The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, 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 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
The Issue The issue is whether the Agency should approve the Certificate of Need applications filed by Bethesda and/or JFK, each of which proposes to establish an 80-bed satellite hospital in the West Boynton area of Acute Care Subdistrict 9-5.
Findings Of Fact The Parties (1) Bethesda Bethesda operates Bethesda Memorial, which is a 362-bed not-for-profit hospital in Boynton Beach. Bethesda also operates Bethesda Health City, which is a “medical mall” located in the West Boynton area of South Palm Beach County. As a not-for-profit community-based health care organization, Bethesda’s mission is to provide quality health care services to the residents of South Palm Beach County that it serves regardless of their ability to pay. Bethesda Memorial opened in 1959 as a public hospital under the ownership of Palm Beach County’s former hospital taxing district. Bethesda Memorial was reorganized in 1984 as a private not-for-profit hospital owned by Bethesda. Bethesda Memorial provides tertiary-level care. Bethesda Memorial’s 362 licensed beds include 347 general medical-surgical (med-surg) acute care beds and a 15-bed Level II and Level III neonatal intensive care unit (NICU). A 28-bed comprehensive medical rehabilitation (CMR) unit will open at Bethesda Memorial in 2005, increasing the hospital’s licensed capacity to 390 beds. Not all of Bethesda Memorial’s licensed beds are available for general patient use; 14 of the beds are leased to a hospice program and 14 of the beds are operated under contract as a special care unit (SCU). The hospice lease and the SCU contract run through 2005. Even though the hospice lease and SCU contract have been profitable ventures for Bethesda, several Bethesda witnesses testified that those agreements would not be renewed if Bethesda Memorial needs those 28 beds to accommodate its general patients after its capacity is reduced through the transfer of 80 beds to its proposed satellite hospital; however, as of the date of the hearing, Bethesda had not taken any formal steps to terminate those agreements. It is unclear how the patients that are currently being served in the hospice unit and SCU would be served in the community if Bethesda terminates the agreements. Bethesda Memorial also has a 10-bed “VIP” unit that is generally available only to patients that have contributed at least $50,000 to Bethesda’s charitable foundation and are willing to pay an up-front $750.00 per day charge for the room; however, the beds in the VIP unit can be and have been utilized by other patients when all of the other beds in the hospital are full. Bethesda Memorial has a high-volume obstetrics (OB) program and an active emergency department (ED). Bethesda Memorial also offers a number of specialized programs including a comprehensive cancer program, a pediatrics program, a diagnostic cardiac catheterization program, and a wide variety of outpatient services. Bethesda Memorial is a well-utilized facility; its overall occupancy rate was 73.25 percent from July 2001 though June 2002. Bethesda Memorial does not currently offer interventional cardiology services or open heart surgery, but it has been attempting to get CON or legislative approval to offer those services for the past several years because of their profitable nature. Bethesda Memorial has designated, shelled-in space in its hospital for those services if it ever gets the necessary approvals. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at Bethesda Memorial or that would make such expansions cost-prohibitive. Bethesda recently purchased property adjacent to Bethesda Memorial and was able to get that property rezoned from residential to hospital use. It is unclear how large that property is and what use, if any, Bethesda has planned for that property. Bethesda also owns 1.4 acres of vacant property that is several blocks from Bethesda Memorial. The property is not currently zoned for hospital use, and because it is somewhat isolated from Bethesda Memorial, Bethesda intends to sell the property rather than develop it. Bethesda Memorial is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Bethesda Health City is a 135,000 square foot “medical mall” or “hospital without beds” that opened in 1995. The facility is located in the West Boynton area at the intersection of Hagan Ranch Road and Boynton Beach Boulevard, just east of the Florida Turnpike. Bethesda Health City offers services such as diagnostic imaging, outpatient rehabilitation, radiation therapy, and a woman’s center. The facility has offices for approximately 20 physician groups, and it also provides community outreach services targeted to the large senior population in the West Boynton area. Bethesda Health City was established to help Bethesda Memorial capture patients from the growing West Boynton area, and it has done so. There is capacity to add an additional 30,000 to 40,000 square feet of space to Bethesda Health City, and Bethesda intends to expand the facility whether or not its proposed satellite hospital is approved. Bethesda Health City provides Bethesda a significant physical presence in the West Boynton area. The facility has contributed to Bethesda Memorial’s significant and stable market share in the West Boynton area. In addition to Bethesda Memorial and Bethesda Health City, Bethesda administers a charitable foundation whose primary purpose is to fund Bethesda Memorial’s capital acquisitions and improvements. The foundation has considerable assets and is in the midst of a $100 million capital campaign through which it has already raised approximately $37 million. Bethesda Memorial experienced considerable and constant growth in its admissions and patient days between 1997 and 2003; its admissions grew by 45 percent and its patients days grew by 44 percent over that period. Bethesda Memorial is financially sound. It has substantial cash reserves and it is well-rated by the financial markets. The evidence was not persuasive that Bethesda’s current or long-term financial situation is distressed. Unlike other not-for-profit hospitals in District 9, Bethesda Memorial is a profitable hospital. Between 1997 and 2002, Bethesda Memorial’s operating income averaged approximately $5.5 million and in 2003, its operating income was approximately $7 million. In each of those years, the hospital also had significant non-operating revenues such that its total revenues over expenses during that period averaged approximately $10 million. The Bethesda system as a whole is also profitable. It had operating income of $2.4 million in 2002 and $2.1 million in 2001. Bethesda Memorial and the Bethesda system did not perform as well financially as JFK, Delray, or Wellington between 1997 and 2002; each of those hospitals had higher returns on assets, returns on equity, and total margin over that period than did Bethesda Memorial and Bethesda, and JFK and Delray had considerably more operating income over that period than did Bethesda Memorial. Bethesda Memorial’s CMR unit is projected to have a positive financial impact on Bethesda starting in 2005, and if approved, Bethesda Memorial’s open heart surgery program is also projected to have a positive impact on Bethesda’s long-term financial condition. (2) JFK JFK is owned by HCA, Inc. (HCA). HCA is nationwide, for-profit hospital chain. JFK is a 424-bed for-profit hospital in Atlantis, which is a small municipality in the Lake Worth area. JFK provides tertiary-level care. JFK is the most highly utilized hospital in District 9, and one of the most highly utilized hospitals in the state. JFK’s annual occupancy rate was 89.96 percent between July 2001 and June 2002, JFK is one of thee HCA hospitals in Palm Beach County. The others are Columbia and Palms West, both of which are in North Palm Beach County, Subdistrict 9-4. JFK operated as a not-for-profit hospital for approximately 30 years until it was purchased by HCA in 1996. Approximately $120 million of the purchase price paid by HCA was used to establish a charitable foundation, the Quantum Foundation, which funds a variety of health-related projects in the South Palm Beach County area. The services provided at JFK include orthopedics, cancer services, interventional cardiology and open heart surgery, neurologic services, and internal medicine. JFK does not offer pediatric or OB services. HCA has made significant capital improvements at JFK since it acquired the hospital. The community image of the hospital and the morale of its employees has significantly improved since the acquisition by HCA. JFK is accredited by JCAHO. JFK recently received a CON to add 36 beds, which will increase its licensed capacity to 460 beds. The beds will be located in shelled-in space on the fifth floor of JFK’s south tower, but they have not yet been brought on-line. JFK’s recently-constructed northwest tower was engineered so that an additional two floors can be added to that tower in the future, which would allow JFK to add 36 more beds. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at JFK beyond the 72 beds identified above. JFK is attempting to acquire a long-term lease for 19 acres across the street from its hospital that would be used for parking and medical office buildings. If that property is leased and developed, JFK may be able to free-up additional space for future bed expansions; however, the record does not establish the likelihood of the lease being consummated, the amount of space that might be freed-up if that property was developed, or any of the costs associated therewith. JFK recently constructed a medical office building in the West Boynton area that includes a wound care center and a diabetes center. That facility is on Jog Road, north of Boynton Beach Boulevard. Aside from the medical office building, JFK had not formally targeted the West Boynton area for expansion; its most recent strategic plan did not mention the prospect of locating a satellite hospital in that area. (3) Delray Delray is owned by Tenet Healthcare Corporation (Tenet). Tenet is a nationwide, for-profit hospital chain. Tenet operates four hospitals in Palm Beach County in addition to Delray, including West Boca Medical Center (West Boca) in South Palm Beach County, and Good Samaritan, St. Mary’s, and Palm Beach Gardens in North Palm Beach County. Delray is a 372-bed for-profit hospital in Delray Beach. Delray is located approximately 2.5 miles south of Atlantic Boulevard. Delray is in zip code 33484, but it is near the eastern boundary of zip code 33446. Delray opened in 1982, and is accredited by JACHO. Delray provides tertiary-level care. Delray is located on a “campus” that includes the hospital building, a 53-bed in-patient psychiatric facility known as Fair Oaks Pavillion (Fair Oaks), and a 90-bed CMR facility known as Pinecrest Rehabilitation Hospital. There is a separately-licensed 120-bed nursing home located adjacent to the campus. Delray’s 372 licensed beds include the 53 in-patient psychiatric beds at Fair Oaks, which is approximately 200 yards from Delray’s main hospital. Delray has added 108 beds to its hospital since 1996. Even with those bed additions, Delray remains a very highly utilized facility; its annual occupancy rate between July 2001 and June 2002 was 82.32 percent. Delray shelled-in space for an additional 31 beds as part of a recent expansion of its ED and ambulatory care unit. Delray intends to put those beds into service as soon as it can. Delray has the ability to further expand its hospital beyond the 31 beds planned for the shelled-in space. It already has local government approval for a total of 616 beds on its campus. The services provided at Delray include general medical and surgery services, trauma, interventional cardiology, open heart surgery, in-patient psychiatric services, orthopedics, and neurosurgery, with a special focus on chronically-ill elderly patients. Delray does not provide OB services. Delray has been the only provider of in-patient psychiatric services in South Palm Beach County since October 2001 when Bethesda Memorial discontinued its program. Delray has been a state-designated Level II trauma center since 1991, which requires it to have a neurosurgeon, trauma surgeon, and other specialists and specialized equipment available at all times. Delray receives funding from the local health district to help offset a large portion of the costs associated with providing its trauma services. Delray leases space in a medical office building in the West Boynton area where it provides diagnostic imaging, mammography, and laboratory services. Delray’s service area includes zip codes 33437, 33446, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Delray is currently, and historically has been a very profitable hospital. It reported a “total margin” of approximately $32.9 million on its May 2002 “Prior Year Report” filed with the Agency,4 and it reported operating income of $40.5 million in its audited financial statements for fiscal year 2003. (4) Wellington Wellington is owned by Universal Health System (Universal). Universal is a nationwide, for-profit hospital chain. Wellington is a 121-bed for-profit hospital in the northwestern portion of South Palm Beach County. Wellington is located in zip code 33414, approximately 2.5 miles south of Southern Boulevard at the intersection of State Road 7 (also known as U.S. Highway 441) and Forest Hill Boulevard. Wellington opened in 1986 as an osteopathic hospital, and approximately 25 percent of its current medical staff is osteopathic physicians. Wellington is accredited by JCAHO and the American Osteopathic Association. Wellington provides tertiary-level care. Wellington is easily accessible from Forest Hill Boulevard and State Road 7, and the hospital is served by the Palm Beach County bus system, which has a stop in Wellington’s parking lot. Wellington has made substantial capital improvements to its hospital over the past five years. Those improvements were designed to enhance the hospital’s efficiency in serving its current patients and also to anticipate future patient demand. Wellington owns 29 acres of property adjacent to the 26-acre site on which the hospital is located. The adjacent property is currently undeveloped and it is available for future expansions of Wellington. Wellington’s chief executive officer (CEO) testified that Wellington has a site plan approved for its undeveloped property and that it has “vested concurrency” for the future development of that property; however, that testimony was not corroborated (as was the case with Delray’s approved master plan) and therefore is not persuasive. The services at Wellington include an ED, an OB program, general medical and surgical care, an orthopedic unit, a comprehensive cancer center, a wound care center, a cardiology program with a dedicated cardiovascular intensive care unit, and an outpatient diagnostic center. Wellington’s OB program includes 18 labor rooms, 19 post-partum rooms and a 10-bed Level II NICU. Wellington delivers approximately six babies per day and has the capacity to deliver up to 15 babies per day. Wellington’s utilization has steadily grown over the years, but it is still one of the lowest utilized facilities in South Palm Beach County; its annual occupancy rate was 64.27 percent between July 2001 and June 2002. Wellington derives approximately 90 percent of its patients from a geographic area bounded by Military Trail on the east, the Loxahatchee National Wildlife Refuge on the west, Okeechobee Boulevard to the north, and Boynton Beach Boulevard to the south. That area includes zip codes 33414, 33437, 33463, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Wellington has teaching and training programs for physician assistants and certified nurse anesthetists under contracts with Florida International University and Florida Atlantic University. Wellington also has a family practice residency/internship teaching program for osteopathic doctors that is affiliated with Lake Erie School of Osteopathic Medicine, and a three-year dermatology teaching program. When Wellington was established in 1986, there was very little population in the western portion of South Palm Beach County to support the hospital. As a result, the hospital was unprofitable in its early years, and by 2000, it had accumulated a deficit of $22 million. Wellington’s financial performance has improved significantly in the past several years, but it still has a large accumulated deficit. Wellington is relying on its ability to retain or increase its market share in the growing West Boynton area in order to remain profitable and eliminate its accumulated deficit. (5) Agency The Agency is the state agency responsible for administering the CON program and licensing hospitals and other health care facilities. Application Submittal and Review and Preliminary Agency Action Bethesda and JFK each filed CON applications with the Agency in the first “hospital beds and facilities” batching cycle of 2003. Each application sought to establish a new 80- bed satellite hospital in the West Boynton area of South Palm Beach County, Subdistrict 9-5. The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero acute care beds in Subdistrict 9-5. There were no challenges to the published fixed need pool. The letters of intent and CON applications filed by Bethesda and JFK for their respective satellite hospitals were timely filed and complied with all of the technical submittal requirements in the governing statutes and rules. JFK’s letter of intent was filed within the “grace period” (see Florida Administrative Code Rule 59C-1.008(1)(d)2.) in direct response to Bethesda’s earlier-filed letter of intent. There is nothing inherently improper about a “grace period” letter of intent, and very little significance has been given to the responsive nature of JFK’s proposal in the comparative evaluation of the CON applications. A public hearing was held on the applications by the local health council on April 24, 2003.5 Presentations were made at the public hearing in support of and in opposition to the applications. The opposition came primarily from a representative of Delray; the support came from representatives of Bethesda and JFK and several residents of the West Boynton area. The reasons offered by the speakers for their opposition or support of the applications were essentially the same as those presented at the hearing, and no independent significance has been given to the testimony and “evidence” presented at the public hearing. Bethesda’s and JFK’s applications were comparatively reviewed by the Agency in accordance with the Agency’s rules and standard procedures. On June 13, 2003, the Agency issued its State Agency Action Report (SAAR) based upon its comparative review of the applications. The SAAR recommended approval of Bethesda’s application and denial of JFK’s application. The Agency’s published notice of intent to approve Bethesda’s application and to deny JFK’s application in the June 27, 2003, edition of the Florida Administrative Weekly as required by statute and Agency rule. The Agency reaffirmed its preliminary decisions on the applications through the hearing testimony of Jeffrey Gregg, the Bureau Chief of the Agency’s CON program. The petitions for administrative hearing challenging the Agency’s preliminary decisions on the CON applications at issue in this proceeding were all timely filed. Acute Care Subdistricts 9-4 and 9-5 The Agency calculates the inventory of acute care beds on a subdistrict basis, and it considers CON applications for additional acute care beds on a subdistrict basis. Palm Beach County is in District 9, which is divided into five subdistricts. Only two of the subdistricts, 9-4 and 9-5, are relevant in this case. Subdistrict 9-4 is North Palm Beach County, and Subdistrict 9-5 is South Palm Beach County. The dividing line between the two subdistricts is Southern Boulevard. There are six existing acute care hospitals in Subdistrict 9-5: Bethesda Memorial, JFK, Delray, Wellington, West Boca, and Boca Raton Community Hospital (Boca Community). Boca Community and Bethesda are the only not-for- profit hospitals in Subdistrict 9-5; the others are for-profit hospitals. The service area of Palms West, which is located on Southern Boulevard in Subdistrict 9-4, includes portions of Subdistrict 9-5 and the West Boynton area. The utilization of hospital services in Subdistrict 9- 5 has historically been higher than the utilization of hospital services in Subdistrict 9-4. In calendar year 2002, for example, the average occupancy rate of the Subdistrict 9-5 hospitals was 78.2 percent as compared to 55.6 percent for the Subdistrict 9-4 hospitals; and during the “peak season” of January through March 2002, the average occupancy rates were 88.4 percent in Subdistrict 9-5 and 62 percent in Subdistrict 9-4. The West Boynton Area The West Boynton area is an unincorporated area of South Palm Beach County. Its approximate boundaries are Congress avenue on the east, the Loxahatchee National Wildlife Reserve on the west, the L-30 canal (which is several miles north of Atlantic Avenue) on the south, and Hypoluxo Road on the north. The West Boynton area roughly corresponds to the geographic area that is included in zip codes 33436, 33437, 33463, and 33467. The Florida Turnpike, which runs north-south, roughly bisects the West Boynton area. The Turnpike is not a geographic barrier between the east and west portions of the West Boynton area, but it served as the de facto boundary of the urban service area until approximately 10 years ago when significant amounts of development began to “jump” the Turnpike. Boynton Beach Boulevard is the primary east-west road in the West Boynton area, although there are several other east- west arterial roads within the area including Lantana Road and Hypoluxo Road. Other major east-west roads in close proximity to the West Boynton area are Forest Hill Boulevard, Lake Worth Road, and Atlantic Avenue. There are several major north-south roads in the West Boynton area in addition to the Turnpike, including Jog Road, Hagen Ranch Road, and State Road 7. State Road 7 is the westernmost major north-south road in South Palm Beach County. As a result of local zoning restrictions, very little development in the West Boynton area is or will be west of State Road 7. The 2002 population of the West Boynton area, as defined by the four zip codes identified above, was approximately 156,000. There are seasonal variations in the population, but they are not as significant as the seasonal variations in the population of the more easterly portions of Palm Beach County. The population of the West Boynton area is projected to grow to approximately 181,000 by 2007, which corresponds to an annual growth rate of approximately 3.1 percent per year. That growth rate is higher than the annual growth rate projected over that period for the state as a whole (1.6 percent), Palm Beach County (two percent), and District 9 (1.9 percent). Approximately 89 percent of the 2003 population of the West Boynton area was located to the east of the Turnpike. The portion of the West Boynton area to the west of the Turnpike is projected to grow at a considerably faster rate through 2008 than the area to the east of the Turnpike, which is consistent with the extensive amount of residential development that is underway or approved in the West Boynton area west of the Turnpike. In 2002, approximately 28.6 percent of the residents of the West Boynton area were in the age 65 and older (“65+”) age cohort. That percentage is higher than the percentages in that age cohort for the state as a whole (17.5 percent), Palm Beach County (22.5 percent), or District 9 (22.5 percent). The 65+ age cohort is projected to remain the largest segment of the West Boynton area population through 2008. A large number of the existing residential communities and the communities under development in the West Boynton area are retirement communities that are deed-restricted to persons over the age of 55, which contributes to the higher percentage of the population in the 65+ age cohort currently and projected in the future. The West Boynton area is more affluent than and offers a better payer-mix than the existing service areas of Bethesda Memorial and JFK. As compared to the existing service areas of those hospitals, the West Boynton area has a lower percentage of uninsured residents, a higher percentage of Medicare and insured residents, a lower percentage of households with annual incomes below $20,000, and a higher percentage of households with annual incomes above $60,000. There is currently healthy competition in the West Boynton area for acute care services. That competition includes each of the four hospital parties in this case as well as several other hospitals. JFK, Bethesda, Wellington, and Delray, collectively accounted for approximately 72 percent of the discharges from the West Boynton area in calendar years 2000, 2001, and 2002. The percentage of the West Boynton area discharges attributable to each of those hospitals or, stated another way, the hospitals' market shares in the West Boynton area over that period are as follows6: JFK Bethesda Delray Wellington 2000 31.7% 23.2% 10.6% 6.1% 2001 30.1% 24.0% 11.2% 6.9% 2002 28.8% 23.9% 11.4% 7.7% There is no credible evidence that there will be any significant changes in those relative market shares over the five-year planning horizon applicable to the applications at issue in this case if a new hospital is not approved in the West Boynton area. Stated another way, the competitive balance that currently exists in the West Boynton market is expected to continue unless something disrupts that balance, such as the approval of a new hospital in the area. As discussed below, if either of the proposed satellite hospitals are approved, the market share of the approved hospital will increase to the detriment of the other hospitals. There is considerable community support for a new hospital in the West Boynton area from the residents of that area, as reflected in the letters of support included in the CON applications, the testimony at the local public hearing on the applications, and the deposition testimony from area residents and the related exhibits introduced at the hearing. The community support is not, on balance, directed to the approval of Bethesda's proposed satellite hospital over JFK’s proposed satellite hospital, or vice versa; it is simply for the expeditious approval of a hospital. Need for OB Services in the South Palm Beach County and/or the West Boynton Area There are currently four OB programs in Subdistrict 9-5. The programs are at Bethesda Memorial, Wellington, West Boca, and Boca Community. The evidence is not persuasive that an additional OB program is needed in Subdistrict 9-5. Indeed, Dr. Samuel Kaufman, an OB/GYN who has practiced in the area for many years, testified credibly that the four existing OB programs in the subdistrict are just now beginning to do enough deliveries to be efficient. There was no persuasive evidence that there are accessibility problems at the existing OB programs because of their utilization rates. Indeed, the OB unit at Wellington has the capacity to handle up to an additional nine deliveries per day. Each of the existing OB programs offers Level II and/or Level III NICU services, which is typically referred to as “NICU backup.” It is not feasible to provide NICU backup at a low-volume OB program such as the 10-bed OB unit proposed in JFK’s satellite hospital. It is important to have NICU backup because it is not uncommon for high-risk OB patients to unexpectedly present to the hospital and, in such circumstances, it is better for the child to have NICU services at the hospital where he or she is delivered rather than having to be transferred to another hospital. The standard of care in South Palm Beach County requires NICU backup and, based upon malpractice liability concerns, some OB/GYNs will not deliver babies at a hospital that does not have NICU backup. OB is among the top ten discharges in the proposed service area of JFK’s satellite hospital, which is not uncommon around the state; however, because of the lower average length of stay (ALOS) associated with an OB admission, the high number of discharges does not correlate to a large number of patient days in the service area. The population group that is most likely to utilize OB services is females between the ages of 15 and 44 (hereafter “the Female 15-44 age cohort”). Only 16 percent of the 2002 population of the West Boynton area was in the Female 15-44 age cohort, and that cohort is projected to grow at a slower annual rate (2.3 percent) than the population of the West Boynton area as a whole (3.1 percent) through 2007.7 The relatively small portion of the population in the Female 15-44 age cohort is consistent with the data showing the highest percentage of the population in the West Boynton area in the 65+ age cohort. It is also consistent with the testimony and evidence regarding the number of existing and planned deed- restricted retirement communities in the West Boynton area. The logic of including an OB unit in the proposed JFK satellite hospital is undercut by the recent closure of the OB unit at Columbia. According to Columbia’s CEO, Columbia’s OB unit was closed in 2002 because it “was a small unit” with a low volume, because the service area from which Columbia was drawing its patients was predominately elderly, and because there were several other hospitals within close proximity to Columbia that had larger OB units with NICU backup. Based upon those factors, Columbia’s CEO concluded that “there was no real community need to do OB” and that “it just didn’t make sense” to do OB. The same factors exist in the West Boynton area and, as a result, the comments of Columbia’s CEO are equally applicable to the inclusion of an OB unit in the proposed JFK satellite hospital. The Proposed Satellite Hospitals (1) Bethesda West Bethesda’s application, CON 9659, proposes to establish an 80-bed satellite hospital in the West Boynton area by de-licensing 80 beds at Bethesda Memorial and then transferring those beds to the proposed satellite hospital. The transfer of beds proposed in Bethesda’s application will not increase the inventory of acute care beds in either District 9 or Subdistrict 9-5. The 80-bed increase at Bethesda West will be offset by the 80-bed decrease at Bethesda Memorial, both of which are in Subdistrict 9-5. The beds transferred to Bethesda West will come from double-occupancy rooms, thereby allowing Bethesda Memorial to convert those rooms to private rooms. The conversion to private rooms will create efficiencies at Bethesda Memorial by eliminating gender-based or disease-based conflicts between patients that often arise with double-occupancy rooms. The transfer of 80 beds to Bethesda West will reduce Bethesda Memorial’s licensed capacity to 282 beds. That figure includes the 15 NICU beds, the 14 hospice beds, and the 14-bed SCU; therefore, after the bed transfer, Bethesda Memorial will have only 239 beds available for general patient use. Bethesda Memorial is projected to have 80,630 patient days (excluding NICU and CMR patient days) in Bethesda West’s second year of operation.8 That equates to an ADC of 221 patients and an occupancy rate of 92.4 percent for the 239 beds available for general patient use. If the hospice lease and the SCU contract are not renewed in 2005, then Bethesda Memorial would have 267 beds available for general patient use and its occupancy rate would be 82.7 percent. The non-renewal of the hospice lease and the SCU contract would not add new acute care beds to Subdistrict 9- 5 because those beds are still considered to be acute care beds for purposes of the Agency's bed inventory for the subdistrict, even though they are currently designated for specific purposes. With an annual occupancy rate of 92.4 percent or even 82.7 percent, there would likely be days on which Bethesda Memorial’s occupancy rate would exceed 100 percent. This is not an uncommon occurrence at the hospitals in Subdistrict 9-5, particularly during the “peak season” of January through March. Bethesda Memorial could operate efficiently and provide high quality care with an occupancy rate of 82.7 percent or 92.4 percent without adding new beds. Indeed, JFK and Delray each have similar occupancy rates (and even higher occupancy rates during the “peak season”), and it is undisputed that they provide high quality care. Because the addition of new acute care beds at an existing hospital is no longer linked to the hospital’s occupancy rate, Bethesda Memorial (like any other existing hospital) is free to add new acute care beds whenever it chooses to do so; however, the evidence was not persuasive that Bethesda will, in fact, add new beds at Bethesda Memorial after the bed transfer to Bethesda West notwithstanding the resulting high utilization rate at Bethesda Memorial.9 Bethesda West will include 68 general med-surg beds, 12 critical care beds, a full service ED, and related ambulatory and outpatient services. All of the beds at Bethesda West will be in private rooms. Bethesda West will not offer OB services or dedicated pediatric services, and it will not include a cardiac catheterization lab. Bethesda West will be in a new 190,130 square foot building. The space plan for Bethesda West is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of Bethesda West is also reasonable. Bethesda West will be located at the intersection of Boynton Beach Boulevard and State Road 7, which is approximately two miles west of the Turnpike. That location is three miles from Bethesda Health City, eight to nine miles from Wellington, and ten to 11 miles from Delray, JFK, and Bethesda Memorial. Bethesda West could not be collocated with Bethesda Health City because there is not enough property at that location to construct a satellite hospital with the necessary parking facilities. Bethesda has contracted to purchase 54 acres of property at the intersection of Boynton Beach Boulevard and State Road 7 known as the “Amestoy Property.” The purchase price of the Amestoy Property was $110,000 per acre. Bethesda intends to develop Bethesda West on approximately 30 acres of the Amestoy Property and then lease or sell the remainder of the property for the development of medical office buildings. A 30-acre site is adequate for the proposed 80-bed satellite hospital, although it may inhibit future expansion. Bethesda West intends to utilize the same medical staff as Bethesda Memorial; however, Bethesda has not discussed the issue with its medical staff as a whole10 nor has it developed specific plans to implement its dual-staffing approach. Bethesda West will share management and administrative support services with Bethesda Memorial rather than duplicating those services. The total cost of Bethesda West is $73.8 million. The primary service area (PSA) for Bethesda West consists of zip codes 33436, 33437, 33463, and 33467, which roughly correspond to the boundaries of the West Boynton area. The hospital’s secondary service area (SSA) includes zip codes 33414 and 33446. There is significant overlap in the proposed service area of Bethesda West and the current service area of Bethesda Memorial; four of the six zip codes in Bethesda West’s service area are in Bethesda Memorial’s service area. There is also significant overlap between the proposed service area of Bethesda West and the service areas of Delray, Wellington, and JFK; each of the zip codes in Bethesda West’s proposed service area is also within the service area of at least two of those hospitals. Bethesda West is projected to have 10,430 patient days in its first year of operation and 14,570 patient days in its second year of operation. Those patient days equate to ADCs of 29 and 40, and occupancy rates of 35.7 percent and 49.9 percent in the first and second years of operations. By the fourth year of operation, Bethesda West is projected to have an ADC of 56, which equates to an occupancy rate of 65.2 percent. These occupancy rates are reasonable, as is the “ramp up” concept on which they are based. The projected utilization at Bethesda West is based upon an ALOS of 4.6 days. That ALOS was derived from information in the Agency’s in-patient database for residents of the West Boynton area who received in-patient services of the kind that would be offered at Bethesda West. It is a reasonable ALOS.11 The projected utilization assumes that Bethesda West will have an overall market share of 7.5 percent in its service area in the first year of operation, and that Bethesda West’s overall market share will increase to 13.5 percent by its fourth year of operation. Bethesda West is not projected to have a market share of greater than 15 percent in any individual zip code until its third year of operation. The utilization and market shares projected for Bethesda West are reasonable and attainable based upon the demographics and projected population growth in the West Boynton area. Bethesda West is projected to take patients from the hospitals that currently serve the West Boynton area, including Bethesda Memorial. Bethesda's application projects that 3,040 patients from Bethesda Memorial will be “redistributed” to, or “cannibalized” by Bethesda West in Bethesda West’s first year of operation and that the number will increase to 4,530 patients in Bethesda West's second year of operation. The remainder of Bethesda West’s projected patient days – 7,390 in its first year of operation and 10,040 in its second year of operation – will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to these projected in-patient admissions, Bethesda West is projected to have outpatient registrations ranging from 22,440 (first year of operation) to 46,310 (fourth year of operation) and ED visits ranging from 8,990 (first year of operation) to 19,720 (fourth year of operation). The projected outpatient registrations and ED visits are reasonable and attainable. Some of the outpatient registrations at Bethesda West will come at the expense of Bethesda Health City because it is currently providing some of the same outpatient services that are proposed for Bethesda West. There is no persuasive evidence quantifying the number of Bethesda West’s outpatient registrations that would have otherwise gone to Bethesda Health City, nor is there any persuasive evidence quantifying the financial impact of the redistribution of those outpatients. (2) Proposed JFK Satellite Hospital JFK’s application, CON 9660, proposes to establish an 80-bed satellite hospital in the West Boynton area by de- licensing 80 beds at Columbia and then transferring those beds to the proposed JFK satellite hospital. Columbia is located in Subdistrict 9-4 and, like JFK, it is an HCA hospital. The bed transfer proposed by JFK will increase the inventory of acute care beds in Subdistrict 9-5 by 80 beds, but the bed inventory in District 9 will remain the same; the 80-bed increase in Subdistrict 9-5 at JFK’s proposed satellite hospital will be offset by an 80-bed decrease in Subdistrict 9-4 at Columbia. Columbia has 250 licensed beds, of which 150 are acute care beds, 12 are skilled nursing beds, and 88 are psychiatric beds. Columbia’s acute care beds include a 20-bed intensive care unit/critical care unit (ICU/CCU), but only 10 of those beds are currently being used. The 12-bed skilled nursing unit is not currently being used. The acute care beds at Columbia are not well- utilized. In calendar year 2002, the utilization rate for Columbia’s 150 acute care beds was only 40 percent and during the “peak season” in 2002, the utilization rate of those beds was only 47.6 percent. The proposed bed transfer would enable Columbia to convert its existing semi-private rooms to private rooms, but according to Columbia’s CEO, to do so Columbia would also need to convert its 12 skilled nursing beds to acute care beds. JFK’s CON application did not make reference to that necessary bed conversion. The conversion of the 12 skilled nursing beds to acute care beds may require Agency approval, which Columbia had not requested as of the date of the hearing. If the bed conversions described by Columbia’s CEO did not occur, the utilization rate of the 70 remaining acute care beds at Columbia after the transfer will likely exceed 80 percent on an annual basis and, during the “peak season,” the occupancy rate will likely exceed 100 percent. Indeed, applying the number of patient days at Columbia in calendar year 2002 to 70 beds results in an annual occupancy rate of 85.7 percent and an occupancy rate of 102 percent in the “peak season.” Under the pre-2004 law, those occupancy rates would allow Columbia to add beds without CON review, and Columbia’s CEO testified that she would take steps to add beds at Columbia if necessary based upon the facility’s occupancy rates after the bed transfer. There is no credible evidence that JFK planned to construct a satellite hospital in the West Boynton area prior to February 2003. The proposal was not included in any of JFK’s strategic or business plans prior to that date. There is also no credible evidence that the Columbia planned to de-license any beds at its facility prior to the CON application at issue in this proceeding; Columbia’s long-term business plan includes the beds that are being transferred to JFK’s proposed satellite hospital. The decision to de-license and transfer 80 beds from Columbia was made by HCA officials, not Columbia’s management team. The proposed JFK satellite hospital will include 60 general med-surg beds, a 10-bed OB unit, a 10-bed ICU/CCU, a full-service ED, and surgical suites. The hospital will provide radiation oncology services, diagnostic cardiac catheterization services, and outpatient psychiatric services, and all of its beds will be in private rooms. In addition to the 80 beds described above, the proposed JFK satellite hospital will have a 12 “observation” beds in private rooms. The observation beds will be sized and equipped in the same manner as the general med-surg beds. As a result, the proposed JFK satellite hospital will effectively have 92 beds even though it will only be licensed for 80 beds. The proposed JFK satellite hospital will be in a new 195,195 square foot building. The space plan for the hospital is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of the hospital is also reasonable. The proposed JFK satellite hospital will be located at the intersection of Boynton Beach Boulevard and the Turnpike on a 50-plus acre site known as the “Mazzoni Property.” That location is eight to nine miles from Delray and Bethesda Memorial, and 11 to 12 miles from Wellington and JFK. JFK has offered to purchase the Mazzoni Property for $130,000 per acre, but as of the date of the hearing, it had not entered into a contract to purchase the property. Bethesda had been in negotiations for the purchase of the Mazzoni Property at a similar price before it settled on, and entered into a contract to purchase the Amestoy Property. Like Bethesda, JFK intends to develop medical office buildings on its site in addition to the proposed satellite hospital. The size of the Mazzoni Property is adequate for those purposes. JFK intends to utilize its medical staff to cover the proposed satellite hospital; however, there is no credible evidence in the record detailing how the dual-staffing would work. The proposed JFK satellite hospital will share some of its management and administrative support services with JFK, but not to the same extent as those services are shared between Bethesda West and Bethesda Memorial. Indeed, the proposed JFK satellite hospital was planned and staffed as a “stand alone economic entity.” The total cost of the proposed JFK satellite hospital is approximately $109.8 million. The service area of JFK’s proposed satellite hospital is considerably larger than the service are of Bethesda West. The PSA consists of zip codes 33437, 33467, 33446, and 33484; the SSA consists of zip codes 33436, 33463, 33414, 33413, 33445, 33496, and 33498. There is significant overlap between the service area of the proposed JFK satellite hospital and the existing service areas of Bethesda, Delray, Wellington, and JFK; each of the zip codes in the proposed service area is within the service area of at least two of those hospitals. Zip codes 33437 and 33467 are expected to generate over 92 percent of the patients for the proposed JFK satellite hospital. The inordinately high number of patients that these two zip codes are expected to generate calls into question the reasonableness of service area defined by JFK, or at least the relevance of the SSA. The proposed JFK satellite hospital is projected to have 20,851 patient days in its first year of operation and 21,576 patient days in its second year of operation, which equate to ADCs of 57 and 59 and occupancy rates of 71.4 percent and 73.7 percent. By the fifth year of operation, the proposed JFK satellite hospital is projected to have an occupancy rate of percent. The projected utilization of the proposed JFK satellite hospital was based on an ALOS of 3.9 days. That figure is reasonable. See Endnote 11. To achieve the projected utilization, the proposed JFK satellite hospital will have to immediately achieve inordinately high market shares in its two primary zip codes, 33437 and 33467. Indeed, the CON application projects that the proposed JFK satellite hospital will have a 27 percent market share in zip code 33437 and a 24 percent market share in zip code 33467. It is unreasonable to expect that a new, start-up hospital will be able achieve the market share or utilization rates projected by JFK for its proposed satellite hospital even though it will be affiliated with JFK, which has an established market reputation in the area. Instead, similar to other new hospitals, the proposed JFK satellite hospital will likely have a “ramp up” period before it achieves its target market penetration and/or utilization. The 10-bed OB unit at the proposed JFK satellite hospital is projected to have an ADC of 6 in each of the first two years of operation, and approximately one half of the admissions are projected to come from zip code 33467. That zip code has fewer residents in the Female 15-44 age cohort than does zip code 33463, which is in the West Boynton area but is in the SSA of the proposed JFK satellite hospital. The utilization of the OB unit assumes market shares of 65 percent in zip code 33437, which is the zip code where the proposed JFK satellite hospital will be located (i.e., its “home zip code”), and 60 percent in the adjacent zip code 33467. Those market shares are not inherently unreasonable for OB services since OB patients are more likely to utilize a facility closer to their home; however, the market shares are materially higher than the market shares that the established programs at Palms West (45 percent) and Wellington (41 percent) have in their home zip codes. The market shares proposed for the other zip codes in the proposed JFK satellite hospital’s service area are also somewhat higher than would be expected, particularly for a start-up OB program, but they are not inherently unreasonable. Even though the OB market shares assumed by JFK are not inherently unreasonable, they are unrealistic under the circumstances of this case because the OB unit at the proposed JFK satellite hospital will not have NICU backup, which is the standard of care in South Palm Beach County, and it is unlikely that obstetricians will refer their patients to the proposed satellite hospital when other hospitals with NICU backup (e.g., Wellington and Bethesda Memorial) are available in close proximity to the West Boynton area. The patient days for the OB unit were projected based upon a population-based use rate rather than based upon a fertility rate applied to the Female 15-44 age cohort. Because the Female 15-44 age cohort is growing at a slower rate than the population as a whole, JFK’s methodology had the effect of overstating the OB patient days and the ADC of the OB unit. The fertility rate methodology is a more reasonable approach under the circumstances of this case. That methodology results in an ADC of only two to four patients in the OB unit at the proposed JFK satellite hospital, which is a more reasonable projection and is more consistent with the largely elderly demographic of the West Boynton area. In sum, the projected utilization of the proposed JFK satellite hospital is overstated, particularly in the first two years of operation, as a result of the unrealistic market shares projected for the hospital’s two primary zip codes and the overstated projection of OB patient days in the West Boynton area. The proposed JFK satellite hospital is projected to take patients from the hospitals that currently serve the West Boynton area, including JFK. JFK projects that approximately 40 percent of its patients will be “cannibalized” by the proposed JFK satellite hospital, which is a materially higher percentage than that projected for Bethesda West in its first (29.1 percent) and second (31.1 percent) years of operation. The remainder of the proposed JFK satellite hospital’s admissions will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to the projected in-patient admissions discussed above, the proposed JFK satellite hospital is expected to have outpatient registrations and ED visits; however, the number of registrations and visits is not expressly projected in the application. Accordingly, it cannot be determined whether those projections are reasonable or not.12 Institution-specific Justifications for the Proposed Satellite Hospitals Other than the prospect of enhancing access to acute care services for residents of the West Boynton area (see Part I(1)(b) below), the primary justifications offered by Bethesda and JFK for their respective satellite hospitals were institution-specific. The primary justification offered by Bethesda for the establishment of Bethesda West was its need to maintain or increase its market share of the favorable payer-mix in the West Boynton area in order to ensure its long-term financial viability. Although the evidence establishes that the West Boynton area has a more favorable payer-mix than Bethesda Memorial’s current service area, the evidence was not persuasive that Bethesda’s long-term financial viability is at risk or that it is at risk of losing market share in the West Boynton area if it is not allowed to construct Bethesda West. Bethesda also presented evidence regarding its inability to add new beds at Bethesda Memorial because of physical and/or cost constraints, but that evidence was not persuasive. The primary justification offered by JFK for the establishment of its proposed satellite hospital was its inability to expand its current facility to accommodate patients coming from the West Boynton area or elsewhere; however, the preponderance of the evidence fails to support that claim because, as of the date of the hearing, JFK still had the ability to add at least 72 more beds to its existing facility, including 36 beds without any additional construction. Impact of the Proposed Satellite Hospitals on the Existing Hospitals in Subdistrict 9-5 The evidence is not persuasive that Bethesda West or the proposed JFK satellite hospital can achieve their in-patient utilization projections through population growth in their projected service areas alone. Instead, the evidence establishes that the proposed satellite hospitals will achieve their projected utilization primarily by taking patients who are currently being served by, or would otherwise be served by one of the existing hospitals in Subdistrict 9-5. Bethesda West and the proposed JFK satellite hospital are each projected to “cannibalize” patients from Bethesda Memorial and JFK, respectively; however, they will also take patients “out of the hide” of Delray, Wellington, and each other. The projected growth in the West Boynton area will result in the existing hospitals having more patient days in the future than they currently have, whether or not either of the satellite hospitals is approved; however, the approval of either of the proposed satellite hospitals will result in the existing hospitals losing some of the growth-related admissions that they would have otherwise captured. It is appropriate to consider the loss of those growth-related admissions as part of the impact analysis because the market shares in the West Boynton area and the service areas of the proposed satellite hospitals have been relatively stable over the past several years, and it is reasonable to expect that absent a significant change of circumstances (such as the approval of a satellite hospital in the area) the existing hospitals would continue to maintain their respective market shares into the future.13 The most persuasive analysis of the impact on the existing providers of the approval of the proposed satellite hospitals is that prepared by Wellington’s health planner, Thomas Davidson (Exhibit W-4). Based upon Mr. Davidson’s analysis, the number of admissions that the existing providers would lose because of Bethesda West in its first two years of operation are as follows: Year 1 Year 2 Delray 377 512 Wellington 138 187 JFK 554 752 Based upon Mr. Davidson’s analysis, the number of patient days that the existing providers would lose because of the proposed JFK satellite hospital in its first two years of operation are as follows: Year 1 Year 2 Delray 1,035 663 Wellington 735 615 Bethesda 1,638 1,178 These lost admissions and patient days constitute a substantial adverse impact on the existing hospitals, as does the loss of income resulting from the lost admissions and patient days. The proposed JFK satellite hospital will have a slightly greater adverse financial impact on Wellington than will Bethesda West, primarily because of the OB program and larger service proposed for the JFK satellite hospital; the proposed JFK satellite hospital and Bethesda West will have materially similar adverse financial impacts on Delray. The overall effect of the lost admissions, patient days, and the resulting loss of income is greater on Wellington than it is on any of the other hospitals because Wellington has historically been less profitable than the other hospitals. There are other adverse impacts on the existing providers, including the increases in costs and/or potential impacts to quality of care resulting from the exacerbation of the emergency room (ER) call shortage of specialty physicians discussed below; however, there is no persuasive evidence quantifying those impacts. Comparative Evaluation of the CON Applications Based Upon the Applicable Statutory and Rule Criteria There is no credible evidence to justify the approval of two 80-bed hospitals in the West Boynton area. As a result, if either of the proposed satellite hospitals is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria. Statutory Criteria – Section 408.035, Florida Statutes (2003)14 Subsection (1): Need in Relation to the District Health Plan15 The applicable provisions of the Local Health Plan for District 9 are as follows: Priority shall be given to area hospitals, which can show a commitment to, or historical record of service to Medicaid/indigent, handicapped and underserved population groups. Priority shall be given to applicants who can document cost containment practices in their facilities. Cost containment practices, such as sharing services with other area hospitals, enhances efficient resource utilization and assists in avoiding duplication of services. Priority shall be given to an applicant who proposes to use existing space rather than new construction, including space created by previous voluntary de- licensure of underutilized or unused beds and/or through transfer of beds within a subdistrict. As more fully discussed below in connection with Section 408.035(11), Florida Statutes, the first preference weighs in favor of Bethesda based upon its historical record of service to Medicaid and charity patients, which is marginally better than JFK’s record, and its commitment to provide five percent of the patient days at Bethesda West to Medicaid and charity patients, which is more realistic than JFK’s 10 percent commitment; however, the weight associated with this preference is minimal in light of the demographics of the West Boynton area, which is generally more wealthy and, hence, less likely to generate significant Medicaid or charity care patient days. As to the second preference, the record does not “document” any material cost containment practices at JFK or Bethesda Memorial. JFK and Bethesda each intend to use their existing medical staffs to cover their proposed satellite hospitals as a cost-containment effort; however, Bethesda has proposed a greater degree of integration (and, hence, less duplication) in the administrative functions at Bethesda West and Bethesda Memorial than did JFK at is proposed satellite hospital. Thus, the second preference also marginally weighs in favor of Bethesda. As to the third preference, both applicants are proposing new construction rather than the use of existing space. Although JFK is proposing the de-licensure of underutilized beds at Columbia, it is not using the space created by those beds for its proposed satellite hospital as the rule preference contemplates. The beds that Bethesda is transferring to Bethesda West are not underutilized and they are being transferred to a new to-be-constructed facility rather than to existing space. In sum, the local health plan preferences marginally weigh in favor of the approval of Bethesda’s application over JFK’s application. Subsections (2) and (7): Availability, Quality of Care, etc. of Existing Facilities and Enhancing Access The primary justification offered by the applicants for their respective proposed satellite hospitals (other than the hospital-specific issues discussed above) is that the facility will "enhance access" to acute care services for residents of the West Boynton area. More specifically, the applicants contend that the establishment of a new hospital in the West Boynton area will address an “access” problem that exists or soon will exist in the area. As discussed below, this contention is not supported by the preponderance of the evidence. In the CON context, “access” is typically evaluated from the vantage points of programmatic, financial, cultural, and geographic access. “Programmatic access” refers to the adequacy of the programs and services provided at existing facilities in relation to the specific health care needs of the persons served by those facilities. Programmatic access concerns arise when specific programs or services are not available for patients that need them, or when the quality of care provided in the existing programs is inadequate. The evidence was not persuasive that there are any programmatic access problems in Subdistrict 9-5 and, in any event, neither of the proposed satellite hospitals would enhance programmatic access in the subdistrict because they will not offer any programs or services that are not already offered at one or more of the tertiary hospitals in the subdistrict that currently serve the West Boynton area. Indeed, the proposed satellite hospitals will offer a more narrow range of services than the existing tertiary hospitals presently serving the area. This is significant because the elderly, who make of a large portion of the West Boynton area and who are more likely to have co-morbidities or more complex medical needs, are generally better served in a hospital offering tertiary services and more complete care. Similarly, it is reasonable to expect that many physicians will continue to admit their patients to the larger tertiary hospitals rather than shifting those patients to a satellite hospital that provides a more narrow range of services. “Financial access” refers to the extent to which persons have access to health care services without regard to their ability to pay. The evidence was not persuasive that there are any financial access problems in Subdistrict 9-5 or the West Boynton area that the proposed satellite hospitals will address. None of the existing hospitals that serve the West Boynton area have policies or practices that discourage indigent patients from seeking care at their facilities and, in any event, the low- income population makes up a relatively small portion of the West Boynton area. Cultural access” refers to the extent to which certain persons cannot or do not access the existing facilities due to cultural factors such as race, ethnicity, and national origin. Cultural access was not advanced by Bethesda or JFK as a basis for the approval or their respective applications. “Geographic access” refers to the physical accessibility of the existing facilities or services in a subdistrict taking into account population density, distance and time of travel, and geographic barriers or other impediments to access. Geographic access has been referred to as a “foundation of health planning.” Bethesda and JFK focus primarily on the projected growth of the West Boynton area and the road congestion that comes with that growth as the basis for their contention that there is, or soon will be a access problem for residents of the West Boynton area; Bethesda states in its PRO (at page 29) that "[g]eographic access is at the heart of [its] proposal." A reasonable geographic access standard for persons living in an urban area is a drive time of 30 to 40 minutes to an acute care hospital. Under that standard, there is currently no geographic access problem for residents of the West Boynton area. Indeed, there are as many as 12 hospitals within a 30-minute drive of the West Boynton area, and a “fair number” of residents have access to four hospitals -– Bethesda, JFK, Wellington, and Delray -- within a 15 to 20-minute drive time.16 All of the hospitals within the 30-minute drive time offer tertiary-level care, and a number of them offer OB services. There are no physical geographic barriers that limit access to the existing hospitals by residents of the West Boynton area. Indeed, there are a number of different major north-south and east-west roads that residents have to chose from when accessing the existing hospitals, and most of those roads have at least four lanes. The major roads in the West Boynton area have expanded along with growth of the population in the area, and they are expected to continue to do so. The infrastructure plan adopted by Palm Beach County includes continued road expansions and improvements over the planning horizon applicable to this case, and developers are often required to widen or otherwise improve the roads as a condition of the approval of new development. There is insufficient evidence that the current travel times are significantly different for the elderly population in the area. The anecdotal testimony offered by various Bethesda witnesses was not persuasive. The evidence was not persuasive that the travel times will be materially higher over the applicable five-year planning horizon. The analysis and opinion presented by Bethesda’s traffic engineer on this issue was not persuasive.17 The concurrency analysis performed by Bethesda’s traffic engineer only assessed Boynton Beach Boulevard; it did not assess any of the other major roads between the West Boynton area and the existing hospitals. Moreover, the analysis focused on the level of service (LOS) on various segments of Boynton Beach Boulevard, as measured by the projected number of trips on those segments in 2007; it did not quantify the increase in travel time along that road, if any, resulting from the reduction in the LOS which the analysis showed. The hospitals in Subdistrict 9-5 are some of the most highly-utilized hospitals in the state; however, the evidence was not persuasive that the high utilization at these hospitals has caused any access problems for residents of the West Boynton area, either for general acute care services or for OB services. The existing hospitals in Subdistrict 9-5 have been able to meet the needs of the subdistrict by incrementally expanding their facilities when the need arises. An additional 67 beds can be added to the bed inventory of Subdistrict 9-5 without any additional construction; JFK has shelled-in space for 36 new beds and Delray has shelled-in space for 31 new beds. Additionally, Delray has a master plan that has been approved by Palm Beach County that will allow it to add as many as 123 more beds on its current campus as needed, and Wellington also has plenty of space on the undeveloped property adjacent to its hospital to add more beds as needed. Having a hospital in the West Boynton area might be more convenient for residents of that area west of the Turnpike, at least in those instances where the patient is able to receive all of the necessary care at that hospital; however, convenience alone is not valid basis for the approval of a new hospital, particularly where there are as many as 12 tertiary-level hospitals within a 30-minute drive of the West Boynton area. In sum and on balance, the criteria in Subsections 408.035(2) and (7), Florida Statutes, weigh strongly against approval of either application. Indeed, despite the relatively high utilization rates at the existing hospitals in Subdistrict 9-5, the preponderance of the evidence fails to establish that there currently are, or that over the applicable planning horizon there will be any material deficiencies in the availability, quality of care, or accessibility of the existing hospitals in the subdistrict that would warrant the approval of a new hospital in the West Boynton area at this time. Subsection (3): Ability of Applicant to Provide Quality of Care The parties do not dispute the quality of care provided at any of the existing hospitals in Subdistrict 9-5, and the evidence affirmatively demonstrates that a high quality of care is currently provided at Bethesda Memorial, JFK, Delray, and Wellington. Bethesda and JFK each intend to rely on their existing medical staff, at least in part, to staff their respective satellite hospitals. As a result, the quality of care provided at the satellite hospitals will also be good, but it will be less than ideal in several respects. First, neither satellite hospital will offer interventional cardiology services, which is, or is becoming the standard of care for treating heart attack patients that present to the hospital’s ED. Second, JFK’s proposed satellite will offer OB services without NICU backup, which is below the standard of care in South Palm Beach County. Accordingly, the criterion in Section 408.035(3), Florida Statutes, weighs against the approval of either application. Subsection (4): Special Health Care Services The parties stipulated that this criterion is inapplicable, and in any event, the criterion was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004. Subsection (5): Educational Facilities and Training Programs18 Neither JFK nor Bethesda Memorial is a teaching hospital, and neither is proposing educational or training programs at its proposed satellite hospital. The evidence was not persuasive that Wellington’s teaching programs will be adversely affected by the approval of either of the proposed satellite hospitals. The criterion in Section 408.035(5), Florida Statutes, does not materially weigh in favor of or against the approval of either of the applications. Subsection (6): Availability of Resources and Personnel for Operations The parties stipulated that Bethesda and JFK each have the ability to fund the capital and operating expenditures for their proposed satellite hospitals. The reasonableness of the financing-related costs proposed by Bethesda and JFK in their respective applications is also not in dispute. Delray and Wellington argue that neither Bethesda nor JFK will be able to adequately staff their proposed satellite hospitals due to physician and nurse shortages in South Palm Beach County and/or that the staffing of the proposed satellite hospitals will make it more difficult and costly for the existing hospitals in Subdistrict 9-5 to staff certain programs. Bethesda and JFK challenge the adequacy of each other’s staffing projections. As more fully discussed below, the evidence is not persuasive that the staffing projected for either of the proposed satellite programs is inadequate; however, the evidence establishes that the approval of either program would exacerbate physician shortages in Subdistrict 9-5 in certain specialties. Bethesda West’s staffing projections include 242.8 full-time equivalents (FTEs) in the first year of operation and 294.5 FTEs in the second year of operation. The staffing projections for the proposed JFK satellite hospital include FTEs in the first year of operation and 448.5 FTEs in the second year of operation. The disparity in the staffing levels primarily results from the higher occupancy rate projected at the proposed JFK satellite hospital, which is projected to be 71.4 percent in the first year of operation. By contrast, the occupancy rate at Bethesda West is projected be 35.7 percent in the first year of operation and then “ramp up” to approximately 69 percent by the fourth year of operation. The staffing levels at each of the proposed satellite hospitals are reasonable based upon the ADCs projected and the services to be provided at each hospital. Indeed, the staffing levels are comparable when viewed as a ratio of staff to projected ADC; the ratios at Bethesda West are 8.37 and 7.36 in the first two years of operation, and the ratios at the proposed JFK satellite hospital for its first two years of operation are 7.74 and 7.60. The evidence is not persuasive that Bethesda West’s staffing projections are understated or that they fail to include nursing and other positions necessary to ensure high quality care is provided. Nor is the evidence persuasive that the salaries projected for Bethesda West’s staff are understated. The evidence is not persuasive that the staffing projections for the proposed JFK satellite hospital are inherently unreliable based upon the manner in which they were prepared or as a result of the proxy that was used as a basis of the projections. There is a nursing shortage statewide and in South Palm Beach County, but it is not as severe as it has been in the past. Indeed, it is significant that despite the large number of beds added over the past five years at the various hospitals in South Palm Beach County, those beds have been adequately staffed with nurses and ancillary clinical personnel. JFK and Bethesda Memorial have each been successful in recruiting nursing staff despite the nursing shortage. They each have implemented innovative programs to aid in their recruiting efforts and to reduce their turnover and vacancy rates, and those programs are expected to be utilized at the proposed satellite hospitals. JFK and Bethesda Memorial each use “traveler” and per-diem nurses to supplement their full time nursing staffs, which is not uncommon in South Palm Beach County. Typically, a physician who has privileges at a hospital is required to be on ER call on a rotational basis. Many physicians have privileges at more than one hospital in South Palm Beach County, which means that they are responsible for providing ER call coverage at more than one hospital. Because of malpractice and other concerns, it is becoming increasingly difficult for hospitals to attract physicians who are willing to take ER calls. The Palm Beach County Medical Society and the CEOs of the existing hospitals in the county met as recently as December 2003 to discuss the problems related to ER call coverage; however, as of the date of the hearing, the problem still existed and was severe. It is possible for a physician to be providing ER calls to more than one hospital at the same time. This can become a serious problem if the physician is attending to a patient at one hospital when he or she is called to the ER at another hospital. The problem of ER call coverage is most significant in specialties such as neurosurgery, hand surgery, urology, OB, and ear/nose/throat. Several of the hospitals in South Palm Beach County, including Wellington and Delray, have begun to pay physicians, and particularly specialty physicians to take ER call. Adding a new hospital in South Palm Beach County will exacerbate this problem in several respects. First, it will add another hospital to the ER call rotations of the physicians who chose to obtain privileges at the satellite hospitals, thereby increasing the prospect of a physician being on call at more than one hospital at the same time. Second, it will make it even more difficult or costly for existing hospitals to obtain call coverage by the specialty physicians that are already in short supply. It is unlikely that OB/GYNs will admit their patients to the small OB unit at the proposed JFK satellite hospital. OB/GYNs typically try to keep all of their patients in one hospital because it makes it easier on them to do rounds and to respond quickly to emergency situations, and because the OB unit at the proposed JFK satellite hospital will not have NICU backup, it is unlikely that many OB/GYNs will choose that hospital as the one where they admit the bulk of their patients. In sum, the staffing levels for each of the proposed satellite hospitals are reasonable and appropriate for the services being offered at the hospitals, the projected staffing costs at each of the proposed satellite hospitals are also reasonable and appropriate, and JFK and Bethesda will be able to staff their respective satellite hospitals at the levels projected; however, the proposed satellite hospitals will exacerbate the shortage of specialty physicians in South Palm Beach County and will make it more difficult for the existing hospitals to get specialty physicians for ER call coverage. Accordingly, the criterion in Section 408.035(6), Florida Statutes, weighs against the approval of either application, and between the competing applications, this criterion does not materially weigh in favor of either application over the other. Subsection (8): Financial Feasibility The parties did not seriously contest the short-term financial feasibility of either of the proposed satellite hospitals, and the preponderance of the evidence establishes that both of the proposed satellite hospitals are financially feasible in the short-term; both applicants have the ability to fund the construction and initial capital needs of their respective projects in conjunction with the other capital projects listed on Schedule 2 of their respective CON applications. The long-term financial feasibility of each of the proposed satellite hospitals is in dispute. The general rule for assessing the long-term financial feasibility of a CON project is if the project will at least break even by the end of the second year of operation, then the project is financially feasible in the long-term; if, however, the project continues to show a loss in the second year of operations and it is not demonstrated that the project will reach a break-even point within a reasonable period of time, then the project is not financially feasible in the long-term. As more fully discussed below, Bethesda West is financially feasible in the long-term, but the proposed JFK satellite hospital is not. Accordingly, the criterion in Section 408.035(8), Florida Statutes, weighs in favor of approval of Bethesda’s application over JFK’s application. Bethesda West Schedule 8A of Bethesda's application projects that Bethesda West will generate a net loss of $3.7 million in its first year of operation and a net profit of $1.7 million in its second year of operation. The financial projections for Bethesda West were based upon conservative utilization projections, which leads a reasonable projection of operating income. The financial projections for Bethesda West are not defective based upon an overstatement of the “other operating revenue” or an understatement of the depreciation expense projected by Bethesda. The testimony of Bethesda’s expert financial witnesses is accepted over the testimony of the other financial experts on these issues. The financial projections for Bethesda West are not defective based upon understatements in land costs, construction costs, equipment costs of staffing projections. The testimony of Bethesda’s experts related to these issues is accepted over the testimony of the other experts. As discussed above, Bethesda West will “cannibalize” 3,040 and 4,530 patient days from Bethesda Memorial in its first and second years of operation. The financial impact of this “cannibalization” on Bethesda Memorial is a loss of $1.4 million and $2.1 million in the first and second years of Bethesda West’s operation. The income loss from “cannibalization” is not accounted for on Schedule 8A. Although the patient days used to calculate the “per patient day” figures in the middle two columns of that schedule take into account the “cannibalized” patient days, the dollar amounts shown in those columns do not. On this issue, the testimony of Delray’s financial expert is more logical and persuasive than the testimony of Bethesda’s financial expert. When the losses from “cannibalization” are taken into account, the approval of Bethesda West will have a negative impact on the Bethesda system of $5.1 million in its first year of operation and $400,000 in its second year of operation, which are consistent with the figures shown in Exhibit B-2 (pages 48 and 54). Even so, the system will show a net income of $300,000 and $5.6 million in the first two years of Bethesda West’s operation. The impact of the “cannibalization” on Bethesda Memorial is projected to decrease as Bethesda West becomes more established. At the same time, the profitability of Bethesda West is projected to increase as its census grows. Thus, by the third year of its operation, Bethesda West is projected to have a positive impact on the Bethesda system of $2.2 million (i.e., $4.1 million in net income at Bethesda West less $1.9 million in “cannibalization” from Bethesda Memorial). Bethesda West will not have a negative impact on Bethesda’s cash flow after its first year of operation. On this issue, the testimony of Bethesda’s expert is more persuasive than the testimony of the other financial experts. Accordingly, Bethesda West is financially feasible in the long-term. Proposed JFK Satellite Hospital Schedule 8A of JFK's application projects that its proposed satellite hospital would generate a net loss of $1.2 million in its first year of operation and a net loss of $392,000 in its second year of operation. Over the next three years, however, JFK projects its satellite hospital to generate net income from operations of $509,000, $1.5 million, and $2.5 million. The financial projections in JFK’s application were based upon overly-aggressive occupancy rates, both in the facility as a whole and in the small OB unit without NICU backup. As a result, the resulting financial projections are not reasonable. JFK’s application does not include any analysis of the financial impact on Columbia of the transfer of 80 beds to the satellite hospital, nor does it include any analysis of the impact of the “cannibalization” of JFK’s patient days that would necessarily occur if JFK’s proposed satellite was approved. As a result, the financial impact of JFK’s proposed satellite hospital, in the words of one of JFK’s financial experts, is “probably incomplete.” As a result of the unreasonable utilization projections and the incomplete presentation of the financial impact of the “cannibalization” of JFK’s patient days, JFK failed to establish that its proposed satellite hospital is financially feasible in the long-term. Subsection (9): Fostering Competition that Promotes Cost-effectiveness Neither of the proposed satellite hospitals will foster competition that proposes cost-effectiveness. The West Boynton market currently has healthy competition for the acute services proposed for the satellite hospitals, and there is no dominant provider of those services. Locating a new hospital in the West Boynton area will have the long-term effect of increasing the market share of the provider that operates the new hospital to the detriment of the other providers that are currently competing in that market. In this regard, the approval of a new hospital in the West Boynton area would adversely affect the competitive balance that currently exists in that area and which is projected to continue over the planning horizon. The approval of either of the proposed satellite hospitals would also adversely affect cost-effectiveness by exacerbating the shortage of specialty physicians and other qualified staff in the subdistrict, which in turn would require existing hospitals to raise salaries, benefits and other expenses in order to remain competitive. The approval of Bethesda West would have less of an adverse impact on competition and cost-effectiveness than would the approval of JFK’s proposed satellite hospital for several reasons. First, Bethesda West does not duplicate as many administrative services as does JFK’s proposed satellite hospital. Second, JFK currently has a higher market share in the West Boynton area than does Bethesda or any other hospital, which means that the competitive balance would be tipped to a greater extent if JFK’s satellite hospital was approved. Third, the approval of the JFK satellite would give HCA four hospitals in Palm Beach County and increase its leverage in physician and staff recruitment and the negotiation of HMO contracts. Accordingly, the criterion in Section 408.035(9), Florida Statutes, weights against the approval of either application; however, on balance between the two applications, this criterion favor’s Bethesda’s application over JFK’s application. Subsection (10): Costs and Methods of Construction The costs and methods of energy provision at the proposed satellite hospitals is not in dispute. Although the proposed satellite hospitals are similar in size, the total project costs included in the CON applications are significantly different. The $73.8 million total project cost for Bethesda West equates to a cost of $922,700 per bed. The $109.8 million total project cost for JFK’s proposed satellite hospital equates to a cost of $1.37 million per bed. The portion of the total project costs for each of the proposed satellite hospitals attributable directly to “construction” is materially similar. Bethesda West’s construction costs are approximately $34.2 million, or $180 per square foot; the construction costs for the proposed JFK satellite hospital are $40.9 million, or $210 per square foot. The estimated construction costs for each of the proposed satellite hospitals are within the range of reasonableness that can be gleaned from the testimony of the various hospital construction experts. JFK’s cost is towards the higher end of the range, and Bethesda’s cost is towards the lower end of the range. The primary differences in the total project costs are in the land purchase prices, the site preparation costs, and the equipment costs. The land purchase price included in Bethesda’s application was $4.2 million, which was based upon a 30 to 40- acre site. The land purchase price included in JFK’s application was $8 million, which was based upon a 50-acre site. Bethesda acquired the 54-acre Amestoy Property for $110,000 per acre. At $110,000 per acre, the $4.2 million attributed by Bethesda to land purchase price would be sufficient to acquire 38.2 acres, which is more than adequate for the 80-bed Bethesda West facility. Consistent with the estimate in the CON application, JFK has made an offer to purchase the 50-plus acre Mazzoni Property for $130,000 per acre. The total land purchase price in each application, and the actual cost-per-acre of the Amestoy and Mazzoni Properties are reasonable. The site development costs included in Bethesda’s application were $3.75 million, or $125,000 per acre for the 30 acres on which Bethesda West will be located. The site development costs included in JFK’s application were $6.5 million, or $150,000 per acre for the 50 acres on which JFK’s proposed satellite hospital will be located. The site development costs for each project include on-site and off-site utility (e.g., water and sewer) and roadway work, geotechnical and environmental remediation costs, stormwater retention, landscaping, and concurrency impact fees. Each of the proposed sites is relatively flat and was formerly agricultural property and, as a result, there are not expected to be any unusual costs associated with the development of either site. Bethesda West will be located further west than the proposed JFK satellite hospital and, as a result, its “radius of influence” includes fewer congested roadway links than does the proposed JFK satellite hospital; but, the Amestoy Property where Bethesda West will be located is farther away from the existing utility lines than the Mazzoni Property where the proposed JFK satellite hospital will be located. Thus, even though the cost of running utilities to Bethesda West will likely be higher than the cost of running utilities to the proposed JFK satellite hospital, the currency impact fees for Bethesda West will likely be lower than the currency impact fees for the proposed JFK satellite hospital; and, on balance, the overall per-acre and total site development costs included in each of the applications are reasonable. Bethesda’s application included equipment costs of approximately $16 million, all of which was attributable to movable equipment. The cost of fixed equipment was included in the estimated construction costs as part of the building contract. JFK’s application included total equipment costs of approximately $34.2 million. That amount was broken into fixed equipment not in the building contract ($13.9 million), movable equipment ($17.8 million), and information systems ($2.4 million). Some, but not all of the difference between the equipment cost estimates are attributable to the additional services –- e.g., OB and diagnostic cardiac catheterization –- that will be provided at the proposed JFK satellite hospital but not at Bethesda West. Additionally, some of the difference are attributable to the 12 "observation" rooms at the proposed JFK satellite hospital that are being equipped in the same manner as the hospital’s general med-surg beds. When compared on an “apples to apples” basis, the total equipment costs for Bethesda West are not materially different than the total equipment costs for the proposed JFK satellite hospital. JFK is proposing to provide more specialized equipment than Bethesda in areas such as the surgical suites and the ICU/CCU and more information technology (IT) equipment; however, the evidence is not persuasive that such specialized equipment or the IT equipment is necessary to provide high quality care or that the absence of such equipment will adversely affect the quality of care at Bethesda West. The $16 million in equipment costs at Bethesda West, which equates to approximately $200,700 per bed, is reasonable for the level and type of services that will be provided at Bethesda West. The evidence is not persuasive that Bethesda’s equipment costs are understated even though its costs are considerably less than the equipment costs proposed by JFK. If anything, JFK has over-equipped its proposed satellite hospital with specialized equipment resulting in the higher equipment costs included in JFK’s CON application.19 Although the more expensive proposed JFK satellite hospital offers some benefits, such as a larger site to facilitate future expansions and more specialized equipment in some areas, those benefits are outweighed by the additional $35 million costs associated with that facility as compared to Bethesda West. This cost saving is particularly significant since each of the proposed facilities is supposed to be a satellite of a larger, tertiary hospital rather than a stand- alone community hospital. The evidence was not persuasive that Bethesda Memorial and JFK have physical constraints that will limit their ability to add beds at their existing facilities in a cost- efficient manner. Even if the construction of a satellite hospital were the most cost-efficient way for Bethesda Memorial and JFK to add beds, the evidence was not persuasive that it is the most cost-efficient way to add beds from the perspective of the entire health care system of Subdistrict 9-5. Indeed, there are less costly methods of adding new beds to the subdistrict than the construction of a new 80-bed hospital for $73.8 million or $109.8 million. For example, 36 additional beds can be added at JFK and 31 additional beds can be added at Delray in shelled-in space that has already been constructed. The incremental cost of constructing space for additional bed expansions at Delray and Wellington would also be less than the construction costs of the proposed satellite hospitals. In sum, because there are less costly ways to add beds to the subdistrict than the construction of a new hospital, the criterion in Section 408.035(10), Florida Statutes, weighs against the approval of either application; however, between the two applications, this criterion weighs in favor of the approval of Bethesda’s application over JFK’s application since its proposed satellite hospital will cost approximately $35 million less and will provide effectively the same services in similar physical space. Subsection (11): Medicaid and Indigent Care Bethesda characterizes itself as a “safety net” hospital because its Medicaid and charity care percentages typically exceed the averages for Subdistrict 9-5 and District 9 as a whole, and because Bethesda Memorial provides the largest percentage of the Medicaid and charity care provided by all of the hospitals in Subdistrict 9-5. There is no statutory or rule provision that would support Bethesda’s designation of itself as a “safety net” provider. Moreover, the significance of Bethesda’s characterization of itself as a “safety net” hospital is diminished by the fact that the Palm Beach County Health Care District (District) reimburses all hospitals in the county through an indigent care subsidy for care provided to patients that meet the District’s indigency standards. The subsidy helps to ensure that indigent patients are able to receive medical care from any hospital in the county and, to that end, provides a county-wide “safety net” for such patients. The subsidies paid by the District do not cover the full cost of indigent care provided by the hospital, nor does the total amount of subsidies received by a hospital directly correlate to the total amount of indigent care provided by the hospital. Thus, it is not dispositive that JFK received the largest amount of subsidies from the District over the past several years or that JFK received approximately $1.6 million more in subsidies from the District in 2003 than did Bethesda. JFK recently qualified as a “disproportionate share provider,” which means that at least 15 percent of its patient days are attributed to Medicaid or supplemental security income patients. As a disproportionate share provider, JFK receives incrementally larger reimbursements from Medicaid for the provision of indigent care. Bethesda is not currently a disproportionate share provider although it has been in the past. None of the hospitals in South Palm Beach County have policies or practices that discourage Medicaid or uninsured patients. Bethesda Memorial, JFK, Wellington, and Delray each accept patients without regard to their ability to pay. Bethesda and JFK conditioned the approval of their respective CON applications on the provision of a specified percentage of patient days to Medicaid and charity patients. The percentage committed to by JFK (10 percent) is higher than the percentage committed to by Bethesda (five percent). The percentages of Medicaid and charity care committed to by the applicants may be difficult to achieve as a result of the demographics of the West Boynton area. Indeed, the more favorable payer-mix in the West Boynton area was a significant factor, and in Bethesda’s case it was the primary motivating factor for the establishment a new hospital in that area. Bethesda Memorial and JFK each have a history of providing significant levels of Medicaid and charity care at their existing hospitals. The hospitals are each located in areas with large indigent populations, which significantly contribute to the high level of indigent care that they provide. Bethesda Memorial has historically provided a larger amount of Medicaid care than has JFK in terms of a percentage of patient days, e.g., 16.1 percent verses 7.3 percent in 2001. Those percentages each exceed the Subdistrict 9-5 average of 6.3 percent. Bethesda Memorial has also historically provided a larger amount of charity care than has JFK in terms of dollars (e.g., $16.2 million verses $5.2 million in 2002) and in terms of a percentage of charges (e.g., 3.7 percent verses 0.4 percent in 2001 and 2.9 percent verses 0.6 percent in 2002). The Subdistrict 9-5 average for 2001 was 1.4 percent. These comparisons are somewhat skewed because a large portion of Bethesda’s indigent care is attributable to Bethesda Memorial’s high-volume, well-established OB and neonatal programs which tend to be “magnets” for uninsured patients. When only like-services are considered, the utilization of JFK and Bethesda Memorial by Medicaid and indigent patients is similar. JFK provides a significant amount of care to “self- pay” patients (e.g., $43.5 million in 2002), which JFK attempted to equate to charity care. Although there is often overlap between self-pay and charity care patients, the evidence was not persuasive that there is a direct correlation urged by JFK in this case. For example, JFK’s internal definitions of self-pay and charity care patients are markedly different and considerably more liberal than the Agency’s definition of charity care patients for reporting purposes. Bethesda makes a $1 million per year “contribution” to the District to help fund the District’s indigent care program. That contribution was required as part of the settlement of litigation arising out of Bethesda’s conversion from a public hospital to a private not-for-profit hospital and, as a result, it cannot be fairly characterized as additional evidence of Bethesda’s commitment to serving indigent patients. Even though both applicants demonstrated a history of and commitment to serving Medicaid and indigent patients, the criterion in Section 408.035(11), Florida Statutes, weighs in favor of Bethesda because the level of Medicaid and charity care historically provided by Bethesda Memorial is higher than that provided by JFK. On balance with the other statutory and rule criteria, the criterion in Section 408.035(11), Florida Statutes, is not given significant weight because Bethesda has committed to providing a lower percentage of Medicaid and charity care patient days at Bethesda West than JFK committed to at its proposed satellite hospital, and because the demographics of the West Boynton area make it unlikely that a significant level of indigent care will be provided at either of the proposed satellite hospitals. Subsection (12): Designation as a Gold Seal Nursing Facility The parties stipulated that this criterion is inapplicable because neither applicant is proposing additional nursing home beds. (2) Rule Criteria – Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038(6) The criteria in Florida Administrative Code Rule 59C- 1.030(2) are subsumed in the statutory criteria discussed above related to the accessibility (or not) of existing acute care services in Subdistrict 9-5 and the need (or not) for new acute care beds in the West Boynton area. For the same reasons that the CON applications do not satisfy those statutory criteria, they do not satisfy the related criteria in Florida Administrative Code Rule 59C-1.030(2). Under Florida Administrative Code Rule 59C- 1.038(6)(a), priority is given to applicants with “a documented history of providing services to medically indigent patients or a commitment to do so.” This priority weighs in favor of Bethesda for the reasons discussed above in connection with Section 408.035(11), Florida Statutes. Under Florida Administrative Code Rule 59C- 1.038(6)(b), priority is given to applications that “meet the need for additional acute care beds in a particular service through the conversion of existing underutilized beds.” This priority does not materially weigh in favor either application over the other; the underutilized beds at Columbia that JFK proposes to transfer to its satellite hospital are in a different subdistrict, and the beds that Bethesda proposes to transfer from Bethesda Memorial to its proposed satellite hospital are not underutilized beds in light of the historical occupancy rate at Bethesda Memorial.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Bethesda’s CON application No. 9659 and also denying JFK’s CON application No. 9660. DONE AND ENTERED this 29th day of September, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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 29th day of September, 2004.
Findings Of Fact Donald Davis is the promoter behind the formation of Community Hospital of Collier, Inc. He is a health care management consultant and a principal of the firm Health Research and Planning Associates, Inc. In his profession he concentrates on the promotion and development of health care facilities. He has engaged previously in the business of forming corporations for the purpose of submitting applications and obtaining Certificates of Need. He also provides consulting services to health service corporations. Neither Davis nor the other principals of the applicant corporation, including his wife, have any experience or expertise in constructing or operating hospitals, and Davis admitted that the sole purpose for forming the entity known as Community Hospital of Collier, Inc. was for the purpose of submitting an application and prosecuting it in order to obtain a Certificate of Need for an acute care hospital for District VIII. Mr. Davis' own company, Health Research and Planning Management Associates, Inc. was paid $15,000 by Community Hospital of Collier, Inc. to develop the Certificate of Need application at issue. Community has "a couple of thousand dollars" in its own bank account. The officers and directors of Health, Research and Planning Management Associates, Inc. are the same as those of Community Hospital of Collier, Inc. On June 15, 1983, after having previously filed a letter of intent, Mr. Davis filed an application for a Certificate of Need for a 152-bed acute care hospital on behalf of Community Hospital of Collier, Inc. Mr. Davis is an officer and director of that corporation. The articles of incorporation for Community Hospital of Collier, Inc. which gave it its de jure status were not signed until July 29, 1983 and were not filed with the Secretary of State until August 19, 1983. Be that as it may, Mr. Davis maintains that the Board of Directors of Community ratified the filing of the application. That authorization found at page 44 of the application, however, refers to the Board of Directors of Community Health Care of Okaloosa/Walton. The resolution was dated June 7, 1983 and Mr. Davis testified that the use of the name Community Health Care of Okaloosa/Walton in the caption of that Board of Director's resolution was a "typographical error." In any event, the applicant corporation had no legal existence at the time the application was filed on June 15, 1983, however, by its later acts in filing and prosecuting the application it implicitly, at least, ratified the action of its promoter, Mr. Davis, in filing the application since the officers and directors consisted of Mr. Davis, his wife and a third individual. Be that as it may, Community negotiated a stock purchase agreement with National Medical Enterprises (NME) on August 15, 1984. Pursuant to this agreement, NME is obligated to purchase all capital stock of Community if a Certificate of Need for 100 beds or more is awarded. In return for the sale of the stock of the applicant corporation to NME, Mr. Davis and the other two board members of Community will receive a total of $600,000 in addition to the $15,000 Mr. Davis has already received for his efforts in preparing and prosecuting the Certificate of Need application. The only asset of Collier is the inchoate Certificate of Need. Upon consummation of the stock purchase agreement, Mr. Davis will resign from the Board of Directors and presumably NME will appoint its own board. Community has given full authority to NME to prosecute the application as it sees fit, including making certain changes NME deemed appropriate to the application, including seeking 150 beds instead of 152 and changing the method and means of financing the project (mostly equity instead of debt). Additional changes in NME's approach to prosecution of the application include the proposed method of recruitment of personnel and management of the hospital. Community has no agreements with any other group, entities or individuals to provide financial, personnel and other resources necessary to construct, manage and operate an acute care hospital and did not demonstrate that it has any such resources in its own right. Mr. Frank Tidikis, Vice-President for Operations for the eastern region for National Medical Enterprises, testified concerning the financial and management resources and staffing arrangement NME proposes for the new hospital should it be authorized. He enumerated many medical specialties that NME intends to place on the staff of the hospital, but neither Community nor NME have done any studies revealing what types of medical specialties are presently available in the Collier County area, how many physicians in those specialties are available and what ratio exists or is appropriate for various types of physicians to the community population. The proposed staffing pattern, sources and method of recruitment was predicated solely on NME's past experience in obtaining hospital staff in other areas of the nation, and not upon any study or other investigation showing the availability of appropriate types of trained staff people in reasonable commuting distances of the proposed hospital, which would be located in northern Collier County. If NME consummates the purchase agreement, the hospital would be locally managed by a board of directors consisting of 51 per cent of the hospital's own medical staff and 49 per cent lay members chosen from the community at large. FINANCING Mr. Michael Gallo was Community/NME's expert in the area of health care finance, being NME's Vice-President for Finance. It was thus established that the total cost of the project, if approved, would be approximately $23,600,000. This amount would be financed by NME which proposes to make a 35 per cent equity contribution in the amount of approximately $8,500,000 and which will finance the balance of the project cost at a rate of approximately 13 per cent interest for 20 years. NME projects that an average daily patient census of 45 would be necessary to "break even." A daily census of 45 would yield 6,425 patient days per year, with the facility projected to break even in its first year of operation. NME projects that by the third year of operation, a return on investment of 10 to 12 per cent would be achieved. NME's projections are based on an assumed average length of stay per patient of 5.6 days. NME allocated two and sone-half per cent of its projected gross revenues for indigent patient care, and four per cent of projected gross revenues allocated to bad debt, that is, uncollectible hospital bills, not necessarily related to indigent patients. The $600,000 which NME must pay Community Hospital of Collier and Mr. Davis in order to acquire the assets of that corporation (i.e. the CON) will be treated as a project cost and will be depreciated as though it were a part of the buildings. Community/NME projects its total revenue per adjusted patient admission to amount to $4,843, with projected total revenue per adjusted patient day at $865. It predicts these figures will increase by about five per cent for successive years as a factor of inflation. The proposed hospital site consists of approximately 12 acres, available at a price of $30,000 to $50,000 per acre. The application itself originally proposed a location in the central or southern portion of Collier County. However, after NME entered into the agreement with the applicant corporation for the stock purchase and became involved in the prosecution of the application, the location was changed. Thus, it was discovered at the outset of the hearing that indeed, the proposed location of Community of Collier's hospital would be in the northern portion of Collier County in close proximity to Lee County. 1/ The proposed $360,000 to $600,000 land cost would of course, be added to the total cost of Community's proposed project. It has not been demonstrated what use would be made of the entire 12 acres, nor that the entire 12 acres is required for the hospital, its grounds, parking and ancillary facilities. STAFFING One of the reputed benefits of Community's proposed project is that it would afford a competitive hospital in the Collier County health services market to counter what Community contends is a virtual monopoly held by Naples Community Hospital, as well as to promote the attraction of more qualified medical staff to that "market". In this context, Community contends that its facility, by being built and operating as an alternative acute care hospital, would attract more physicians to the Collier County area and thus, arguably, render health services more readily available. Community thus decries the supposed "closed staff" plan of Naples, contending that Community offers an "open" staffing plan, which would serve to attract more physicians to the geographical area involved and enhance Community's ability to appropriately staff its hospital. Naples Community Hospital, on the other hand, experiences numerous physicians vacationing in the area requesting staff privileges. Many of these physicians apparently do not have any intention of permanently locating in the Naples/Collier County area, however, and therefore in order to determine which physicians are seriously interested in locating there, Naples has a screening procedure which includes an interview with the Chief of Staff, the Assistant Director for Staff Development, and the chief of the service for which a physician is applying for privileges. This preliminary screening procedure is not tantamount to a closed staffing situation, which only exists where a fixed number of physicians are permitted on a hospital staff, with others waiting until an opening occurs. In the open staff situation, as exists at Naples, no matter how rigorous the screening process, there is not a finite number of staff physicians available. Any physician who qualifies under the hospital bylaws and assures the screening committee of his intention to locate in the area served by the hospital is admitted to the staff. Thus, the staffing pattern for physicians at Naples Community Hospital augurs just as well for the attraction of physicians to the Collier County vicinity as does the staffing method proposed by Community. In that vein Naples has granted privileges to 13 new physicians in the preceding calendar year and had 8 applications pending at the time of hearing. Only one applicant was denied privileges during that year. Additional factors which must be considered in the context of staffing such a hospital concern the ability of the applicant to provide quality of care and appropriate, available resources including health care and management personnel to operate the facility. Aside from demonstrating that NME, through the stock purchase agreement, may obligate itself to provide ample funds and other resources to fund, staff and operate the project, and that it has successfully staffed and operated hospitals in numerous locales, Community did not demonstrate what likely sources would be drawn upon for nurses and other staff members to staff its hospital in order to avoid recruiting most of them from nearby facilities, including Naples Community, which could precipitate a diminution in the quality of health care at these other facilities. In short, other than showing that NME's management has the financial resources and experience to accomplish the staffing and operation of the hospital, there was no demonstration by Community which would establish the availability of sufficient health care personnel to operate and manage its hospital at adequate levels of care. COMPETITION Community contends that its facility should be built in order to foster competition in the provision of health care services in Collier County. It took the position, through its expert witness, Dr. Charles Phelps, that the Naples hospital holds a monopolistic position in Collier County inasmuch as it is the only hospital in the county. It should be pointed out somewhat parenthetically, however, that this "County market area" theme ignores the fact that this application is for an acute care hospital in District VIII, which is not subdivided by rule into County sub-districts for health care planning purposes. Further, Community originally proposed locating its hospital in the central or southerly portion of Collier County, but as of the time of the hearing, proposed to locate its hospital in the northerly portion of Collier County with a service area it itself proposed which will include the southerly portion of Lee County. This area is also within the service areas of Naples Community Hospital, Lee Memorial Hospital, Fort Myers Community Hospital and the soon to be constructed Gulf Coast Osteopathic Acute Care Hospital. Thus, in its attempt to establish Naples Community Hospital as occupying a monopolistic position in the "Collier County health care market", Community did not establish that Collier County either legally or practically is a separate health care market demarcated by the county boundary with Lee and Hendry Counties, such that Naples' status as the sole acute care hospital within the legal boundaries of Collier County is monopolistic. Indeed, it competes for patients with the Lee County hospitals named above in the northern Collier-southern Lee County market area involved. Community attempted to demonstrate a monopolistic situation in favor of Naples Community Hospital by comparing its relative increase in costs per day and costs per patient stay with Fort Myers Community Hospital and Lee Memorial Hospital. Naples Community Hospital did indeed exhibit the largest rate of cost increase in both those categories. Community's expert, Dr. Phelps, opined that lack of competition in the Naples area caused the disparity in rate of increase in costs between Lee County hospitals and the Collier County hospital. Naples called Ed Morton, who was accepted as an expert witness in hospital financial analysis, reimbursement, hospital auditing and accounting, financial feasibility and corporate finance. It was thus established that Naples does not occupy a monopoly position and provides health care at lower costs than would be the case should the Community Hospital facility be constructed. Mr. Morton demonstrated that analyzing total costs per adjusted patient day does not reliably indicate the efficiency of a hospital, since such daily costs fluctuate with the average length of stay. A better indicator for determining hospital efficiency is to analyze total revenue per adjusted admission. A comparison of Lee Memorial, Naples Community Hospital, Fort Myers Community Hospital and NME's six Florida hospitals was employed based on data provided to the hospital cost containment board for the years 1980 through 1983, in order to show which hospital operated more efficiently and tended less toward monopolistic market positions. In making this comparison, Mr. Morton employed the "total revenue per adjusted admission" and "total revenue per adjusted patient day" methods of comparing the hospitals. He used this approach because it reduces to a common denominator the various values and statistics utilized in the hospital cost containment board formulas. It was thus established that Naples has the lowest total revenue per adjusted admission and lowest total revenue per adjusted patient day of all the hospitals depicted in the comparison study (Naples Exhibit 23). Naples total revenue per adjusted admission is $400 to $1,900 less than each of the other hospitals. One reason Naples experiences less total revenue is because its charges are lower, since it employs some 1,600 volunteer workers. If these workers were paid at a minimum wage they would reflect a cost of approximately $600,000 per year. Further, the hospital over the years has obtained large donations of money and labor through funding drives, all of which have enabled it to keep charges down for its patients and to continue to operate certain services at a deficit. For instance, Naples has a discreet pediatric unit, which means a physically separate, self-contained pediatric care unit, with specialized staff, who perform no other services than those they are designated to perform in pediatrics. That unit operates at a deficit repeatedly since 40 per cent of the Naples pediatric patients originate from the Immokalee area, which is characterized by an extremely high percentage of indigent persons. Naples' witness Morton performed a patient origin study which shows that approximately 84 per cent of Naples' patients originate in Collier County, 12 per cent originate in Lee County, particularly southern Lee County, and two per cent originate from unrelated areas. The Naples Community Hospital is located in Naples, approximately in the mid-section of Collier County and a significantly greater distance from the northern Collier/Lee County line than will be the Community facility, if built. Community expects to draw approximately one-half, or six per cent, of the 12 per cent of Naples' patient load which is derived from Lee County. NCH however, at the present time, competes with Fort Myers Community Hospital and Lee Memorial Hospital, in particular, for patients from both southern Lee County and northern Collier County, Community's proposed service area. Thus, NCH does not maintain a monopoly serving Collier County or Community's proposed service area to the exclusion of these other hospitals. The placement of Community's facility at a point much closer to the Lee County border than is Naples' present facility would result in the injection of a fourth or fifth strong competitor into the Collier County-southern Lee County patient origin and health service market area, rather than merely the addition of a second competitor for Naples Community Hospital. ADVERSE COMPETITIVE EFFECTS Both Lee Memorial Hospital and Fort Myers Community Hospital already draw a substantial number of patients from southern Lee County, as well as northern Collier County. Gulf Coast Osteopathic Hospital, after protracted litigation, has secured approval of a Certificate of Need to build an osteopathic acute care hospital in the southerly portion of Lee County. That Final Order authorizes 60 beds. It is fair to assume, inasmuch as these hospitals are already drawing from southerly Lee County, that the capture of the patient market in southern Lee County will be made much more pervasive with the addition of the Gulf Coast Osteopathic acute care facility. That being the case, insofar as the 1989 horizon year is concerned, far less than 12 per cent of the Lee County origin patient days now available to hospitals located in Collier County will actually be available. Community will thus draw even less than its own projected six per cent of its patient days from Lee County. In any event, it is logical to conclude that substantially all the patient days resultantly available to a Collier County situated facility will be derived from Collier County upon the advent of the Gulf Coast Hospital. Thus, any patients drawn to Community, if its facility were built, would be at the direct expense of NCH. That being the case, it is reasonable to conclude that the analyses performed by Mr. Morton, Naples' expert, which reveal that Community Hospital will potentially siphon off as many as 80 patient days per day from Naples Community Hospital, is accurate. If this occurs, it would mean that approximately 29,200 annual patient days would be garnered by Community. Mr. Morton's analysis established that a resultant raising of rates by Naples would have to occur in the amount of $240 per patient day. Failure of Naples to so raise its rates to patients, would cause an annual revenue deficiency of 6.5 million dollars. This increase of $240 per patient day would result in a $1,536 increase in the average charge per adjusted admission, based upon the average length of stay at Naples which is 6.2 days. Even if Community obtained only half its patients from the Naples Community Hospital, (a likely understatement of its patient market impact), the resulting loss to Naples per patient day would be $220 with a concomitant necessary increase, in average patient charges per admission in the amount of $768, in order for NCH to remain financially viable. If Naples were unable to raise its charges to compensate for this loss of patients to the Community facility, then it would have to curtail services currently rendered on a deficit basis, such as its discrete pediatric unit, which experiences a 40 per cent indigent patient utilization. Community's own projections show that it expects to garner 27,790 patient days, which for the above reason, are likely to all be gained at the expense of NCH. This will result in the loss to NCH of at least 76 patient days per day with a resultant revenue shortfall nearly as high as that postulated by Morton as a result of his patient origin study and adverse impact analysis. Thus, in terms of lost patient days and lost revenue, both the figures advanced by Naples and those advanced by Community reveal that a substantial adverse impact will be occasioned to Naples by the installation of Community's hospital, especially in view of its location at approximately the midpoint between the Lee County boundary and NCH's facility in Naples. Naples derives approximately 54 per cent of its gross patient revenues from Medicare reimbursement. Four per cent of its revenues are represented by Medicaid patient reimbursement. Eight to nine per cent of its billings are not collected because of non-reimbursable, indigent patient care and bad debts. Community will obtain from 76 to 80 patient days per day case load now enjoyed by Naples Community Hospital. Community projects that its billable case load will be characterized by four per cent Medicaid reimbursable billings, and six and one- half per cent of its annual case load will be represented by indigent and bad debt uncollectible billings. Forty-six per cent of NCH's indigent and bad debt cases come from the Immokalee area lying east of State Road 887 and north of State Road 846, and the Community Hospital would be built approximately midway between that area and the location of NCH. Therefore, based upon Community's own projection of total billings for 27,790 patient days, or at most, 29,200 days per year, (according to NCH's figures which depict the loss to NCH of 80 patient days instead of 76) it becomes obvious that Community's bad debt, indigent case billings would actually be in the neighborhood of 17 per cent of its total, billable case load, rather than the six and one-half per cent it projects in its application and evidence. This would render the bad debt, indigent patient-based uncollectibles of Community to be on the order of four million dollars per year. Such a high magnitude of bad debt, uncollectible billing experience can reasonably be expected since Community's Hospital would be constructed between the source of most of the indigent bad debt case load and NCH's location. This location is also in the center of the most affluent, rapidly developing residential area of Collier County. Given the fact that Community-NME's proposed location is likely to attract a high indigent, bad debt case load from the economically depressed Immokalee area, approaching the magnitude of 17 per cent of total case load, if a policy of freely accepting indigent, uncollectible cases were followed by Community-NME, but considering also the fact that Community proposes to locate its hospital in the service area it has delineated to include the most concentrated source of more affluent, privately paying patients available to these competing hospitals, it cannot be concluded that Community-NME plans to incur such a high financial risk by free acceptance of indigent, charity cases. Rather it seeks to largely serve the collectible, private-paying patient source of northwestern Collier County, hence its recently altered proposed location. This determination is borne out by the experience of NME's other Florida hospitals, which are characterized by a very low percentage acceptance of indigent, bad debt, patient service. Thus, it is quite likely that NCH would be relegated to continued service of this large number of indigent, nonpaying patients while Community/NME would serve a patient base composed of largely private-paying and Medicare reimbursed patients drawn primarily from NCH, a significant financial detriment to that entity, which at present experiences a rather precarious operating ratio, characterized by, at best, a three per cent profit margin. Such an eventuality would force upon NCH the choice of raising its rates substantially or curtailing services, or both, with the probable alternative of seeking taxpayer subsidization of such an increased charity case load. NCH effectively competes with the pertinent hospitals in Lee County for the same patient base, due to its lower charges, as shown by the fact that Naples has the lowest revenue per adjusted admission and per adjusted patient day of the hospitals in Collier and Lee Counties. Thus, any increase in charges at Naples necessitated by the adverse effect of the installation of Community's hospital would put it at a distinct additional disadvantage in competing with the Lee County hospitals. A similar financial resultant adverse impact would be imposed on Lee Memorial, Fort Myers Community and Gulf Coast in terms of declining utilization and revenues. It is further noteworthy that Community's own projection of annual patient days reveals that it will experience an occupancy rate of approximately 50 per cent. It has not been established how 27 to 29 thousand patient days with a concomitant occupancy rate of only SO to 51 per cent can support a 150-bed free standing, acute care hospital with a full complement of ancillary services, which fact renders the financial feasibility of Community's proposed hospital substantially in doubt. In terms of the relationship of adverse impacts on existing hospitals to the legislative goals of hospital cost and rate containment, it should be pointed out that the current utilization rate of all hospitals in this area District VIII are declining, partly as a result of the impact of the "diagnostic related groups" (DRG) method of reimbursement. The utilization at NCH for the first six months of 1984 has dropped to 62.3 per cent. The utilization rate of the Lee County hospitals has been reduced to approximately 65.4 per cent. The addition of another acute care hospital to this area, which is established to likely experience a utilization of only 50 to 51 per cent itself, would only cause the current low utilization rates to plummet more drastically. This situation would substantially impair the financial viability of all existing hospitals in the relevant area of District VIII, and Community, as well. Thus, if the proposed Community Hospital were added to this area, it would only aggravate the problem the CON approval process is designed to prevent, that of avoiding escalating health care rates and costs, concomitant decline in adequate levels of service and unnecessary duplication of services. GEOGRAPHIC ACCESSIBILITY In support of its assertion that by 1989 a portion of its service area will not be accessible within 30 minutes driving time of an existing hospital, Community adduced the testimony of Mr. Michael Dudek, accepted as an expert traffic engineer. Mr. Dudek plotted the time and distance of travel from NCH, Cape Coral Hospital, Lee Memorial Hospitals Fort Myers Community Hospital, Eastpoint Hospital, the future Gulf Coast Hospital and proposed Lee Memorial 100-bed satellite facility. He employed the "floating car method" in determining travel times from each hospital to points 30 minutes from the hospital. He projected future travel times along the same routes with a view toward growth in traffic volume based upon population growth. Mr. Dudek opined that in 1989 there will be, under average traffic conditions, a portion of northern Collier and southern Lee Counties which will not be within 30 minutes average travel time of any existing hospital. In his own opinion, in peak travel seasons, coextensive with seasonal, winter population peaks in this geographic area, the situation will be aggravated such that the territory where residents are more than 30 minutes driving time from existing hospitals will expand. Mr. Dudek conceded that vehicles on roads adjacent to main artery roads would reach various main arteries at different times, depending on the density of the population in the residential neighborhoods between those main traffic arteries. He did not map his proposed 30-minute driving time contour lines to indicate these variables. Further, he acknowledged that even during the 1989 projected peak traffic season, the geographical triangle in which Community-NME will locate its proposed hospital, was not outside the driving time projected for Naples Community Hospital. He apparently based his conclusions on the premise that road and traffic improvements would not occur so as to significantly compensate for the population and traffic growth posed by various real estate developments of regional impact which have been filed and proposed for north Collier and south Lee Counties. Naples, presented the testimony of Mr. Jack Barr, also accepted as an expert traffic engineer. Mr. Barr used the "average car method" in conducting a travel-time study to determine the points on arterial roads 30-minutes distance from all existing hospitals in Lee and Collier Counties as well as from the proposed Lee Memorial Satellite Hospital. (Naples Exhibit 76). The distances between those points are interpolated and plotted on the basis of estimated average speeds on the non- arterial segments of the roadways that would be traversed by people making their way to the arterial roads. Mr. Barr also surveyed proposed road improvements in the Collier and Lee County areas (Naples Exhibit 7C). He predicated this survey on the most recent Department of Transportation traffic maps. He performed his original field study during a four-week period in December and January, 1982. The travel times for Collier County were then revised and updated on October 24, 1984 with a field survey and for Lee County on August 14 through 23, 1984. Mr. Barr was unable to determine any significant statistical difference between the contours he plotted in his 1982-83 survey and those plotted in the 1984 updated survey. Mr. Barr employed information obtained from the Southwest Florida Regional Planning Council, the Lee County Planning Department and the Collier County Traffic Planner, as well as information from his own files on proposed residential building projects with which he has been associated professionally or become aware of in the area. It was thus established that that portion of north Collier County and southern Lee County, where most of the proposed residential development will occur, and which is in Community's proposed service area, is currently partially or totally within 30-minutes driving time of three existing and one approved hospital. All the proposed major residential developments in the north Collier/south Lee County area are within 30 minutes travel time of at least one existing hospital and most lie within the 3 minute contour lines for the proposed Lee Memorial Satellite Hospital. The travel time contours will remain substantially unchanged for the next ten years based upon major road improvements planned in the next ten years. Information as to road improvements was obtained from the approved Collier County Comprehensive Plan, from average daily traffic counts on U.S. 41 conducted by the Department of Transportation and Collier County, from the Lee County Transportation and Improvement Program which shows the status of road improvements for 1985 through 1989, and from the Department of Transportation Road Improvement Program extending through the fiscal year 1989 for Lee and Collier Counties. All the roads included in the DOT projection for the next five years are committed and will be built. Although there will not be a decrease in traffic along U.S. 41, rather the increase in traffic that would normally occur on U.S. 41 will be largely offset by traffic shifting over to parallel routes which are to be developed through the road improvement programs established by Mr. Barr. There has been a steady decrease in use of the formerly highly congested U.S. 41 artery because of the development of parallel highways such as Airport Road. Mr. Barr established that the road improvements upon which his opinion is partly based are being implemented, and since most are funded by gasoline tax monies earmarked for that purpose, it is reasonable to assume that the DOT sponsored improvements will continue to be made. Further, although Community sought to show that a portion of the population of its service area is beyond a 30- minute travel time from existing acute care hospitals, it did not demonstrate that that population now or in 1989 amounts to more than 10 per cent of the Collier County population. In his capacity as a traffic-engineer, Mr. Barr has worked in Lee and Collier Counties for approximately seven years, representing public and private clients. He has monitored the implementation of the Collier Comprehensive Plan as it relates to roadways and real estate development and established that road improvements are indeed being implemented. His testimony and opinion, predicated on more accurate surveying techniques, supported by local planning and Department of Transportation documentation, is better corroborated and more competent than that of Mr. Dudek and is accepted. Thus, it has not been shown that the 30 minute travel time points and distances attributable to existing hospitals will recede sufficiently to create the new service area contemplated by Community. EXISTING SERVICE - AVAILABILITY, QUALITY, ADEQUACY OF CARE, ACCESSIBILITY To ALL, INCLUDING INDIGENTS NCH affords adequate availability and access to acute care services for patients in Collier and southern Lee Counties, including indigent patients. Community's proposed facility would not have a level 2 or 3 nursery, and would not have a discreet pediatric unit, both of which Naples has. Thus, access to pediatric, as well as obstetric services, would not be enhanced by the advent of Community's hospital, for indigent or other patients originating in Community's proposed service area. Additionally, inasmuch as NCH's pediatric unit operates at a deficits the addition of such services, even of their limited scope, by Community may, for financial reasons, result in the curtailment of such services, especially for indigent, in view of the considerations expressed above. The physician-director of the Collier County Health Department, Dr. Polkowski was called and accepted as an expert witness on behalf of Naples in the area of public health, for the purpose of discussing the distribution of medically indigent persons and availability of services in Collier County. Her work requires her to routinely review U.S. Bureau of Census data on age and health characteristics of the population of Collier County and to travel throughout the county to acquire knowledge of the health characteristics of the population. It was thus established that the highest concentration of poverty level patients occurs in Census Tracts 112, 113, 114 and 104, with a particularly high concentration in Census Tract 112 which comprises the Immokalee area in northeastern Collier County. A particular health problem in that area is teenage pregnancy, with 90 births to females under 19 years of age in 1983 out of a county-wide statistic for such births of 172. Eleven per cent of the babies born to women under 19 years of age in Collier County are low birth weight babies, which typically necessitate higher levels of neonatal, specialized care because of the increased chances of serious health problems occasioned by low birth weight. There are three recognized levels of care for newborn babies in Florida. Naples Community Hospital has a Level 1 and 2 nursery. Level 1 represents babies who have no exceptional conditions. Level 2 is for those babies with respiratory and other serious problems requiring enhanced levels of care and is characterized by such special equipment as isolettes, intensive care bassinets with respirators, cardiac monitors, apnea monitors, resuscitation and cardiac resuscitation equipment. The staffing level of the Level 2 nursery is at a ratio of one neonatal specialized nurse to three babies rather than the one nurse per six babies of the Level 1 nursery. The Level 2 and 3 babies have serious and frequently chronic health conditions for the short, and sometimes the long-term, often characterized by quite high patient costs. The Immokalee area has the highest poor as well as non white concentration in the bounty. There are approximately 14,000 permanent residents, but during the wintertime the population swells to over 20,000 when predominantly Mexican American migrant farm workers arrive in the area. The poor population has a higher mortality rate for infants and manifests more serious medical problems on a greater per capita basis than does the more affluent population lying to the west and southwest. The Immokalee area population has a high rate of tuberculosis, venereal disease, parasites and hepatitis. The current level of services provided to the indigent population by Naples Community Hospital however, is of a high quality. Richard Akin is the Director of the Collier Health Services, a private, nonprofit primary health care organization which offers primary medical and dental care services to the rural, poor population of northeast Collier County. Most of these patients are migrant farm workers who have absolutely no means of paying their own medical bills. Collier Health Services provides primary medical care at three locations in the county with the largest center being at Immokalee. The Immokalee facility has seven staff positions which include such specialties as pediatrics, family practice, internal medicine and obstetrics. The Immokalee facility records approximately 60-thousand patient visits per year. Seventy-five per cent of these are represented by Mexican- American farm workers who are employed in the area seasonally. Another 10 to 12 per cent per year are Haitian immigrants employed in agriculture. Between 60 and 80 per cent of all patient visits are not paid for by the patient. The Immokalee primary care facility refers 4,000 to 4,500 patients to a hospital annually, with about 12 to 15 such referrals per day. These are for normal, non-emergency care situations. Additionally, between 400 and 450 patients are referred to a hospital for emergency care per year. All the primary care center's emergency and non emergency patients are referred to NCH. Mr. Akin has attempted to refer patients from the Immokalee facility to other area hospitals such as in Lee County, but without success. NCH is located in fairly close proximity to the Immokalee Primary Care Center, and, even though most patients have no means of paying for medical care, NCH treats and admits them without questioning them in advance concerning their ability to pay, insurance, Medicaid and the like. Mr. Akin has previously attempted to refer his indigent patients to the Fort Myers area hospitals with little success in having them admitted. LeHigh Acres Hospital is considerably closer, being 24 miles away, but Mr. Akins has had little success in having the indigent patients he serves admitted there. Instead, he refers to Naples since the patients are treated with the same dignity and decency as paying patients at that hospital. In excess of 50 per cent of the patients he refers from the primary health center to Naples never pay anything for the services received. Approximately 30 per cent of the non-emergency patients referred to Naples annually are pediatric referrals. About 30 per cent of the emergency referrals are also pediatric patients. Four hundred to four-hundred fifty non- emergency patients annually are obstetric patients who come to full term and are delivered. It is unlikely that any of the pediatric patients would be referred to a hospital, such as the proposed Community facility, which does not have a discreet pediatric unit with a specialized staff and equipment, since the primary care center in Immokalee has the capability of treating any overnight, routine pediatric problem itself, and any pediatric patient that cannot be handled on a one-day admission at the facility, can be sent to the discreet, specialized pediatric unit at Naples Community Hospitals which Community of Collier will not offer. The standard procedure at Naples Community Hospital for admitting patients who do not have a private physician or a private physician referral, is nondiscriminatory. That is, in the triage process, when a patient arrives at the emergency room, for instance, only the patient's name, address, age, date of birth and questions eliciting his medical status are asked upon his arrival. Depending on the nature of the injury involved, the on-call medical specialist for that type of injury is then summoned to the emergency room. If it appears necessary to admit the patient to the hospital, the on-call specialist authorizes the admission. When the admission determination is made, there is no information available on the admitting documents and no questions are asked to indicate whether the patient is a paying patient, a nonpaying migrant worker, an insured patient, or a Medicare patient. Naples presently has a labor and delivery area with a birthing room and a three-stage cohort type of nursery. Infants move through three different stages in the nursery depending on age, so as to reduce infections. Seventeen of the 24 beds on the floor are designated as OB beds. Whenever more than 17 patients must use that floor, they are able to expand to gynecological medical surgical beds on the same floor which thus gives a total capacity for OB patients of 24 beds. The OB services as proposed by Community are essentially duplicative of the services in existence at Naples Community Hospital, although with a less intensive level of care for 08 and pediatric patients. Essentially all the other services proposed by Community duplicate these services already available to area residents at NCH and the other pertinent hospitals. Thus, it is apparent that if Community's facility is located where proposed, it will actually serve an area that is more elongated north to south rather than east to west, and will in reality serve the more affluent, private- paying patient origin areas lying in west-central and northwest Collier County. The reason for this is that most of the indigent patient population will bypass Community of Collier's Hospital and go to Naples for the above delineated reasons, and Community would then tend to draw patients from the more populated, wealthier areas on a north-south line from the Naples area up to and across the Lee County line rather than on an east-west axis. The fact that Community/NME would serve primarily privately-paying patients is exemplified by the fact that NME's other Florida hospitals typically have no (or very minimal) Medicaid patient days, such that that parent company's policy is not one of encouraging service to Medicaid or indigent patients. It is thus apparent that with the advent of Community/NME's hospital that there would be created two different patient bases or patient markets, with Naples continuing to serve the vast majority of the indigent, Medicaid, or bad- debt patient base. Community/NME would garner its patient base largely from private-paying, more affluent patients with substantially less bad debt ratio. This would siphon off much of Naples's private paying base, such that, with its already slim or sometimes nonexistent profit margin, its financial viability would become more and more in doubt. This would raise the alternative mentioned above of either raising its rates substantially, causing health care costs for the consuming public to rise significantly, seeking relief from the taxpayers of Collier County, or curtailment of available services to indigents and all other patients, especially GE and pediatrics; possibly even all three cost coverage alternatives. Such an eventuality would ultimately result in a reduction in the quality of health care afforded the patient public. NAPLES AVAILABLE AND PROPOSED SERVICES Mr. Mike Jernigan was tendered by NCH and accepted as an expert in health care planning and hospital financial management. Mr. Jernigan is employed as Director of Planning at Naples and prepared the instant Certificate of Need application seeking 30 beds. Naples has recently added 43 psychiatric beds under previously issued Certificates of Need. The instant application contemplates relocation of the 43 psychiatric beds to the fourth floor of a support building, there creating a discrete psychiatric care unit. Naples amended its request at hearing so as to seek 20 instead of 30 medical/surgical beds to be added to the space to be vacated by the 43 psychiatric beds. No significant construction will be required in the vacated space, rather semiprivate rooms will be converted to private rooms. The 1.7 million dollar project cost is chiefly attributable to the construction of the facility which will house the licensed 43 psychiatric beds. Thus, the reduction in the number of acute care beds sought from 30 to 20 will not significantly alter the 1.7 million dollar project cost. Naturally, the minor project costs attributable to installation of 10 acute care beds in the vacated, former psychiatric bed space will be lessened by an amount attributable to 10 beds. In any event, NCH has been demonstrated to have adequate financial resources to undertake the project outlined in its application and has those funds committed. Naples can add these 20 proposed beds and successfully operate them as a minor addition to its now feasibly operating acute care hospital. Naples has recently opened a free standing, primary care center called North Collier Health Center, in the vicinity of the proposed site of Community/NME's hospital. That facility includes a radiology room, laboratory and emergency medical service station, in addition to offering normal, primary care services. It is staffed 24 hours a day, seven days a week with a physician, but does not have inpatient beds. A similar primary care center has been constructed on Marco Island. Both of these centers have been added to Naples complement of facilities and services in implementation of a long-range health care expansion plan designed to make Naples' services more accessible and available to the public throughout its Collier County, southern Lee County service area. Given Naples low and sometimes non existent margin of revenue over expenses, the construction of these two facilities was rendered largely financially feasible through the donation of the land for both of them through community fund raising efforts, and the construction of the Marco Island facility was accomplished with entirely donated funds. The EMS substation at the North Collier Primary Care Center is operated and financed by the county, and the sleeping quarters at that sub station and at the Naples main campus facility for EMS personnel are provided free of charge at some financial loss to the hospital. Such an arrangement constitutes good health care planning, even though it results in some financial detriment to Naples, since it makes the emergency medical technicians immediately available to assist emergency patients who are transported to the primary care centers by their own means, and shortens the reaction time for emergency personnel since they are not located at separate locations from the hospital or primary care centers. These arrangements further Naples' long range goal in making its emergency primary care and primary care services more available and accessible to the public in its service area, which goal receives strong public support as evidenced by the large public donations which largely made the installation and operation of these facilities possible. Since Naples is a not-for-profit hospital, any excess of revenue over expenses it experiences is used to acquire new and needed equipment or expand facilities, including facilities and services such as these. The installation of Community/NME's hospital at its proposed locations especially, would duplicate the services offered at North Collier Primary Care Center and to a great extent those offered at the main campus of NCH in Naples. It was established through the testimony of Miles Price, an architect specializing in hospital design, that the construction costs, architectural costs and related inflation factors depicted in Naples' application are reasonable and accurate with regard to the relocation and construction for the psychiatric beds, which are to be moved, and the installation of the 20 acute care beds proposed. Acquisition of equipment necessary for the operation of the 20 proposed beds will be financially assisted by its present shared purchasing arrangements, whereby it is able to obtain resultant discounts in acquisition of the necessary equipment needed for installation and operation of the new beds. BED NEED AND BED ALLOCATION Thomas Porter was tendered and accepted as an expert in health care planning in Florida. Subpart (23) of Rule 10-5.11, F.A.C. is the acute care bed need determination methodology. It is the policy of HRS in accordance with the legal mandate referenced herein to facilitate the use of subpart (23) of the rule by regularly compiling and disseminating district bed need information, including that depicted in Community's Exhibit 16, which includes a memorandum from Phil Rond, the Administrator of the Office of Comprehensive Health Planning of HRS. If the formula at subpart (23) of the above rule is employed using historical utilization data from the years 1981 through 1982, a net bed need of 375 for all of District VIII results and that is the current bed need status of the district advocated by Community. However, as established by the memorandum from Mr. Rond incorporated in Exhibit 16, the most recent utilization data includes that for the year 1983, which is the most recent hospital reporting period envisioned by the formula and above rule. When the 1983 utilization data is added to the 1981-1982 information, a drop in total bed need for District VIII occurs from a figure of 4,147 beds to 3,654 beds. When licensed and approved beds are subtracted from that figure, a minus bed need results and District VIII has an excess of 118 beds. The rule formula at subpart (23)(g) dictates that the three most recent annual hospital licensure reporting periods must be used for the utilization data necessary to operate the need determination formula. 2/ The use of the most recent utilization data, including 1983, for District VIII causes the overall projected occupancy level contemplated in the methodology (at 10.5.11(23)(g)(2)) to fall below 75 per cent, when the bed need calculation is carried out to its conclusion. Given the projected occupancy falling below 75 per cent, the end result is that gross bed need in District VIII is 3,654 beds, rather than 4,147 beds as postulated by Community. Community contends that the 1983 utilization data should not be used since it was not available for Districts I and II and should not be used for any district until it is available and disseminated for all districts 3/ The reason the department promulgated Mr. Rond's special memorandum with regard to the bed need projections for District VIII, was to alert users of that information that in that particular district the drop in the most recent utilization data triggered the rule mechanism of subpart (23)(g)(2) because it revealed that the overall projected occupancy levels would fall below 75 per cent, all of which showed on a district-wide basis an over-bedding of 118 acute care beds. Mr. Larry Bebe is Acting Executive Director and Planner for the District VIII Health Council. He was accepted as an expert witness in health care planning and public health administration. Mr. Bebe considers the local health council plan to be a valuable planning tool for purposes of allocating beds in District VIII on a less than district-wide basis. The plan was adopted in March, 1984, but has not yet been adopted as a rule by HRS. According to the District VIII Health Council Plan, that district is sub-districted by counties, except for Glades and Hendry Counties which are combined in a two-county sub- district. This form of sub-districting has been done for approximately seven years. District VIII is sub-districted on a county basis rather than on other geographical boundaries, because population data, useful in planning allocation of beds, is only available in the form of county-based population projections by age-specific cohorts from the Bureau of Economic and Business Research at the University of Florida (BEBR). Further, in considering the location of existing hospitals, the greatest proportion of people in the seven county area of District VIII can be located within a reasonable time and access to health care services by allocating the beds on a county sub-district basis. The population data promulgated by the BEBR is employed by HRS, is generally accepted as authoritative in Certificate of Need proceedings, and is herein. It is not available by age-specific cohort in the census tract geographical subdivisions attempted to be used by Community in 4 in delineating its purported service area. 4/ Performance of population based health care planning must be done consistently and future need must be projected based upon preparing utilization rates predicated on the same population geographical area each time. A common geographical basis for allocation of beds, such as counties, is most appropriate since that is the basis on which the most accurate population data is available. The bed allocation methodology used by the local health council to allocate beds by county sub-districts is contained in Naples Exhibit No. 35. Bed allocation on a county sub-district basis is determined by taking the overall bed number available from the state methodology rule formula and breaking it down into county sub-districts according to the District VIII health plan methodology. This methodology takes into account existing hospital utilization and location, changes in population, and projected patient days. All items of information to operate the allocation formula are obtained on a county basis. Under the District VIII health plan methodology, when existing beds are subtracted from needed beds, a projected need for 20 medical/surgical beds in Collier County results with an excess of 41 existing beds in Lee County for the horizon year of 1989. Mr. Porter corroborated Mr. Bebe's testimony and established that, although not adopted by HRS rule, the sub-districting of District VIII by county for health planning purposes conforms with HRS policy in terms of population and geographical criteria and constitutes a reasonable and rational health planning tool. The methodology used by the local health councils to allocate beds to the counties incorporates standard, accepted health planning practices and HRS' policy is not to interfere with that allocation of beds on a sub-district basis, so long as the subdistricting allocation does not exceed the bed need number for the district as a whole. Mr. Porter demonstrated that it is possible under the state Subpart (23) methodology to find no need or excessive beds at a district level, however, by applying the local health council methodology a positive mathematical need might be shown in one or more county sub-districts. Thus, it has been shown that the local health council allocation method which reveals a 20-bed need for Collier County is the result of a rational, standard, accepted health planning practice with regard to determining projected bed need on a less than district- wide basis. However, although that methodology shows a formula-based "need" in Collier County, the above findings reflecting the severely declining utilization experience in Collier County at NCH, together with its already scant operating ratio, when considered with the future effect on its utilization rate caused by the advent of Gulf Coast Hospital, show that no true need for any beds exists. Bed need projections are not the only pivotal considerations in determining entitlement to a CON. Brown and Kendall Lakes Hospital, Inc., Humana, Inc. d/b/a Kendall Community Hospital v. HRS, 4 FALR 2452A, (Final Order entered October 6, 1982).
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED: That the application for a Certificate of Need submitted by Community Hospital of Collier, Inc. for 150-beds for northern Collier County be DENIED, and that the application for a Certificate of Need submitted by Naples Community Hospital, Inc. for the addition, as amended, for 20 beds be DENIED, and that, in view of the application involved in Case No. 84-0909 having been withdrawn, that that case be CLOSED. DONE and ENTERED this 16th day of August, 1985 in Tallahassee, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 16th day of August, 1985.
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The issue in these proceedings is whether HRS should grant petitioners' application for a certificate of need to build a 100-bed general acute care hospital in Deltona, Florida. The parties have stipulated to the applicants' ability to staff the proposed facility and that no issue remains as to the criteria set forth in Section 381.494(6)(c)(3), (5), (6), (7), (10), (11), and , Florida Statutes (1983).
Findings Of Fact Petitioners propose to "transfer" 100 beds from Daytona Beach General Hospital (DBGH) in Subdistrict 4 of District 4 to Deltona, which lies in Subdistrict 5 of District 4; and have agreed to "delicensure" of an additional 50 beds at DBGH (for a total of 150) if their application for a certificate of need (CON) to build in Deltona is granted. Saxon General Hospital, Inc. (Saxon) is a wholly owned subsidiary of Daytona Beach General Hospital, Inc., which operates DBGH. HCA's Central Florida Regional Hospital (CFRH), is located outside of District 4 altogether in Sanford, which is in Seminole County. Baker, Clay, Duval, Flagler, Nassau, St. Johns and Volusia Counties make up HRS District 4, the domain of the Health Planning Council of Northeast Florida, Inc. District 4 as a whole has more hospital beds than it needs. The present controversy concerns medical/surgical hospital beds in the two southern subdistricts of District 4, Subdistricts 4 and 5. Flagler County and Volusia County east of Little Haw Creek and Deep Creek comprise Subdistrict 4 of District 4. Deland, Deltona, Orange City and DeBary are in Subdistrict 5 of District 4, which is congruent with Volusia County west of Little Haw Creek and Deep Creek. See Appendix. THE DISTRICT PLAN The Health Planning Council of Northeast, Florida, Inc. has adopted a district health plan, Petitioner's Exhibit No. 6, but the plan has not been promulgated as a rule. HRS, but not CFRH, has admitted that petitioners' proposal is consistent with the district health plan. Among the policies stated in the plan is the following: If the district as a whole has a surplus of acute care hospital beds but the subdistrict has a substantial shortage, or if beds are not available or accessible within 30 minutes travel time in an urban county or 45 minutes travel time in a rural county to at least 90 percent of the county's residents, the state should consider the need for more beds on a subdistrict basis. (Reference: Chapter 10-5.11(23)(i) of the Florida Administrative Code.) Given the provisions as outlined above and so long as there is an overall surplus of hospital beds in the district, it is the policy of the Health Planning Council not to support approval of additional beds within a subdistrict until it can be clearly demonstrated by the circumstances that the number of beds needed in the subdistrict is substantial. With respect to subdistrict five, the plan makes the following recommendation: Within the framework of the most appropriate planning for the entire West Volusia-East Seminole County area, the State Office of Community Medical Facilities could give consideration to the transfer of acute care beds from within the district to the Deltona area--so long as the total number of licensed beds in the district does not increase. Any applicant to open hospital beds and other hospital services in Deltona should take into consideration the general needs of the Deltona area population. The Health Planning Council of Northeast Florida, Inc. adopted this recommendation with the specific purpose of declaring itself neutral as between then competing applications to build a hospital in Deltona. BED NEED BY RULE HRS has by rule specified a need for 195 medical/surgical, 18 intensive and cardiac care, ten obstetric and eight pediatric beds in Subdistrict 4 for the year 1988. Rule 10-16.005(1)(b) Petitioner's Exhibit No. 37, codified as Rule 10-17.005(1)(b), Florida Administrative Code. This represents 23 fewer medical/surgical beds than are presently licensed or authorized, but three more medical/surgical beds than are presently available in fact; the same number of intensive and coronary care beds as are presently available; two fewer obstetric and three fewer pediatric beds than are presently available in Subdistrict 5. Excess capacity in Subdistrict 4 is even more pronounced, according to Rule 10-17.005(1)(b), Florida Administrative Code. This HRS rule specifies a need for 911 medical/surgical, 122 intensive and coronary care, 26 obstetric and 33 pediatric beds in Subdistrict 4 for the year 1988. These figures represent a projected excess of 254 medical/surgical, 14 intensive and cardiac care, four obstetric and 35 pediatric, licensed or approved beds for Subdistrict 4 in 1988, assuming no more beds are licensed, approved, delicensed or disapproved, in the interim. BEDS IN PLACE In District 4's Subdistrict 4, there are seven general acute care hospitals. Bunnell Community Hospital, with 81 licensed or approved beds, is the only hospital in Flagler County. The other six are clustered along the coast between Ormond Beach and New Smyrna Beach. Licensed and approved beds aggregate 1,165 medical/surgical, 136 intensive and cardiac care, 30 obstetric and 68 pediatric for Subdistrict4. Not all of these beds are actually available for occupancy, however. DBGH, for example, is licensed at 297 beds but had only 115 beds available for use on average between October 1, 1980, and September 30, 1981. (At the time of hearing, its average daily census was 50 patients.) There are only two existing hospitals in District 4's Subdistrict 5, Fish Memorial Hospital (Fish) and West Volusia Memorial Hospital (West Volusia), both of which are located in or near Deland, an older population center in western Volusia County to the north of Deltona. West Volusia, which is further than Fish from the emerging Deltona-DeBary-Orange City population center in the southwestern part of the county, has 162 beds, of which 128 are medical/surgical; eleven are intensive or cardiac care; twelve are obstetric and eleven are pediatric. West Volusia had a 1983 average occupancy rate, based on 139 medical/surgical and intensive and coronary care beds, of 67 percent. During fiscal year 1981, most of West Volusia's admissions were of persons from Deland, but 22.34 percent of the total came from DeBary, Deltona and Orange City. Fish has 97 licensed beds, but only 71 are available for use. Of these, 64 are medical/surgical, and the remaining seven beds are devoted to cardiac and intensive care. Fish's physical plant is older and in need of replacement or rehabilitation. The Fish Memorial Hospital physical plant is a composite structure which is the result of three decades of renovation and add-on construction. * * * As a result, much of the facility does not comply with current building codes, the recommendations of the Joint Commission for Accreditation of Hospitals (JCAH) or current patient care management practices. An internal survey was begun to identify and quantify the extent of work necessary to bring the entire physical plant into compliance with all applicable codes or standards. The survey included all major components of the physical plant or hospital-wide systems that will have to be replaced or repaired within the next three year period just to maintain the current facility operations as a comparison to the replacement cost. The survey identified over thirty projects, ranging between $4,000 and $1,500,000 each. Furthermore, these direct costs do not account for interruption of medical services to the community residents, nonproductive staff time due to phasing of renovation, and patient inconveniences during construction. Intervenor's Exhibit No. 1., p.1. Rehabilitation would involve direct costs of some $4,500,000.00. In July, August and September of 1980, Fish had 105 admissions of persons residing in the Deltona and DeBary-Orange City census division, or 22.9 percent of its total admissions. In the same months the year before 87 admissions or 23 percent of the total was attributable to the Deltona and DeBary-Orange City census divisions. The great majority of Fish's patients came from the Deland census division during both periods. Fish's 1983 average occupancy rate was 46.7 percent, but, at time of hearing, occupancy was at 80 percent. Licensed at 226 beds, CFRH had about 200 beds staffed at the time of the hearing, including ten pediatric and nine obstetrical beds. (T. 592) CFRH's average occupancy was 72 percent for January and February of 1984, down from 76.9 percent for the same period last year. During the two months preceding the hearing, CFRH was on "red flag" status. No admissions were allowed, unless approved by the chief of staff; but no true emergencies were turned away. Some 34.8 percent of CFRH's admissions are of people who reside in the Deltona- DeBary-Orange City area or elsewhere in Volusia County. CFRH meets most of the need for medical/surgical beds attributable to the population in southwestern Volusia County. (Testimony of Scott) Most people living in the Deltona-DeBary- Orange City area who need hospitalization leave the county, in order to be admitted at intervenor CFRH. ACCESSIBILITY The evidence did not establish what proportion of the population of Subdistrict 5, if any, is further than 30 minutes' driving time from the nearest hospital at present, or what proportion would be in the future. Petitioners' expert measured travel times from central points in DeBary, Orange City, Sanford and Deland to area hospitals and to the site proposed for a new hospital, with the following results: West Volusia Fish Memorial Central Florida Proposed Memorial Hospital Regional Daytona Beach TO: Hospital (Central (West Sanford) General (North Deland) (Saxon Blvd. Deland) at 1-4) (A) (B) (C) (D) DeBary 32.2 26.4 18.2 14.9 Orange 28.6 22.8 26.3 17.7 City Deltona 36.8 31.0 24.6 11.5 Sanford 51.6 44.9 17.1 33.7 Deland 20.7 14.9 41.7 32.6 In computing these averages, peak travel times were weighted equally with other travel times measured in December of 1983, and January and February of 1984. One route to Sanford and CFRH from Deltona entails crossing a drawbridge. It takes Beverly Spitz "20 minutes just to get out of Deltona," with its winding roads and abundance of elderly drivers. Mary Lou Foster takes 29 to 45 minutes to drive from her Deltona home to CFRH. John Schmeltz can do it in "about 25 minutes." In February of 1982, When Mrs. Schmeltz passed out, the ambulance he summoned took 22 minutes to arrive. John Mosley made the drive from his Deltona home to CFRH in 25 minutes, but that was the night he thought his wife had had a heart attack and he "averaged over 100 miles an hour." (T. 204) "[A]t night . . . you realize just how far it is." (T. 211) Clyde Mann's testimony to the effect that the remoteness of existing hospitals had cost lives went unchallenged. Mary Meade, a registered nurse, reported that the Deltona area "ha[s] lost several patients, several people" (T. 216) in the time it takes to get to a hospital. Bernie Levine, a public witness, testified that there were "constant people dying. They didn't make it to the hospital." (T. 210) A hospital in Deltona would significantly improve access for the people of Deltona, and would also improve access for residents of Orange City and DeBary, albeit less dramatically. FINANCIAL FEASIBILITY The parties stipulated that land is available for the project, and that projected construction costs are reasonable. Daytona Beach General Hospital, Inc. (DBGH, Inc.) plans to lend its subsidiary Saxon General Hospital, Inc. $4,159,700; and petitioners plan to borrow the remaining $12,569,000 necessary to build the hospital, at 13 percent, repayable over a 25 year period, with the new hospital serving as collateral. DBGH, Inc. had "[a]pproximately one-million-three, one-million-four" (T. 245) on hand which could be devoted to construction of a new hospital in Deltona, at the time of hearing. The remaining "equity," $2,900,000 or so, is to be raised by sales of DBGH, Inc.'s common stock. Of the 2,000,000 shares of common stock authorized, Daytona Beach General Hospital, Inc. has issued 600,000. The hope is that additional shares can be issued and sold at $15 a share, which is about five times as much as the stock is currently trading for over the counter. John E. Kaye and Jackson B. Bragg, the osteopaths who between them own 405,000 shares of DBGH, Inc. common, each plan to guarantee purchase of another $1,400,000 worth of DBGH, Inc. common stock, when it is issued. The net worth statements of each man came in as exhibits at hearing, for the purpose of showing their supposed ability to honor such a guarantee. Aside from the DBGH, Inc. stock, however, neither man had sufficient net assets, and this assumes the accuracy of their financial statements, which listed as assets $253,000 in unsecured receivables of unstated age. Cars and boats were valued at cost, as was a pick-up truck ($3,000) while real estate was apparently valued at somebody's idea of market. Between them, the two doctors purport to have $150,000 worth of household furniture. For obvious reasons, no accountant's name appeared on these documents. The doctors have an agreement between them to the effect that neither sells DBGH, Inc. stock unless the other also sells. Their unaudited statements put the value of DBGH, Inc. stock at $20 a share. A few days after the Daytona Beach News Journal reported that "HCA had lost the right to purchase Fish," (T. 264) Robert E. Hardison, Jr. of HCA spoke to Drs. Kaye and Bragg and told them "he realized it was futile to try to continue seeking a CON for Deltona adding new beds unless he could get some existing beds from [DBGH] and move them to Deltona." (T. 266) Mr. Hardison asked Drs. Bragg and Kaye what they would be willing to sell their stock for but did not offer to buy it. Shortly before the hearing they were offered $25 a share for all their holdings on condition the prospective buyer could arrange financing, and on condition that Saxon receive a certificate of need. This price is almost certainly higher than could be gotten in the market for shares which would not give the buyer a controlling interest in DBGH, Inc. One Milton W. Pepper appeared at hearing and testified without contradiction that, in the event a certificate of need issued, he was willing and able to invest approximately $1,500,000 "in the beginning. . . and make arrangements for the additional $5,000,000 if necessary." Drs. Kaye and Bragg may lose control of the corporate petitioners in the process, but there is every reason to believe that money to build a hospital would be available. After raising a quarter of the project cost, DBGH, Inc. proposes to lend that sum to Saxon, at one percent above prime. Although this arrangement would mean that the money was "debt" as between the subsidiary and its parent, outside financers would apparently treat the money as equity. Loy D. Deloney, an underwriter for Stephens, Inc., "the ninth-ranking investment banking firm in the country in terms of equity," knows "of at least 10 major financial institutions that would be interested in" providing long-term financing, if the CON issues. The future holds many uncertainties for hospitals, but whether this money could be repaid and whether a new hospital would be otherwise feasible financially depends finally on how many patients it would serve. POPULATION GROWTH FORECAST The population of census tracts 908, 909, 910.02, 910.03 and 910.04, in which Deltona, Orange City and DeBary are located, is projected to increase by some 11,000 persons between 1984 and 1989, when the population in this part of southwestern Volusia County is expected to be 48,789. Of the projected 1989 population of census tracts 908, 909, 910.02, 910.03, 910.04, eleven thousand one hundred twenty-four persons are expected to be over 65 and eleven thousand one hundred twenty-four persons are expected to be less than 65 but older than Some three fifths of Deltona's present population (about 26,000) is over 55 years old. EFFICIENT UTILIZATION LIKELY IN SUBDISTRICT Even without the lure of a hospital, physicians have opened offices in southwest Volusia County. Seven specialists on the medical staff at CFRH have part-time practices in the Deltona-DeBary-Orange City area. A half dozen family practice physicians practice in the area full-time. They admit to hospital an average of 50 patients daily, 80 percent of them to CFRH. Before HCA abandoned its application for a certificate of need to "transfer Fish's beds" and build a new 97-bed hospital in Deltona, it caused a health service study to be done by John Short & Associates. CFRH offered the study as evidence at hearing. Intervenor's Exhibit No. 1. The CFRH study looked at the western area of Volusia County, as a whole, including Deland, and concluded that 1987 would see 12,686 medical/surgical discharges of residents of western Volusia County. The CFRH study calculated the average length of a patient's stay in hospital at 7.03 days. CFRH's own evidence shows, therefore, that 89,183 medical/surgical patient days attributable to the population of the DeBary-Orange City, Deland and Deltona census districts can be expected in 1987. CFRH's administrator, James D. Tesar, predicted that CFRH "could lose 80 percent of its admissions from the area including Deltona, Geneva, DeBary, Osteen, and Orange City," if Saxon built a new hospital in Deltona. In 1983, CFRH admissions from these Volusia County communities totalled 3,150. If a new hospital in Deltona did indeed change patient flow to the extent Mr. Tesar warns is possible, there would still be 630 admissions annually to CFRH of residents leaving southwest Volusia County for hospitalization. If west Volusia Countians' admissions drop to 630 at CFRH, CFRH will be supplying only 4,429 patient days (630 X 7.03) to residents of West Volusia County. In that case, some 84,754 medical/surgical patient days will have to be accommodated in 1987 by hospitals within Subdistrict Five (or outside the subdistrict at hospitals other than CFRH). In 1987, to the extent patient days attributable to southwest Volusia County residents admitted to pediatric or obstetric beds at CFRH exceed patient days at CFRH attributable to Subdistrict Five residents living outside Deltona, Geneva, DeBary, Osteen and Orange City, 84,754 would be an understatement. Dividing patient days by the number of days in a year (84,754/365) yields an average daily medical/surgical census of 232. Medical/surgical beds are put to good use when they are full 80 percent of the time, almost all health planners agree. In order to accommodate an average daily census of 232 at an 80 percent average occupancy rate, 290 medical/surgical beds will be needed as early as 1987. Only 192 medical/surgical beds are now open in Subdistrict Five. Chances are good that 292 hospital beds in Subdistrict Five could be used efficiently long before the spring of 1989. IMPACT OUTSIDE SUBDISTRICT A new 100-bed hospital in Deltona could operate consistently with efficient utilization of the medical/surgical beds already open in Subdistrict Five, even if the new hospital achieved 80 percent average occupancy as early as 1987 but only by diverting patients from CFRH. The effect on CFRH would be significant, but temporary, since population growth would ensure its efficient utilization once again within two to four years of the 1986 opening of a 100-bed hospital in Deltona. All along, CFRH's loss of patients to a new Deltona hospital would be offset to some extent by ongoing population growth in Seminole County where CFRH is located. CFRH's own application for a certificate of need was granted on the theory that a new hospital of CFRH's size was needed just to serve the population of Seminole County. Petitioners' expert concluded that CFRH, Fish and West Volusia had had only 1,139 more medical/surgical patient days to split among themselves in 1983 than they could be expected to have in 1988, with a 100-bed hospital in its second year of operation in Deltona. DBGH's surrender of the right to open 150 additional beds would have no immediate economic impact; the effect would be to reduce excess capacity in Subdistrict Four, but on paper only. No beds would be closed, no staff dismissed, no expenses pared. But, if petitioners' efforts to obtain a CON for a new hospital in Deltona fail, they intend to expend $10,000,000 for renovation of DBGH, a project for which they already have a CON. This would inevitably mean recovering additional costs from payers for hospital care in Subdistrict Four. Like the Deltona proposal, the renovation proposal contemplates some reduction in beds in Subdistrict Four, although fewer: "50-some-odd." (T. 293) The 150 bed reduction in approved beds in Subdistrict Four contemplated by the pending application would mean that, if and when new hospital beds are needed in Subdistrict Four, they could be added wherever they are needed rather than being added at DBGH whenever management decrees.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That HRS grant petitioners' application for a certificate of need to construct a 100-bed acute care general hospital in Deltona. DONE and ENTERED this 9th day of July, 1984, in Tallahassee, Florida. ROBERT T. BENTON II 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 9th day of July, 1984. APPENDIX * * NOTE: APPENDIX to this Recommended Order is a map which is available for review in the Division's Clerk's Office. COPIES FURNISHED: F. Philip Blank, Esquire 241 East Virginia Street Tallahassee, Florida 32301 Ronald L. Book, Esquire Sparber, Shevin, Shapo & Heilbroner 30th Floor AmeriFirst Building One Southeast Third Avenue Miami, Florida 33131 James M. Barclay, Esquire 1317 Winewood Blvd. Building 2, Suite 256 Tallahassee, Florida 32301 Thomas A. Sheehan, III, Esquire Jon C. Moyle, Esquire Donna Stinson, Esquire, and Thomas M. Beason, Esquire, of Moyle, Jones & Flanigan Post Office Box 3888 West Palm Beach, Florida 33402 David Pingree, Secretary Department of HRS 1323 Winewood Blvd. Tallahassee, Florida 32301
The Issue The issue is whether Windmoor has standing to challenge AHCA's award of Certificate of Need No. 10074 to Community to establish a Class III Specialty Psychiatric Hospital in New Port Richey, Florida.
Findings Of Fact AHCA is the state agency responsible for administering the CON program, and is authorized to evaluate and make final determinations on CON applications pursuant to the Health Facilities and Services Development Act, sections 408.031-.045, Florida Statutes. Community Community Hospital owns and operates a 389-bed Class I general acute care hospital, comprised of 343 acute care beds and 46 adult psychiatric beds, currently located at 5637 Marine Parkway, New Port Richey, Pasco County, Florida, AHCA Health Planning District 5. AHCA previously awarded CON No. 9539 to Community authorizing construction of a replacement facility in an area known as Trinity, approximately 5.5 miles southeast of Community's current location. The Trinity replacement hospital facility is currently under construction and scheduled for occupancy in November 2011. The route between the Trinity and Community campuses is a drive of approximately one mile on a two-lane road leading into State Road 54, a six-lane divided highway. Trinity Medical Center campus is located on State Road 54. Windmoor Windmoor is a licensed Class III Specialty Hospital with 78 adult psychiatric beds and 22 adult substance abuse beds, located in Clearwater, Pinellas County, Florida. Windmoor is an existing provider of adult psychiatric services located within the same Health Planning District 5 as Community. Windmoor's facility has remained in its current location since its inception in 1987. That year, Windmoor had 200 adult psychiatric beds, which were reduced in 1996 to 163. In 2001, the number of adult psychiatric beds was reduced to its current 100. Windmoor has the capability of adding 40 to 60 additional beds. Windmoor's parent corporation is Psychiatric Solutions, Inc. (PSI), a publicly traded company based in Franklin, Tennessee, that also owns psychiatric hospitals in other states. PSI also owns at least seven other psychiatric hospitals in Florida, as well as other treatment facilities. PSI acquired all of its Florida facilities within the past five years, including Windmoor in 2006. On November 15, 2010, PSI was acquired by Universal Health Systems, which owns and operates psychiatric hospitals and general acute care hospitals throughout the United States, including Florida. This is the first CON proceeding in which Windmoor has participated. District 5 Providers District 5 consists of Pasco and Pinellas Counties. At the time the CON application was filed, Pasco County had two adult inpatient psychiatric providers: Community and Florida Hospital Zephyrhills with 15 beds. The Pinellas County providers were Morton Plant Hospital (Clearwater), St. Anthony's Hospital, Sun Coast Hospital (now known as Largo Medical Center- Indian Rocks) (Largo), and Windmoor. Windmoor was the only Class III specialty psychiatric hospital in District 5. Additionally, new CON-approved adult psychiatric beds included 17 at Largo, and approval for Ten Broeck Tampa, Inc., to construct a new 35-bed Class III adult psychiatric hospital in Pasco County. Also, Morton Plant North Bay Recovery Center (NB Recovery Center) had received CON exemptions to establish 56 adult psychiatric beds at its new Class III facility in Pasco County which had already been approved for 10 child/adolescent psychiatric beds. NB Recovery Center is a new entrant into the market, having opened its Class III psychiatric hospital in August 2010. This Class III psychiatric hospital is on the same license as North Bay Hospitals' Class I general acute care hospital (North Bay). North Bay is located about one mile north of Community. The approximate distances of the District 5 providers from Community are: NB Recovery Center, 19 miles; Florida Hospital Zephyrhills, 40 miles; Morton Plant Hospital, 24 miles; and Windmoor, 26 miles. Also, Largo, like Community, is an HCA affiliated hospital located approximately nine miles north-northwest of Windmoor, and two to four miles south of Morton Plant. St. Anthony's Hospital is located in downtown St. Petersburg. CON approvals and exemptions are no longer reliable predictors of bed inventory since existing psychiatric facilities can add beds through CON exemptions at will. Service Areas No overlap exists between Community and Windmoor's service areas. Community's primary service area (PSA) is a nine zip code area located in western Pasco County. Community's secondary service area (SSA) consists of four zip codes in Hernando County to the north, a few zip codes in eastern Pasco County, and a single zip code in the far northwestern corner of Pinellas County - 34689. Community's PSA accounts for 79.4% of its psychiatric discharges. An additional 9.1% of its discharges are from its SSA, defined as any non-PSA zip code from which it receives at least 1% of its discharges. The remaining 11% of Community's discharges are scattered among other areas. All of Community's PSA zip codes are within Pasco County. The only SSA zip code in Pinellas County is in the northwestern corner of the county – 34689, from which Community received only 2% of its discharges. Community derives 84.4% of its discharges from Pasco County, while only 6.9% of discharges originate from Pinellas County residents. Another 5.6% of Community's discharges originate in Hernando County which is outside District 5. Community's psychiatric service area is not expected to change with the implementation of the CON. While Community received 1367 discharges from its PSA, Windmoor received only 97 of its discharges from that PSA. On a percentage basis this is 79.4% versus 4.7% of discharges, respectively. Windmoor did not derive even 1% of its discharges from any single zip code within Community's PSA. When a provider receives less than 1% of its discharges from a particular zip code, that zip code is not appropriately considered part of the provider's PSA or SSA. Further, Windmoor has no significant market share in Community's SSA. On a county basis, while Community derived 84.4% of its psychiatric discharges from Pasco County residents, Windmoor received only 5.9% of its discharges from Pasco County. Conversely, Community derived only 6.9% of its discharges from Pinellas County compared with 73.6% for Windmoor. During the year ending June 2009, among all providers of inpatient psychiatric services to Community's PSA, Community had a 70% market share compared with Windmoor's 4% market share. For Pasco County as a whole, Community had a 52% market share compared with Windmoor's 4% market share. Like Windmoor, Morton Plant had only a 4% market share for both Pasco County and Community's PSA. The conclusion from this analysis is that Community is predominantly a Pasco County provider while Windmoor is predominantly a Pinellas County provider. Windmoor is not a significant provider in either Community's PSA or in Pasco County. Further, there is no physician overlap between the psychiatrists on the respective medical staffs of Community and Windmoor. Community's CON Proposal In its State Agency Action Report concerning Community's CON application, AHCA summarized the proposal: "[t]his project is to keep 46 existing adult inpatient psychiatric beds at their present location following completion of the replacement facility authorized by CON #9539." The proposal is to allow Community's psychiatric facility to remain in the same location with the same bed complement, which will remain unchanged in terms of its historical operations. The psychiatric unit at Community has been located at its current site since at least 1981. A CON is required only because, upon occupancy of the Trinity replacement facility, the continued use of the existing site for its inpatient psychiatric activity would fall within the statutory criteria for projects subject to CON review as an "establishment of additional healthcare facilities." With respect to both hospital campuses, Community will own, operate, and be the licensee of both facilities. All components of patient care will be controlled by a single governing body, and will have a single medical staff, chief medical officer, and CEO. Florida is home to other similarly situated hospitals that own and operate a Class I general acute care hospital and an affiliated Class III licensed specialty hospital on separate campuses. In each case, the Class I and Class III facilities share the same license and license number, owner, and CEO. These facilities include Westchester General Hospital and its affiliated Class III Southern Winds Hospital; Halifax Health Medical Center and its affiliated Halifax Psychiatric Center North; Shands Hospital at the University of Florida and Shands at Vista; and Morton Plant North Bay Hospital and NB Recovery Center. AHCA issues an actual license certificate for each facility for general display at each campus. The approximate distances between the two campuses of these Class I and Class III single license facilities are: Westchester General Hospital and Southern Winds Hospital – nine miles; Halifax Health Medical Center and Halifax Psychiatric Center – 1.5 miles; Shands at the University of Florida and Shands at Vista – 10 miles; and Morton Plant North Bay and NB Recovery Center – 20 miles. The scenario of a Class I hospital with an affiliated Class III hospital with a single license number is considered one licensee with two premises. Psychiatric Services at Community Will Remain Unchanged Implementation of the CON will result in no changes in the current level of health care services provided to patients for both psychiatric and non-psychiatric medical conditions. Those patients who might currently be transported internally to the psychiatric unit behavioral health unit or (BHU) upon discharge from non-psychiatric medical units of the hospital will now be transported by vehicle to the BHU campus if the patient requires transport assistance. The transport of psychiatric patients is not material to the discussion of whether the two campuses are, in fact, one hospital. Patients cannot be admitted to the BHU until they have been medically cleared of any non-psychiatric medical conditions that would require inpatient medical care. "Medically cleared" means the patient no longer requires medical/surgical inpatient care. Those processes and requirements will not change as a result of implementation of the CON. Community currently provides transport services for all types of patients. Those services will continue for patients between the two campuses, including any psychiatric patients who may need transport assistance. AHCA has never had a regulatory issue involving the movement of patients among different facilities that are operated by one licensee. AHCA has no concern about the ability of hospitals to transport patients among their various facilities, including any hospital provider-based services. Under federal regulations such services may be provided at locations up to 35 miles from the main hospital campus. A psychiatric patient presenting to a hospital's emergency department (ED) is handled the same initially as any patient. The patient undergoes triage and is seen by an ED physician. If the patient exhibits both psychiatric and non- psychiatric medical conditions, the ED physician calls a psychiatrist and together they will determine the primary diagnosis. If an ED patient has achieved medical stability, and is ready to be medically discharged from the ED, yet still suffers from a psychiatric condition, the ED physician will call in a psychiatrist to participate in the disposition of the patient. If the primary diagnosis for a patient is medical or emergent, but with a secondary or co-morbid psychiatric condition, the patient receives medical/surgical care with a psychiatrist serving as a consulting physician. If deemed appropriate, the patient would be admitted to the medical/surgical unit for care until reaching medical stability. While on the medical/surgical unit, the patient needing psychiatric care would receive it from a psychiatrist while on the medical/surgical unit. Once medically cleared for discharge, the patient requiring further inpatient psychiatric care would be transferred to the BHU. Once in the BHU, the patient would still receive any necessary care for any non- psychiatric conditions from the appropriate physicians. This system will not change with the implementation of the CON. Coverage of the BHU by hospitalists and other members of the medical staff who do rounds will not change as a result of implementation of the CON. Some patients will achieve medical stability for both the psychiatric and non-psychiatric conditions from which they suffer, and will therefore not be admitted to the BHU upon discharge from the ED or medical/surgical unit. As reflected in Community's policies and procedures, all BHU patients must be admitted under the care of a psychiatrist, and can only be discharged by a psychiatrist. Every BHU patient also receives a general medical history and physical examination performed by a consulting medical physician. Non-psychiatrist medical staff physicians are always available for consultation to the psychiatrist and other clinical staff while the patient stays in the BHU. Community's current practices with respect to psychiatric patient services and physician coverage will not change due to implementation of the CON. AHCA's Review of Community's CON Application AHCA gave notice of its intent to approve CON No. 10074 in the June 25, 2010, Florida Administrative Weekly. In AHCA's view, the status quo will be maintained by the issuance of the CON. Nothing will be different in the way Community delivers its health care services in District 5. This is a case where the applicant has to go through the CON process to arrive at the same place it already was. AHCA expects no change at all. AHCA concluded that "this project is not likely to change the current competitive structure of the existing market." By that conclusion, AHCA intended to convey a lack of adverse impact on existing providers based upon CON approval. Particularly due to deregulation, AHCA believes there have already been significant changes to the competitive structure of the District 5 market, such as psychiatric bed additions through CON exemption, CON approval of a new Ten Broeck psychiatric hospital, and upcoming shifts toward greater Medicaid HMO reimbursement and associated federal health care reform legislation. Conversely, the Agency projects no impact from Community's CON. Lack of Adverse Impact Adverse impact analyses typically arise from a new entrant to the market. Community's proposal does not present a new entrant to the market for inpatient psychiatric services. Adverse impact will occur when a new provider enters a service area or an existing provider increases its capacity to offer services. Neither of those will occur as a result of Community's CON. None of the conditions that could lead to an adverse impact is present. Implementation of the Community CON will have no adverse impact or effect on existing providers because Community will continue to have the same historic PSA and its market shares will remain the same, except for potential market changes unrelated to the CON, such as entrance of new providers. This case is unique. For example, Ms. Patricia Greenberg, Windmoor's highly qualified and experienced expert in health care planning, has never been involved in a case such as this where the applicant sought approval to remain at its current location. The typical CON application seeks permission for a new provider, facility, for beds, or services to enter a particular market for the first time. In the typical case, health care planners will agree that some shift in market share will occur among existing providers as the result of the new entrant to the market. Ms. Greenberg's adverse impact analysis did not take into account the new market entrants such as Ten Broeck and NB Recovery Center, even though she expects them to have a greater impact on Community, due in part to geography. Health care planners develop adverse impact analyses that attempt to estimate the future shift in market shares. From there, the planner will attempt to project a number of lost patients per provider, and then apply a financial impact. Regarding Community's proposal, since there will be no new entrant into the market, the typical adverse analysis cannot be performed. Windmoor, through Ms. Greenberg, creatively developed four theories of adverse impact that could result from the status quo. Each of Windmoor's theories is premised on assumptions that Community will cease providing certain clinical services that will result in Community losing the capability to serve some of its psychiatric patients. However, Windmoor provided no clinical evidence to support its alleged changes to Community's clinical services. Indeed, all clinical evidence in the record confirms that Community can and will continue its current clinical services to all patients, including its BHU patients. The four impact theories offered by Windmoor are each based upon the unproven assumption that CON implementation will transform Community into two separate unaffiliated hospitals as opposed to a single hospital with two campuses. From that assumption, Ms. Greenberg contended there are two, and only two, categories of psychiatric facilities, which she labeled as either a "hospital based unit" or a "freestanding" facility. Ms. Greenberg defined "hospital based unit" (HBU) as either located inside a hospital or on the campus of a general hospital. She defined "freestanding" as any facility that is not co-located with a general hospital on the same campus. Ms. Greenberg did not consider or address a category of commonly owned and operated Class I general acute care hospitals affiliated with Class III psychiatric hospitals. Ms. Greenberg did not recognize the existence in Florida of several general hospital affiliated Class III psychiatric hospitals. The fact that two hospital campuses of Class I and Class III facilities exist is irrelevant, so long as in reasonable proximity to one another. The relevant factors are whether the two campuses share the same: 1) license number, 2) ownership, 3) hospital administration, and 4) medical staff. If these factors are present, it is incorrect to characterize one of the two facilities or campuses as "freestanding" because that implies no connection to a general acute care hospital. Community is a general acute care hospital with an affiliated psychiatric facility which is in no sense "freestanding." Ms. Greenberg's attempt to compare statewide data for various patient characteristics between facilities that she defines as "freestanding" versus HBUs is not persuasive, primarily because it is built upon the incorrect assumption that Community and other Florida hospitals cannot operate a Class I general acute care hospital and a Class III specialty psychiatric hospital under the same license. Characteristics such as payor source or patient mix are influenced by a number of factors other than simply whether an inpatient program is "freestanding" or "hospital based," as defined by Ms. Greenberg, including influences such as age composition of the service area, income distribution, and whether the hospital is located in an urban or rural area, to cite but a few. Attempts to draw generalizations from such data and then conclude that Community will be more like a HBU than a freestanding or vice versa, is without merit. Ms. Greenberg's data indicates that Community falls into her defined HBU categories in some respects while, in other respects, falls into her freestanding categories. This type of analysis is not sound. Community will not transform into a "freestanding" facility as defined by Ms. Greenberg, as a result of this CON. Moreover, many people with a primary diagnosis of psychosis are treated in hospitals that do not have inpatient psychiatric beds. In 2008, psychosis was the number one discharge diagnosis for all males in Florida hospitals, and was the number three diagnosis for all females behind conditions associated with pregnancy. Simply looking at discharge data by diagnosis between freestanding and HBUs as defined by Ms. Greenberg is not a meaningful analysis. Every adverse impact scenario presented by Windmoor is based upon the incorrect premise that implementation of Community's CON will result in Community becoming a "freestanding" facility as defined by Ms. Greenberg. For this reason alone, none of Ms. Greenberg's adverse impact theories is valid and each must be rejected. Another common thread running through Windmoor's impact theories is the assertion that, based again upon the false "freestanding" presumption, Community's patient mix will change due to changes in clinical services available to patients, such as ED services, no medical environment for comprehensive treatment, and certain patients allegedly no longer clinically appropriate for Community's HBU. There is no evidence in the record to support such claims, either operationally or clinically. All of Ms. Greenberg's impact theories lead to the contention that CON implementation will result in Community being adversely affected by its own CON through the loss of psychiatric patients. Ms. Greenberg further speculates that because of her asserted loss of patients, Community would need to replace those patients ("backfill") with patients who might otherwise be admitted to a competing hospital. As explained previously, however, there is virtually no overlap of service area or competition between Windmoor and Community as reflected by their respective service areas. Community does not contact health care providers in Windmoor's service area regarding the availability of Community's psychiatric services. In fact, Largo, a sister facility of Community, is an inpatient provider located between Community and Windmoor. Community would not actively seek patients in those areas of Pinellas County. It is neither reasonable to expect, nor was any credible evidence presented, that to make up for lost patients, Community would go outside its current PSA into the Windmoor area to seek patients when it has its sister Largo facility near Windmoor. As stated above, Windmoor, through Ms. Greenberg, offered four adverse impact scenarios. All four scenarios are premised upon the assumption that CON implementation will transform Community's BHU into a "freestanding" facility. The premise is not correct for the reasons stated above, primarily that AHCA recognizes the ability of hospitals in Florida to have Class I general acute care facilities along with Class III specialty psychiatric hospitals under the same license, ownership, management, etc. Further, all four scenarios are based upon Ms. Greenberg's theory of "backfill" under which Community will have to make up lost patients by intruding into Windmoor's service area. The evidence supports the assertion that Community expects no lost admissions because its PSA and SSA will not change, nor will the type and extent of services it provides, including ED, medical/surgical, and a unified medical staff, change upon implementation of the CON. Medicaid Windmoor asserted that Community would lose its eligibility to receive reimbursement for services under the Medicaid program if the CON were implemented. This assertion was not supported by the evidence presented by Windmoor. Moreover, the evidence presented by Community and AHCA negated Windmoor's assertion. Prior to the filing of the CON application omissions response, Community representatives met with AHCA personnel and confirmed its continued Medicaid reimbursement eligibility, which to Community was never an issue. Community's CON application proposed a Medicaid CON condition, and contained numerous statements of expected continued ability to serve Medicaid fee-for-service patients. AHCA accepted the proposed CON condition when recommending approval of the application. Community expects to satisfy the Medicaid CON conditions. AHCA's Deputy Secretary for Medicaid, Roberta Bradford, subsequently confirmed by letter to Community that, based upon Community's representations of satisfaction of certain applicable criteria, Community's proposed 46-bed inpatient psychiatric hospital would continue to be eligible for Medicaid participation. The determination of a facility's Medicaid reimbursement is a state determination, rather than a federal CMS decision. In Florida, that determination is ultimately made by AHCA's Deputy Secretary for Medicaid, Ms. Bradford. Windmoor elicited testimony from Community to show that each of the following services would not be physically present on the campus of the Class III psychiatric hospital portion of Community following CON implementation: ED, emergency cardiac catheterization and angioplasty services, surgical and operating suites, stroke center designation, CT equipment, and the full range of medical services currently available on site at Community. Community will, however, continue to operate all of these services in the Class I acute care hospital campus, which will be under the unified license with the psychiatric campus. Satisfaction of the Medicaid letter criteria from AHCA was confirmed at hearing. The criteria include: Community will own and operate both locations and be the licensee of both facilities; all components of patient care at the facilities will be controlled by a single governing body; one Chief Medical Officer will be responsible for all medical staff activities at both facilities; one Chief Executive Officer will control both facilities' administrative activities; and the two facilities are situated closely enough geographically that it is feasible to operate them as a single entity. Mr. Jeffrey N. Gregg, AHCA's head of CON review, is satisfied that the Class III licensed Community facility will maintain its Medicaid eligibility. Southern Winds, Halifax Psychiatric Center, and Shands at Vista receive Medicaid fee-for-service reimbursement, and are similarly situated to Community. Mr. Gregg also expects NB Recovery Center to receive this type of Medicaid reimbursement when it initiates its service. Ms. Greenberg has been aware for at least 10 years that Class III psychiatric facilities affiliated with general hospitals in Florida receive fee-for-service reimbursement. She testified that if AHCA determines that Community is Medicaid eligible, her scenario related to Community losing its Medicaid eligibility "would go away." Moreover, due to recent legislative changes that will expand the use of Medicaid HMOs, the majority of Medicaid reimbursement is soon going to be under Medicaid HMOs. Class III psychiatric hospitals that are not affiliated with or on the same campus as a general acute care hospital, such as Windmoor, are eligible for Medicaid HMO reimbursement versus Medicaid fee- for-service reimbursement. Summary of Impact Analysis Conclusions All of Windmoor's adverse impact claims are based on a series of false and erroneous assumptions, none of which is supported by the evidence of record. In fact, most of the claims in the form of four scenarios are based upon ignoring the fact that what Community proposes here is not so unique in Florida. Many Florida health care facilities currently operate both Class I general acute care hospitals and Class III specialty psychiatric hospitals under the same license, management, and receive Medicaid fee-for-service reimbursement, while maintaining two physically separate campuses. This should have been common knowledge for an existing provider such as Windmoor, which based its entire case, adverse impact scenario, and decision to go forward with the hearing in this case on a series of erroneous assumptions. Windmoor offered several theories about how it would suffer a substantial and adverse impact in the event Community's CON application is approved, yet offered no competent evidence to support its claims. Windmoor failed to demonstrate that Community would lose any psychiatric patient admissions and be forced to seek admissions from Windmoor's PSA or SSA to keep its beds full. Windmoor failed to provide competent evidence that it will be adversely affected by the approval of Community's CON. Community's CON will have no impact on Windmoor.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue a final order dismissing Windmoor's Petition for Formal Administrative Hearing due to lack of standing to challenge the award of CON No. 10074. DONE AND ENTERED this 6th day of July, 2011, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 6th day of July, 2011. COPIES FURNISHED: Timothy Bruce Elliott, Esquire Smith & Associates 2873 Remington Green Circle Tallahassee, Florida 32308 Richard Joseph Saliba, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3, Mail Station 3 Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Rutledge, Ecenia & Purnell, P.A. 119 South Monroe Street, Suite 202 Tallahassee, Florida 32301 Richard J. Shoop, Agency Clerk Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Elizabeth Dudek, Secretary Agency for Healthcare Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308-5403
Conclusions THIS CAUSE comes before the Agency For Health Care Administration (the "Agency") concerning Certificate of Need ("CON") Application No. 10131 filed by The Shores Behavioral Hospital, LLC (hereinafter “The Shores”) to establish a 60-bed adult psychiatric hospital and CON Application No. 10132 The entity is a limited liability company according to the Division of Corporations. Filed March 14, 2012 2:40 PM Division of Administrative Hearings to establish a 12-bed substance abuse program in addition to the 60 adult psychiatric beds pursuant to CON application No. 10131. The Agency preliminarily approved CON Application No. 10131 and preliminarily denied CON Application No. 10132. South Broward Hospital District d/b/a Memorial Regional Hospital (hereinafter “Memorial”) thereafter filed a Petition for Formal Administrative Hearing challenging the Agency’s preliminary approval of CON 10131, which the Agency Clerk forwarded to the Division of Administrative Hearings (“DOAH”). The Shores thereafter filed a Petition for Formal Administrative Hearing to challenge the Agency’s preliminary denial of CON 10132, which the Agency Clerk forwarded to the Division of Administrative Hearings (‘DOAH”). Upon receipt at DOAH, Memorial, CON 10131, was assigned DOAH Case No. 12-0424CON and The Shores, CON 10132, was assigned DOAH Case No. 12-0427CON. On February 16, 2012, the Administrative Law Judge issued an Order of Consolidation consolidating both cases. On February 24, 2012, the Administrative Law Judge issued an Order Closing File and Relinquishing Jurisdiction based on _ the _ parties’ representation they had reached a settlement. . The parties have entered into the attached Settlement Agreement (Exhibit 1). It is therefore ORDERED: 1. The attached Settlement Agreement is approved and adopted as part of this Final Order, and the parties are directed to comply with the terms of the Settlement Agreement. 2. The Agency will approve and issue CON 10131 and CON 10132 with the conditions: a. Approval of CON Application 10131 to establish a Class III specialty hospital with 60 adult psychiatric beds is concurrent with approval of the co-batched CON Application 10132 to establish a 12-bed adult substance abuse program in addition to the 60 adult psychiatric beds in one single hospital facility. b. Concurrent to the licensure and certification of 60 adult inpatient psychiatric beds, 12 adult substance abuse beds and 30 adolescent residential treatment (DCF) beds at The Shores, all 72 hospital beds and 30 adolescent residential beds at Atlantic Shores Hospital will be delicensed. c. The Shores will become a designated Baker Act receiving facility upon licensure and certification. d. The location of the hospital approved pursuant to CONs 10131 and 10132 will not be south of Los Olas Boulevard and The Shores agrees that it will not seek any modification of the CONs to locate the hospital farther south than Davie Boulevard (County Road 736). 3. Each party shall be responsible its own costs and fees. 4. The above-styled cases are hereby closed. DONE and ORDERED this 2. day of Meaich~ , 2012, in Tallahassee, Florida. ELIZABETH DEK, Secretary AGENCY FOR HEALTH CARE ADMINISTRATION
