CON classification and RTCPB's circumstance as an unlicensed intensive residential treatment center. In any case, the negative impact upon Humana must be measured against the health planning goals expressed by several witnesses that it is desirable to substitute more suitable, less restrictive facilities for institutionalization of the severely emotionally disturbed child and adolescent whenever possible and that it is also desirable to encourage residential treatment upon a continuum of care basis after acute psychiatric care. The FRTC project will obviously increase the accessibility to this type of treatment for young people who have the appropriate insurance coverage. These goals are in conformity with the applicable health plans. The FRTC project can reasonably be expected to initially increase some costs of health services throughout the district because it will inflate some salary costs due to competition, but the negative impact will probably be short term.
Recommendation Upon a balanced consideration of all relevant criteria it is RECOMMENDED that HRS enter a Final Order approving FRTC's CON application for an IRTP, as updated, for licensure as a specialty hospital. DONE and ORDERED this 28th day of June, 1988, in Tallahassee, Florida. ELLA JANE P. DAVIS Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 87-2037 & 87-2050 The following constitute specific rulings pursuant to Section 120.59(2), F.S., with regard to the parties' respective Proposed Findings of Fact. Proposed Findings of Fact (PFOF) of FRTC: Covered in "issue" and FOF 1. Covered in FOF 1 and 2. 3-7. Except as subordinate or unnecessary, accepted in "procedural and evidentiary matters" and FOF 11. 8. Accepted in FOF 12. 9-12. Except as subordinate, unnecessary, or cumulative, accepted in FOF 7-9. 13. Accepted in FOF 10. 14-17. Accepted in part and rejected in part in FOF 7-11, 30. Although portions of the underlying data referred to in proposal 16 and by Mr. Joyner in his testimony was excluded from evidence, he was qualified as a recruitment expert and for the reasons set forth in FOF 30, his opinion is accepted. 18-19. Accepted in FOF 21. Accepted in FOF 22, 26, 29. Accepted in FOF 23. Accepted in FOF 24. Accepted in FOF 25 and 29. Accepted in FOF 26 and 29. Except as subordinate or unnecessary, covered in FOF 27. Except as mere argument or statement of position, accepted in FOF 26-27, and 29. 27-29. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 26-29. 30-31. Accepted in FOF 28. 32-40. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found; in part rejected as mere argument or recital of testimony, not distinguishing opinion from fact. To the degree adopted or accepted upon the record as a whole, see FOF 9, 11, 21, 26-29. 41-44. Accepted in part and rejected in part as unnecessary and cumulative to the facts as found in FOF 29-32. 45-47. Rejected, as recital or summation of testimony and as part of preliminary agency review not relevant to this de novo proceeding. 48. Covered in FOF 7, 18-20, 22, and 26. 49-52. dejected as set out in "organic law and legislative background," "procedural and evidentiary matters," FOF 13-15. See also COL. 53. Accepted in FOF 16. 54-58. Rejected in part and accepted in part as set out in FOF 14-15. Rejected where not supported in full by the record as a whole, where subordinate, unnecessary or cumulative to the facts as found and where mere recital of testimony. 59. Accepted in principle and modified to conform to the record in FOF 18-20, 31. 60-61. Accepted in part and rejected in part as stated in "procedural and evidentiary matters" and in FOF 14-16 and the COL. Accepted in FOF 15 and COL. Accepted in FOF 18-20, 31. 64-68. Rejected as unnecessary to the facts as found in FOF 1, 7, 13-15 and 29, also in part as not supported by the record as a whole, and as primarily legal argument and recitation of testimony. Accepted in FOF 3-4 and 30. Accepted in part and rejected in part in FOF 3-4, 7, 26, and 29. 71-74. Except as subordinate or unnecessary, accepted in FOF 5-9 and 30-32. HRS' Proposed Findings of Fact (PFOF): 1-3. Accepted in "organic law and legislative background." 4. (Two paragraphs) Accepted FOF 3-4. Accepted in "issue" and FOF 3-4. Accepted, FOF 29-32. Rejected as unnecessary. Accepted, FOF 1. 10-18 & 20. Except as subordinate or unnecessary, accepted in FOF 5, 6, 15, 26, 31. 19. Rejected as irrelevant. 21-28. Accepted in part as modified to conform to the record as a whole in FOF 6-9, 30-31. The irrelevant, unnecessary or subordinate material has also been rejected. 29-31. Accepted in FOF 4, 9, 21, 26, 29-31. 32-35. Accepted in FOF 7-9. 36-41. Accepted in FOF 7-9 as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application, in "procedural and evidentiary matters" and FOF 11. 42-45. Accepted as modified to conform to the record as a whole, to eliminate subordinate and irrelevant matters and to comport with the rulings on the insubstantiality of updates to the CON application in "procedural and evidentiary matters" and FOF 9-11, 21, 23, 30 and 32. Accepted in FOF 22, 26, 29. Accepted in FOF 7, 20, 22, 26. 49-52. Accepted in FOF 3, 4, 21-29. Assuming, based on the transcript reference, that this proposal refers to FRTC's pro forma, this proposal is accepted but unnecessary for the reasons set forth in rulings on HRS' PFOF 36-45. See FOF 11 and 21-29. Accepted in FOF 13-15. 55-58. Rejected as unnecessary. 59. Accepted but not dispositive of any material issue at bar. See FOF 13-15. 60-62. Accepted in part and rejected in part in FOF 13-14, as mere recital of testimony and statements of position. 63. Accepted in FOF 29. 64-65. Accepted in FOF 5-9. Accepted in FOF 7-9. Accepted that HRS made this assumption but it fails to explicate the non-rule policy. See FOF 13-14. Accepted in FOF 16. Rejected as a statement of position or COL. Peripherally, see COL. Accepted in FOF 13-14 but not dispositive of any material issue at bar. Rejected in FOF 13-14. 72-74. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 75-76. Accepted in FOF 17-20. This is a subordinate definition and not a FOF. See FOF 30-31 and COL. Rejected in part and accepted in part in FOF 17-20, 31. Accepted in FOF 10. Accepted in FOF 13-15. Accepted as stated in the "procedural and evidentiary matters," FOF 13-15 and in the COL. 82-85. Covered in FOF 3-6, 13-15. 86. Rejected as preliminary agency action, irrelevant to this de novo proceeding. 87-88. Rejected as subordinate or unnecessary. 89. Accepted in FOF 29. 90-96. Accepted as modified to conform to the record evidence as a whole and FOF 15-16 and to reject subordinate and unnecessary material. Accepted without any connotations of the word "therefore" in FOF 4, 7-9, 21 and 29. Rejected as unnecessary and cumulative. Accepted in "organic and legislative background" and FOF 13-15. Rejected as not established upon the record as a whole; unnecessary. Rejected as a statement of position only. Joint Proposed Findings of Fact of RTCPB and Humana 1-2 Accepted in FOF 1. 3-4. Accepted in FOF 2. 5-6. Accepted in "issue" and FOF 3-4. 7. Accepted in "issue" and FOF 5-6. 8-13. Accepted in part and rejected in part as set out under "procedural and evidentiary matters," FOF 3-6, 13-15, and the COL. 14-18. Except as subordinate or unnecessary, accepted in FOF 1, 7-9, 11, 21-29. 19-27. Rejected as irrelevant preliminary action to this de novo proceeding. 28-36. Rejected in part and accepted in part upon the compelling competent, substantial evidence in the record as a whole as set forth in FOF 13-14. Also as to 33 see FOF 15. 37-52. Accepted in part and rejected in part in FOF 13-16 upon the greater weight of the credible evidence of record as a whole. Irrelevant, unnecessary and subordinate material has been rejected, as has mere argument of counsel. Accepted in FOF 17. Rejected in FOF 20, 31. Accepted as modified in FOF 20, 31. Excepting the mere rhetoric, accepted in FOF 18, 31. Accepted as modified in FOF 7, 18-20, 26, 31. 58-59. Accepted in part and rejected in part in FOF 17-20, 26, Rejected as subordinate. Rejected as recital of testimony and argument 62-63. Rejected as unnecessary. 64-67. Accepted in FOF 3-4, 6-9. The first sentence is rejected as cumulative to the facts as found in FOF 3-4, 6-9. The second sentence is rejected as not supported by the greater weight of the evidence as a whole. Rejected in FOF 4, 21. Accepted in FOF 4 and 21, 29. Rejected as unnecessary Accepted in FOF 26. Rejected in FOF 15-20, 31. Rejected as unnecessary in a noncomparitive hearing. 75-87. Except as irrelevant, unnecessary, or subordinate, accepted in FOF 5-9, 30, 31. Rejected in part as unnecessary and in part as not comporting with the greater weight of the evidence in FOF 7-10 and 30. Accepted in FOF 1, 5-9. 90-92. Accepted in FOF 5-9. Rejected in FOF 5-6. Rejected as subordinate. 95-98. Accepted in FOF 5-9. 99-102. Rejected as unnecessary. 103. Except as subordinate or unnecessary, accepted in FOF 5-9. 104-118. Except as unnecessary, subordinate, or cumulative to the facts as found, these proposals are covered in FOF 5-9, 30-31. Except as Subordinate, covered in FOF 6 and 31. Accepted in part in FOF 5-9, 21-29, otherwise rejected as misleading. Except as subordinate, accepted in FOF 6. Rejected as unnecessary. Accepted in FOF 21. Accepted in FOF 21-29. Rejected in part and accepted in part in FOF 21-29. Rejected as subordinate and unnecessary in part and not supported by the greater weight of the credible evidence in 21-29. 127-128. These proposals primarily recite testimony by Mr. Grono, an administrator of a psychiatric hospital for very severely disturbed persons (Grant Center). This evidence by itself is not persuasive in light of Dr. Luke's study and other admissions of the parties referenced in FOF 21-29. Upon the greater weight of contrary evidence, it is rejected. 129. Rejected as subordinate except partly accepted in FOF 29. 130-133. Rejected upon the greater weight of the evidence in FOF 9, 11 and 21-29. 134, 139. Rejected as legal argument without citation. 135-138. Rejected in FOF 21-29. 140-144. Rejected as stated as not supported by the greater weight of the credible evidence and as partly mere legal argument. See FOF 9, 21-29. 145. The first sentence is rejected upon the reference to PFOF 140-144 for the same reasons given above and the remainder is rejected as subordinate. 146. Rejected in FOF 21-29. 147. Rejected as mere legal argument without citation. 148-149. Rejected in FOF 21-29, particularly 27 upon the greater weight of the credible evidence. The mere legal argument is also rejected. 150-157. Rejected as set out in FOF 28 upon the greater weight of the credible evidence. Uncited argument and statements of position have likewise bean rejected. 158, 160. Rejected as mere argument without citation. 159. Rejected as subordinate and not dispositive of any material issue at bar in FOF 23. 161. Rejected as mere argument. 162-167. Rejected as not supported by the greater weight of the credible evidence in FOF 30-32. Also 167 is rejected as mere argument without citation. 168. Accepted in part and rejected in part in FOF 30-32. 169. Accepted but subordinate. 170. Rejected as unnecessary and cumulative to the facts as found in FOF 31. 171-180. Covered in FOF 30-32. 181-185. Rejected as contrary to the evidence in part and in part unnecessary and cumulative to the ruling in "procedural and evidentiary matters" and FOF 7, 10-11, 21, 23, 30-32. 186-188. Rejected in FOF 7, 10 and 30 upon the greater weight of the credible evidence. 189. Rejected as unnecessary 190. Rejected in FOF 30. 191-392. Accepted but not dispositive of any material issue at bar. See FOF 30-32. 193. Rejected in FOF 30-32. 194-195. Except as subordinate or unnecessary, rejected in the several references to future establishment of referral networks. See FOF 21, 27. 196-197 & 199. Rejected as unnecessary 198. Rejected as irrelevant in part and immaterial in part upon the rulings in "procedural and evidentiary matters" and FOF 11. 200. Rejected as unnecessary 201-202. Accepted in FOF 7, 20, 26-27 and 31, but cumulative. 203. Covered in the COL. Rejected in FOF 21-22. 204. Rejected as mere argument without citation. COPIES FURNISHED: Michael J. Glazer, Esquire AUSLEY, McMULLEN, McGEHEE, CAROTHERS & PROCTOR 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 John T. Brennan, Jr., Esquire BONNER & O'CONNEL 900 17th Street, N.W. Washington, D.C. 20006 James C. Hauser, Esquire Joy Heath Thomas, Esquire MESSER, VICKERS, CAPARELLO, FRENCH & MADSEN 215 South Monroe Street Post Office Box 1876 Tallahassee, Florida 32302 Fred W Baggett, Esquire Stephen A. Ecenia, Esquire ROBERTS, BAGGETT, LaFACE & RICHARD 101 East College Avenue Tallahassee, Florida 32301 Lesley Mendelson, Esquire Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
The Issue The issue presented herein is whether or not a CON to construct a 60-bed short-term psychiatric hospital in District XI should be issued to Florida Medical Center (FMC).
Findings Of Fact FMC seeks a CON for a 60-bed free-standing psychiatric facility to be located in the Key Largo area of Monroe County in HRS District XI. FMC intends to provide 6.25 percent of its patient days at no charge to indigent patients. It further intends to provide another 6.25 percent of its patient days to HRS' clients and Baker Act patients at 50 percent of its projected charge, or $200 per day. (FMC Exhibit 2, Table 7). FMC proposes to build this facility at a cost of $6,060,000. Dr. Richard Matthews, Ph.D., has been executive director of the Guidance Clinic of the Upper Keys since 1973 and is a clinical psychologist. He is responsible for the overall administration and supervision of mental health, alcohol, drug abuse and out-patient services provided under contract with HRS. Dr. Matthews was qualified as an expert in clinical psychology and the mental health delivery health system in Monroe County. (FMC Exhibit 13). There are three guidance clinics in Monroe County, one each for the upper, lower and middle Keys. HRS contracts through each of these clinics to provide mental health care for its clients. There are no community mental health centers in Monroe County and the clinics are the sole means of delivering mental health care on behalf of HRS' clients within the county. Currently, the guidance clinic of the upper Keys places its in- patients in Harbor View Hospital in Dade County at a cost of $236 per day. Neither Harbor View nor any other hospital provides free days to any of the guidance clinics for in-patient psychiatric care. (FMC Exhibit 13, P. 9) Jackson Memorial Hospital does not accept indigent or charity psychiatric patients from Monroe County. There have been occasions where patients without resources have been unable to be hospitalized although hospitalization was indicated. The middle Keys has a crisis hospitalization unit with a limited number of beds. Patients needing hospitalization longer than three days must be transferred to Harbor View or some other facility in the District. The 15 beds at Depoo Hospital in Key West are not readily accessible to residents of the upper Keys. Residents needing psychiatric services usually go to hospitals in Dade County. Coral Reef Hospital, the nearest psychiatric facility to Petitioner's proposed facility, has in the past refused to negotiate a discounted rate with the guidance clinic. Dr. Matthews, on one occasion, sent a patient to Coral Reef who was refused treatment. Currently, no psychiatrist practices in Key Largo because there are no psychiatric beds to which a psychiatrist could admit patients. The discounted rate of $200 per day quoted by FMC is some $36 per day less than the guidance clinic currently pays to providers for referrals of its patients for psychiatric care. Additionally, the 6.25 percent of free care that Petitioner proposes is greater than the free care which the guidance clinic currently receives from any facility since no facility presently gives any free care to the clinic. The guidance clinic supports Petitioner's CON application and will contract with Petitioner who provides services for in-patients. Grant Center is a long-term 140-bed psychiatric hospital specializing in the treatment of children and adolescents. It is the nearest facility to Petitioner's proposed facility. Grant Center has agreed to refer adult patients to Petitioner. Grant Center treats 2-3 adults a month who need psychiatric care. (FMC Exhibit 14). There is one hospital providing psychiatric care in Dade County which was surveyed by the Health Care Finance Administration (HCFA) in March, 1988. Currently, a third party insurance carrier no longer utilizes Grant Center because of price. If a facility has prices which carriers consider too expensive, utilization will go down. (FMC Exhibit 14, P. 7). Grant Center currently contracts with HRS to provide its clients care at a rate of approximately $350 per day, a rate one half of Grant Center's normal rate. Jackson Memorial is the only Dade County hospital which will treat an indigent psychiatric patient. Grant Center intends to assist Petitioner with staffing or programmatic needs. It has 80-100 professional staff, most of whom live in close proximity to Key Largo. Robert L. Newman, C.P.A., is the chief financial officer at FMC. He testified, by deposition, as an expert in hospital accounting and finance. Newman analyzed the Hospital Cost Containment Board (HCCB) reports for each hospital in District XI which provides psychiatric care. There is no free standing psychiatric hospital in the District which reports any indigent or uncompensated care. Among area acute care hospitals which have psychiatric units, Miami Jackson rendered 38.89 percent indigent care, Miami Children's rendered 6.5 percent indigent care, and no other facility reported that it rendered more than 1.75 percent indigent care. (FMC see Exhibit 11, disposition exhibit 1). Jackson provides no free care to Monroe County residents and Miami Children's care is limited to treating children while Petitioner is seeking adult beds. Jayne Coraggio testified (by deposition) as an expert in psychiatric staffing and hiring. She is currently Petitioner's director of behavioral sciences. The ideal patient to staff ratio is 4 to 5 patients per day per professional staff member. During the evening shift, the ideal patient ratio per professional staff member is 7 to 8 patients. (FMC Exhibit 12, PP. 6-7). Petitioner's facility is adequately staffed based on the above ratios. FMC is considered overstaffed in the psychiatric unit by some of the other area hospitals since they do not staff as heavily as does Petitioner. Lower staffing ratios can affect quality of care since patients and their families would not receive as much therapy. Family therapy is important because the family needs to know about changes in the patient in order to make corrective adjustments. The family that is required to travel in excess of 45 minutes or more one way is less likely to be involved in family therapy. Islara Souto was the HRS primary reviewer who prepared the state agency action report (SAAR) for Petitioner's CON application. (FMC Exhibit 15). District 11 has subdivided into five subdistricts for psychiatric beds. Florida is deinstitutionalizing patients from its mental hospitals. To the extent that private psychiatric hospitals do not accept nonpaying patients, their existence will not solve the problem of caring for such patients. Souto acknowledged that the local health councils conversion policy discriminates against subdistrict 5 because there are so few acute care beds in the subdistrict. In fact, the conversion policy actually exacerbates the maldistribution of beds in the district. (FMC 15, page 26). The psychiatric facility nearest the proposed site (Coral Reef), had an occupancy of 90.3 percent. Souto utilized a document entitled Florida Primary Health Care Need Indicators, February 1, 1986, and determined that Monroe County has not been designated as a health manpower shortage area, nor a medically underserved area. This information is relied upon by health planners to determine the availability of health manpower in an area. This report refers both to physicians and R.N.'s. The average adult per diem for free-standing hospitals in District 11 range from $430 at Charter to just over $500 at Harbor View. Although districts have established subdistricts for psychiatric beds, no psychiatric bed subdistrict in any district has been promulgated by HRS as a rule. The access standard that is relevant to this proceeding is a 45-minute travel standard contained in Rule 10-5.011(1)(o)5.G. That standard states: G. Access Standard. Short-term inpatient hospital psychiatric services should be available within a maximum travel time of 45 minutes under average travel conditions for at least 90 percent of this service area's population. Here, the standard refers to the service area which is determined to be an area different than a service district. Applying the travel time standard on a service area basis makes the most sense since the subdistrict is established by the local health council and not the applicant. Analyzing this access standard on a sub-district level, 90% of the sub-districts population is not within 45 minutes of any facility anywhere in sub-district V since the sub-district is more than two hours long by ordinary travel and the population is split two-thirds in lower Dade County and one-third in Monroe County, the bulk of which is in Key West. (FMC Exhibit 17). Therefore, a facility located on either end of this sub-district is not readily accessible by the applicable travel standards to citizens at the other end of the sub-district. This access standard must however be measured and considered with the needs for psychiatric services of the kind Petitioner is proposing to provide. Petitioner has not presented any access surveys or assessments of the caliber relied upon by the Department in the past. Petitioner's facility which would be located in the Key Largo area will no doubt provide better geographic accessibility to residents of District XI who live in the Key Largo area. HRS has in the past used a sub-district analysis to determine geographic accessibility for psychiatric beds even though it has not promulgated a rule for sub-districts for psychiatric beds. See, for example, Psychiatric Hospital of Florida vs. Department of Health and Rehabilitative Services and Pasco Psychiatric Center, DOAH Case No. 85-0780. Likewise, the Department has approved the conversion of acute-care beds to psychiatric beds even though it found that there was a surplus of psychiatric beds in the district. (Petitioner's Exhibit 7). The Department has in the past used a geographic access analysis to approve psychiatric beds in District XI and has used the sub- district analysis or a time travel analysis in its review of Cedars, Coral Reef, Depoo (for psychiatric beds) and the Glenbiegh case (for long term substance abuse). The bed need calculations for the January, 1992 planning horizon shows a surplus of 180 short-term in-patient psychiatric beds. (HRS Exhibit 2). The occupancy level for short-term psychiatric beds in the district is below 70%. (HRS Exhibit 2, pages 11-12). Additionally, the occupancy standards of the local and state health plan, of which the department is required to review CON applications, have not been met in this instance. (HRS Exhibit 2, Pages 6-7). Petitioner has not submitted any documentation to HRS regarding special circumstances need. Petitioner's proposal at final hearing for a staff referral agreement with another local hospital was not contained in the CON application filed with HRS. (FMC Exhibit 14, pages 11-12). Although Petitioner has alluded to some unspecified access problem for residents in the Florida Keys, Petitioner has not documented a real access problem and certainly not a demonstration of inaccessibility under the rule access standard. (Florida Administrative Code Rule 10-5.011(1)(o)5.g.)(HRS Exhibit 2, pages 14-15). Although the proposed project would increase availability and access for underserved groups in the district, the percentage of total patient days for "indigents" is not substantial and certainly not to the point to warrant deviation from the usual access criteria. 2/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, IT IS RECOMMENDED THAT: Petitioner's application for a Certificate of Need to build a 60-bed free- standing psychiatric hospital in District XI be DENIED. DONE and ENTERED this 28th day of February, 1989 in Tallahassee, Florida. JAMES E. BRADWELL 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 28th day of January, 1989.
The Issue The issue for resolution is which of two competing certificate of need applications should be approved for nursing home beds in District 6, Subdistrict 2, Manatee County, Florida. Other ancillary issues are whether Mediplex timely filed a letter of intent to apply for a certificate of need, whether Mediplex impermissibly amended its application at hearing and whether Beverly impermissibly is proposing two projects (delicensure and creation of beds in addition to those in the fixed need pool).
Findings Of Fact The Agency for Health Care Administration (AHCA) is responsible for the administration of the certificate of need (CON) program pursuant to section 408.034, Florida Statutes. Vantage Healthcare Corporation is a wholly-owned subsidiary of Beverly Health and Rehabilitation Services, Inc., which is itself a wholly-owned subsidiary of Beverly Enterprises, Inc. Beverly Enterprises, Inc. is the largest provider of nursing home services in the nation. Vantage operates four nursing homes in the State of Florida, and has no facilities outside of Florida. The Beverly family of nursing homes comprises 67 nursing homes in Florida, with just under 8,000 nursing home beds. Mediplex is a wholly-owned subsidiary of the Mediplex Group which, in turn, is a wholly-owned subsidiary of Sun Healthcare Group. The Sun Healthcare Group operates primarily in the northeast U.S. (Connecticut, Massachusetts, and Rhode Island) and the west (Denver and Seattle). Mediplex operates two facilities in Florida, one in Bradenton and another in West Palm Beach. Mediplex's Bradenton facility, the applicant in this proceeding, is an existing 120-bed nursing home located at 5627 Ninth Street East, Bradenton, Florida. Stipulations of the Parties Through their joint prehearing stipulation the parties stipulated to the following matters: Applications and Omission Responses may be placed into evidence without first having been proven, but the contents of those documents shall be hearsay, except as otherwise provided herein, until properly corroborated. Audited financial statements contained in the Application and/or Omissions Responses shall be admissible into evidence without a foundation witness and the information contained therein shall not be considered hearsay. Each of the applicants has access to sufficient financial resources to be able to construct and implement its proposed project; i.e. the proposals are financially feasible in the short term. Each of the applicants' dietary plans is adequate, meets regulatory requirements and does not afford the basis for comparative review between the parties. Each applicants' Letter of Intent, Corporate Resolution, newspaper publication and Schedule 2 are adequate and correct in form and content and comply with applicable statutes and rules except to the extent disputed by Mediplex in its Motion for Summary Recommended Order Against Vantage Healthcare Corporation. Newspaper publications were timely made by all applicants. Applications and Omissions Responses of all parties were timely filed. It remains at issue whether all Letters of Intent were timely filed. The fixed bed need pool available to applicants in this application cycle was 63 beds. Like and existing health care facilities in District 6 generally provide quality care, are efficient, and are adequate. However, up to 63 additional nursing home beds are required because the high utilization of the like and existing services renders them, or will render them, unavailable and inaccessible. By entering into this stipulation, the parties are not stating that the particular facilities owned or operated by Beverly Enterprises, Inc., or any of its subsidiaries, or Mediplex, necessarily provide quality care, are efficient or are adequate and reserve the right to present evidence on these issues related to these facilities. There are no appropriate alternatives to nursing care for those persons who, because of physical and/or social conditions require nursing care. No applicant is proposing joint, shared or cooperative health care resources. Section 408.035(1)(e), Florida Statutes, is not applicable to this proceeding. No applicant is proposing special equipment or services not accessible in adjoining areas. Mediplex, however, currently provides special equipment and/or services which may not be available in adjoining service areas. Section 408.035(1)(f) is not applicable to this proceeding. No applicant is proposing to provide a substantial portion of their proposed services to persons who do not reside in the service area. Mediplex, however, currently serves a number of patients from outside the service area in its existing facility. Section 408.035(1)(k) is not applicable to this proceeding. Existing inpatient facilities generally are being used in an appropriate and efficient manner. By so stipulating, the parties are not stating that existing facilities, particularly those operated by Beverly Enterprises, Inc., or its subsidiaries, and the Mediplex cannot be used in a more appropriate or efficient manner or are currently being used appropriately or efficiently. Patients in Manatee County will experience serious problems in accessing nursing care without the addition of additional nursing care beds. Each of the parties can hire the staff listed on Schedule 6 of their applications at the salary listed therein. The parties are not stipulating that the levels of staffing proposed on Schedule 6 are adequate. Additionally, at hearing, the parties stipulated to the following matters: Neither party has ever turned in a certificate of need for failure to complete a project. Neither Mediplex nor any Beverly entity has ever failed to obtain financing for an approved project. The proposed projects are consistent with the strategic development plans of the respective applications. Both applicants have true and accurate certification pages and corporate resolutions in their applications. Both applicants will go forth with the conditions which are stated in their applications. The applicants' cover pages are true and accurate. Each applicant paid an appropriate application fee to AHCA. Each applicant has operated in Florida for the years reflected in its application. Each applicant's project development and financing costs as reflected in its application is reasonable and accurate. Each applicant's proposed project completion forecast is reasonable. Beverly's Proposal Beverly is proposing to construct a 105-bed freestanding nursing home in Manatee County to be comprised of 63 beds from the fixed need pool and 42 beds to be delicensed from a related facility, the Manatee Health Care and Rehabilitation Center. The proposed facility will consist of 53,310 gross square feet and have a total project cost of $7,363,760. Beverly's facility will be conditioned upon providing 50.2 percent of its patient days to Medicaid patients, having a 20-bed Medicare-certified skilled nursing and subacute care unit with the capacity to treat ventilator patients, having an adult day care program, providing respite care, and treating persons with associated mental health disorders, Alzheimer's disease, and persons who are HIV positive. Beverly will also contribute $10,000 to a gerontological research fund at Florida A & M University upon approval of this project. Manatee Health Care and Rehabilitation Center is a three-story, 147-bed nursing home in Bradenton, Florida. It was constructed approximately thirty years ago and contains 3-bed wards on the second and third floors. Because of its age, the Manatee Health Care and Rehabilitation Center has very limited space for the provision of therapy. Three-bed wards are not considered state of the art and are difficult to manage. Residents prefer private and semiprivate rooms to three-bed wards. Gender separation and smoking preferences are much harder to accommodate with larger wards. Infection control problems are increased with larger residential units. In spite of these drawbacks, the facility has a superior license and enjoys continuous occupancy of over 90 percent. Beverly has filed a certificate of need application to delicense 42 beds at Manatee Health Care and Rehabilitation Center. Those 42 beds would be used in conjunction with 63 beds from the available fixed need pool to allow for the construction of a new Beverly facility at an undetermined site in Manatee County. If both applications are approved (the one at issue and the delicensure application), Beverly will remove all patient rooms from the first floor of Manatee Health Care and convert that space to therapy treatment rooms and office space. The additional therapy space will allow Beverly to purchase and install additional therapy equipment. All of the three-bed wards on the second floor of Manatee Health Care will be converted to semiprivate rooms. Beverly's proposal is intended to benefit residents at the proposed facility and the residents at the existing Manatee Health Care and Rehabilitation Center. Beverly's proposed new facility is designed in a "reverse T" configuration to minimize the distance from the resident rooms to the nursing stations, with each nursing station having direct visual control over all patient rooms on that station. It will have 36 semiprivate rooms and 33 private rooms. Designed to minimize an institutional effect and provide for a home-like setting, the proposal includes two large day rooms, four activity rooms, and five enclosed courtyards. The central courtyard has a solarium/greenhouse and a screened gazebo. Separate areas are designated for the adult day care program and the Alzheimer's treatment unit. There are a large occupational and physical therapy gym and dedicated treatment areas for speech therapy and activities of daily living therapy. There is also a central ambulation court for use in physical rehabilitation. In a prehearing motion for summary recommended order and throughout the proceeding, Mediplex has contended that Beverly's application for delicensure and approval of new beds is technically defective as the proposal described in its letter of intent is really two projects, rather than the required single project. The letter of intent describes the new facility to be comprised of 63 beds from the fixed need pool and 42 beds to be delicensed from the existing facility. The new facility is the subject of CON application number 7938, at issue in this proceeding. On January 20, 1995, subsequent to the application omissions filing deadline for CON number 7938, Beverly filed its application for CON number 7998 for delicensure of 42 beds at the existing facility. This latter application was denied and the proceeding to challenge that proposed agency action is in abeyance pending the outcome here. (Vantage Healthcare Corporation v. Agency for Health Care Administration; DOAH case number 95-3891) Beverly will not delicense its beds at the existing facility unless its application for CON for the new facility is approved. The two applications are essential elements in a single expansion scheme. Beverly made full disclosure of its intent to AHCA and confirmed with AHCA the process it should follow to present its proposal within the formal regulatory framework. The process of creating a new facility with beds from the fixed need pool combined with delicensed beds from a separate facility has been approved by AHCA in the recent past in Clearwater Land Company v. Agency for Health Care Administration, 17 FALR 3817 (AHCA 1995, DOAH Case No. 94-2404/94-2972). In the Clearwater case, however, the project involved delicensure of the entire old facility, a distinction that is significant with regard to financial projections as discussed below, but a distinction that is not fatal to the single project issue. Mediplex's Proposal Mediplex proposes a 60-bed addition to its existing 120-bed facility, for an additional 14,984 gross square feet at the cost of $2,019,972. Mediplex's Manatee Springs Nursing Center is located in the southeastern corner of Manatee County, in close proximity to hospitals in Manatee County and Sarasota. Eighty beds are active rehabilitation, sometimes called "subacute" beds, which are Medicare certified. Forty beds are long term, less intensive care beds. Mediplex has a superior license and is accredited by the Commission on Accreditation of Rehabilitation Facilities (CARF) and the Joint Commission on Accreditation of Healthcare Facilities (JCAHO). These accreditations are evidence of extraordinary commitment to quality of care. The 60 beds sought by Mediplex are intended to be long term care beds, as the census in the facility's existing long term beds remains stable, with a 98 to 100 percent occupancy on a day to day basis. Occupancy of the subacute care beds fluctuates, but generally more of these beds are empty. Mediplex provides amenities that contribute to a home-like non- institutional environment, with design features to promote the privacy, individual choice and comfort of its residents. Design and location of the proposed addition will facilitate access to all services and amenities offered at the existing facility. Mediplex residents, existing and future, will benefit from staffing levels and ancillary services that are unique in a nursing home setting. The facility has three full-time physicians, including the medical director, a full- time psychologist, case managers and numerous contract therapists. Mediplex's Letter of Intent On October 31, 1994, Beverly filed its letter of intent for its proposed 105-bed facility. Consequently, pursuant to Rule 59C-1.008, Florida Administrative Code, a grace period was triggered for the filing of additional letters of intent. The deadline for the filing of grace period letters of intent was November 16, 1994. On November 15, 1994, Mediplex delivered its letter of intent to an overnight carrier, Airborne Express, for guaranteed delivery the following day to AHCA in Tallahassee and to the Local Health Council, the Health Council of West Florida, Inc. On November 17, 1994, AHCA advised Mediplex that AHCA and the local health council did not receive Mediplex's letter of intent until that same day. AHCA also advised that it would accept the letter of intent if Mediplex could obtain correspondence from the overnight carrier explaining that the late delivery was the fault of the overnight carrier and not the fault of Mediplex. Despite the fact that Mediplex's letter of intent was delivered to AHCA and the local health council one day following the grace period letter of intent deadline, AHCA determined that the letter of intent should be accepted because the late delivery was the fault of the overnight carrier and Mediplex had delivered the letter of intent in a timely manner to the overnight carrier. AHCA has previously accepted items from certificate of need applicants which were delivered one day late when late delivery was the result of an overnight carrier failing to follow through on its guarantee. This policy has developed in the eleven years that Liz Dudek, Bureau Chief for Certificate of Need and Budget Review, has been involved in the program. It is common and reasonable for applicants to rely on next-day delivery services and it is reasonable for AHCA to accept filings in the unusual event that the carrier fails to timely deliver through no fault of the applicant. Relevant Preferences in the Local Health Plan The August 1994 CON Allocation Factors Report for District VI identifies three allocation factors that are relevant to these nursing home applicants. Both Beverly's and Mediplex's proposals include agreed conditions for Medicaid utilization that meet or exceed the percentage of persons below 125 percent of the federal poverty level (15 percent in Manatee County) and the average number of Medicaid residents in existing nursing homes in the county (50.09 percent). Beverly commits to 50.2 percent for its new facility and is already achieving 72.4 percent at the facility from whence 42 beds will be derived. Although its commitment meets the criteria, it arguably represents a decline from Beverly's current outstanding Medicaid service. Uncertainty regarding the siting of the new facility affects Beverly's assurance that 50.2 percent is merely a minimum and that it expects to achieve a higher percentage. Depending upon the geographical location of the new facility in Manatee County, it may or may not attract the same level of Medicaid residents as now benefit from the existing facility. Mediplex commits to serve 51 percent Medicaid residents in 100 long- term beds. The second allocation factor in the District VI Plan relates to proposals of specialized services (for example, adult day care) to meet identified unmet needs. Both applicants propose an array of services. Beverly's application includes specific plans for adult day care; Mediplex's application does not. Both applicants are entitled to the preference in the third allocation factor, regarding demonstrated intent to serve HIV infected persons. Beverly has identified 3,400 patient days of nursing home care to patients with HIV/AIDS in all of its Florida facilities in 1994 and projected a substantial increase in 1995. Mediplex has served, and will continue to serve these patients, but does not maintain statistics on patient days. Mediplex's unique staffing, specifically including its full-time physicians, makes it ideally prepared to care for terminally ill patients. The State Health Plan The first allocation factor under the State Health Plan provides a preference to applicants proposing to locate nursing homes in subdistricts with occupancy rates exceeding 90 percent. The occupancy rate in Manatee County for the applicable planning horizon is 94.63 percent, and both Beverly and Mediplex qualify for this preference. The second State Health Plan factor, regarding service to Medicaid residents, is the same as the local health plan factor discussed in paragraphs 23 - 25, above, and both applicants qualify. Preference under the third factor is given to applicants proposing to provide specialized services to special needs residents, including AIDS and Alzheimer's residents and the mentally ill. Beverly has agreed to condition approval of its application on services to these special needs persons. Mediplex does not include such agreement in its application, but provides the services and plainly has the will and the means to continue to do so. State Health Plan allocation factor four is similar to the local plan allocation factor discussed in paragraph 26, above. Beverly describes and intends to implement a specific program for adult day care and includes a dedicated unit in its architectural plans; it also conditions award of its CON on the provision of respite care. Mediplex's application does not address day care, but states that the addition of 60 long term care beds will make it possible to implement a respite care program. Its existing 40 long term beds have been fully utilized, with no space to accommodate respite care which by its nature is short term. Allocation factor five gives preference to applicants proposing to construct facilities which provide maximum resident comfort and quality of care. Both applicants are entitled to this preference with outstanding designs and programs. Beverly's new facility will provide more space per patient overall than Mediplex's addition, but the room sizes are approximately equal. During the hearing, issues were raised with regard to whether portions of both Mediplex's and Beverly's designs met the requirements of the Americans with Disabilities Act (ADA). Credible conclusions by experts for both parties established that the apparent deficiencies were in the rough designs and that ADA requirements could be met by both facilities within their proposed spaces and costs. Allocation factor six provides a preference for proposals of innovative therapeutic programs which have been proven to be effective in enhancing residents' physical and mental functioning level. Beverly proposes, and Mediplex already provides, a full range of high quality therapy services. While these services may be more extensive or intensive than those offered in other older nursing homes, the services are not novel or "innovative." Further, Mediplex's application for 60 new long term care beds does not contemplate intensive therapeutic services to the residents of those new beds, which services are already being provided in its existing program. Beverly's proposal more effectively advances the goal reflected in this factor since its new facility would substantially improve the rehabilitation services it now offers. Preference in allocation factor seven is given to applicants proposing charges which do not exceed the highest Medicaid per diem rate in the subdistrict. Exceptions are considered for facilities proposing to serve upper income residents. Mediplex has now, and will have in the projected future, the highest Medicaid per diem rate in the subdistrict. It failed to prove at hearing its statement in its CON application that approval of the 60-bed addition would result in a lower Medicaid per diem rate for the facility. Beverly's current and projected rates are substantially lower than Mediplex's. Beverly argues that Mediplex impermissibly amended its application at hearing when its expert testified that the projected Medicaid rate is $126 per day. While the financial data, as well as other parts of the application, included careless errors, the testimony explained the data provided and did not change the revenue and expense projections on Mediplex's Schedule Eleven. Allocation factor eight provides a preference to applicants with a history of superior resident care in existing facilities, considering, among other circumstances, the current licensure ratings of facilities located in Florida. Both applicants have a history of providing superior resident care. Approximately 75 percent of Beverly's many facilities in Florida enjoy a superior license rating. Of the four facilities owned by wholly-owned subsidiary, Vantage, two are superior, including the facility from which beds will be delicensed. Deficiencies have been quickly corrected when identified. Mediplex has consistently maintained a superior rating at the facility it seeks to expand. Its ability to withstand rigorous accreditation scrutiny by the Joint Commission on the Accreditation of Health Care Organizations and by the Commission on Accreditation of Rehabilitation Facilities, and its designation as a Head Injury Rehabilitation Care Center by the Florida Division of Vocational Rehabilitation further attest to its unique quality. State Health Plan allocation factor nine gives preference to applicants proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules. Preference is also given in allocation factor ten to applicants who will use professionals from a variety of disciplines to meet residents' needs including social services, recreation, nutrition, physical and specialized therapy, mental health and spiritual guidance. Beverly and Mediplex both clearly are entitled to these preferences as they both propose staffing levels which exceed the minimum standards of the agency's administrative rules. Both describe a multidisciplinary approach in serving residents; both employ or will contract with a full array of health care and geriatric care professionals. Entitlement by both applicants to the preference in allocation factor eleven is similarly uncontested. This preference relates to a respect for residents' rights and privacy and well-designed quality assurance and discharge plans. State Health Plan allocation factor twelve gives preference to applicants proposing lower administrative costs and higher resident care costs than the average costs in nursing homes in the district. Only Beverly achieves this. The average administrative cost per patient day in District VI in 1993 was $24.74, and the average patient care cost per day was $47.48. To arrive at a reasonable comparison, the agency applies a five percent per year inflation factor through the applicants' second year of operation (here, 1998). This results in mid-year 1998 average patient care costs of $60.60 per day and administrative costs of $31.56 per day. For the target year Beverly proposes $22.27 administrative costs and $67.72 patient care costs. Mediplex's projected resident care cost of $118.43 and administrative cost of $59.73, per day, are both almost twice the district averages. As described by Mediplex's consultant, these costs are reflective of the high level of patient care provided in its facility. Approval of the additional 60 long term care beds, which beds will ordinarily generate less costs, will spread the subacute beds' costs over a wider base, thereby benefiting those patients. The high level of care will also be available to the long term care patients. Balancing Criteria: Need and Financial Feasibility As reflected above, there is little to recommend one application over the other when the criteria in the local and state health plans are considered. Beverly's new physical plant is preferable and its projected Medicaid rate and administrative costs (but patient costs, as well) are lower. Mediplex, however, enjoys an impeccable reputation for quality of care and provides the unique staffing to insure that its high level and quality of care are maintained. Both applicants reasonably propose to meet the identified for additional community nursing home beds in Manatee County, Florida. There is a difference in how each proposes to meet that need. Beverly suggests there is a need for subacute care beds and proposes to provide twenty such beds in its new facility. It is undisputed that patients are being discharged from acute care hospitals "quicker and sicker" and they sometimes require "step-down" or subacute level of care before returning to their homes or long term living arrangements. There is a trend in nursing homes to staff and equip facilities to meet this need. Beverly projected the need for additional subacute beds in Manatee County based on a flawed analysis of existing inventory. It considered only fifteen of Mediplex's eighty subacute beds and failed to include subacute beds recently approved in two hospitals in Manatee County, Blake and Manatee Memorial. These hospitals, without their own subacute beds, would be actively referring patients to community nursing homes with subacute care capability. There is no established definition of "subacute" and consequently no clear basis to establish an inventory of those beds in existing facilities. The facilities themselves define and identify them based on the acuity of services provided. A basic precursory step to establishing a subacute care bed is obtaining Medicare certification for that bed. There are approximately 400 Medicare-certified beds in Manatee County. Although subacute care services may not be currently provided in each of those 400 beds, their Medicare certification provides the potential for such services. There is an intuitive presumption of need for adult day care services, respite care services, services to Alzheimer's and HIV/AIDS patients, all services firmly committed to by Beverly. The state and local health plans address that need generally with the preferences described above. In this proceeding, however, no empirical data was presented to justify this basis for favoring Beverly's application over Mediplex's. It is not known, for example, whether the services are already being provided in other facilities or through alternative programs less costly than nursing homes. Mediplex established that its proposal for long term care beds more effectively meets existing need in Manatee County. Mediplex's proposal is also substantially less costly: approximately $2 million versus Beverly's $7 million, for the net addition of approximately the same number of beds. It is reasonable to expect that the $5 million difference will impact the system at some point in time when the investment is recouped either from government reimbursement systems or from the total charge structure. In reality, Beverly's project is more than $7 million when $442,000 is added for the delicensure application. And that delicensure process appears to cast a cloud on the validity of Beverly's financial feasibility projections. The projections contemplate a net loss ($42,184) for the first year's operation of the new 105-bed facility, and net income of $211,779 for the second year of operations. Standing alone, these are reasonable and suggest the long term financial feasibility of the new facility. The projections do not reflect the effect of delicensure of the beds in the existing facility, however. The projections related to the existing facility are found in the delicensure application, reviewed and analyzed in CON application number 7998. After delicensure, the existing facility will still generate a smaller, but positive net income. Both facilities will make money, but not as much as the existing facility without delicensure. This underscores the concern that somewhere in the system the $7.5 million investment will be recouped. That is, it is not reasonable to expect that $7.5 million is being spent to make less profit than would have been made without the investment. It is easier to establish the long term financial feasibility of Mediplex's project. It is an existing facility with robust financial performance and reasonable projections in the future. On balance, the Mediplex proposal better fulfills the statutory and regulatory criteria for a certificate of need.
Recommendation Based on the foregoing, it is hereby recommended that the agency enter its final order awarding CON number 7939 to Mediplex (Manatee Springs Nursing Center, Incorporated). RECOMMENDED this 22nd day of January, 1996, in Tallahassee, Florida. MARY W. CLARK, 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 22nd day of January, 1996. APPENDIX The following constitute specific rulings on the findings of fact proposed by the parties. Beverly's Proposed Findings of Fact 1-3. Adopted in paragraphs 1 - 3, respectively. 4. Adopted in paragraph 6. 5&6. Adopted in paragraph 9. Addressed generally in Paragraphs 33 and 34. Adopted in paragraph 7. Adopted in paragraph 8. Adopted in paragraphs 10 - 12. Adopted in paragraphs 13 and 25. Adopted in substance in paragraph 16. Adopted in paragraph 4. Adopted in paragraphs 23 - 25. Adopted in substance in paragraph 26. 16&17. Rejected as unnecessary. 18&19. Adopted in paragraph 27, except for finding of "greater commitment", which is unsubstantiated or unsupported argument. 20&21. Rejected as unnecessary. Adopted in paragraph 28. Adopted in paragraph 29. 24-25. Adopted in paragraph 30, except that Mediplex did present evidence of services to patients suffering from dementia. 26. Rejected as unsupported argument. 27-28. Adopted in substance in paragraphs 31 and 32. 29. Addressed, but rejected, in paragraphs 53 and 54. 30-34. Adopted in summary in paragraph 33. 35&36. Adopted in summary in paragraph 35. 37-39. Adopted in summary in paragraph 36. 40&41. Adopted in paragraphs 38 - 40. 42&43. Adopted in paragraphs 41 and 42. 44-46. Adopted in substance in paragraphs 44 - 46, except that the high acuity services will be available to all Mediplex residents. 47. Adopted in paragraph 4. 48-54. Rejected as unnecessary. Adopted in paragraph 4. Adopted in summary in paragraph 58. Rejected as unnecessary. Adopted in paragraph 46, in summary but Beverly's own projections are suspect since construction costs will be recouped through the health care system somehow. Rejected as unnecessary. See paragraph 58, above. The "no free lunch" argument has been credited. 61-70. Rejected as cumulative or unnecessary. 71. Rejected as argument that is unsupported by the weight of evidence. 72&73. Addressed in paragraphs 19 - 22. Addressed in paragraphs 10 - 12. Addressed in paragraphs 37 and 69, with the argument rejected. Mediplex's and AHCA's Proposed Findings of Fact Adopted in paragraph 3. Addressed in preliminary statement. 3-5. Adopted in paragraph 11. 6. Adopted in paragraph 2. 7&8. Adopted in paragraph 12. 9-11. Addressed in preliminary statement. 12&13. Adopted in paragraphs 4 and 5, respectively. 14&15. Adopted in paragraph 19. 16&17. Adopted in paragraph 20. 18. Adopted in paragraph 21. 19&20. Adopted in paragraph 22. 21-42. Adopted in summary in paragraphs 49 - 52 and 55. 43-49. Adopted in summary in paragraphs 56 - 58. 50-108. The findings of unusually high quality of care and level of services at Mediplex's existing facility are accepted generally and are adopted in summary in paragraphs 15 - 18, 35, 40, 42, 43 and 46. 109-115. Adopted generally in paragraph 7 (final sentence). 116-122. Rejected as unnecessary. 123-128. Rejected as argument that is unsubstantiated or unsupported (that Beverly's Medicaid utilization will drop), although the undetermined site may affect the utilization as found in paragraph 24. 129-136. Rejected as unnecessary. Adopted in paragraph 24. Adopted in paragraph 13. Rejected as unnecessary. Adopted in substance in paragraph 17. Rejected as contrary to the weight of evidence (as to larger rooms); adopted in substance in paragraph 34 (as to ADA compliance). Adopted in paragraph 27. 143&144. Rejected as unnecessary or cumulative. Adopted in paragraph 27. Adopted in paragraph 4. 147-186. Adopted in summary in paragraphs 37, 56 and 59. 187-194. Rejected as unnecessary. COPIES FURNISHED: Douglas L. Mannheimer, Esquire Jay Adams, Esquire BROAD & CASSEL Post Office Drawer 11300 Tallahassee, Florida 32302 David C. Ashburn, Esquire Michael Cherniga, Esquire GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN AND QUENTEL Post Office Box 1838 Tallahassee, Florida 32302 James H. Peterson Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Sam Power, Agency Clerk Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403
The Issue The issue in this case is whether the Certificate of Need (CON) application No. 9757 filed by Select Specialty Hospital - Marion, Inc. (Select) for the establishment of a 44-bed free standing Long-Term Care Hospital (LTCH) in Agency for Health Care Administration (Agency or AHCA) Service District 6, in Polk County, should be approved.
Findings Of Fact The Parties AHCA. The Agency for Health Care Administration is the state agency authorized to evaluate and render final determinations on CON applications pursuant to Section 408.034(1), Florida Statutes.2 Select. Select Specialty Hospital-Marion, Inc. is the applicant in this proceeding. Select is a wholly-owned subsidiary of Select Medical Corporation, which operates approximately 99 LTCHs in 27 states. LTCH Services Generally. An LTCH is defined by statute and Agency rule as "a hospital licensed under chapter 395 which meets the requirements of 42 C.F.R. s. 412.23(e) and seeks exclusion from the Medicare prospective payment system for inpatient hospital services." LTHCs are licensed as acute care hospitals, but are clearly different. In Florida, existing LTCHs can add beds without undergoing CON review. Approximately 93 to 96 percent of LTCH patients are admitted from short-term acute care hospitals. LTCHs are a part of the continuum of care that runs from hospitals to post-acute care facilities such as nursing homes, skilled nursing facilities (SNFs), hospital-based skilled nursing units (SNUs), and comprehensive medical rehabilitation (CMR) facilities. LTCHs are designed to serve patients that would otherwise have to be maintained in a traditional acute care hospital (often in the ICU), or be moved to a traditional post- acute care facility where the patient may not receive the level of care needed. Patients with co-morbidities, complex medical conditions, severe injuries due to trauma, or frailties due to age are typically appropriate LTCH patients, particularly if the patient would otherwise remain in the ICU of a traditional acute care hospital. For such patients, an LTCH is likely the most appropriate setting from both a financial and patient-care standpoint. There is a distinct population of patients who, because of the complexity or severity of their medical condition, are best served in an LTCH. However, there is an overlap between the population of patients that can be served in an LTCH and the population of patients that could also be well-served in the ICU of an acute care hospital or a traditional post acute care setting with ventilator capability. SNFs, SNUs, CMR facilities, and home health care are not appropriate for the typical LTCH patient because the patient's acuity level and medical/therapeutic needs are higher than those generally treated in those settings. Unlike traditional post- acute care settings, which typically do not admit patients who still require acute care, the core patient-group served by LTCHs are patients who require considerable acute care through daily physician visits and intensive nursing care in excess of seven hours of direct nursing care per patient day and remain at an LTCH for an average length of stay (ALOS) of 25 days or greater. (Depending on the Diagnostic Related Group (DRG) category for a particular diagnosis, generally, the ALOS for a short-term acute care hospital patient is between three and five days.) It is important for an LTCH patient that the family be involved in the treatment and the continued care of the patient after the patient has been discharged to home or to another level of care on the continuum, such as an SNF/SNU or CMR. Select offers four basic care programs: pulmonary, wound care, neurotrauma, and medically complex. At Select facilities, patients are screened prior to admission to an LTCH to determine whether they are appropriate for admission. InterQual is a set of proprietary criteria used by Select to determine whether patients are suitable candidates for admission to an LTCH or another form of care. CON Application and Preliminary Agency Action Select applied for a CON to establish a 44-bed free- standing LTCH in Polk County, one county located in District 6. The facility will consist of 48,598 GSF of new construction. The total project cost is estimated at $14,373,624. The application was complete, and according to prehearing stipulations, the only reason that the application was denied and the issue in the case at hand is need. Select has the burden of proving that there is a need for the LTCH in District 6. Select agreed, as a condition for approval of its application, to provide 2.8 percent of patient days for Medicaid and charity care. The Agency's review of CON application No. 9757 complied with statutory and regulatory requirements. The Agency's review of CON application No. 9757 resulted in the issuance of a State Agency Action Report (SAAR) on June 10, 2004, which recommended the denial of CON application No. 9757 based on Select's failure to demonstrate a need for the proposed facility. District 6 and Polk County Demographics The population of District 6 as of July 2005 was 2,084,339 and is projected to increase nine percent to 2,272,017 by July 2010. This population is dispersed throughout five counties comprising District 6: Polk, Hillsborough, Hardee, Manatee, and Highlands. This includes a population of 354,327 in the age cohort 65+ (the age group eligible for Medicare) and is projected to increase by 15.94 percent by July 2010. This age group contains the patients that are mainly served by LTCHs, as more than 75 percent of admissions to an LTCH are elderly (65+). The population of Polk County in July 2005 was 532,100, projected to increase by eight percent by July 2010 and 103,257 for the 65+ age cohort, projected to increase by 15.13 percent by July 2010. There are two LTCHs that currently serve District 6. Both are operated by Kindred and have a combined 175 LTCH beds.3 According to AHCA data, Polk County residents were discharged from an LTCH in Florida 505 times in the years 2000 to 2005 (first three quarters). Of those 505 LTCH discharges, a total of 452, or 89.5 percent, were from a Kindred facility4 in Hillsborough County. AHCA 3.5 However, this data does not indicate which hospital or other facility the patient may have been referred from, which may be significant. For example, the patients could have been discharged from hospitals or other facilities other than a Polk County hospital/facility. Notwithstanding, this data shows that from year 2002 to 2005, Polk County residents have accessed the LTCHs in Hillsborough County. Also, aside from an upward, unexplained spike in 2002, the utilization numbers are relatively flat. Kindred Hospital - Bay Area - Tampa (Kindred Bay Area) operates 73 licensed LTCH beds and is located one county west of Polk County, in Hillsborough County. It is located approximately one (1) hour away from Winter Haven, which is Select's proposed site in the central area of Polk County. From July 2004 through June 2005, the total occupancy of Kindred Bay Area was at 62.20 percent. From July 2002 to June 2003, the total occupancy for this facility was 67.15 percent. Kindred Hospital - Central Tampa (Kindred Central Tampa) is also located in Hillsborough County, approximately one (1) hour away from Winter Haven.6 From July 2004 through June 2005, the total occupancy of Kindred Central Tampa was 67.37 percent. From July 2002 thru June 2003, the total occupancy for this facility was 77.03 percent. Select's sister facility, Select-Orlando, approved for 40 LTCH beds, is located in AHCA Service District 7 in Orange County, which is northeast of Polk County. (Select Specialty Hospital - Orlando is also located in District 7, operating 35 licensed LTCH beds with occupancy for the year ending June 2005 of 75.83 percent.) In the years 2003-2005 (2003 was the first year the facility was operational), Polk County residents were discharged from the Select-Orlando facility 38 times. This is approximately 7.5 percent of the total Polk County patients discharged. In 2005, only one Polk County resident was discharged from a facility other than the two Kindred facilities or the Select Orlando facility. For July 2004 to June 2005, the occupancy for all LTCHs in the State of Florida was 66.91 percent and 65.21 percent for District 6. From July 2002 to June 2003, the occupancy for all LTCHs in the State of Florida was 73.23 percent and 72.91 percent for District 6. There has been a decline in utilization of LTCHs on a statewide and district-wide (District 6) basis. Select presented letters of support for the LTCH facility in Polk County, including letters from local hospital administration and physicians. See, e.g., S 2, Volume I, Tab 2 at 38-43 and Tab 4; S 2, Volume II, Tabs 7 and 8. Select's Analysis of Need The Agency has not adopted a need methodology for LTCH services. There is no published fixed need pool for LTCHs. Select examined population estimates for Polk County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; discharge data from area acute care hospitals; the types of patients treated at acute care hospitals; the lengths of stays of the patients treated at those hospitals; and input from local hospital personnel and physicians. Select started its analysis of need on a district-wide basis, but ultimately defined its primary service area as Polk County. T 131-134, 156-157. (Select defined its primary service areas as an area within a 20 mile radius.) Select used four methods to establish the need for the LTCH in Polk County: Extended length of stay analysis GMLOS (Geometric Mean Length of Stay) + 15 days analysis Long-stay short-term acute care versus LTCH penetration analysis UB-92 patient discharge analysis (Polk County) An extended length of stay analysis involves analyzing discharges by DRG from Polk County hospitals to arrive at the top DRGs experienced by these hospitals. This analysis will exclude lengths of stays under 25 days, patients under the age of 14, substance abuse diagnosis, obstetric diagnosis, newborn diagnosis, psychiatric diagnosis, and rehabilitation diagnosis. The total amount of discharges is multiplied by the anticipated length of stay for an LTCH patient (the analysis can be done statewide or using a national average) and then divided by 365 to arrive at an average daily census of patients. Select analyzed Polk County discharges that matched the criteria above and came up with 644 patients, which was multiplied by 40.6 (Florida average LTCH stay at time of application) in one calculation and 33 (national average LTCH stay at time of application) in a second calculation, before dividing by 365 in both to arrive at an average daily census (ADC). Using 40.6 as the average length of stay (ALOS), there is an ADC of 72. With an average occupancy of 72 percent, there is a need for 96 beds in Polk County. Using 33 as the ALOS, there is an ADC of 58 and a need for 77 beds in Polk County at 75 percent occupancy. Select LTCHs have a 28-day ALOS, which yields an average daily census of 49.4 with a bed need for 66 beds in Polk County at 75 percent occupancy. The GMLOS + 15 analysis involves looking at geometric mean lengths of stays for individual DRGs that begin at eight (8) days, excluding obstetrics, psychological, substance abuse, and rehab patients, and then calculating how many of these patients stayed 15 days past their GMLOS for the particular DRG. The number of patients is then multiplied by the ALOS for Florida and the nation and a bed need is determined.7 Using this analysis and data for the 12 months ending September, 2003, Select contends that there were 823 patients who would have exceeded their GMLOS by 15 days. Using 40.6 as the Florida average LTCH stay, results in an ADC of 92. Operating at 75 percent occupancy yields a need for 122 beds. Using 33 days as the national average LTCH stay, results in an ADC of 74. Operating at 75 percent occupancy, yields a net need for 99 beds in Polk County. (Using calendar year 2004 data and the same ALOS of 33 days and occupancy of 75 percent, yields a net need in Polk County for 130 beds. Select's GMLOS + 15 analysis also yields a positive net bed need for Polk County exceeding the 44-beds requested, using an ALOS of 30 and 28 and either 2003 or 2004 data.) S 6 at pages 8-10; T 149-151. Select also used the GMLOS + 15 methodology to predict need for additional LTCH beds on a county-wide basis (for the five counties within District 6) and a district-wide basis. Using 2003 data and 33 days as the average LTCH stay, there is a projected net need for 305 beds district-wide operating at 75 percent occupancy. (A net need for additional LTCH beds is also shown when either 2003 or 2004 data is used with ALOSs of 30 and 28.) S 6 at 8-10. When applied to Hillsborough County, using different patient days and GMLOS + 15 case numbers, but the same occupancy percentages, the GMLOS + 15 methodology reflects a net LTCH bed need for Hillsborough County. For example, using 2003 and 2004 data, a 28 ALOS, and a 75 percent occupancy level, the methodology yields a net bed need of 99 beds in Hillsborough County. Id. A net bed need also is calculated for Hillsborough County when an adjustment is made to the data for severity. S 6 at 11-13. (Select's "most conservative position", using a "capture rate analysis of severity adjusted matters," yields a negative bed need for Hillsborough County and a much lower district-wide net bed need than the other GMLOS + 15 analyses described herein. Select suggests that this analysis understates need. S 6 at 14.) Notwithstanding the overall favorable bed need analysis discussed above, as noted herein, the occupancy levels at the Kindred facilities in Hillsborough County have been declining in recent years and are below the 75 percent occupancy level. Absent persuasive evidence that residents of Hillsborough County are being deprived of access to LTCH services, it appears that Select's net bed need projections for Hillsborough County and District 6 are overstated. Select did not prove (by use of its GMLOS + 15 analysis or otherwise) that there is a need for additional LTCH beds in District 6. GMLOS + 7 was also discussed by Select, but is too aggressive for purposes of LTCH planning. The third method of comparing patients in Polk County who had a long stay (24+ days) in a Short Term Acute Care (STAC) facility versus those who went to an LTCH does not produce an actual bed need number, but instead provides evidence of a need for an LTCH in a particular area. Select contends that the application of this method shows that there is a lack of access to the other facilities in District 6 and there is a need for an LTCH facility in Polk County. An analysis of UB-92 patient discharge data involves pulling the uniform billing records for each patient and looking at the severity adjustment of the long stay patients. The information is available on the AHCA database. (According to Mr. Gregg, UB-92 data "would be one of the best sources that one could use to define severity and eliminate some patients from this length of stay group." T 382.) The DRG alone will not take into account co-morbidities, but the UB-92 will. The analysis of UB-92 data does not compute a specific bed need, but may show that the existence of need. Both parties contend that using the GMLOS + 15 method is the most accurate. Using the GMLOS + 15 method quoted above, Select determined that there was a need for a 44-bed LTCH facility in Polk County and District 6. Issues Regarding Need Analysis There are some problems with the GMLOS + 15 method for determining need. One problem is the inflated length of stay of 40.6 days used in the application. Other problems include the assumption of 100 percent capture of eligible patients and the assumption that any patient who stays 15 days over their GMLOS would be eligible for LTCH services, which is not necessarily true. There have been numerous recent approvals for LTCHs in the State of Florida, and some of these new facilities will impact the capacity numbers of the already existing facilities.8 Proper patient identification is a concern of the Agency with regard to overlap with other suitable services. The Agency contends that using the UB-92 forms is a more accurate way of determining which patients are most suitable for LTCH services. LTCH patients cost Medicare more than patients in other settings. The Medicare Payment Advisory Commission (MedPAC) was established to advise Congress on issues that affect the Medicare program. The Agency introduced into evidence Chapter 5 of the June 2004 MedPAC report into evidence, which concentrated on "Defining long-term care hospitals". AHCA 5; see also AHCA 6 and 7. The Agency has been concerned with the identification of patients who are in need of LTCH services as compared with patients who would be better suited in a post-acute care setting, such as a SNU/SNF or CMR facility. The June 2004 MedPAC report stated in part that LTCH services are for a small number of medically complex patients and that acute hospitals and SNFs are the principal alternatives to an LTCH. The report also contends that LTCH supply is a strong predictor of their use. In other words, according to Mr. Gregg, LTCHs "are a supplier-induced demand." T 317. Travel Patterns and Family/Physician Involvement Patient, family, and physician preferences have always been a part of health care planning. They affect both availability and accessibility. Families and other care givers play a critical role regarding the delivery of care to LTCH patients. The elderly are a special population with special needs. They commonly have to manage multiple problems, including financial difficulties, drug management, transportation logistics, and sometimes fragile mental and physical conditions. Older patients, as care givers, also have a more difficult time driving, especially over longer distances. Medical experts have opined that having an LTCH over one hour away from the patient population in Polk County (the Winter Haven area) is not geographically accessible for the elderly needing LTCH services in Polk County. Further, while primary care physicians may choose to travel to an LTCH to continue to serve their patients, in reality, this does not generally occur when the LTCH is a fair distance from their usual practice area. Select believes the travel patterns from Polk County to Hillsborough County, where the two LTCHs in District 6 are located, show that there is a need for one in the Winter Haven area of Polk County. Although the travel patterns and the travel time to the current facilities may make it inconvenient for the patient or the families, the benefits of LTCH care greatly outweigh this inconvenience. Need on a Subdistrict vs. District Level The Agency reviews the need for additional LTCHs on a district-wide basis. S 12 at 52-54. The fact that there are existing facilities already in District 6 that are being underutilized is a counterargument for "need" in District 6. Select conducted the majority of its needs analysis on a subdistrict level. If a CON application for an LTCH could be reviewed and approved on a subdistrict level, here using Polk County alone, Select would be able to satisfy the need requirement, based, in part, on the number of acute care beds in Polk County, the lack of any LTCH beds in Polk County, travel and accessibility-related issues, population trends, and the county-wide health care provider support for the facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency issue a final order denying Select Specialty Hospital - Marion, Inc.'s CON application No. 9757. DONE AND ENTERED this 11th day of July, 2006, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS 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 11th day of July, 2006.
Findings Of Fact I The Parties Charter Medical of Orange County, Inc., (Charter) is a wholly-owned subsidiary of Charter Medical Corporation, founded in Macon, Georgia in 1969. The parent corporation operates approximately 92 hospitals throughout the country, including Florida. Most of its hospitals are psychiatric or substance abuse facilities. Orlando Regional Medical Center (ORMC) is a 1,119- bed, nonprofit medical system comprised of four divisions. In downtown Orlando it operates a 630-bed tertiary care hospital and a 255-bed Arnold Palmer Hospital for women and children. A Sand Lake campus is located 10 miles southwest of Orlando, off I-4, and includes medical/surgical beds and 32 licensed short-term psychiatric beds. ORMC's St. Cloud Campus in Osceola County, south of Orlando, includes 84 medical/surgical beds. The Department of Health and Rehabilitative Services (HRS) is the state agency responsible for implementing and enforcing the certificate of need program pursuant to Sections 381.701-.715, F.S. Psychiatric Institute of Orlando, Inc., d/b/a Laurel Oaks Hospital, (Laurel Oaks) is a subsidiary of P1A Psychiatric Hospitals, Inc., which is a subsidiary of National Medical Enterprises (NME). P1A owns approximately 50 psychiatric hospitals throughout the county, including (30-bed Laurel Oaks, in southwest Orange County, a short-term psychiatric and substance abuse facility for children and adolescents Health Management Associates, Inc., (HMA) is a health management company which owns or operates 16 hospitals in the southeastern United States, including four psychiatric hospitals in Florida. HMA's Crossroads University Behavioral Center is a 100-bed free-standing psychiatric hospital in northeast Orange County. Its 60 adult beds and 40 adolescent beds opened in January 1989 as a licensed long-term facility, but it has been operating continually as a short-term facility. The Applications Charter proposes to develop a new free-standing 60- bed psychiatric hospital (40 beds for adults, 10 beds for adolescents and 10 beds for children). It plans a wide range of treatment modalities utilizing a multi-disciplinary team approach, tailored to the age and needs of the patient. Although no specific site has been selected, several have been identified in southwest Orange County. Charter anticipates the total cost for the project will be $7,783,000. Charter's patients will be primarily commercially insured (71%), with 15% Medicare and 4% indigent. Charter has committed to serve this share of indigent for the first two years of operation. As a specialty hospital, Charter is not eligible to accept Medicaid patients. ORMC proposes to build a 60-bed free-standing facility on a 7.2 acre site within 40 acres it already owns at Sand Lake and adjacent to its existing Sand Lake Hospital, for a total project cost of $6,678,935. No new licensed beds are required as ORNC will transfer its 32 short term beds from the sixth floor of the Sand Lake Hospital and will convert 28 of its licensed medical/surgical beds from its downtown hospital. The 60 beds will consist of 30 adult and 30 adolescent short term beds. Since the existing 32 beds are primarily adult beds, ORMC's project will be adding adolescent beds to the inventory in District 7. Proximity to Sand Lake Hospital will facilitate shared services, including engineering, dietary and laundry. ORMC also expects the joint use of therapists at its psychiatric facility and its existing brain injury rehabilitation unit at Sand Lake. Because the facility will be added to ORMC's general hospital license, it can and will accept Medicaid patients. ORMC has committed to serve 20% Medicare, 8% Medicaid and 8% indigent patients. ORMC will likely seek an outside management firm to operate its psychiatric facility. The Review On August 23, 1988, HRS published a need for 140 short-term psychiatric beds in District 7. Its SAAR issued in January 1989, recommended approval of a total of 137 beds. When the SAAR was amended in March 1989, to include the Charter approval, the total surged to 197 approved beds. Even after First Hospital withdrew its application for 55 beds, the total approved exceeded the published need for the 1993 horizon year by two beds. Numeric Need The short-term psychiatric bed need rule is found at Rule 10- 5.011(1)(o) , F.A.C. "Short-term" is defined as an average length of stay of 30 days or less for adults, and 60 days or less for children and adolescents under 18 years. A favorable need determination will not normally be given to an applicant unless a bed need exists according to sub-paragraph (1)(o)4 of "the rule". Rule 10-5.011(1)(0)4, F.A.C. provides as follows: Bed allocations for acute care short term general psychiatric services shall be based on the following standards: A minimum of .15 beds per 1,000 population should be located in hospitals holding a general license to ensure access to needed services for persons with multiple health These beds shall be designated as short term inpatient hospital psychiatric beds. 20 short term inpatient hospital beds per 1,000 population may be located in specialty hospitals, or hospitals holding a general license. The distribution of these beds shall be based on local need, cost effectiveness, and quality of care considerations. The short term inpatient psychiatric bed need for a Department service district shall be projected 5 years into the future based on the most recent available January or July population estimate prior to the beginning to the respective batching cycle. The projected number of beds shall be based on a bed need ratio of .35 beds per 1,000 population. These beds are allocated in addition to the total number of general acute care hospital beds allocated to each Department District under Paragraph 10-5.011(1)(m). The net need for short term psychiatric beds shall be calculated by subtracting the number of licensed and approved beds from the number of projected beds. The population estimates are based on population projections by the Executive Office of the Governor. Occupancy Standards. New Facilities must be able to project an average 70% occupancy rate for adult psychiatric beds and 60% for children and adolescent beds in the second year of operation, and must be able to project an average 80% occupancy rate for adult beds and 70% for children and adolescent short term psychiatric inpatient hospital beds for the third year of operation. No additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75% for the preceding 12 month period. No additional beds for adolescents and children under 18 years of age shall normally be approved unless the average annual occupancy rate for all existing adolescent and children short term hospital inpatient psychiatric beds in the Department district is at or exceeds 70% for the preceding 12 month period. Hospitals seeking additional short term inpatient psychiatric beds must show evidence that the occupancy standard defined in paragraph six is met and that the number of designated short term psychiatric beds have had an occupancy rate of 75% or greater for the preceding year. Unit size. In order to assure specialized staff and services at a reasonable cost, short term inpatient psychiatric hospital based services should have at least 15 designated beds. Applicants proposing to build a new but separate psychiatric acute care facility and intending to apply for a specialty hospital license should have a minimum of 50 beds. The parties do not dispute that application of the formula yields a need for 140 beds, the total published in the applicable fixed need pool. Nor do the parties dispute that the occupancy standard was met, since HRS uses the lower standard of 70% as a threshold for determining whether need should be published. The parties agree that approval of both Charter's and ORMC's applications results in an excess of two beds over the published need. There is substantial dispute as to whether that excess is justified, and as to the composition of the beds as "speciality hospital" or "general hospital" beds. The only provision in agency rules or policy for exceeding bed need calculations is when "not normal" or "special" circumstances exist in the District. HRS' Policy Manual for the Certificate of Need program, dated October 1, 1988, provides in Section 9-6 B. (3): If a qualified applicant exist but the proposed project exceeds the beds or services identified in the fixed need pool, the department may award beds or services in excess of the pool when warranted by special circumstances as defined in rule 10- 5.011(1)(b), 1-4, F.A.C. and, specifically for nursing homes Rule 10-5.011(1)(K)2.j. F.A.C. (Laurel Oaks Exhibit #10, P. 9-2) The referenced sections of Rule 10-5.011(1)(b), F.A.C., relate to the enhancement of access--primarily economic access and access by underserved groups. Access is addressed in Part VII, below. No evidence was presented regarding special problems of access in District 7. Rather, HRS asserts that its excess approval was based on "rounding up" the numbers of beds, and on the favorable occupancy rates in the district. In its SAAR, HRS calculated the following occupancy rates by age cohort in the district: Adult 75.8% Child/Adolescent 74.8%; and in Orange County: Adult 57.4% Child/Adolescent 100. The adult rate is therefore slightly above the 75% minimum in the district, and substantially below the minimum in Orange County. The child/adolescent rate is above the 70% minimum in both the district and county. HRS appropriately does not utilize occupancy in beds other than licensed short term psychiatric bed in calculating its rates as it would be difficult to compute the number of available beds (medical/surgical, long term psychiatric, etc.). The rule specifies that a minimum of .15 beds per 1000 population "should" be allocated to hospital1s holding a general license and that .20 beds per 1000 population may be located in either speciality hospitals or hospitals holding a general license. Of the 140 beds needed in District 7, 75 may be located in a speciality hospital under this formula. 30 speciality beds were awarded to West Lake and are unchallenged. The Charter application for 60 speciality beds exceeds by 15, the 45 speciality beds left to be allocated. The State and Local Health Plans The State Health Plan is dated 1985-1987. Goal 1 is the only portion of the plan that is relevant in this review. It essentially reiterates the need methodology described above, regarding the .35 beds per 1000 population and the 70% and 75% annual occupancy thresholds. The applicable local health plan is the 1988 local health plan for District 7. This plan divides the district into "planning areas": Brevard, Osceola, Seminole and Orange -- the four counties within the district. Planning areas, unlike subdistricts, are more in the nature of guidelines and do not carry the same legal weight as subdistricts. Both applicants are committed to submit data to the local health councils, as provided in recommendation #2. Both applicants have committed to provide a fair share of care to the underserved, although ORMC's commitment is substantially greater and has a proven record to support it. Recommendation #5 provides that no new short-term psychiatric or substance abuse beds shall be approved until all existing beds in the planning area are operating at or above 75% occupancy for the most recent twelve months for which data is available from the local health council. This criteria is barely met when adult and children/adolescent occupancy is combined, and is not met by the occupancy rate for adult beds in Orange County. Financial Feasibility The pro formas of both applicants, which are no more than best guess estimates, are generally reasonable, based upon the experience of the applicants' existing programs. Charter's proposal makes no provision for management fees, although such fees are remitted to the parent company by its subsidiaries and are reported to the Health Care Cost Containment Board. Charter anticipates that it would not incur additional corporate overhead to support this facility if it is built. In recent years ORMC's psychiatric unit has lost money in its operation when overhead is factored into the cost. Its Program Director, Jeffrey Oppenheim, reasonably anticipates the new facility will make a profit, as it will serve a better mix of age cohorts and will offer a more desirable setting than its limited facility now located on the sixth floor of a medical/surgical hospital. The financial feasibility of both applications depends on the programs' ability to attract patients. That ability is not seriously questioned. Both applications have substantial experience in operating financially efficient health care programs. Quality of Care and Accessibility No evidence was presented to challenge either applicant's ability to provide quality care. Nor, however, was the quality of care of existing alternative programs at issue. Geographic access in District 7 is not a problem, and none suggests that the access standard in Rule 10-5.011(1)(o)5.g., F.A.C., is not met (travel time of 45 minutes or less for 90% of the service area population). Charter's inability to provide Medicaid services and its time-limited commitment to serve even 4% indigents amount to only minimal contribution to the economically underserved population. In the past, ORMC has been a receiving facility for Baker Act patients and it anticipates it will again when the psychiatric program has its new quarters. It is only one of two hospitals in Orange County eligible to provide Medicaid services and is the fifth highest provider of charity and Medicaid in the State of Florida, according to Medical Health Care Cost Containment Board data. Impact on Existing Facilities and Competition Positive competition among providers already exists in District 7. There are eleven existing short term psychiatric programs in the four-county area, including both speciality and general hospitals, and adult, children and adolescent programs. Only three obtained an occupancy rate of more than 75% for the fiscal period ending June 1988. The Availability of Health Manpower There is a shortage of nurses, qualified social workers and counsellors in District 7. HMA has experienced problems in recruiting staff at its Orlando facility. Competition for these staff has caused salaries to rise, and consequently the cost of providing services has risen. Turnover results when staff are attracted to new facilities, causing training problems and affecting quality of care. Charter has the corporate resources to conduct effective recruiting, but has no experience recruiting in the Orlando area. ORMC, a large diverse facility, with good opportunity for lateral and upward mobility, has experienced few problems staffing its programs. The Availability of Alternatives Eight of eleven District 7 short term psychiatric facilities have operated below 75% occupancy in the last two years. These under-utilized facilities are plainly alternatives for new projects proposing the same services. Neither applicant is proposing novel or innovative services in psychiatric care. That licensed long term psychiatric facilities such as HMA, are operating short term programs does not justify the approval of new short term beds, but rather suggests these programs could be converted, with little or no capital outlay, into short term programs. Conversion of under-utilized acute are beds to short term psychiatric beds is also an alternative in District 7. Acute care bed occupancy rates in each county of District 7 failed to reach 60% in the most recent 12-month period of available data. The criterion of Rule 10-5.011(1)(o)5.f., F.A.C. favors the conversion of under-utilized beds in other hospital services unless conversion costs are prohibitive. There has been a trend in the last several years away from inpatient care and toward less restrictive treatment modalities. Both applicants acknowledge this trend with their inclusion of partial hospitalization programs in their plans. ORMC has no reasonable alternative to building a new facility if it is to maintain its inpatient psychiatric program. There is an increasing demand for the medical surgical beds it currently occupies on the sixth floor of Sand Lake Hospital. There is no appropriate space in its downtown facilities. Balancing the Criteria Comparative Review and Summary As reflected above, not all of the relevant statutory and rule criteria have been met by these applicants. There remains, however, the planning horizon numerical need for additional short term psychiatric beds. While that need could likely be met with the utilization of beds that are not licensed for the provision of short term care, such a solution frustrates state licensing requirements. Three alternative dispositions exist: to deny both ORMC and Charter applications, leaving an unmet need in this cycle for 86 beds; to grant one application only; or to approve both and exceed the need by two beds. HRS argues that the two-bed difference is of little consequence and that the excessive number of specialty beds if Charter is approved is irrelevant, as no general hospital is currently competing for the beds. It is not possible to conjecture that appropriate general hospital applicants will participate in a near future cycle, but it is certain that if those beds are awarded in this cycle to a specialty hospital, they will not be available in a future cycle. Nothing requires that all beds identified in a fixed pool must be awarded in that cycle. The converse follows when, as here, other considerations weigh against approval of additional beds. Between the two applicants, ORMC more consistently meets the rule and statutory criteria. Although it still proposes a substantial capital outlay, (ORMC) relies on conversion of existing licensed beds and results in less impact on other existing programs. Its contribution to the underserved population is more substantial; it proposes more needed adolescent, rather than adult beds; and it does not violate the .15/.20 general hospital, specialty hospital bed balance. That balance needs to be maintained in this case to insure competition among Medicaid providers. In summary, the evidence supports approval of ORMC's application and denial of Charter's.
Recommendation Based on the foregoing, it is hereby, RECOMMENDED That a Final Order be entered denying CON number 5691 to Charter Medical of Orange County, Inc.; and granting CON #5697 to Orlando Regional Medical Center. DONE AND RECOMMENDED this 15th day of February, 1990, in Tallahassee, Leon County, Florida. MARY CLARK 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 15th day of February, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASES NO. 89-1358,89-1366.89-1368,89-2039 & 89-2041 The following constitute rulings on the findings of fact proposed by each party: Charter Medical of Orange County, Inc. Adopted in substance in paragraph 1. Adopted in substance in paragraph 2. Adopted in paragraph 3. Adopted in paragraph 4. Adopted in paragraph 5. 6.-17. Adopted in statement of the issues. 18. Adopted in paragraphs 6 and 7. 19.-36. Rejected as unnecessary, except as summarized in paragraph 6. 37. Addressed in paragraph 30. 38.-5O. Rejected as unnecessary, except as summarized in paragraph 36. 51.-57. Rejected as unnecessary, except at summarized in paragraph 7. 58.-6I. Adopted in paragraph 16. 62.-69. Rejected as unnecessary and contrary to the methodology in the rule. 70. Adopted in substance in paragraph 16. 71.-77. Rejected as unnecessary. 78. Rejected as contrary to the evidence and law. "Not normal" does not include high occupancy rates in several facilities. 79.-8I. Adopted in summary in paragraph 21. 82.-83. Rejected as immaterial. The evidence in this case supports maintenance of the balance, notwithstanding past practice. 84. Adopted in paragraph 15. 85.-103. Rejected as unnecessary. 104. Rejected as contrary to the law and evidence. 105. & 106. Adopted in paragraph 22. 107.-109. Adopted in paragraph 23. 110. & 111. Rejected as unnecessary. 112. & 113. Adopted in paragraph 24. Rejected as unnecessary. Adopted in substance in paragraph 25. 116.-149. Rejected as unnecessary. 150. Adopted in substance in paragraphs 26 and 29. 151.-161. Rejected as unnecessary. 162.-164. Adopted in substance in paragraph 27. 165.-171. Rejected as unnecessary. 172. Rejected as contrary to the evidence. 173.-180. Rejected as immaterial and unnecessary. 181. Adopted in paragraph 5. 182.-190. Rejected as unnecessary. Adopted in substance in paragraph 43. Rejected as contrary to the evidence. 193.-198. Rejected as unnecessary. 199. Rejected as contrary to the evidence. 200.-206. Rejected as unnecessary. Rejected as contrary to the evidence. Rejected as unnecessary. Adopted in paragraph 8. 210.-213. Rejected as unnecessary. 214. Adopted by implication in paragraph 33. 215.-218. Rejected as unsupported by the weight of evidence. Rejected as unnecessary. & 221. Rejected as contrary to the weight of evidence. 222. Adopted in summary in paragraph :28. 223.-238. Rejected as unnecessary. Orlando Regional Medical Center Adopted in paragraph 2. Adopted in paragraph 9. 3.-7. Rejected as unnecessary. Adopted in paragraph 9. Rejected as unnecessary. Adopted in substance in paragraph 42. Rejected as unnecessary. Adopted in substance in paragraph 42. Adopted in summary in paragraph 12. Adopted in paragraph 1. Rejected as ummaterial. Adopted in paragraph 6. Adopted in paragraph 4. Adopted in paragraph 15. Addressed in the preliminary statement. Adopted in paragraph 14. Rejected as unnecessary. 22.-24. Adopted in summary in paragraph 16. Adopted in paragraph 15 and conclusion of law #7. Adopted in substance in paragraph 21. Adopted in paragraph 15. Rejected as unnecessary. 29 & 30. Adopted in paragraph 9. Adopted in paragraph 20. Adopted in paragraph 22. Rejected as unnecessary. Adopted in paragraph 23. Adopted in paragraph 23. 36 & 37. Adopted in paragraph 24. Adopted in paragraph 11 and 33. Adopted in paragraph 8. Adopted in paragraph 11. 41 & 42. Rejected as unnecessary. Adopted in summary in paragraph 25. Rejected as unnecessary. Rejected as cumulative and unnecessary. Rejected as unnecessary. Adopted in summary in paragraph 26. 48.-52. Rejected as unnecessary. Adopted in paragraph 10. Rejected as contrary to the weight of evidence (the finding as to no alternatives). The finding regarding Park Place is unnecessary. Rejected as cumulative and unnecessary. Adopted in paragraph 42. Rejected as cumulative and unnecessary. Adopted in paragraph 9. Adopted in paragraph 7. Adopted in paragraph 36. Rejected as cumulative and unnecessary. Adopted in paragraph 30. 63.-66. Rejected as unnecessary. 67. Adopted in paragraph 47. The Department of Health and Rehabilitative Services 1. & 2. Addressed in Preliminary Statement. Adopted in paragraphs 6. and 9. Adopted in paragraph 24. Adopted in paragraph 20. Adopted in paragraph 36. 7.-9. Rejected as contrary to the weight of evidence. Adopted in paragraph 30. Rejected as contrary to the weight of evidence. Rejected as unnecessary. Adopted in paragraph 26. Rejected as contrary to the evidence. Adopted in paragraph 33. Adopted in substance in paragraph 32. Adopted by implication in paragraphs 30 and 34. Rejected as contrary to the evidence. Adopted in summary in paragraph 13. Adopted in paragraph 15. Rejected as contrary to the weight of evidence. Rejected as contrary to the evidence. The policy is found in HRS' Policy Manual. Rejected as immaterial. Adopted in paragraph 21. Rejected as unnecessary. 26 & 27. Adopted by implication in 23. Rejected as unnecessary. Rejected as contrary to the evidence. Rejected as immaterial. Rejected as unnecessary. Rejected as contrary to the evidence. 33 & 34. Rejected as unnecessary. Adopted in summary in paragraph 46. Rejected as contrary to the evidence, and immaterial (as to the ratio). Rejected as contrary to the definition "not normal" and immaterial. 38 & 39. Rejected as argument. Adopted in paragraph 16. Adopted in paragraph 20. Rejected as unnecessary. 43 & 49. Rejected as argument. Laurel Oaks Hospital Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 3. Adopted in paragraph 4. Adopted in paragraph 5. Rejected as unnecessary. Adopted in paragraph 13. & 9. Addressed in Preliminary Statement. 10. Adopted in paragraph 18. 11.-21. Rejected as unnecessary and immaterial. Adopted in paragraph 6. Adopted in paragraph 8. Adopted in paragraph 7. Adopted in paragraph 9. Adopted in paragraph 11. Adopted in paragraph 9. Adopted in paragraph 10. Adopted in paragraph 11. Adopted in paragraph 9. Adopted in paragraph 14. Rejected as unnecessary. Rejected as contrary to the evidence. The term is "should", not "shall". Adopted in paragraph 15. 36 Adopted in paragraph 13. 37.-40. Adopted in paragraph 16. 41 & 42. Adopted in paragraph 18. 43 & 44. Rejected as immaterial and unnecessary. 45.-47. Rejected as argument and unnecessary. 48 & 49. Adopted in paragraph 21. Rejected as unnecessary. Adopted in substance in paragraph 16. 52 - 54. Rejected as unnecessary. 55 & 56. Adopted in summary in paragraph 20. 57.-61. Rejected as unnecessary or argument. 62.-65. Adopted in summary in paragraphs 20 and 23. 66 & 67. Adopted in paragraph 22. 68. Adopted in paragraph 23. 69.-72. Rejected as unnecessary or cumulative. 73 & 74. Adopted in substance in paragraph 24. 75. Rejected as contrary to the evidence. 76.-78. Rejected as unnecessary. Rejected as contrary to the evidence. Adopted in paragraphs 30 and 31. Adopted in paragraph 37. 82.-85. Rejected as unnecessary. 86. Adopted in paragraph 30. 87 & 88. Rejected as unnecessary. Adopted in paragraph 34. Adopted in paragraph 41. Adopted in paragraphs 38 and 39. 92.-95 Rejected as immaterial and unnecessary. Adopted in substance in paragraph 39. Adopted in paragraph 35. Adopted in paragraph 30. Rejected as cumulative. Rejected as contrary to the evidence. 101-112. Rejected as unnecessary. Adopted in paragraph 27. Rejected as unnecessary. Adopted in paragraph 35. 116-121. Rejected as cumulative or unnecessary. Health Management Associates1 Inc:. (HMA) 1. & 2. Adopted in paragraph 6. Adopted in paragraph 1. Adopted in paragraph 6. 5.-6. Rejected as unnecessary. 7.-11. Adopted in paragraph 9. Adopted in paragraph 10. Adopted in paragraph 12. Rejected as unnecessary. Adopted in paragraph 16. Adopted in paragraphs 15 and 23. Adopted in paragraph 25. Adopted in paragraph 16. Adopted in paragraphs 16 and 18. 20 Adopted in paragraph 19. Adopted in paragraph 15. Adopted in paragraph 21. 23 & 24. Rejected as unnecessary. 25 & 26. Adopted in paragraph 5. 27.-51. Rejected as unnecessary. 52. Adopted in paragraph 35. 53.-55. Rejected as unnecessary. COPIES FURNISHED: Stephen A. Ecenia, Esquire Michael J. Cherniga, Esquire Roberts, Baggett, LaFace & Richard 101 East College Avenue Tallahassee, FL 32301 James M. Barclay, Esquire Cobb, Cole & Bell 315 South Calhoun Street Tallahassee, FL 32301 Steven R. Bechtel, Esquire Mateer, Harbert & Bates 225 East Robinson Street Orlando, FL 32802 Edgar Lee Elzie, Esquire MacFarlane, Ferguson, Allison & Kelly First Florida Bank Building, Suite 804 Tallahassee, FL 32401 C. Gary Williams, Esquire R. Stan Peeler, Esquire Ausley, McMullen, McGehee, Carothers & Proctor 227 South Calhoun Street Tallahassee, FL 32301 John Brennan, Jr., Esquire Bonner & O'Connell 900 17th street, Suite 1000 Washington, D.C. 20006 Robert S. Cohen, Esquire Haben & Culpepper 306 North Monroe Street Tallahassee, FL 32301 John Miller, General Counsel HRS 1323 Winewood Blvd. R. S. Power, Agency Clerk HRS 1323 Winewood Blvd. Tallahassee, FL 32399-0700
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
