The Issue The issue is whether BayCare Long Term Acute Care Hospital, Inc.'s Certificate of Need Application No. 9753 and University Community Hospital's Certificate of Need Application No. 9754, both submitted to the Agency for Health Care Administration, should be approved.
Findings Of Fact LTCHs defined An LTCH is a medical facility which provides extended medical and rehabilitation care to patients with multiple, chronic, or clinically complex acute medical conditions. These conditions include, but are not limited to, ventilator dependency, tracheotomy care, total parenteral nutrition, long- term intravenous anti-biotic treatment, complex wound care, dialysis at bedside, and multiple systems failure. LTCHs provide an interdisciplinary team approach to the complex medical needs of the patient. LTCHs provide a continuum of care between short-term acute care hospitals and nursing homes, skilled nursing facilities (SNFs), or comprehensive medical rehabilitation facilities. Patients who have been treated in an intensive acute care unit at a short-term acute care hospital and who continue to require intensive care once stabilized, are excellent candidates for care at an LTCH. Included in the interdisciplinary approach is the desired involvement of the patient's family. A substantial number of the patients suitable for treatment in an LTCH are in excess of 65 years of age, and are eligible for Medicare. Licensure and Medicare requirements dictate that an LTCH have an average length of stay (ALOS) of 25 days. The Center for Medicare and Medicaid Services (CMS) reimburses for care received through the prospective payment system (PPS). Through this system, CMS reimburses the services of LTCHs separately from short-term acute care providers and other post acute care providers. The reimbursement rate for an LTCH under PPS exceeds that of other providers. The reimbursement rate for an LTCH is about twice that of a rehabilitation facility. The increased reimbursement rate indicates the increased cost due to the more intensive care required in an LTCH. The Agency The Agency is a state agency created pursuant to Section 20.42. It is the chief health policy and planning entity for the State of Florida. The Agency administers the Health Facility and Services Development Act found at Sections 408.031-408.045. Pursuant to Section 408.034, the Agency is designated as the single state Agency to issue, revoke, or deny certificates of need. The Agency has established 11 health service planning districts. The applications in this case are for facilities in District 5, which comprises Pinellas and Pasco counties. UCH UCH is a not-for-profit organization that owns and operates a 431-bed tertiary level general acute care hospital and a 120-bed acute care general hospital. Both are located in Hillsborough County. UCH also has management responsibilities and affiliations to operate Helen Ellis Hospital, a 300-bed hospital located in Tarpon Springs, and manages the 300-bed Suncoast Hospital. Both of these facilities are in Pinellas County. UCH also has an affiliation to manage the open heart surgery program at East Pasco Medical Center, a general acute care hospital located in Pasco County. As a not-for-profit organization, the mission of UCH is to provide quality health care services to meet the needs of the communities where it operates regardless of their patients' ability to pay. Baycare BayCare is a wholly-owned subsidiary of BayCare Healthsystems, Inc. (BayCare Systems). BayCare Systems is a not-for-profit entity comprising three members that operate Catholic Health East, Morton Plant Mease Healthcare, and South Florida Baptist. The facilities owned by these organizations are operated pursuant to a Joint Operating Agreement (JOA) entered into by each of the participants. BayCare Systems hospitals include Morton Plant Hospital, a 687-bed tertiary level facility located in Clearwater, Pinellas County; St. Joseph's Hospital, an 887-bed tertiary level general acute care hospital located in Tampa, Hillsborough County; St. Anthony's Hospital, a 407-bed general acute care hospital located in St. Petersburg, Pinellas County; and Morton Plant North Bay, a 120-bed hospital located in New Port Richey, Pasco County. Morton Plant Mease Health Care is a partnership between Morton Plant Hospital and Mease Hospital. Although Morton Plant Mease Healthcare is a part of the BayCare System, the hospitals that are owned by the Trustees of Mease Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside, are not directly members of the BayCare System and are not signatories to the JOA. HealthSouth HealthSouth is a national company with the largest market share in inpatient rehabilitation. It is also a large provider of ambulatory services. HealthSouth has about 1,380 facilities across the nation. HealthSouth operates nine LTCHs. The facility that is the Intervenor in this case is a CMR located in Largo, Pinellas County. Kindred Kindred, through its parent company, operates LTCH facilities throughout Florida and is the predominant provider of LTCH services in the state. In the Tampa Bay area, Kindred operates three LTCHs. Two are located in Tampa and one is located in St. Petersburg, Pinellas County. The currently operating LTCH in District 5 that may be affected by the CON applications at issue is Kindred-St. Petersburg. Kindred-St. Petersburg is a licensed 82-bed LTCH with 52 private beds, 22 semi-private beds, and an 8-bed intensive care unit. It operates the array of services normally offered by an LTCH. It is important to note that Kindred-St. Petersburg is located in the far south of heavily populated District 5. The Applications UCH proposes a new freestanding LTCH which will consist of 50 private rooms and which will be located in Connerton, a new town being developed in Pasco County. UCH's proposal will cost approximately $16,982,715. By agreement of the parties, this cost is deemed reasonable. BayCare proposes a "hospital within a hospital" LTCH that will be located within Mease Hospital-Dunedin. The LTCH will be located in an area of the hospital currently used for obstetrics and women's services. The services currently provided in this area will be relocated to Mease Hospital- Countryside. BayCare proposes the establishment of 48 beds in private and semi-private rooms. Review criteria which was stipulated as satisfied by all parties Section 408.035(1)-(9) sets forth the standards for granting certificates of need. The parties stipulated to satisfying the requirements of subsections (3) through (9) as follows. With regard to subsection (3), 'The ability of the applicant to provide quality of care and the applicant's record of providing quality of care,' all parties stipulated that this statutory criterion is not in dispute and that both applicants may be deemed to have satisfied such criteria. With regard to subsection (4), 'The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation,' it was stipulated that both applicants have all resources necessary in terms of both capital and staff to accomplish the proposed projects, and therefore, both applicants satisfy this requirement. With regard to subsection (5), 'The extent to which the proposed services will enhance access to health care for residents of the service district,' it was stipulated that both proposals will increase access. Currently there are geographic, financial and programmatic barriers to access in District 5. The only extant LTCH is located in the southernmost part of District 5. With regard to subsection (6), 'The immediate and long-term financial feasibility of the proposal,' the parties stipulated that UCH satisfied the criterion. With regard to BayCare, it was stipulated that its proposal satisfied the criterion so long as BayCare can achieve its utilization projections and obtain Medicare certification as an LTCH and thus demonstrate short-term and long-term feasibility. This issue will be addressed below. With regard to subsection (7), 'The extent to which the proposal will foster competition that promotes quality and cost- effectiveness,' the parties stipulated that approval of both applications will foster competition that will promote quality and cost effectiveness. The only currently available LTCH in District 5, unlike BayCare and UCH, is a for-profit establishment. With regard to subsection (8), 'The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction,' the parties stipulated that the costs and methods of construction for both proposals are reasonable. With regard to subsection (9), 'the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent,' it was stipulated that both UCH and BayCare have a demonstrated history and a commitment to providing services to Medicaid, Medicaid HMO, self-pay, and underinsured payments. Technically, of course, BayCare has no history at all. However, its sponsors do, and it is they that will shape the mission for BayCare. BayCare's Medicare certification as an LTCH The evidence of record demonstrates that BayCare can comply with Medicare reimbursement regulations and therefore can achieve its utilization projections and obtain Medicare certification as an LTCH. Thus short-term and long-term feasibility is proven. Because BayCare will be situated as a hospital within a hospital, in Mease Hospital Dunedin, and because there is a relationship between that hospital and BayCare Systems, Medicare reimbursement regulations limit to 25 percent the number of patients that may be acquired from Mease Hospital Dunedin or from an organization that controls directly or indirectly the Mease Hospital Dunedin. Because of this limitation, it is, therefore, theoretically possible that the regulator of Medicare payments, CMS, would not allow payment where more than 25 percent of admissions were from the entire BayCare System. Should that occur it would present a serious but not insurmountable problem to BayCare. BayCare projects that 21 percent of its admissions will come from Mease Hospital Dunedin and the rest will come from other sources. BayCare is structured as an independent entity with an independent board of directors and has its own chief executive officer. The medical director and the medical staff will be employed by the independent board of directors. Upon the greater weight of the evidence, under this structure, BayCare is a separate corporate entity that neither controls, nor is controlled by, BayCare Systems or any of its entities or affiliates. One must bear in mind that because of the shifting paradigms of federal medical regulation, predictability in this regard is less than perfect. However, the evidence indicates that CMS will apply the 25 percent rule only in the case of patients transferring to BayCare from Mease Hospital Dunedin. Most of the Medicare-certified LTCHs in the United States operate as hospitals within hospitals. It is apparent, therefore, that adjusting to the CMS limitations is something that is typically accomplished. BayCare will lease space in Mease Hospital Dunedin which will be vacated by it current program. BayCare will contract with Mease Hospital Dunedin for services such as laboratory analysis and radiology. This arrangement will result in lower costs, both in the short term and in the long term, than would be experienced in a free-standing facility, and contributes to the likelihood that BayCare is feasible in the short term and long term. Criteria related to need The contested subsections of Section 408.035 not heretofore addressed, are (1) and (2). These subsections are illuminated by Florida Administrative Code Rule 59C- 1.008(2)(e)2., which provides standards when, as in this case, there is no fixed-need pool. Florida Administrative Code Rule 59C-1.008(2)(e)2., provides as follows: 2. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, sub district or both; Medical treatment trends; and Market conditions. Population Demographics and Dynamics The applicants presented an analysis of the population demographics and dynamics in support of their applications in District 5. The evidence demonstrated that the population of District 5 was 1,335,021 in 2004. It is anticipated that it will grow to 1,406,990 by 2009. The projected growth rate is 5.4 percent. The elderly population in the district, which is defined as persons over the age of 65, is expected to grow from 314,623 in 2004, to 340,676, in 2009, which represents an 8.3 percent increase. BayCare BayCare's service area is defined generally by the geographic locations of Morton Plant Hospital, Morton Plant North Bay Hospital, St. Anthony's Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside. These hospitals are geographically distributed throughout Pinellas County and southwest Pasco County and are expected to provide a base for referrals to BayCare. There is only one extant LTCH in Pinellas County, Kindred, and it is located in the very southernmost part of this densely populated county. Persons who become patients in an LTCH are almost always moved to the LTCH by ambulance, so their movement over a long distance through heavy traffic generates little or no problem for the patient. Accordingly, if patient transportation were the only consideration, movement from the north end of the county to Kindred in the far south, would present no problem. However, family involvement is a substantial factor in an interdisciplinary approach to addressing the needs of LTCH patients. The requirement of frequent movement of family members from northern Pinellas to Kindred through congested traffic will often result in the denial of LTCH services to patients residing in northern Pinellas County or, in the alternative, deny family involvement in the interdisciplinary treatment of LTCH patients. Approximately 70 letters requesting the establishment of an LTCH in northern Pinellas County were provided in BayCare's application. These letters were written by medical personnel, case managers and social workers, business persons, and government officials. The thread common to these letters was, with regard to LTCH services, that the population in northern Pinellas County is underserved. UCH Pasco County has experienced a rapid population growth. It is anticipated that the population will swell to 426,273, in 2009, which represents a 10.1 percent increase over the population in 2004. The elderly population accounts for 28 percent of the population. This is about 50 percent higher than Florida as a whole. Rapid population growth in Pasco County, and expected future growth, has resulted in numerous new housing developments including Developments of Regional Impact (DRI). Among the approved DRI's is the planned community of Connerton, which has been designated a "new town" in Pasco County's Comprehensive Plan. Connerton is a planned community of 8,600 residential units. The plan includes space for a hospital and UCH has negotiated for the purchase of a parcel for that purpose within Connerton. The rate of growth, and the elderly population percentages, will support the proposed UCH LTCH and this is so even if BayCare establishes an LTCH in northern Pinellas County. Availability, utilization, and quality of like services in the district, sub-district, or both The Agency has not established sub-districts for LTCHs. As previously noted, Kindred is the only LTCH extant in District 5. It is a for-profit facility. Kindred was well utilized when it had its pediatric unit and added 22 additional beds. Subsequently, in October 2002, some changes in Medicare reimbursement rules resulted in a reduction of the reimbursement rate. This affected Kindred's income because over 70 percent of its patients are Medicare recipients. Kindred now uses admission criteria that have resulted in a decline in patient admissions. From 1998, the year after Kindred was established, until 2002, annual utilization was in excess of 90 percent. Thereafter, utilization has declined, the 22-bed addition has been shut down, and Kindred projects an occupancy of 55 percent in 2005. Kindred must make a profit. Therefore, it denies access to a significant number of patients in District 5. It denies the admission of patients who have too few "Medicare- reimbursable days" or "Medicaid-reimbursable days" remaining. The record indicates that Kindred only incurs charity care or Medicaid patient days when a patient admitted to Kindred with seemingly adequate funding unexpectedly exhausts his or her funding prior to discharge. Because of the constraints of PPS, Kindred has established admission criteria that excludes certain patients with conditions whose prognosis is so uncertain that it cannot adequately predict how long they will require treatment. Kindred's availability to potential patients is thus constrained. HealthSouth, a licensed CMR, is not a substitute for an LTCH. Although it is clear that there is some overlap between a CMR and an LTCH, HealthSouth, for instance, does not provide inpatient dialysis, will not accept ventilator patients, and does not treat complex wound patients. The nurse staffing level at HealthSouth is inadequate to provide for the type of patient that is eligible for treatment in an LTCH. The fact that LTCHs are reimbursed by Medicare at approximately twice the rate that a CMR is reimbursed, demonstrates the higher acuity level of LTCH services when compared to a CMR. HealthSouth is a facility which consistently operates at high occupancy levels and even if it were capable of providing the services typical of an LTCH, it would not have sufficient capacity to provide for the need. A CMR is a facility to which persons who make progress in an LTCH might repair so that they can return to the activities of daily living. SNFs are not substitutes for LTCHs although there could be some limited overlap. SNFs are generally not appropriate for patients otherwise eligible for the type of care provided by an LTCH. They do not provide the range of services typically provided by an LTCH and do not maintain the registered nurse staffing levels required for delivering the types of services needed for patients appropriate for an LTCH. LTCHs are a stage in the continuum of care. Short- term acute care hospitals take in very sick or injured patients and treat them. Thereafter, the survivors are discharged to home, or to a CMR, or to a SNF, or, if the patients are still acutely ill but stable, and if an LTCH is available, to an LTCH. As noted above, currently in northern Pinellas County and in Pasco County, there is no reasonable access to an LTCH. An intensive care unit (ICU) is, ideally, a treatment phase that is short. If treatment has been provided in an ICU and the patient remains acutely ill but stable, and is required to remain in the ICU because there is no alternative, greater than necessary costs are incurred. Staff in an ICU are not trained or disposed to provide the extensive therapy and nursing required by patients suitable for an LTCH and are not trained to provide support and training to members of the patient's family in preparation for the patient's return home. The majority of patients suitable for an LTCH have some potential for recovery. This potential is not realized in an ICU, which is often counterproductive for patients who are stabilized but who require specialized long-term acute care. Patients who remain in an ICU beyond five to seven days have an increased morbidity/mortality rate. Maintaining patients suitable for an LTCH in an ICU also results in over-utilization of ICU services and can cause congestion when ICU beds are fully occupied. UCH in Pasco County, and to a lesser extent BayCare in northern Pinellas County, will bring to the northern part of District 5 services which heretofore have not been available in the district, or, at least, have not been readily available. Persons in Pasco County and northern Pinellas County, who would benefit from a stay in an LTCH, have often had to settle for some less appropriate care situation. Medical Treatment Trends LTCHs are relatively new cogs in the continuum of care and the evidence indicates that they will play an important role in that continuum in the future. The evidence of record demonstrates that the current trend in medical treatment is to find appropriate post acute placements in an LTCH setting for those patients in need of long-term acute care beyond the stay normally experienced in a short-term acute care hospital. Market conditions The federal government's development of the distinctive PPS for LTCHs has created a market condition which is favorable for the development of LTCH facilities. Although the Agency has not formally adopted by rule a need methodology specifically for LTCHs, by final order it has recently relied upon the "geometric mean length of stay + 7" (GMLOS +7) need methodology. The GMLOS +7 is a statistical calculation used by CMS in administering the PPS reimbursement system in determining an appropriate reimbursement for a particular "diagnostic related group" (DRG). Other need methodologies have been found to be unsatisfactory because they do not accurately reflect the need for LTCH services in areas where LTCH services are not available, or where the market for LTCH services is not competitive. GMLOS +7 is the best analysis the Agency has at this point. Because the population for whom an LTCH might be appropriate is unique, and because it overlaps with other populations, finding an algebraic need expression is difficult. An acuity measure would be the best marker of patient appropriateness, but insufficient data are available to calculate that. BayCare's proposal will provide beneficial competition for LTCH services in District 5 for the first time and will promote geographic, financial, and programmatic access to LTCH services. BayCare, in conducting its need calculations used a data pool from Morton Plant Hospital, Mease Dunedin Hospital, Mease Countryside Hospital, Morton Plant North Bay Hospital, and St. Anthony's Hospital for the 12 months ending September 2003. The hospitals included in the establishment of the pool are hospitals that would be important referral sources for BayCare. BayCare then identified 160 specific DRGs historically served by existing Florida LTCHs, or which could have been served by Florida LTCHs, and lengths of stay greater than the GMLOS for acute care patients, and compared them to the data pool. This resulted in a pool of 871 potential patients. The calculation did not factor in the certain growth in the population of the geographic area, and therefore the growth of potential LTCH patients. BayCare then applied assumptions based on the proximity of the referring hospitals to the proposed LTCH to project how many of the patients eligible for LTCH services would actually be referred and admitted to the proposed LTCH. That exercise resulted in a projected potential volume of 20,265 LTCH patient days originating just from the three District 5 BayCare hospitals and the two Mease hospitals. BayCare assumes, and the assumption is found to be reasonable, that 25 percent of their LTCH volume will originate from facilities other than BayCare or Mease hospitals. Adding this factor resulted in a total of 27,020 patient days for a total net need of 82 beds at 90 percent occupancy. BayCare's GMLOS +7 bed need methodology reasonably projects a bed need of 82 beds based on BayCare's analysis of the demand arising from the three District 5 BayCare hospitals and the two Mease hospitals. UCH provided both a GMLOS +7 and a use rate analysis. The use rate analysis is suspect in a noncompetitive environment and, obviously, in an environment where LTCHs do not exist. UCH's GMLOS +7 analyses resulted in the identification of a need for 159 additional LTCH beds in District 5. This was broken down into a need of 60 beds in Pasco County and 99 additional beds in Pinellas County. There is no not-for-profit LTCH provider in District The addition of BayCare and UCH LTCHs to the district will meet a need in the case of Medicaid, indigent, and underinsured patients. Both BayCare and UCH have agreed in their applications to address the needs of patients who depend on Medicaid, or who are indigent, or who have private insurance that is inadequate to cover the cost of their treatment. The statistical analyses provided by both applicants support the proposed projects of both applicants. Testimony from doctors who treat patients of the type who might benefit from an LTCH testified that those types of facilities would be utilized. Numerous letters from physicians, nurses, and case managers support the need for these facilities. Adverse impacts HealthSouth and Kindred failed to persuade that BayCare's proposal will adversely impact them. HealthSouth provides little of the type of care normally provided at an LTCH. Moreover, HealthSouth is currently operating near capacity. Kindred is geographically remote from BayCare's proposed facility, and, more importantly, remote in terms of travel time, which is a major consideration for the families of patients. Kindred did not demonstrate that it was currently receiving a large number of patients from the geographic vicinity of the proposed BayCare facility, although it did receive some patients from BayCare Systems facilities and would likely lose some admissions if BayCare's application is approved. The evidence did not establish that Kindred would suffer a material adverse impact should BayCare establish an LTCH in Mease Dunedin Hospital. HealthSouth and Kindred conceded that UCH's program would not adversely impact them. The Agency's Position The Agency denied the applications of BayCare and UCH in the SAARs. At the time of the hearing the Agency continued to maintain that granting the proposals was inappropriate. The Agency's basic concern with these proposals, and in fact, the establishments of LTCHs throughout the state, according to the Agency's representative Jeffrey N. Gregg, is the oversupply of beds. The Agency believes it will be a long time before it can see any measure of clinical efficiency and whether the LTCH route is the appropriate way to go. The Agency has approved a number of LTCHs in recent years and is studying them in order to get a better understanding of what the future might hold. The Agency noted that the establishment of an LTCH by ongoing providers, BayCare Systems and UCH, where there are extant built-in referring facilities, were more likely to be successful than an out-of-state provider having no prior relationships with short-term acute care hospitals in the geographic vicinity of the LTCH. The Agency noted that both a referring hospital and an LTCH could benefit financially by decompressing its intensive care unit, and thus maximizing their efficiency. The Agency did not explain how, if these LTCHs are established, a subsequent failure would negatively affect the delivery of health services in District 5. The Agency, when it issued its SAAR, did not have the additional information which became available during the hearing process.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that UCH Certificate of Need Application No. 9754 and BayCare Certificate of Need Application No. 9753 satisfy the applicable criteria and both applications should be approved. DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER 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 November, 2005. COPIES FURNISHED: Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 J. Robert Griffin, Esquire J. Robert Griffin, P.A. 1342 Timberlane Road, Suite 102-A Tallahassee, Florida 32312-1762 Patricia A. Renovitch, Esquire Oertel, Hoffman, Fernandez, Cole, & Bryant P.A. Post Office Box 1110 Tallahassee, Florida 32302-1110 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Timothy Elliott, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Mail Station 3 Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308
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
Findings Of Fact By letter dated December 16, 1977, the Division of State Planning forwarded Petitioner's request for a hearing on an application for a Binding Letter of Interpretation submitted by North Florida Regional Hospital, Respondent. Respondent sought a determination that a proposed addition to North Florida Regional Hospital was not a Development of Regional Impact (DRI) pursuant to Section 380.06(4)(a), Florida Statutes. Thereafter Respondent filed a request with the State of Florida, Department of Health and Rehabilitative Services (HRS) for a determination that a certificate of need was not required for the proposed addition to the hospital. Petitioner thereupon requested a hearing pursuant to Section 120.57(1), Florida Statutes for a factual determination whether or not the preliminary plans for the proposed addition had been filed by Respondent prior to July 1, 1973, so as to exempt Respondent from the requirement of obtaining a certificate of need. This was forwarded to the Division of Administrative Hearings (DOAH) for the designation of a hearing officer to conduct the hearing, assigned Docket Number 78-054, and referred to the undersigned for hearing. Petitioner moved that these two cases be consolidated for hearing on the grounds that the parties and issues of fact for the two cases are the same. A prehearing conference was held on January 6, 1978, at which all pending motions were considered, and the issues to be contested at the forthcoming hearings were resolved. After full discussion by the parties, oral stipulations were entered into. These stipulations were written down by the Hearing Officer, read back to and accepted by the parties, and thereafter incorporated in the Order entered January 9, 1978. Prior to the motion hearing on July 28, 1978, no party questioned the accuracy or validity of these stipulations. On January 9, 1978, the results of the January 6, 1978 prehearing conference were memorialized in an Order stating that all parties agreed that only two basic issues were involved in this case. One was a factual determination relating to the status of Respondent's application to HRS (Docket 78-054) respecting a certificate of need and the other a legal issue regarding the interpretation of Rule 22F-2.04, Florida Administrative Code. The parties agreed that the factual issues regarding the certificate of need was a threshold question which needed to be resolved before the instant case was decided and, therefore, that case should proceed first. At this prehearing conference the parties stipulated that: If no certificate of need is required pursuant to Section 381.494, F.S. for the 150 bed addition proposed for North Florida General Hospital, and that, if in Rule 22F-2.04 Florida Administrative Code the words "whose application for a certificate of need under Section 381.494, Florida Statutes," refers only to the application under consideration and not to other applications by Respondent for a certificate of need, then the application is not a Development of Regional Impact and the Division of State Planning should issue the binding letter of interpretation re- quested by Respondent. The Hearing Officer submit a Recommended Order to Division of State Planning construing Rule 22F-2.04, Florida Administrative Code and make recommendations regarding the issuance of a binding letter of interpretation. The parties will submit briefs by January 13, 1978 on the interpretation of Rule 22F-2.04, Florida Administrative Rule to Hearing Officer for his consideration in preparing his Recommended Order. By Order entered January 19, 1978 Petitioner's Motion for Consolidation of Dockets 77-2223 and 78-054 was denied and the entering of a Recommended Order in Docket 77-2223 was stayed pending completion of the hearing in Docket 78-054. The hearing in Docket No. 78-054 was held on March 31, 1978 and the Recommended Order was filed April 13, 1978. On July 11, 1978 HRS entered its Final Order in Docket Number 78-054 sustaining the ultimate findings of the Hearing Officer that Respondent had filed preliminary plans for the proposed addition prior to July 1, 1973 and did not now require a certificate of need for the proposed addition to the hospital.
Recommendation RECOMMENDED that Respondent, North Florida Regional Hospital, be issued a Binding Letter of Interpretation that its proposed three-floor addition to the hospital is not a Development of Regional Impact. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 15th day of September, 1978. K. N. AYERS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: William C. Andrews, Esq. and Philip A. Delaney 1133 N.W. 23rd Avenue Gainesville, FL 32601 Robert M. Rhodes, Esq. Post Office Box 1876 Tallahassee, FL 32302 Peter Skoro, Esq. Assistant County Attorney Post Office Drawer "CC" Gainesville, FL 32602 Jon Moyle, Esq. and Daniel H. Jones, Esq. Post Office Box 3888 West Palm Beach, FL 33402 C. Lawrence Keesey, Esq. Staff Attorney Division of State Planning 335 Carlton Building Mailing address: 530 Carlton Bldg. Tallahassee, FL 32304 =================================================================
The Issue Assuming a need for additional hospital beds in Broward County by 1987, the agreed "planning horizon," the question becomes which, if any, of the six or seven proposals advanced in these proceedings would be the best means of meeting the need. Central to the bed need issue in this case is the parties' enigmatic stipulation: 2/ that there is a need for acute care beds in Broward County in 1987, and this need should be determined on a regionalized basis. Pembroke Pines joins in this stipulation only to the extent that a need does not exist in the proposed service area of SBHD. Prehearing Stipulation C.8. The parties were unable to agree on where these regional boundaries should be drawn, among other things.
Findings Of Fact There is a glut of hospital beds in Broward County. Twenty hospitals have some 6,000 licensed or authorized beds in the county exclusive of free- standing psychiatric hospitals and their beds. In 1980, when Broward County's population numbered 1,018,200, six thousand beds would have been at least a quarter again too many by accepted standards. In 1987, Broward County's population has been projected to be between 1,137,160 and 1,276,911 by the University of Florida's Bureau of Economic and Business Research (BEBR). Other population projections for the year 1987 range all the way to 2,260,700, but it is highly unlikely that so many people will ever live in Broward County, much less by the year 1987. There is no assurance that even BEBR's high projection of 1,276,911 will be reached by 1987. If it should be, the ratio of beds to population in Broward County as a whole would only then fall within the upper reaches of arguably appropriate levels, assuming no additional beds in the interim. CENTROID MOVES WEST Whatever its magnitude, there is no reason to expect population growth to cluster around existing hospitals. Contrary trends have, indeed, already emerged. Population growth in western Broward County is expected to continue at a rate in excess of the rate for the county as a whole. From 1970 to 1980, the population in Broward County's western and central planning subregions (see Appendix) combined went from 140,581 to 417,461 while the population in eastern Broward County went from 479,518 to 600,736. Broward County is most densely populated in its eastern portion, but, increasingly, people have been moving into housing further west in the county. The result has been rapidly growing occupancy at Bennett, the county's westernmost hospital; and high occupancy, often to capacity, at University, which is further north than Bennett but almost as far west. Occupancy rates at Pembroke Pines, the southwestern most hospital in the county, have also increased. If additional hospital beds could be added in the west without affecting the efficiency of operations at other hospitals in the west, their addition would still have the effect of depressing demand for hospital beds in eastern Broward County or, at least, of slowing the rate of increase in demand. The four public hospitals along the Atlantic seaboard are operating at efficient occupancy levels and, in the case of SBHD's Memorial Hospital (Memorial), at capacity, but many hospitals in eastern Broward County are operating extremely inefficiently, including HCA's North Beach Medical Center (North Beach) with 1981 average occupancy of 37.1 percent, and Humana's Community Hospital of South Broward (Community), with 1981 average occupancy of 42.7 percent. THE PROPOSALS HCA, NBHD and Humana, the three organizations which together already own and operate half of the short-term hospitals in Broward County are vying for the right to build a new hospital in the northwest part of the county. In addition to its contention that a new hospital should be built in the northwest to open in 1987, HCA argues that present conditions justify expansion of University long before then, and Humana put on evidence tending to show a need for expansion at Bennett by 1987. SBHD has proposed a new hospital for southwest Broward to open at 84 beds in 1987 and go to 128 beds in 1988. Bennett's expansion is the only other proposal to meet (at least in part) the bed need alleged to exist in southwest Broward. THE NORTHWEST By anybody's reckoning, HCA's Margate is located in northwest Broward already. Depending on how far south the boundary of a northwest region is drawn, HCA's University can also be said to be located in northwest Broward. Humana's Cypress Community Hospital (Cypress), the closest hospital to the east, lies north of University and south of Margate; and Bennett is almost due south of University. NBHD's North Broward Hospital lies further east and considerably north of Cypress. HCA acquired Margate by acquiring or merging with Hospital Affiliates International (HAI) the for-profit hospital chain that formerly owned Margate. Even before the acquisition, planning had begun (by HAI) to replace the facility. Licensed at 150 beds, its effective capacity is significantly lower. Situated on 3.7 acres that do not provide adequate parking, Margate is, in numerous respects, an example of how hospitals should not be built. Hospital ancillary departments were added to a physical plant originally designed as a nursing home and the result has been narrow, dead end corridors and a pathetic 400 gross square feet per bed. There was uncontroverted testimony that the corridors amounted to "life and safety code" violations. No other such violations were specified, however, nor was any statute or regulation cited with respect to the corridors. The testimony was, in fact, that HRS has granted a variance for the corridors based on a similar variance by the Joint Commission on Accreditation. The evidence revealed no request by any licensing or other authority to renovate or to replace Margate, nor any threat to delicense so much as a single bed at Margate. HCA proposes nevertheless to close Margate down when it opens a new 250-bed hospital on 15-acres of a 21-acre site two miles to the north, at a total project cost of $33,750,577. Alternatively, HCA argues it is statutorily entitled to build a 150- bed replacement hospital, and uncontroverted testimony put the project cost at $25,696,403, rather than three-fifths of the 250-bed hospital cost used by HRS. Replacing Margate on its existing site, like renovating it, would not be economical, and for many of the same reasons. Whether at 150 or 250 beds, the HCA proposals include 24 intermediate care, 20 obstetric, 14 pediatric and 12 critical care beds. The proposed hospital would have Margate's medicare and medicaid provider numbers, so that it would not be a "new hospital" under TEFRA regulations. At 150 beds, 929 square feet per bed are contemplated at a cost of $171,309 per bed. At 250 beds, 766 square feet per bed are contemplated at a cost of $135,002 per bed. Humana proposes to build a new 150 bed hospital on a site yet to be acquired in northwest Broward at a project cost of $27,772,500. As proposed, 3/ Coral Ridge General Hospital would have 20 obstetrical beds, 20 pediatric beds, 10 critical care beds and 100 medical-surgical beds. There would be 972 square feet per bed at a cost per bed of $185,150. Larger by a third but in many other ways comparable to Humana's proposed Coral Ridge is NBHD's proposal for a new hospital. At 200 beds, the total project cost would be $37,203,658 or $186,018 per bed and there would be some 950 square feet per bed. Twenty-four obstetric, 20 pediatric, 16 critical care and 140 medical-surgical beds are proposed. A site of approximately 20 acres has been donated, subject to CON approval of the project. University seeks immediate authority to house 73 additional medical- surgical beds in shelled-in space now available on site. University's 209 beds had 83.2 percent average occupancy in 1981, and, at the time of hearing, when it was full to overflowing, University had experienced 87 percent average occupancy for 1982. The uncontroverted evidence was that University can add 73 beds at a total project cost in the neighborhood of $310,000, or $4,227 per bed, resulting in 576 square feet per bed at University. These figures do not reflect associated ancillary costs already or to be incurred. SOUTH AND CENTRAL Although Bennett has not yet reached efficient occupancy levels, a strong trend in that direction has been demonstrated. Average occupancy in 1981 was 63.5 percent, up from 58.5 percent in 1980. By CON number 1996, dated March 15, 1982, Bennett was authorized to spend $8,780,100 to build a parking garage, establish a separate day surgery and expand ancillaries. In these proceedings it seeks authority to add 64 beds in existing shelled-in space. Of these beds 30 would be "minimal care" beds and the remainder would be medical-surgical beds. Exclusive of ancillary costs already authorized, the project cost would be $1,600,000 or $25,000 per bed. Finally SBHD's proposed WBH would have 128 beds at a total project cost of $38,386,000 or $299,891 per bed. WBH would have 852 square feet per bed, 8 critical care beds and 120 medical-surgical beds, and would be built with a view toward expansion. It would operate as a "satellite" of Memorial. DRAWING LINES In order to analyze the County by regions, boundaries must be drawn. Each applicant for a certificate of need (CON) to add hospital beds in northwest Broward county defined "northwest" differently. Both Humana and NBHD saw the hospitals they proposed as serving the 1987 need each identified in its particular northwest planning area. For its purposes, Bennett defined a west central region of Broward County; and SBHD defined its proposed service area for WBH to include the southwest and part of the south central Broward County planning regions. Objections to the WBH proposal focused on southern Broward County, an aggregate of planning subregions extending east to the ocean. SBHD, HCA and Bennett all analyzed bed need on the basis of regions coterminous with the service areas of specific institutions: that of the proposed WBH, in the case of the SBHD; the combined service areas of University and Margate, in the case of HCA; and Bennett's own service area. Defining the service area of an existing institution is a different problem than forecasting the perimeters of a hospital's service area, before the hospital is built. The key to defining historical service areas is information about where patients served by a hospital lived. Hospitals keep data on patient origin by zip code, and the South Florida Hospital Association compiled some of this information for 1979, in its Hospitalization Utilization and Patient Origin Project (HUPOP). Studies like HUPOP provide a basis for judgments about whether a particular zip code furnishes a hospital a great enough fraction of its total patients (or patient days) to be considered part of the hospital's primary or secondary service area. A lightly populated zip code might be included in a hospital's service area on the basis of the size of the share of all patients it sends to hospitals who go to that particular institution, even if the number is a small fraction of the total for the hospital. As the parties demonstrated at great length, it is possible to attach undue significance to regional or other boundaries. They are not, after all, magical barriers through which persons seeking hospital care cannot pass. Beds available to people living within a region do not cease to exist just because they are located on the other side of some arbitrary line. No hospital in Broward County meets the need of the whole population within its service area, or serves nobody outside its service area. There are substantial overlaps in hospital service areas. Any calculation of need must take beds already available into account. The parties' stipulation that there is a need for an unspecified number 3/ of additional beds in an unspecified northwest region does not address the question of what beds outside any such area are nevertheless available to residents of the area. DEMOGRAPHIC PROJECTIONS Once an area is defined, the next step is forecasting its population for the year 1987. Such forecasts begin with census counts or population estimates, which require judgment and extrapolation themselves, unless an actual count in a census block or other census division is relied on. Taking points at either end of a time interval, future projections are made using linear extrapolation, proportional growth, shift-share and other methodologies. Forecasts represent a weighted average of these projections, informed by a judgment on such things as "ultimate build out," and the likely effects of anticipated transportation improvements. Forecasts of population cohorts or components are also pertinent because child bearing women and children have special needs, and because older people are more likely to use hospital beds than younger people. John Short and Associates, Inc., forecast a total population of 256,800 in the northwest area defined by HCA (NW-HCA) in 1987, based on medium projections by the Bureau of Economic and Business Research at the University of Florida. Urban Decision Systems, Inc. forecast a total population of 110,053 for the northwest Broward County planning subregion used by NBHD (NW-NBHD), and Dr. Ladner projected a population increase in the northwest area as defined by Humana (NW-HU) of 76,812 between 1982 and 1987. In making his only population projection for NW-HU, Dr. Ladner assumed an 8.6 percent compound annual growth rate, which the weight of the evidence showed to be unrealistically high. For that and other reasons, Dr. Ladner's population forecast has not been deemed reliable. The John Short and Urban Decisions forecasts are theoretically compatible, pertaining, as they do, to two different areas, They represent compound annual growth rates of 6.69 and 5.86 percent, respectively, and together indicate the likely order of magnitude of the growth of population in northwest Broward County by 1987. The population in western Broward generally, and northwest Broward in particular, is younger on average than the population of the county as a whole. In the northwest planning subregion, 21.7 percent of the population was under 15, 59 percent was 15 to 64, and 19.3 percent was 65 or older in 1980. Also in 1980, women aged 15 to 44 comprised 20.1 percent of the population. Assuming the population of the northwest planning subregion ages slightly in line with the projections for the county as a whole, 19.4 percent of the population in 1987 should be under 15, 80.2 percent should be under 65 and 19.8 percent should be 65 or over. The proportion of women 15 to 44 should grow to 20.8 percent. Dr. Ladner's 1987 projection for Bennett's service area, zip codes 33313, 33314, 33317, 33322, 33323, 33324, 33325, 33326, 33327, 33328, 33330, 33331 and 33332, reflects the same methodology he used for the northwest. Even though the part of Bennett's service area to the south and west of the hospital is not as well developed as northwest Broward, so that there is more justification for Dr. Ladner's growth rate assumption there, his projections for Bennett's service area of 252,644 5/ in 1985 and 368,050 in 1990 are probably too high. Thousands of acres of residential and other development are planned or under construction in these zip codes, however. If Arvida sells 2,680 housing units between now and 1987 in its Indian Trace development in zip code 33327 (whether it can depends on interest rates and other factors) and if household size there averages 2.7, as projected, that development alone would house 7,236 additional persons in 1987. Some time between 1984 and 1988, construction of I-75 will be completed, and southwest Broward will become a 30-minute commute from Miami. When 1-95 was completed in south Palm Beach County, annual population growth jumped from 5,000 to 33,000. The land in Palm Beach County cost less to develop and is closer to the ocean, although further from Miami, than land in southwest Broward County. Population forecasts for the southwest and south central Broward planning regions have been made by Dr. Stanley Smith and by Urban Decisions Systems, Inc. For the two regions combined, their projections for 1987 are 183,700 and 173,800, respectively. For the WBH proposed service area, as revised, zip codes 33025, 33026, 33027, 33028, 33029, 33326, 33327, 33328, 33330, 33331 and 33332, Dr. Smith forecast a 1987 population of 69,128. This number was arrived at without reference to the projected opening of Interstate Highway 75, but Dr. Smith did not think that prospect called for an adjustment in the forecast. For south Broward County, as a whole, i.e., the southwest, southeast and south central planning subregions combined, Dr. Smith projected a population of 380,711 in 1986, and 388,795 in 1987. Gateway's Exhibit No. 16. In 1980, 10.6 percent of the population in the revised WBH proposed service area was 65 or over, as compared to 21.7 percent in the three south regions as a whole. NBHD FORMULAE If facilities in an area serve only that area and nobody enters or leaves the area for hospitalization, the use rate of the population will be the sum of draw rates of the hospitals in the area. In analyzing the need for a specific institution, or assessing the likely draw of a new institution, it is necessary to assign some fraction of the whole population in its service area as its market share. Existing institutions have historical market shares which can be used where historical conditions are not predicted to change, while, for new institutions, other assumptions have to be made. Demand-based need formulae express utilization rates as patient days per 1,000 population. Translating patient days per thousand persons per year to beds needed per thousand persons requires dividing by 365 to get an average daily census per thousand persons then multiplying by the inverse of the optimal average occupancy rate assumed. One hundred percent occupancy of hospital beds on a regular basis would be undesirable, if achievable, because of the lack of reserve capacity to meet fluctuating demand. As a practical matter the problems of matching patients in hospital rooms with more than one bed on the basis of gender, service, smoking habits, and diagnosis prevent 100 percent utilization. For acute care medical-surgical beds, an average occupancy of 80 percent is a desideratum with which no health care planner who testified disagreed, although Dr. Schoeman spoke in terms of 80 to 85 percent average occupancy. Even lower average occupancies are recommended for certain specialty beds, including obstetric (75 percent), pediatric (65 percent) and cardiac intensive care (75 percent) beds. Eighty percent average occupancy as a health planning goal for all short-term beds taken together is supported by the weight of the evidence. (The Florida Task Force on Institutional Needs calls for a 79.4 percent weighted average occupancy). The goal of 80 percent occupancy underlies the national standard of 4 beds per 1,000 persons. This average also reflects the age distribution of the national population and other nationally average conditions. In 1980, 11.3 percent of the population in the United States was 65 or over, while the 65 and older age group made up 22 percent of Broward County's population. In Broward County, where the population is older on average than the population of the country as a whole and where there is significant seasonal variation in population (so that greater reserve capacity is desirable), the consensus is that 4.5 beds per 1,000 persons is a more appropriate rule of thumb. Based on historical demand in Broward County, Mr. Baehr of Amherst Associates, Inc. made an "area specific" analysis. In 1981, 752.1 patient days in Broward County hospitals were attributed on average to every 1,000 persons in Broward County under 65, while 3,442.8 patient days were attributed on average to every 1,000 Broward County residents 65 and older. Mr. Baehr also calculated service specific use rates and, on that basis, the need for, obstetric and pediatric beds. These specialized use rates are reflected in the aggregate use rates for the under 65 age cohort, but breaking them out separately permits the use of service specific occupancy rates. Mr. Baehr's 1981 Broward County use rates correspond to 2.58 beds per 1,000 persons under 65 (at 80 percent occupancy for all services) and 11.79 beds per 1,000 persons 65 and older. Free-standing psychiatric facilities were excluded from the calculations. To the extent the number of people leaving Broward County for hospitalization exceeds the number entering Broward County for that purpose, these utilization rates understate demand. A net outflow of this kind can be inferred from Medpar data reflecting such movement by medicare patients. Dr. Schoeman adjusted Broward County use rates for out-migration and concluded that county-wide use rates were 810.2 patient days per 1,000 population under age 65 and 3623.8 patient days per 1,000 population 65 and over. Dr. Schoeman's 1981 Broward County use rates correspond to 2.7747 beds per 1,000 under 65 (at 80 percent occupancy for all services) and 12.41 beds per 1,000 persons 65 and older (at 80 percent occupancy). The Health Systems Plan, which lacks any legal significance, but purportedly reflects local conditions, uses 861.8 patient days per 1,000 population under 65 and 3204.6 patient days per 1,000 population 65 and over. These numbers correspond to 2.95 and 10.97 beds per 1,000, respectively. At least in the absence of area-specific utilization rates, other utilization rates are used by health care planners. Dr. Kennedy calculated use rates specific to five zip codes in South Broward County for the year 1979 for each of four age cohorts, but testified that the most reasonable utilization rates to use in South Broward were those developed by the Florida Task Force on Institutional Need (TFIN), viz.: Medical-Surgical Patient Days per 1,000 Persons 0-64 565.9 65 and over 2982.2 ICC and CCU 0-64 43.1 65 and over 321.1 Psychiatric 0-64 44.9 65 and over 44.6 Obstetrics Females 15-44 186.3 Pediatrics 0-14 149.2 Gateway's Exhibit No. 12, Table 2, page 4. These figures supposedly represent the experience in Florida statewide. Finally, in the southern United States in 1980, utilization rates calculated from the National Hospital Discharge Survey (NHDS) were 348.2 patient days per 1,000 population under 15, 796.5 patient days per 1,000 population aged 15 to 44, 1,554.9 patient days per 1,000 population aged 45 to 64 and 3,994.2 patient days per 1,000 population 65 or over. The choice of appropriate utilization rates is complicated by the fact that there is no guarantee that historic rates will persist. Advances in medical science may make hospitalization for some conditions obsolete. Aging of the population over 65 on account of continued disproportionately elderly in- migration may result in greater utilization rates. Aging of the 15 to 64 age cohort would presumably result in greater utilization of certain services but might result in less utilization of obstetric beds, and so forth. The 1981 Broward County use rates adjusted for out-migration may prove an unreliable guide to future hospital utilization rates but no other use rates were shown by the evidence to be more reliable. Assuming these rates and applying the average occupancy rate of 80 percent, bed need in Broward County can appropriately be predicted by a weighted average of 2.7747 beds per 1,000 population under age 65, and 12.41 beds per 1,000 population 65 and older. FINANCIAL FEASIBILITY The two-tined "immediate and long-term" financial feasibility criterion was described by HRS' Mr. Konrad as a "go-no go gauge." With respect to each application, the questions are 1) whether financing for start-up costs is available and 2) whether the facility will have enough revenue to support operations, on a long-term basis. GO It is clear from the evidence that HCA and Humana each have access to massive amounts of capital, much more than needed to accomplish any or all of their respective expansion and construction proposals in Broward County. HCA proposes to use 100 percent equity for each of its projects. Humana plans 22.3 percent equity and 77.7 percent debt for the new hospital; and 86 percent equity and 14 percent debt for its expansion project at Bennett. Issue was not joined as to their contentions, amply supported by expert opinion, that operations at proposed facilities would quickly become profitable. Although HCA's showing in this regard as to the proposed 150-bed version of NWBRMC was fairly broad brush, nothing in the evidence raised any doubt but that, with substantial occupancy assured (by Margate's closing) almost from the start, NWBRMC would be profitable at 150 beds. NBHD is a legislatively created tax district charged with serving the hospital needs of residents of the district. NBHD has ad valorem taxing authority and also has a healthy operating margin, partly because it charges indigent care against tax revenues, not at cost, but at full charges. In addition, it has accumulated, in a funded depreciation account, all the equity it plans to use to build a new 200-bed hospital in northwest Broward. NBHD had originally planned to issue bonds for the total project cost but changed its plans for fear medicare and medicaid reimbursement for the additional interest expense might be jeopardized, because the additional borrowing might be deemed unnecessary. In the past, NBHD has expended five or six million dollars annually for routine equipment and other capital costs. At the time of the hearing, NBHD had CONs authorizing work (to be done over periods of time not specified in the record) at a cost of at least $58,000,000, including expenditures for revenue- generating extra beds at its North Broward Hospital. NBHD's debt capacity is on the order of $100,000,000, in the event it becomes necessary to issue bonds in an amount greater than the $16,815,000 now contemplated. NBHD also has a line of bank credit ($35,000,000 at half of prime) that should give it some flexibility in timing going to market for its permanent financing, even though, under its charter, NBHD's short-term borrowing is limited to no more than 15 percent of its assets for no more than one year. HCA sought to show that NBHD's proposal was not financially feasible by trying to show that NBHD could not muster the capital necessary to build a new 200 bed hospital, sustain the loss anticipated during the initial year of operations, and meet its other commitments, but these efforts fell short of the mark. There was no attempt to discredit the revenue projections for the 200-bed hospital or to prove that it would not become profitable in the second year of operations, if built. NO GO The evidence showed that WBH is not financially feasible as far as financing construction, unless planned renovations at SBHD's Memorial are scaled down to levels significantly below those contemplated in an outstanding CON, or delayed past completion times contemplated when the outstanding renovation CON was applied for. At the time of the hearing, no amendment of the renovation CON had been obtained, nor, as far as the evidence showed, had any been applied for. SBHD filed its application for a CON for the modernization of Memorial at or about the time (in the same batching cycle) as it filed its application for a CON for WBH. In the Memorial modernization application it sought, and it has since received, authorization to make capital improvements to Memorial costing $95,419,000 to be completed in November of 1985. Gateway's Exhibit No. In order to accomplish this, it planned to borrow $75,245,000 by issuing tax-exempt bonds. In order to build WBH, which it planned to open (at 84 beds) in January of 1987, SBHD planned to issue tax-exempt bonds in the amount of $31,930,000. Arthur R. Guastella, a municipal investment banker retained by SBHD, testified that SBHD was not in a position to incur additional indebtedness of more that $80,000,000, in May of 1981. (Vol. 36, 37) Because of tax revenues, SBHD's revenues have exceeded expenses in the last few years despite operating losses at Memorial and the walk-in center SBHD operates near Pembroke Pines. SBHD has nevertheless been able to put aside only $1,000,000 for WBH. Management conceded that building WBH was incompatible with renovating Memorial on schedule. In short, SBHD is in the posture of seeking authority for projects which, taken together, it lacks the financial wherewithal to accomplish. SBHD failed to demonstrate financial feasibility in another important respect, counsel's heroic efforts notwithstanding. The basic assumptions of average annual occupancy at WBH in the beginning years, which underlie the Price, Waterhouse projections, were not established as reasonable by competent evidence. These assumptions were first predicated on an analysis, prepared by Herman Smith Associates, of demand in the service area originally proposed by WBH; but faulty population projections came to light and the work of Herman Smith Associates was not relied on at hearing. Instead, a much larger service area was drawn, including some zip codes closer to other hospitals than to the site proposed for WBH, and various problematic assumptions were made (e.g., a 100 percent draw rate from several zip codes). This work was done by a certified public accountant with an admitted lack of expertise in projecting bed need, and no health care planner or other qualified expert testified that the utilization or occupancy rates projected for WBH were reasonable. Detailed information about the population of south Broward County and its likely growth was put on by SBHD and other parties. The record is replete with competent evidence of various methods of projecting a population's bed need, based on the number, age and sex of the population. It is thus possible to calculate bed need for southern Broward County, each of the three planning subregions there, and the service areas proposed for WBH. Even when reduced by the number of beds already available in an area, bed need does not automatically translate into demand for beds at a particular institution, however; and SBHD failed to prove the reasonableness of its demand or utilization assumptions for WBH. SBHD has argued that Gateway's expert, Dr. Kennedy, supplied this omission with his Newtonian "spatial interaction model," but the record does not support this contention. For one thing, the model was shown to be a highly unreliable predictor of real world phenomena. For another, time unrelated to population change is not a variable in the model, nor is a lag in utilization at a new hospital otherwise taken into account, so that the 46 percent occupancy figure for WBH in 1987 on which SBHD seeks to rely is, according to Dr. Kennedy, unrealistically high for an initial operating year. Even if WBH opened in 1986, Dr. Kennedy predicted something like 33 percent average occupancy for 1987. Gateway's Exhibit No. 12, p. 28. For 1989, the Price, Waterhouse compilation that SBHD offered in an effort to prove WBH's financial feasibility, SBHD Exhibit No. 184, assumes 39,274 patient days at WBH, which represents an average daily census of 107.6 or average occupancy for 1989 of 84 percent. Without the "start-up curve" adjustment, Dr. Kennedy's model predicts less than 50 percent occupancy on average for 1989 at WBH. With the adjustment, the figure is lower. SBHD has also argued that evidence of record of utilization projections at other proposed hospitals should be looked to in order to show the reasonableness of its utilization assumptions for WBH. For the first two years, occupancy levels projected at WBH do closely parallel similar projections for, e.g., the new 200 bed hospital proposed by NBHD, but this in no way shows the reliability of the utilization assumptions used for the projections at WBH. Assuming some bed need arguendo, WBH's draw rate and so its utilization and occupancy levels would depend on, among other things, its location vis-a-vis physicians' offices, other hospitals, patients' residences and so forth, factors that differ in south Broward from conditions in northwest Broward. As proposed, WBH would be smaller, have fewer services and a different medical staff than the hospital proposed by NBHD. Among the consequences of the opening of Interstate 75 may be a dramatic shift to utilization of Dade County hospitals by the population of southwest Broward County. Lifemark, who owns and operates Palmetto General located in North Dade County on I-75, did not prove, however, that any such shift can be counted on to occur. Palmetto is currently operating at efficient levels and management is contemplating expansion based on the prospect of population growth in Dade County alone, although no letter of intent to apply for a CON has yet been filed. While Palmetto serves about four percent of the need for patient days attributable to southwest Broward's population, this represents something under one percent of Palmetto's total patient days. EXPANSION PROPOSALS COMPARED University hospital, at the time of the hearing, had occupancy rates which interfered with its efficient operation and required frequent emergency room to emergency room and other transfers. The parties stipulated: that University has experienced an occupancy level for the past year of approximately 87 percent including an occupancy level in excess of 90 percent during certain winter months. The parties further stipulate that in the case of University such occupancy levels have resulted in an adverse impact on certain aspects of patient care. Specifically, there have been problems in treating emergency room patients because of the emergency room being used as a holding area for patients that are waiting for beds to be available. There is difficulty in assuring continuity of care as patients have had to receive hospital care at facilities for which their regular physician does not have staff privileges, and a new physician had to be involved. There have been significant problems and inconveniences to patients as a result of the unavailability of beds. Furthermore, there have been difficulties encountered in spouses, relatives, and friends being able to visit patients when such patients have had to receive their care at other hospitals because of transportation difficulties (which is particularly a problem for the elderly). The demand for University's services has been convincingly demonstrated by real people seeking hospital care there. Beginning with a 1987 population forecast (extrapolated linearly from Dr. Ladner's 1985 and 1990 projections) that was probably too high for the area within zip codes 33313, 33314, 33317, 33322, 33323, 33324, 33325, 33326, 33327, 33328, 33330, 33331, and 33332 (Bennett's service area), Mr. Richardson multiplied by a use rate that was probably too low and assumed an 80 percent occupancy rate to calculate a 1987 bed need for the area of 1,291 beds. The understated use rate tends to compensate for the overstated population projection, and the end result is not unreasonable. From 1,291, beds already available at Bennett (204), Florida Medical Center (400), Plantation General (262) and Doctors General (202) were subtracted and a net bed need of 221 was forecast for Bennett's service area. Proceeding in the same manner with reference to Bennett's primary service area only (the same area except for zip codes 33317, 33330, 33331 and 33332), a net bed need of 145 was forecast there for 1987. Finally, applying the same utilization rate to the increment by which the population of Bennett's service area is projected (extrapolation from Ladner) to increase between 1982 and 1987 yields a prediction that the incremental population alone will use 323 beds a day on average. Allotting 177 of these full beds (average daily census) among Bennett and the other hospitals in the service area would bring each of them to 80 percent average occupancy and still leave an average daily census of 146, which, again assuming 80 percent occupancy, is a prediction of bed need in Bennett's service area of 183 for 1987. These predictions assume that the hospitals in Bennett's service area will draw no more patient days from outside the service area in 1987 than they do in 1982, but also unrealistically assume that the hospitals in the service area will have a combined 100 percent draw of patients in the service area. Bennett's primary service area overlaps University's secondary service area. No allowance has been made for any increase in University's draw that might result from expansion at University, nor has the historical draw of hospitals outside the service area been taken into account. Due east of Bennett is the largest aggregation of underutilized hospital beds in the county. In the east central planning subregion, the ratio of beds to population is 7.1 per 1,000. Among the 64 beds Bennett proposes to add are 30 "minimal care" beds. At least by that name, there are no such hospital beds in Florida, and only 52 in the United States. The room charge for a "minimal care" bed is expected to be 25 or 30 percent less than the comparable charge for a medical-surgical bed, reflecting lower nurse to bed ratios for "minimal care" beds than for ordinary medical-surgical beds. A condominium medical office complex adjacent to Bennett is expected to be finished by the fall of this year. The complex' 55,000 square feet are expected to provide office space for 41 physicians who together already account for 34 percent of Bennett's admissions. These condominium offices are already sold even though construction has not been completed. NEW HOSPITAL PROPOSALS FOR NORTHWEST COMPARED HCA contends that 73 new beds are needed in NW-HCA now and an additional 100 by 1987, for a total of 173; HRS and NBHD contend that 200 new beds are needed in NW-NBHD in 1987; and Humana contends that 223 beds are needed in NW-HU, plus 64 beds at Bennett, for a total of 287 by 1987. In making its case for the low number, HCA unilaterally assumed it should have the same market share it now enjoys in NW-HCA in 1987, and ignoring the increased attractiveness of a new 250 bed facility, as compared to Margate, put on evidence tending to show that, if all 173 beds were allotted to HCA, population increase in NW-HCA would assure their efficient utilization in 1987 without increasing the proportion of patient days from NW-HCA at University and the proposed 250-bed NWBRMC combined over the proportion now received by Margate and University combined. The evidence showed that adding 173 beds in NW-HCA would still leave a bed NBHD of 76 assuming 80 percent average occupancy, to be met by hospital beds outside of NW-HCA. NBHD put on evidence tending to show that the 1987 population in NW- NBHD could efficiently use 471 hospital beds. Assuming Margate or a hospital replacing Margate supplied 150 beds, 321 beds would still be needed in 1987 to serve the residents of NW-NBHD, NBHD contends. These forecasts ate based on the most conservative population and utilization predictions for northwest Broward County. Humana tried to prove that 254 additional beds will be needed in NW-HU by 1987, of which an expansion at University would supply 73, leaving 181. The 181 figure should be reduced by 34, Humana contends, because "since Margate experienced an average occupancy of 57.5 percent in 1981, it must be allocated an additional 34 patients per bed [sic] to raise it to the 80 percent occupancy level," Proposed Findings of Fact, Conclusions of Law and Recommended Order of Petitioners, Humedicenter, Inc. d/b/a Coral Ridge General Hospital and Humana of Florida, Inc. d/b/a Bennett County Hospital, p. 72, leaving 147 beds needed which Humana's proposed 150 bed hospital would supply. This argument is difficult to follow, but Humana's incremental analysis (with low use rates tending to compensate for exaggerated population projections) does suggest that opening 250 or so beds in NW-HU in 1987 would not depress patient flows to hospitals outside NW-HU below current levels. Unlike HCA, neither Humana nor NBHD has a hospital in northwest Broward County (NW-NBHD, NW-HU or NW-HCA). Competition would be enhanced there by building a new non-HCA hospital in the area, although it is true that most people presently leave the area to go to non-HCA hospitals. It is possible to overstate the advantage of competition in this context, moreover, inasmuch as people generally go to the hospital a physician recommends or, in emergencies, to the closest hospital. Competition may only foster better amenities for the medical staff rather than lower charges to the patients, but efforts by physicians or others to improve quality of care for patients would presumably have more chance of success in a competitive environment. Miami-Dade puts on continuing education programs for nurses at Humana's five south Florida hospitals and a new Humana hospital in northwest Broward would presumably also make space available for them. HCA and NBHD also have various training programs at their Broward County facilities. There was no showing that facilities for training in Broward County were limited. Humana publishes pamphlets about new medical technology for physicians on staff at its hospitals. With respect to expansion and new hospital proposals alike, the parties stipulated: The applicants and HRS agree that each applicant can adequately staff its project with all necessary personnel, including technical, nursing, and-medical personnel, and that this is not a comparative issue in this proceeding. Pembroke Pines does not join in this stipulation. The applicants and HRS agree that each applicant has adequate community support for its proposed project, and that this is not a comparative issue in this proceeding. Pembroke Pines does not join in this stipulation. 11. The parties agree that a new hospital in the northwest Broward area would attract a large number of physicians presently practicing in that area to join the medical staff of the new hospital. The need to cover this hospital, in addition to hospitals currently being covered, will result in physician inconvenience and more travel time. The most important comparative issues joined by the parties involved financial projections. FINANCIAL COMPARISONS The parties' proposed construction costs are not strictly comparable. The incremental costs per bed stated by Bennett, University and for the "additional" 100 beds at the proposed 250 bed version of NWBRMC do not reflect all of the costs that are properly associated with making a hospital bed available for occupancy. But it is true that construction costs for expansion are less than those for new construction when there is excess ancillary capacity and ordinarily even where there is not. Even among the non-incremental projections for new hospitals, there have been different assumptions about, among other things, inflation rates for different items and the dates operations would begin. Under one view, the site donated to NBHD, and any other gifts to NBHD for a new hospital, should be counted as costs of the new hospital. The parties have stipulated that projected construction costs are reasonable, and the costs of constructing a hospital are only the beginning, in any event. Once occupancies projected for the second or third year of operations are reached, any of the three new hospitals proposed for the northwest will have gross revenues every year well in excess of the "total project costs" expected to be incurred to build the hospital in the first place. CHARGE COMPARISONS Since people are hospitalized for a whole range of maladies, and receive different kinds and combinations of diagnostic and therapeutic services while in hospital, it is difficult to compare the charges for or cost of care at one hospital with the charges for or cost of care at another. It will not do to look at room charges only as a sort of gauge, because the medicare program has created pressure to keep room charges down, and hospitals have responded to the pressure by increasing charges for ancillary services. To take the most recent increases into account, therefore, ancillaries have to be included, even though they vary from patient to patient. NBHD's Exhibit 55 reflects one approach to comparing hospital charges. There charges for the 30 services most frequently "sold" by hospitals are listed for three of the four HCA Broward County hospitals, two of Humana's three Broward County hospitals and all three of NBHD's hospitals, for fiscal years ended in 1982. One difficulty with this approach is that at least one service listed on this exhibit (as "chemical profile"), evidently means one thing to one hospital laboratory and something else to another. Affecting all the comparisons on the chart is the difference among fiscal year ends for NBHD (June 30), Humana (August 31), and HCA (December 31). With hospital charges in Broward County escalating at annual rates on the order of 14 or 15 percent, a half year's difference in fiscal year ends can make essentially identical charge structures appear to differ significantly. HCA complains, in addition, that there is no justification for including one (Margate) but not the other (North Beach) of the Broward County hospitals it acquired from HAI. Humana's Community Hospital of South Broward was also omitted. Both Community and North Beach have extremely low occupancy rates, however, well below what anybody is projecting for a new hospital in northwest Broward County. Even making a rough adjustment for inflation, NBHD's charges were lower, on average, in more categories than the two Broward Humana Hospitals' average charges, than vice versa; and the same is true as between NBHD's average charges and the three Broward HCA hospitals' average charges. Invoking formulas developed by the Health Care Cost Containment Board, the parties made various comparisons using "gross revenue per adjusted patient day, gross revenue per admission," "total net revenue per adjusted patient day," and "total net revenue per adjusted admission." See NBHD Exhibit No. 71. The for-profit hospitals, but not NBHD's hospitals, subtract income taxes in arriving at "total net revenue." Using the same HCA and Humana Broward County hospitals whose charges were compared to all of NBHD's hospitals in NBHD Exhibit No. 55, average gross revenues were computed for fiscal years ended 1981 and stated per adjusted patient day ($340.60 for NBHD, $475.72 for HCA and $476.38 for Humana) and per adjusted admission ($2,870.70 for NBHD $3,154.67 for HCA, and $3,365.70 for Humana). NBHD Exhibit No. 56. On average, HCA's Florida hospitals' total net revenue per adjusted patient day is about five percent lower than the average for Humana's hospitals in Florida in 1980. HCA Exhibit No. 20. In 1980, the average total net revenue per adjusted patient day for HCA's Plantation General and University Community was $291.50 as compared to the $252.80 average for the two smaller of the three NBHD hospitals. HCA Exhibit No. 18. On the other hand, the 1980 average total net revenue per adjusted admission for the same two HCA hospitals was $1,842.60, as opposed to $2,363.60 for the same two NBHD hospitals. HCA Exhibit No. 18. Since indigent patients have longer average stays than other hospital patients, and NBHD treats significantly more indigent patients than HCA's University, Margate and Plantation, or Humana's Bennett and Cypress, the NBHD "adjusted admission" in charge or cost per adjusted admission comparisons represents more patient days. COST COMPARISONS In Broward County historically, average net operating expense per adjusted patient day and per adjusted admission at HCA's Plantation and University exceeded the NBHD averages in 1981. HCA Exhibit No. 25. For fiscal years ended 1981, HCA (Margate, University and Plantation) Humana (Cypress and Bennett) and NBHD incurred average costs per adjusted patient day of, respectively, $311.29, $289.79 and $262.27. NBHD Exhibit No. 56. NBHD's average cost per adjusted admission was higher than the others, on account of longer average stays. Because of the differing assumptions underlying the various pro forma financial statements, expenses stated there are not strictly comparable, although HCA produced a witness who made arithmetic adjustments purportedly simulating uniform inflation assumptions for comparative purposes, with reference to the proposed 250 bed NWBRMC. Hospitals have variable operating costs, fixed operating costs and fixed capital costs (which are related to construction costs and reflect financing costs). It is because fixed costs are so high (60 percent on average in the industry) that occupancy levels are crucial to a hospital's financial viability. In general, hospitals with 200 to 400 beds are more efficient than larger or smaller hospitals. Satellite hospitals like the proposed WBH enjoy certain economies by sharing administration, purchasing and the like with another established hospital. Both HCA and Humana buy hospital equipment and supplies at substantial discounts, comparable to those available through shared purchasing organizations to which NBHD (which has 1,304 approved beds itself as well as the possibility of discounts on account of governmental status) belongs. Private patients and insurers pay charges but hospitals are reimbursed through the medicare and medicaid programs in amounts fixed by a cost-based formula. (This amount comes to less than charges, and the difference is known as the medicaid or medicare "contractual.") Changes in the reimbursement formula have been dictated by the Tax Equity and Fiscal Responsibility Act of 1981 (TEFRA), but not yet fully implemented. The consensus is that new TEFRA regulations will slow the rate of growth in reimbursement rates. These new regulations designate a base year for existing institutions by which to measure cost increases, but exempt new hospitals from certain reimbursement caps. HCA showed that it makes better economic sense to start over and build a new hospital than to renovate Margate, but did not show it was under legal compulsion to do either. Taking replacement of Margate as a given, HCA argues that the cost of adding 100 beds in northwest Broward County should be viewed as the difference between the cost of building NWBRMC at 250 beds and the cost of building it at 150 beds. In projecting both of these costs, HCA ignored the cost of closing Margate, 6/ but the cost of closing Margate would be the same whether it was replaced by a 150-bed or a 250-bed hospital, so the difference between the replacement costs would be unaffected. The incremental cost per bed is less meaningful than the relative per-bed costs for the whole institution at 150 as opposed to 250 beds. Any savings in construction costs inures first to the benefit of HCA. Such savings benefit the public directly only to the extent they may affect costs for medicaid or medicare reimbursement purposes. With respect to the proposed Margate replacement, the question of medicare and medicaid reimbursement is complicated by the change proposed in the ratio of debt to equity. Assuming optimal occupancies, however, operating a hospital with 200 to 400 beds would be less costly per bed than operating a 150-bed hospital, and these economies should be reflected in lower medicaid and medicare reimbursement. INDIGENT CARE Not all hospitals seek to serve the poor. Those that do receive medicaid reimbursement for services rendered to some, but not all, of their patients who are otherwise uninsured and unable to pay. Humana's Cypress did not have a medicaid provider number at the time of hearing. HCA's University had no medicaid contract until September of 1982 and has had less than one percent medicaid utilization since then. At its three hospitals, on average, NBHD has six to eight percent medicaid utilization. While NBHD hospitals are reimbursed for services to indigent persons ineligible for medicaid benefits at full charges, paid from NBHD's ad valorem tax revenues, HCA and Humana's hospitals in Broward County receive nothing for services rendered to medically indigent persons who are medicaid-ineligible. 7/ In addition, some patients with the ability to pay for hospital services fail to do so. Their charges are cumulated under the heading "bad debts." For want of complete information, some charges for indigent care may end up in this category. In the fiscal year ending August 31, 1982, Cypress' bad debts amounted to 3.3 percent of total revenues as compared to NBHD's 11 or 12 percent in recent years. NBHD has deposit requirements, but does not enforce them in every case at its hospitals. Some 27 to 30 percent of NBHD's hospitals' services are provided to persons unable to make full payment. Nobody is denied medical care for inability to pay at NBHD's existing hospitals. This policy would apply at the proposed 200 bed hospital in the northwest, as well. The sole exception to this policy has been NBHD's refusal to accept "economic transfers." Attempts by for-profit hospitals to transfer patients whose resources have been exhausted or whose inability to pay has become clear, in order to free beds for paying patients, have been resisted by NBHD, although medically indigent patients are accepted for transfer to NBHD hospitals whenever they need services that are unavailable at the transferring hospital. The HCA and Humana hospitals in Broward County do not turn emergencies away for inability of patients to pay, but do not, as a general rule, accept non-emergent cases when there is no assurance they will be paid. There are exceptions: On occasion medical staff admit non-emergent, indigent patients. Northwest Broward County is attractive to HCA, Humana and NBHD just because of the low numbers of indigent persons there, perhaps three or four percent of the population. In its second year of operation, a new hospital in northwest Broward County can expect less than one admission of an indigent patient per day. Medicare utilization should also be significantly lower than elsewhere in the county, where 56.4 percent of total patient days are attributable to medicare patients on average. TAXES AND SUBSIDIES Under current regulations, for-profit hospitals like HCA's and Humana's, but not nonprofit hospitals like NBHD's receive a return on equity component in medicare and medicaid reimbursement. (The rate is a healthy 150 percent of an average interest rate on certain government securities.) All other things being equal, an HCA or Humana hospital in northwest Broward would, if financed even in part by equity, receive more governmental reimbursement for rendering the same medicare or medicaid services than a hospital owned and run by NBHD, how much more depending on the debt-equity mix. HCA proposes to use 100 percent equity, in replacing Margate. On the other hand, HCA and Humana pay federal income and other taxes which NBHD does not pay. For comparative purposes, it is appropriate to assess the net fiscal impact of each proposal on government, but, with consolidated tax accounting and the number and diverse financial circumstances of HCA and Humana hospitals, setting medicare and medicaid payments off against federal income taxes can be viewed in more than one way. Federal tax liability that would otherwise arise from profits from operations at one HCA or Humana hospital can be offset by losses from operations at another hospital. NBHD not only pays no taxes, it also levies a tax, on real property within District boundaries. About four fifths of these revenues, on the order of $28,000,000 or $29,000,000 annually, are allocated to charges for "indigent care." There would be no NBHD for a tax increase to finance a new hospital, however. The "funded depreciation" account from which the equity contribution is to come does not, moreover, contain past tax receipts, except to the extent the fraction of NBHD's operating margin attributable to indigent care made its way into "funded depreciation." Similarly, tax revenues would not be used to operate the proposed hospital, except to the extent tax revenues were used to pay charges for the care of indigent patients. The terms "cost-shifting" or "charge shifting" describe the fact that some payers subsidize other payers. In the case of for-profit hospitals, private pay patients and third party payors other than the government pay rates that are set high enough to cover expenses incurred in treating patients whose bills go unpaid and to make up for the medicaid and medicare contractuals. With respect to NBHD hospitals, tax revenues are looked to to pay the full cost of the care of medically indigent persons, but bad debts are still reflected in the NBHD charge structures. To the extent for-profit hospitals provide services to medically indigent persons, the cost of those services is shifted to uninsured private pay patients, persons who pay premiums for hospital insurance, and the medicare and medicaid programs. On the other hand, all owners of taxable real property within the North Broward Hospital District bear the expense of the treatment of medically indigent persons at NBHD hospitals. Aside from expanding by building new hospitals, a course on which HCA, Humana, and NBHD alike seem to have embarked, these organizations have different uses for profits or any positive operating margin which a new hospital in the northwest might generate. Humana uses such money for corporate overhead, including shareholders' dividends, and to finance things like the work of Dr. Rollo who, in conjunction with researchers at Vanderbilt University and elsewhere, evaluates new medical technology as it becomes available. Humana also designates some of its hospitals "centers of excellence" in certain fields, encouraging research and specialized treatment of particular afflictions. HCA uses money from operations of its hospitals for overhead and other corporate purposes. Money from the NBHD hospitals' operations is used to finance specialized services in Broward County, principally at Broward General, which has, among other costly and unprofitable services, a substantial neonatology unit. LESS EXPENSIVE FOR WHOM For people who pay no taxes, have no hospitalization insurance, and are unable to pay hospital bills, the cost of each of the proposals for the northwest would be the same: nothing. (These people might not have access to services at a for-profit institution, however.) Private insurers, those that pay their premiums, federal taxpayers who finance the medicaid and medicare programs, taxpayers in the North Broward Hospital District and patients themselves all will bear part of the cost of any new hospital in northwest Broward. Private pay patients and their insurers will supply almost half of the total patient revenue. Historically, charges, which are the basis for these patients' payment, have been lower at NBHD hospitals than at HCA's or Humana's Broward County hospitals, on average, as reflected most clearly by the gross revenue per adjusted patient day comparisons. It is little consolation to private payers that Humana and HCA pay taxes while NBHD does not. But, in forecasting the relative costs to cost-based payors, projected federal income taxes should be subtracted from reimbursement for equity projected to be received by Humana and HCA through the medicare and medicaid programs. Even after income taxes are netted, HCA or Humana would receive compensation for equity that NBHD would not receive. Especially in light of evidence that shows that NBHD's expenses per patient day have been lower in the past than such expenses at the for-profit hospitals, the weight of the evidence established that cost-based reimbursement at a new northwest Broward hospital would, in all probability, be less if the hospital were operated by NBHD than if it were operated by HCA or Humana. Because of the medicare and medicaid rules allowing a return on equity component in reimbursement of providers, an NBHD hospital would receive less medicare and medicaid reimbursement even if the NBHD hospital had the same operating costs. The taxpayers of the District pay for the care of the medically indigent at NBHD hospitals, but not for the care of these persons at Broward County's Humana and HCA hospitals. There is no provision, presently, for using NBHD tax revenues to pay for the care at HCA or Humane hospitals in Broward County of medically indigent persons who are not eligible for medicare or medicaid. On the other hand, to the extent medically indigent persons are cared for by HCA and Humana, the costs of that care are "shifted" to, among others, private pay patients which, if persons paying for hospital insurance are included, constitute a group within the North Broward Hospital District that presumably overlaps substantially with taxpayers in the District. OBSTETRICS AND PEDIATRICS The parties stipulated that 20 to 24 obstetric beds were needed in northwest Broward County. Each proposal for a new hospital in northwest Broward County contemplates an obstetric service of this magnitude. Eighteen obstetric beds and 24 pediatric beds will be needed in 1987 to serve the population of NW- NBHD alone. There is presently a shortage of obstetric beds in Broward County as a whole. The site proposed for the new NBHD hospital in northwest Broward County is considerably further from other obstetric beds in the county than the site proposed for NWBRMC, although NWBRMC is mere central to the northern part of the county where there is a dearth of obstetric beds. In general, traffic in Broward County moves better north and south than east and west. Humana is not so committed to any particular site, that it could not build a hospital even further away. 8/ At NBHD's Broward General a training program for physicians wishing to specialize in obstetrics is already in place. Broward General has an intensity of pediatric and obstetric services that make it a desirable location for such a program for residents. A community hospital serving a population with a significant child bearing cohort, like that proposed for the northwest, would be an appropriate complement to the existing program.
Recommendation It is accordingly, RECOMMENDED: That HRS dismiss Lifemark as a party to these proceedings. That HRS grant NBHD's application for a CON to build a 200-bed hospital, in its entirety. That HRS grant HCA's application to build NWBRMC but only at 150 beds and without an obstetric service; and that HCA be authorized to expend to that end $25,969,403.00, less an appropriate adjustment for the lack of an obstetric service. That HRS deny the application for a CON to build a new hospital filed by South Broward Hospital District in its entirety. That HRS deny the application for a CON to build a new hospital filed by Humedicenter, Inc. d/b/a Coral Ridge General Hospital in its entirety. That HRS deny University Community Hospital's application for a CON to add beds there in its entirety. That HRS deny the application for a CON to add beds filed by Humana of Florida, Inc. d/b/a Bennett Community Hospital, in its entirety. DONE and RECOMMENDED this 12th day of April, 1983, 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 12th day of April, 1983.
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 The issue is whether Petitioner’s application for a Certificate of Need to establish a new 84-bed acute care hospital in Viera should be approved.
Findings Of Fact Parties Holmes and the Health First System Holmes, the applicant for the CON at issue in this case, is a not-for-profit corporation that operates two acute care hospitals in Brevard County: Holmes Regional Medical Center (HRMC) in Melbourne and Palm Bay Community Hospital (PBCH) in Palm Bay. HRMC opened in 1962. It is a 514-bed acute care hospital, with 504 acute care beds and 10 Level II neonatal intensive care (NICU) beds. HRMC provides tertiary-level services, including adult open-heart surgery, and it is the designated trauma center for Brevard County. HRMC has been recognized as one of the top 100 cardiovascular hospitals in the country, and it has received other recognitions for the high quality of care that it provides. PBCH opened in 1992. It is a 60-bed acute care hospital. PBCH does not provide tertiary-level services, and it does not provide obstetrical (OB) services. Holmes’ parent company is Health First, Inc. (Health First), which is a not-for-profit corporation formed in 1995 upon the merger of Holmes and the organization that operated Cape Canaveral Hospital (Cape Hospital). Cape Hospital is a 150-bed not-for-profit acute care hospital in Cocoa Beach. The range of services that Cape Hospital provides is broader than range of services provided at PBCH, but not as broad as the range of services provided at HRMC. For example, Cape Hospital provides OB services, but it does not have any NICU beds. All of the Health First hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Health First provides a broad range of health care services in Brevard County in addition to the hospital services provided at HRMC, PBCH, and Cape Hospital. For example, it operates a hospice program, surgical center, outpatient facilities, and fitness centers. Health First also administers the Health First Health Plan (HFHP), which is the largest managed care plan in Brevard County. All of the Health First hospitals serve patients without regard to their ability to pay, and as more fully discussed in Part F(1)(g) below, Holmes provides a significant amount of care to Medicaid and charity patients at HRMC and PBCH. Holmes also provides health care services to the medically underserved through a program known as HOPE, which stands for Health, Outreach, Prevention, and Education. HOPE was established in the early 1990’s to provide free health care for at-risk children as well as free clinics (both fixed-site and mobile) for medically underserved patients throughout Brevard County. At the time of the final hearing, the free clinics operated by HOPE were being transitioned into a federally- qualified health center, the Brevard Health Alliance (BHA). After the transition, Holmes will no longer operate the clinics; however, Holmes is obligated to provide $1.3 million per year in funding to BHA and it will continue to provide services to at- risk children through the HOPE program. Health First administers a charitable foundation that raises money to support initiatives such as the cancer center at HRMC, the construction of a hospice house, and an Alzheimer’s support center. The foundation has raised approximately $7 million since its inception in October 2001. Wuesthoff Wuesthoff operates two not-for-profit acute care hospitals in Brevard County: Wuesthoff-Rockledge and Wuesthoff- Melbourne. Like Health First, Wuesthoff provides a broad range of health care services in Brevard County in addition to its acute care hospitals. The services include a nursing home, assisted living facility, clinical laboratory, hospice program, home health agency, diagnostic center, and fitness centers. Wuesthoff-Rockledge opened in 1941. It has 245 beds, including 218 acute care beds, 10 Level II NICU beds, and 17 adult inpatient psychiatric beds. Wuesthoff-Rockledge provides tertiary-level services, including adult open-heart surgery, and it is the only acute care hospital in Brevard County designated as a Baker Act receiving facility. Wuesthoff-Rockledge is in the process of adding 44 more beds, including a new 24-bed intensive care unit (ICU) that is projected to open in 2006 and 20 acute care beds. After those beds are added, Wuesthoff-Rockledge will have 289 beds. Currently, approximately 57 percent of Wuesthoff- Rockledge’s beds are in semi-private rooms and 43 percent of the beds are in private rooms. After the addition of the 44 new beds, the percentages will be 69 percent in semi-private rooms and 31 percent in private rooms. Wuesthoff-Melbourne opened in December 2002. It originally received CON approval for 50 beds in November 2000. Before it opened, it received CON approval for an additional 50 beds, which increased its licensed capacity to 100 beds. Wuesthoff-Melbourne opened with 65 beds, all of which are in private rooms. At the time of the hearing, Wuesthoff- Melbourne had that same number of beds and an occupancy rate of approximately 80 percent. In December 2004, Wuesthoff-Melbourne added an additional 50 beds. Wuesthoff was awaiting final licensure approval from the Agency for those beds at the time of the hearing. The approval will increase Wuesthoff-Melbourne’s licensed capacity to 115 beds, all of which are in private rooms. The additional 15 beds (beyond the 100 previously licensed) were added pursuant to the 2004 amendments to the CON law, which permit bed expansions at existing hospitals without CON approval. Wuesthoff-Melbourne was designed and engineered for approximately 200 beds, and it expects to have 134 beds in service in the near future. The space for the additional 19 beds (to expand from 115 to 134) has been shelled-in, and the bed expansion will likely be completed in late-2005 or early- 2006. All of those beds will be in private rooms. The expansion of Wuesthoff-Melbourne to 134 beds will occur notwithstanding the outcome of this proceeding, but the expansion of the facility to 200 beds depends in large part on the outcome of this proceeding. Wuesthoff-Melbourne provides all of the basic acute care services, including OB services. It does not provide tertiary-level services. The Wuesthoff hospitals are accredited by JCAHO. Wuesthoff has been recognized as one of the “100 Most Wired” hospitals by Hospitals & Health Networks magazine for the comprehensive information technology (IT) systems in place at its hospitals. The Wuesthoff hospitals serve all patients without regard to their ability to pay, and as discussed in Part F(1)(g) below, the Wuesthoff hospitals provide a significant amount of care to Medicaid and charity patients. Wuesthoff also provides health care services to the medically underserved through a free health clinic in Cocoa and a mobile unit that serves patients throughout Brevard County. Like Health First, Wuesthoff administers a charitable foundation that funds initiatives at the Wuesthoff hospitals and in the community. (3) Agency The Agency is the state agency that administers the CON program and is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Preliminary Agency Action Holmes filed a letter of intent and a CON application in the first batching cycle of 2004 for hospital beds and facilities. Holmes’ letter of intent and CON application were timely and properly filed. Holmes application, CON 9759, proposes the establishment of a new 84-bed acute care hospital in the Viera area of Brevard County. The proposed hospital will be known as Viera Medical Center (VMC). The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero new acute care beds in Subdistrict 7-1, which is Brevard County. There were no challenges to the published fixed need pool. The Agency comparatively reviewed Holmes’ application with the CON applications filed by Wuesthoff to add 34 beds at Wuesthoff-Melbourne (CON 9760) and to add 44 beds at Wuesthoff- Rockledge (CON 9761). On June 10, 2004, the Agency issued its State Agency Action Report (SAAR), which summarized the Agency’s findings and conclusions based upon its comparative review of the applications. The SAAR recommended denial of Holmes’ application and both of Wuesthoff's applications. After the Agency published notice of its intent to deny the applications in the Florida Administrative Weekly, Holmes timely petitioned the Agency for an administrative hearing on the denial of its application. Wuesthoff did not pursue an administrative hearing on the denial of its applications as a result of the 2004 amendments to the CON law, which became effective July 1, 2004. Under the new law, a CON is not needed to add acute care beds at an existing hospital and, as indicated above, the Wuesthoff hospitals are already in the process of adding the beds that they were seeking through CON 9760 and CON 9761. The Agency reaffirmed its opposition to Holmes’ application at the hearing through the testimony of Jeffrey Gregg, the Bureau Chief for the Agency’s CON program. Acute Care Subdistrict 7-1 / Brevard County The Agency uses a five-year planning horizon in determining the need for new acute care beds, and it calculates the inventory of acute care beds and considers CON applications for new acute care beds on a subdistrict basis. Brevard County is in Subdistrict 7-1. There are no other counties in the subdistrict. There are six existing acute care hospitals in Brevard County, all of which are not-for-profit hospitals: Parrish Medical Center (Parrish) in Titusville, Cape Hosptial, Wuesthoff-Rockledge, Wuesthoff-Melbourne, HRMC, and PBCH. Brevard County is a long, narrow county. It stretches approximately 70 miles north to south, but averages only 20 miles east to west. The county is bordered on the north by Volusia County, on the west by the St. Johns River and Osceola County, on the south by Indian River County, and on the east by the Atlantic Ocean. The major north-south arterial roads in the county are Interstate 95 (I-95) and U.S. Highway 1 (US 1). The Intracoastal Waterway also runs north and south through the eastern portion of the county. Other arterial roads in the south/central portion of the county are Murrell Road, Eau Gallie Boulevard and Wickham Road. Because of the county’s long and narrow geography, three recognized market areas for hospital services have developed in the county, i.e., northern, central, and southern. The northern area of the county, which includes the Titusville area, had approximately 63,000 residents in 2003. It is primarily served by one hospital: Parrish. The central area of the county, which includes the Rockledge and Cocoa areas, had approximately 163,000 residents in 2003. It is primarily served by two hospitals: Wuesthoff- Rockledge and Cape Hospital. The southern area of the county, which includes the Melbourne and Palm Bay areas, had approximately 276,000 residents in 2003. It is primarily served by three hospitals: HRMC, Wuesthoff-Melbourne, and Palm Bay. The Viera area, discussed below, overlaps the central and southern market areas and is primarily served by Wuesthoff- Rockledge, Wuesthoff-Melbourne, and HRMC. According to the data in Table 28 of the CON application, those hospitals together accounted for 90 percent of the patients from zip code 32940, which is the “main” Viera zip code. The evidence was not persuasive that the three market areas in Brevard County equate to “antitrust markets” from an economist’s standpoint, but it was clear that the hospitals and physicians in the county recognize the existence of the market areas. For example, there is very little overlap in the medical staffs of the hospitals in different market areas, but there is significant overlap in the medical staffs of the hospitals in the same market area, and the opening of Wuesthoff-Melbourne in south Brevard County impacted HRMC and PBCH, but had little impact on the hospitals in central Brevard County. Additionally, there is very little out-migration of patients from one area of the county to hospitals in another area. The data in Tables 18 and 19 of the CON application shows that in 2003, for example, 83.6 percent of south Brevard County adult medical/surgical patients were admitted to one of the three south Brevard County hospitals, and 79.5 percent adult medical/surgical patients in central Brevard County were admitted to one of the two hospitals in that area of the county. Viera Viera is an unincorporated area in south/central Brevard County that is being developed by The Viera Company (TVC). TVC is a for-profit land development company owned by A. Duda & Sons, Inc. (Duda). The Viera DRI Viera is being developed pursuant to a development of regional impact (DRI) development order that was first adopted by Brevard County in 1990. The original DRI included 3,000 acres east of I-95, which was developed primarily as residential subdivisions. In 1995, an additional 6,000 acres were added to the DRI west of I- 95, which is being developed as a mixed-use community. The portion of the DRI east of I-95 has effectively been built-out. The build-out date for the remainder of the DRI is 2020. The master plan for the DRI includes approximately 19,000 residential units, 3.7 million square feet (SF) of office space, 2.9 million SF of commercial space, a governmental center, six schools, parks, open space, and a 7,500-seat baseball stadium and practice facility used by the Florida Marlins. As of October 2004, over 5,800 homes and approximately 2 million SF of commercial and office space have been developed west of I-95 in addition to the governmental center, several schools, and the Florida Marlins’ facilities. There are approximately 12,000 acres of undeveloped, agricultural property adjacent to and to the west of the DRI that are owned by Duda and that, according to the chief operating officer of TVC, will likely be added to the DRI in the near future. The record does not reflect what type of uses will be developed on that property or when that development will begin. The DRI development order includes authorization for up to 470 hospital beds, with vested traffic concurrency for 150 beds. The master site plan for the DRI designates an area west of I-95 on the southwest corner of the Wickham Road/Lake Andrew Drive intersection as the “Proposed Viera Medical Park.” VMC is proposed for that location. The DRI development order provides all of the local government land use approvals, including traffic concurrency, that are necessary for VMC. TVC is developing Viera for and marketing it to retirees and younger persons, including families with children. The DRI includes age-restricted subdivisions, but it also includes amenities such as three elementary schools and a large regional park with ball fields and playgrounds. (2) Negotiations for a Hospital in Viera TVC has long wanted a hospital in Viera. Wuesthoff identified the Viera area as future growth area in the 1990’s and began establishing health care facilities in the area at that time. Wuesthoff has a diagnostic center, a lab facility, and a rehabilitation facility in the Suntree area, which is just to the east of the Viera DRI. Wuesthoff expressed interest in building a hospital in Viera in 1993 and, more recently, in 2003. In August 1993, Wuesthoff and TVC entered into an agreement that gave Wuesthoff a 10-year exclusive right to develop a hospital in Viera if certain conditions were met. However, Wuesthoff ultimately built Wuesthoff-Melborune in Melbourne (rather than in Viera), and the exclusivity provision in the August 1993 contract never went into effect. In July 2003, Wuesthoff sent a letter to TVC expressing its interest in obtaining an option to purchase 25 to acres within the Viera DRI to construct a hospital. In the letter, Wuesthoff stated that it would construct the hospital “within 10 years or when the population of Viera exceeds 40,000, whichever first occurs”; that the hospital would be “constructed similar to Wuesthoff Medical Center-Melbourne which currently encompasses 65 licensed beds in a 150,000 sq. ft. facility”; that it wanted the “sole right to build a hospital or hospital like facility in Viera . . . until 5 years after the opening of the hospital” and that it wanted TVC to “consider selling the desired land to Wuesthoff at a reduced price.” Wuesthoff’s July 2003 offer was not seriously considered by TVC because, by that time, TVC was in the process of finalizing its agreement for the sale of 50 acres to Health First for VMC. Additionally, the Health First agreement was more appealing to TVC because Health First was offering to purchase more property at a higher price than was Wuesthoff, and Health First was committed to building a hospital sooner than was Wuestoff. The contract between Health First and TVC was executed on August 5, 2003, and Health First has since closed on the purchase of the 50 acres at a cost of approximately $9 million. The Health First/TVC contract includes an exclusivity provision that prohibits the development of another hospital within the Viera DRI or on any of the lands owned by Duda until 2029 if Holmes constructs at least 70 percent of Phase I of the Viera Medical Park by August 31, 2006, and begins construction on a hospital with at least 80 beds by August 31, 2010. The contract also includes exclusivity provisions relating to the other uses being developed as part of the Viera Medical Park, but the exclusivity on those uses expires in 2010, at the latest. The exclusivity provision will be included in restrictive covenants that are recorded in the public records of Brevard County. The restrictive covenants will run with the land and will bind future purchasers of property from TVC and Duda. Exclusivity provisions are not uncommon in land- purchase contracts for large commercial projects or new hospitals. The August 1993 agreement between Wuesthoff and TVC included such a provision as did Wuestoff’s July 2003 offer. However, the length of the hospital exclusivity provision in the Health First/TVC contract and the fact that it applies to the land owned by Duda outside of the Viera DRI goes beyond what is reasonably necessary to allow the new hospital to become stabilized and has the potential to stifle competition for acute care hospital services in the Viera area for the next 25 years. Viera Medical Center (1) Generally Holmes conditioned the approval of its CON application on VMC being located at the "[i]ntersection of Lake Andrew Drive and Wickham Road, Viera, Florida." VMC was projected to open in 2008 as part of the Viera Medical Park that Health First is building on the 50 acres that it purchased from TVC at that location. VMC will be located in zip code 32940, which is the “main” Viera zip code. VMC will be built on 20 of the 50 acres purchased by Health First. The remaining 30 acres will be developed with the other health care facilities that will make up the Viera Medical Park. The development of the Viera Medical Park will be done in three phases. Phase I will include a fitness center; a medical office building; and outpatient facilities such as an urgent care center, an ambulatory surgical center, and a diagnostic imaging and rehabilitation center. Phase II will include VMC. Phase III may include a nursing home and/or assisted living facility as well as “multi-family retirement units.” VMC will be a 213,000 SF facility with 84 licensed beds, 16 “observation” beds, and a full emergency room (ER). The 84 licensed beds will consist of 72 acute care beds and a 12-bed critical care unit/ICU. All of the beds will be in private rooms. The total project cost for VMC is approximately $106 million, which will be funded primarily by tax-free bonds issued by Holmes. VMC will have a cardiac catheterization lab, but it will not provide interventional cardiology services such as angioplasty. VMC will not provide any tertiary-level services or OB services, and it will not have a dedicated pediatric unit. VMC will share management and administrative support services with HRMC so as to minimize duplication of those services and to reduce overhead costs. VMC will have an integrated IT system that will utilize electronic medical records and a computerized physician order entry system, as well as an electronic ICU (e-ICU). The e-ICU is an innovative critical care management system based upon a telemedicine platform that is in use at the existing Health First hospitals in Brevard County. Except for the e-ICU, which the Wuesthoff hospitals do not have, the IT systems at VMC will be materially the same as Wuesthoff’s award-winning IT systems. VMC will have a helipad without any weight restrictions and, as discussed in Part F(1)(a)(iv) below, VMC has been designed with hurricanes and other “contingency events” (e.g., bioterrorism) in mind. Demographics of VMC’s Proposed Service Area The primary service area (PSA) for VMC consists of zip codes 32934, 32935/36, 32940, and 32955/56; the secondary service area (SSA) consists of zip codes 32901/02/41, 32904, 32922/23/24, 32926/59, and 32927. Neither Wuesthoff nor the Agency contested the reasonableness of the PSA or the SSA. All of the zip codes targeted by VMC are within the primary service area of one or more of the existing hospitals, and there are three hospitals physically located within those zip codes. Wuesthoff-Melbourne and Wuestoff-Rockledge are located in VMC’s PSA, and HRMC is in VMC’s SSA. The 2003 population of the PSA was 108,436. In 2010, which would be VMC’s third year of operation, the PSA’s population is projected to be 128,498. The 65+ age cohort, which is the group that most heavily utilizes hospital services, is projected to make up 21.5 percent of the PSA’s population in 2010. That is a lower percentage than the projected populations of the 18-44 age cohort (29.1 percent) and the 45-65 age cohort (29.7 percent) in the PSA. VMC’s PSA has a more favorable payor-mix than the county as a whole. It has a lower percentage of Medicaid patients and a higher percentage of insured patients --i.e., commercial, HMO, PPO, workers comp, and Champus/VA patients -- than the county as a whole. Except for zip code 32935/36, each of the zip codes in VMC’s PSA has a higher median household income than Brevard County as a whole. Zip code 32935/36 is the zip code in which Wuesthoff-Melbourne is located. The zip code in which VMC will be located, 32940, has the highest median household income in Brevard County. The median household income in that zip code for 2004 was $67,000 as compared to the county-wide average of $44,000. Utilization Projections VMC was projected to open in January 2008, and Holmes' CON application contains utilization and financial projections for VMC's first three years of operation, i.e., 2008, 2009, and 2010. The utilization projections are based upon an average length of stay (ALOS) of 3.69 days, which is reasonable. The utilization projections are also based upon the assumption that by VMC’s third year of operation, it will have 26.9 percent market share in its PSA and a 7.4 percent market share in its SSA. VMC's projected market share in zip code 32940, which is its “home” zip code and the “main” Viera zip code, is projected to be 35 percent. The market share assumptions are reasonable and attainable. The utilization projections include a “ramp-up” period for VMC. Its annual occupancy rate in its first year of operation is projected to be 45.6 percent; its annual occupancy rate in its second year of operation is projected to be 65.7 percent; and in its third year of operation (2010), VMC is expected to have an annual occupancy rate of 76 percent with 6,313 discharges and 23,298 patient days. The occupancy rates, and the discharges and patient days upon which they are based, are reasonable and attainable.2 The application projects that VMC will redirect or “cannibalize” a significant percentage of its patients from the other Health First hospitals. The percentage of patients that VMC will cannibalize from the other Health First hospitals in each zip code varies from 75 percent to 45 percent, depending upon the proximity of the zip code to VMC. Overall, approximately 69.4 percent of VMC’s patients will be cannibalized patients, i.e., patients that would have otherwise gone to HRMC (66.2 percent), Cape Hosptial (3.2 percent), or PBCH (less than 0.1 percent). The remaining 30.6 percent of VMC’s patients will be patients that would have otherwise gone to Wuesthoff-Rockledge (15.8 percent) or Wuesthoff-Melbourne (14.8 percent). The record does not reflect the outpatient volume projected for VMC, but Holmes’ health planner conceded at the hearing that the projected outpatient revenues for VMC did not take into account the outpatient services that will be included in Phase I of the Viera Medical Park. As a result, the volume on which the outpatient revenues were based is overstated to some degree, but there was no credible evidence regarding the extent of the overstatement. VMC is projected to treat 15,851 patients in its ER in its first year of operation (2008), and by its third year of operation (2010), VMC is expected to treat 27,780 patients in its ER. The record does not reflect how those figures were calculated, nor does it reflect what percentage of those patients would have otherwise been treated in the ERs at HRMC, PBCH, or the Wuesthoff hospitals. However, the reasonableness of those figures was not contested by Wuesthoff or the Agency. Statutory and Rule Criteria Statutory Criteria -- Section 408.035, Florida Statutes (2004)3 Subsections (1), (2) and (5) -– Need for Proposed Services; Accessibility of Existing Services; and Enhancing Access According to the CON application (page 14), the need for VMC is justified based upon: The large population base and significant population growth projected for the [Viera] area. The need to improve access and reduce travel times for this significant population for both critical care and inpatient services. The projected need for additional acute care beds at HRMC and the benefits of delivering non-tertiary services away from [HRMC’s] campus. Additionally, the CON application (page 15) asserts that the approval of VMC will: Significantly enhance the area’s Homeland Security and disaster planning and preparedness. Enhance the quality of care delivered to area residents as a result of key design and information technology innovations planned for [VMC]. Provide access to cost-effective, quality of care for all residents of the service area, including the uninsured. In its PRO (page 19), Holmes identifies those same six issues as the “not normal” circumstances that justify approval of VMC. Holmes’ health planner conceded at the hearing that the VMC project is not intended to address any cultural, programmatic, or financial access problems, and that those potential “not normal” circumstances were not advanced in the CON application as bases for approval of VMC. Population of and Growth in the Viera Area There has been considerable growth in Viera over the past 15 years, and the demand for new homes in the Viera DRI remains strong. The projected population of the Viera DRI is expected to exceed 40,000 when the DRI is built-out in 2020, and that figure does not include the population of the Suntree area, which is outside of the Viera DRI and has a number of large residential subdivisions. Zip code 32940, which is the “main” Viera zip code, had a population of 22,940 in 2003. By 2010, that zip code is projected to have a population of 31,862. That is an increase of 38.9 percent, but only 9,000 persons. As stated above, the population of VMC's PSA is projected to increase from 108,436 (in 2003) to 128,489 (in 2010). That is an increase of 18.5 percent, but only 20,000 persons. The population of VMC’s PSA is projected to grow at a faster rate than Brevard County as a whole. Over the seven-year period used in the application (2003 to 2010), the annual growth rate for VMC’s PSA is projected to be 2.64 percent while the annual growth rate of Brevard County as a whole is projected to be 1.74 percent.4 Population growth in Florida is normal and, indeed, is expected. There is nothing extraordinary about the growth projected for zip code 32940 and/or VMC’s PSA. Accordingly, the population growth projected in the Viera area does not, in and of itself, justify the approval of VMC. Enhanced Access There are two main components to Holmes’ argument that VMC will enhance access. First, Holmes contends that VMC will reduce travel times for Viera residents and thereby enhance their access to hospital services. Second, Holmes contends that the approval of VMC will relieve pressure on the overcrowded ERs at the existing hospitals in Brevard County thereby enhancing access to ER services countywide. For Viera Residents VMC will provide more convenient access to hospital services for Viera residents (at least those in need of the basic, non-OB services that will be offered at VMC), and to that extent, VMC will enhance access for Viera residents. VMC will also provide more convenient ER access for Viera residents. Quicker access to an ER is generally beneficial to the patient, although certain heart-attack patients may benefit more by going to the ER of a hospital that can do an immediate angioplasty, such as Wuesthoff-Rockledge or HRMC. VMC will not necessarily enhance access for other residents of the PSA and SSA targeted by VMC (e.g., those outside of the Viera area) because many of those residents are closer to an existing hospital. Indeed, some of those residents would have to pass an existing hospital to get to VMC, which seems particularly unlikely for emergency patients. VMC will also not enhance access for patients in need of OB services or tertiary services that will not be offered at VMC. Convenience alone is not a basis for approving a new hospital, particularly where (as here) the evidence establishes that the residents of the area to be served by the new hospital currently have reasonable access to hospital services. VMC will be located approximately 10 miles south of Wuesthoff-Rockledge, and approximately 11 miles north of Wuesthoff-Melbourne. VMC will be approximately 15 miles northwest of HRMC. There are multiple routes from the Viera area to the Wuesthoff hospitals and HRMC. The routes are along major arterial roads, including I-95, US 1, Wickham Road, Murrell Road, Fiske Boulevard, and Eau Gallie Boulevard. All of those roads are at least four lanes wide. The travel-time studies presented by Wuesthoff show that it takes less than 15 minutes to drive from either of the Wuesthoff hospitals to the VMC site. There was anecdotal testimony suggesting longer travel times, particularly from the VMC site to Wuesthoff-Melbourne,5 but that testimony was not as persuasive as Wuesthoff’s travel-time studies. The travel-time studies presented by Wuesthoff were not without flaws. For example, the travel times were calculated by driving away from the Wuesthoff hospitals, rather than driving towards the hospitals as a potential patient from Viera would be doing. Holmes did not present its own travel- time studies, and notwithstanding the directional issue and the other unpersuasive criticisms of the study by Holmes’ traffic engineer, Wuesthoff’s studies are found to be credible and persuasive. Indeed, Holmes’ traffic engineer estimated that it would take 15 to 20 minutes to get from VMC to Wuesthoff- Melbourne using the most direct route (Transcript, at 668), which is consistent with Wuesthoff’s travel-time studies. It takes longer to drive from Viera to HRMC than it does to drive from Viera to either of the Wuesthoff hospitals. The travel-time studies did not directly address the issue, but the anecdotal testimony suggests that the travel times from Viera to HRMC are between 25 and 45 minutes depending upon the time of day and traffic conditions.6 There are several road segments on the routes between Viera and the Wuesthoff hospitals whose “v/c ratios”7 currently exceeds 1.0, which is an indication of an over-capacity road. However, there are roadway improvements planned or underway that will expand the capacity of those road segments by 2010. Indeed, a comparison of the 2003 (Exhibit H-23) and 2010 (Exhibit W-50) v/c ratios for the road segments on the routes between Viera and the Wuesthoff hospitals shows only marginal increases in the ratios, with many of the 2010 ratios projected to be lower than 0.8, which according to Holmes’ traffic engineer, indicates that the “roadway that is probably operating well within its ability to carry that traffic volume.” Holmes’ traffic engineer did not attempt to quantify the extent to which travel times would increase due to the marginal increases in the v/c ratios. Thus, his opinion that travel times would “increase significantly” and be “significantly greater” in the future is not persuasive. TVC is required to mitigate for the off-site traffic impacts generated by the development of the Viera DRI. In this regard, road improvements (e.g., additional lanes, traffic signals, etc.) will be made in the future as necessary to accommodate the additional population in the Viera DRI. In fact, there are significant road improvements currently underway that are being funded, at least in part, by TVC pursuant to the Viera DRI development order, including the six-laning of I-95 through the Viera area. In sum, the evidence establishes that persons in the PSA and SSA targeted by VMC, including residents of the Viera area, currently have reasonable access to acute care services, and the evidence was not persuasive that there will be access problems over the applicable five-year planning horizon such that a new hospital in Viera is necessary to enhance access. For ER Services in Central and South Brevard County The Brevard County government is the emergency medical services (EMS) provider for the county. Brevard County EMS responds to emergency calls throughout the county and its ambulances transport emergency patients to hospital ERs. Overcrowded ERs can adversely affect the EMS system in several ways. First, if the ER is overcrowded it can take longer for ambulances to off-load patients to the ER staff, which results a longer period of time that the ambulance is “out of service.” Second, if the closest hospital is on “diversion status” because of an overcrowded ER, ambulances will have to transport patients to a more distant hospital, which also results in the ambulance being out of service for a longer period of time. Longer out-of-service periods can, on a cumulative basis, strain the EMS system because an out-of-service ambulance is not able to respond to emergency calls in its service area and the EMS provider may have to shift other ambulances to cover the area at the risk of increasing response times for emergency calls. Brevard County EMS protocol requires ambulances to take patients to the closest hospital, unless the patient is a trauma patient or the closest hospital is on diversion status. Trauma patients are taken to HRMC, which is the designated trauma center for the county. A hospital requests diversion status from EMS when it is unable to accept additional emergency patients because its ER is overcrowded. The most common reasons that an ER is overcrowded is that it had a large number of emergency patients arrive at the same time or that there is a “bottleneck” in the ER caused by a lack of inpatient beds to move patients from the ER that need to be admitted to the hospital. If diversion status is granted, EMS will take emergency patients to another hospital, even if it is further away than the hospital on diversion. As noted above, this strains the EMS system and can result in longer response times for emergency calls, which in turn, can negatively impact patient care. If diversion status is denied, the hospital is required to continue to accept emergency patients. This can create a less than optimal setting for patient care because the hospital may not have adequate space or resources to treat the patient in a timely manner. Until recently, Brevard County EMS would not grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informed EMS that they could not take the patients. That policy recently changed, and EMS will now grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informs EMS that it can take the patients. The new EMS policy change makes it easier for hospitals in south Brevard County to be placed in diversion status. For example, under the old policy, diversion status would not be granted to HRMC if either Wuestoff-Melbourne or PBCH informed EMS that they could not take HRMC’s emergency patients, but under the new policy, diversion status will be denied to HRMC only if Wuesthoff-Melbourne and PBCH both inform EMS that they cannot take HRMC’s emergency patients. In Brevard County, having a hospital on diversion was “pretty rare” until 2002. Diversion requests have become more frequent since then, and they are no longer a seasonal phenomenon caused by the influx of “snowbirds” into the county. Diversion is a more frequent problem in south Brevard County than it is in central Brevard County, and in south Brevard County, the diversion requests have come primarily from HRMC. The evidence was not persuasive that ER overcrowding is a significant problem for the Wuesthoff hospitals or PBCH. Wuesthoff-Melbourne has not requested to go on diversion, and only one occasion was identified where HRMC’s diversion request was denied because Wuesthoff-Melbourne was unable to handle HRMC's diverted patients. That occasion occurred when Wuesthoff-Melbourne had only 65 beds and, hence, less ability than it currently has to move patients out of the ER to accommodate additional emergency patients. According to Holmes, VMC will enhance access to ER services in central and south Brevard County because it will increase the area-wide ER capacity and reduce the frequency of diversion requests, which in turn, will reduce strains on the EMS system and benefit patients. The "North Expansion" underway at HRMC (discussed below) will include a new ER that is expected to help address the overcrowding issues that have required HRMC to request diversion in the past. The new ER is designed with shelled-in space to facilitate future ER expansions as needed. In any event, the evidence was not persuasive that VMC will materially reduce the ER volume at HRMC. The record does not reflect what percentage of VMC’s projected ER patients would have otherwise been served at HRMC as compared to the Wuesthoff hospitals. Moreover, it is not likely that non-trauma emergency patients from the Viera area are contributing to the overcrowding in the ER at HRMC because, under EMS protocol, those patients currently are being taken to Wuesthoff-Melbourne or Wuesthoff-Rockledge, which are closer to Viera than is HRMC. Need to “Decompress” HRMC Holmes contends that VMC will help to “decompress” HRMC and that it is the only viable option for doing so. HRMC is a well-utilized facility. According to the SAAR, its annual occupancy rate for the 12-month period ending June 2003 was 81.22 percent. HRMC's occupancy rate tends to stay above 80 percent, and at times it is as high as 115 percent. If VMC is not approved, HRMC’s annual occupancy rate for 2008 is projected to be 83.9 percent, and by 2010, its occupancy rate is projected to increase to 90 percent. Even if VMC is approved, HRMC’s annual occupancy rate is projected to be 81.7 percent in 2010. Those figures assume that HRMC will maintain its current bed capacity and they do not take into account the impact of the expansion of the Wuesthoff hospitals. HRMC currently includes approximately 612,000 SF. It is located on 18 acres of property that is bounded by streets and developed properties. Holmes owns several parcels of land adjacent to HRMC, and it is continuing to acquire parcels as they come available. Much of the adjacent land owned by Holmes is used for parking, and notwithstanding a 500-space parking garage on the south side of HRMC, there is still a shortage of parking at HRMC. Some of its staff parks at a nearby shopping center and take a shuttle to the hospital. There is an area on the north side of HRMC identified as the site of a "future parking garage," but there are no current plans to construct that structure. The original portion of the hospital, which is referred to as the “core” area, was built in the 1960’s. The remainder of the hospital has been added over the years, which has resulted in a less than ideal facility layout and has created operating inefficiencies. Some of the hospital’s support functions and administrative offices are located off- site. HRMC has undertaken a series of construction projects in recent years to reduce inefficiencies and congestion at the hospital and to increase the percentage of private rooms at the hospital. Those projects include the construction of a new OB unit and, most significantly, the $100 million “North Expansion.” The North Expansion is an eight-story, 337,000 SF addition to the hospital that is expected to be completed by the end of 2006. It will include 144 patient rooms, a new ER with a number of new observation beds, and it will allow all of the hospital’s cardiology services to be located in contiguous space. The 144 patient rooms will include 14 cardiovascular ICU beds, 22 ICU beds, and 108 acute care beds. All of the beds will be in private rooms. The 144 beds added as part of the North Expansion will not increase the bed capacity at Holmes. The same number of existing licensed beds will be eliminated, either through the conversion of existing semi-private rooms to private rooms or because the rooms are located in space that will be demolished to construct the North Expansion. The North Expansion has been designed and engineered to withstand 200-mile per hour winds, which exceeds the applicable building code requirements for hurricane protection. The North Expansion has also been designed and engineered to accommodate future expansion at HRMC in several respects. First, it includes shelled-in space on the eighth floor for an additional 36 private patient rooms. Second, it is engineered (but not shelled-in) to allow the fourth through eighth floors to be further expanded to include up to 180 additional private patient rooms in what was referred to at the hearing as a “mirror image” of the tower being built as part of the North Expansion. Third, the ER includes shelled-in space for future expansions as well as adjacent open space into which the ER could be further expanded in the future. There is no current plan to finish the shelled-in space on the eighth floor, but Holmes’ facility manger testified that he expected that to occur as soon as funding is available, and perhaps prior to the completion of the North Expansion. The beds added on the eighth floor will not increase the licensed capacity at Holmes, but rather they will come from the conversion of 36 additional existing semi-private rooms to private rooms. There is also no current plan to construct the “mirror image” side of the fourth through eighth floors of the North Expansion. That construction will be done in conjunction with the renovation of the core area of the hospital and will initially be used to locate the services from the core area that are displaced by the renovation. After the renovation of the core area, however, the "mirror image" will be used for patient rooms. In conjunction with the construction of the North Expansion, HRMC expects to relocate some of its ancillary and support services from the core area into the space where the existing ER is located, which in turn will open up space in the core area for other purposes. The space created by the construction of the new OB unit will also be available for other uses after it is no longer needed as "swing space" during the construction of the North Expansion. Additionally, Holmes recently purchased a building directly behind HRMC into which it will likely locate other ancillary and support services. Currently, less than 40 percent of HRMC’s general acute care beds are in private rooms. After the North Expansion, almost 80 percent of those beds will be in private rooms. Ultimately, Holmes wants all of the beds at HRMC to be in private rooms. Private rooms are beneficial because they offer the patients and their families more privacy and a more restful environment, and they can also help reduce the spread of infections. However, private rooms can also create operational inefficiencies for nurses who have to visit more rooms (often on longer hallways) than they would to serve the same number of patients in semi-private rooms. High quality care can be provided in semi-private rooms, and HRMC and Wuesthoff-Rockledge each do so. Although patients may prefer private rooms and most new hospitals are being designed with only private rooms, private rooms are still best characterized as an amenity, not a necessity. As a result, and Holmes’ desire to convert all of HRMC’s semi-private rooms to private rooms does not justify the building a new hospital based upon alleged capacity constraints at HRMC. Indeed, if Holmes chose to do so, it could increase the bed capacity at HRMC with little or no additional cost by adding the 36 beds in the shelled-in eighth floor of the North Expansion and/or by not converting as many semi-private rooms into private rooms. Moreover, after the North Expansion, HRMC will have approximately 50 observation beds (as compared to 20 currently) in private rooms that can be used for inpatients as needed. Indeed, as a result of the 2004 amendments to the CON law, some of those beds could be converted to licensed acute care beds at any time without CON review. Even if the beds are not converted to licensed beds, they will still help to decompress HRMC because observation patients will not need to be placed in inpatient rooms while they are being observed and evaluated for possible admission to the hospital. Several Holmes’ witnesses testified that even if Holmes wanted to add bed capacity to HRMC by converting fewer semi-private rooms to private rooms or other means, it could not do so because of limitations on the space available to provide the support services necessary for those additional rooms. That testimony was not persuasive because the witnesses conceded that Holmes has not undertaken a thorough analysis of what it intends to do with the space created in the existing building by the relocation of services as part of the North Expansion, which as noted above, will free up additional space for support services in the core area. The evidence was also not persuasive that the alternative presented in the CON application for adding 84 beds to HRMC is realistic. That alternative, the cost of which is presented in Table 23 of the CON application, was prepared after the decision was made to seek approval of a CON for VMC; it was not an alternative actually considered by Holmes and, indeed, it was characterized by the Holmes’ witness who prepared the cost estimate as a “theoretical solution” and not a viable solution to adding beds. The cost estimate in Table 23 is based upon a plan that would require the acquisition of additional land across the street from HRMC and the construction of a new bed tower on that land and an adjacent parcel on which Holmes currently owns a medical office building. The bed tower would be connected to HRMC by a two-story bridge over the street. The plan also includes the construction of a new parking garage and an office building to replace the existing medical office building. The land and building costs of the plan were approximately $86.2 million, which is approximately $18.3 million more than the land and building costs of VMC. When the equipment costs are added, the total cost of the plan is approximately $120 million. Not only was the plan not a viable solution, its cost was clearly overstated. For example, the $450/SF cost of the new bed tower was irreconcilably higher than the $278/SF cost of VMC and the $2.5 million that Holmes represented to the Agency in October 2003 that it would cost to add 50 beds to HRMC. In sum, the evidence fails to support Holmes’ claim that the only way to add bed capacity to HRMC is through the $120 million plan presented in Table 23 of the CON application. The evidence also fails to support Holmes’ claim that VMC is the only viable option to decompress HRMC. Indeed, the evidence establishes that HRMC could be decompressed if PBCH was better utilized. Holmes contends that PBCH is too far away from Viera to be a viable alternative to HRMC for patients from the Viera area. The evidence supports that claim, but that claim ignores the fact that better utilization of PBCH by Palm Bay patients will help to decompress HRMC. PBCH is currently an underutilized facility, and it has been ever since it opened in 1992. According to the SAAR, PBCH's annual occupancy rate for the 12-month period ending June 2003 was only 51.5 percent. Its annual occupancy rate is projected to be only 60.1 percent in 2008 and 65.4 percent in 2010, which are well below the 75 to 80 percent optimum utilization level. Approximately 25 to 30 percent of HRMC’s patient volume comes from the Palm Bay zip codes. If those patients were redirected to PBCH, the utilization rate at HRMC would go down and the utilization rate at PBCH would go up. Redirecting Palm Bay patients to PBCH has the potential to decompress HRMC more than redirecting Viera patients to VMC because HRMC has approximately 7,000 admissions from the Palm Bay area, as compared to approximately 6,000 admissions from the Viera area. Holmes did not present any persuasive evidence as to why patients from the Palm Bay zip codes could not be redirected to PBCH as a means of decompressing HRMC. On this issue, there was credible evidence presented by Wuesthoff that virtually no elective cases are being done at PBCH and that PBCH is essentially being used as a triage facility for HRMC. Finally, the expansion of the Wuesthoff hospitals (particularly Wuesthoff-Melbourne) will help to decompress HRMC because the Wuesthoff hospitals will be able to serve more patients. As the Wuestoff hospitals' market share grows, HRMC’s market share (and patient volume) will decline.8 Enhanced Homeland Security and Disaster Planning Brevard County is susceptible to hurricanes because of its location on the east coast of Florida and the length of its coastline. The evidence was not persuasive that Brevard County is more susceptible to hurricanes than are the other counties on the east coast. The three major storms that affected the county in the summer of 2004 were not the norm. Brevard County has a comprehensive emergency management plan to prepare for and respond to hurricanes, as do all of the existing hospitals in the county. Those plans were tested in the summer of 2004 when the county was directly impacted by three of the four major storms that hit the state Florida. The hospitals’ hurricane plans include securing the building, discharging as many patients as possible prior to the arrival of the storm, and canceling elective surgeries scheduled around the time the storm is expected to hit the area. The plans also provide for the evacuation of some of the hospitals during particularly strong storms, i.e., Category 3 or above. Cape Hospital is particularly prone to evacuation when a strong hurricane threatens the area because it is located close to the ocean on a peninsula in the middle of the Intracoastal Waterway. Cape Hospital was evacuated twice during the summer of 2004. None of the hospitals in Brevard County were evacuated during the first storm, Hurricane Charley. Cape Hospital and Wuesthoff-Rockledge were evacuated prior to the second storm, Hurricane Francis. That was the first time that Wuesthoff-Rockledge was evacuated since it opened in 1941, and its ER remained open and staffed even though the remainder of the hospital was evacuated. Cape Hosptial’s patients were taken to HRMC, and Wuesthoff-Rockledge patients were taken to Wuesthoff-Melbourne. The evacuated patients were accompanied by physicians and nurses and were transported to the receiving hospitals by ambulance. The evacuation of Cape Hospital and Wuesthoff- Rockledge placed strains on the receiving hospitals and their staffs. At one point during the evacuation, HRMC had more than 700 patients in its 514-bed facility and Wuesthoff-Rockledge had 156 patients in its 65-bed facility. By all accounts, despite the strains placed on the receiving hospitals, the evacuations went smoothly and there were no adverse patient outcomes attributable to the evacuation. Indeed, the director of Brevard County’s Health Department testified that all of the hospitals in the county responded and performed “great” during the hurricanes, and that sentiment was echoed by physicians and administrators affiliated with both of the hospital systems involved in this case. Cape Hospital was evacuated again prior to the third storm, Hurricane Jeanne. Wuesthoff-Rockledge was not evacuated during that storm, and approximately 15 of Cape Hospital’s patients were taken to Wuesthoff-Rockledge. None of the Health First or Wuesthoff hospitals suffered any significant damage from the hurricanes. The approval of VMC will not eliminate the possibility that Cape Hospital, Wuesthoff-Rockledge, or some other hospital in Brevard County may have to evacuate during a future hurricane. VMC may provide a more convenient (or at least an additional) place to evacuate some of the patients from Cape Hospital during a future hurricane because VMC is closer to Cape Hospital than is HRMC. VMC will also be more inland than HRMC and it will be designed to withstand 165 mile per hour winds. Holmes conditioned the approval of its CON application on the inclusion of a "suitable parcel, fully equipped and designed to support temporary staging of Disaster Medical Assistance Teams (DMAT)" at VMC. A DMAT is essentially a mobile emergency room set up by the federal government after a natural disaster to help serve the medical needs of those affected by the disaster. The DMAT staging area at VMC will be an open field adjacent to the hospital that is “pre-plumbed” with water, electricity, and communication lines. In some situations, it is beneficial for a DMAT to be set up proximate to a hospital, and in that regard, VMC’s inland location and proximity to I-95 may make it an attractive location to set up a DMAT in the future. It is not necessary, however, for a DMAT to be set up proximate to a hospital. DMATs are fully self-sustaining and they can be set up anywhere, including a Wal-Mart parking lot. Indeed, in some situations, it is more beneficial for the DMAT to be located closer to the persons in need of its services than to a hospital. For example, after Hurricane Jeanne, a DMAT was set up near the Barefoot Bay community in southern Brevard County, which is miles from the closest hospital. VMC’s central-county location and proximity to I-95 would also make it a good point-of-dispensing (POD) for vaccines and medicines in the case of a severe biological emergency. However, like DMATs, PODs can be set up anywhere and it is not critical for a POD to be proximate to a hospital even though proximity might allow for greater medical oversight of the dispensing process. There are high-profile, “Tier 1” terrorist targets located in Brevard County, including Kennedy Space Center, Cape Canaveral Air Force Station, Patrick Air Force Base, and Port Canaveral. There is also a nuclear power plant in Indian River County, just south of the Brevard County line. The nature of these targets is somewhat unique because they involve the country's space program, but the presence of multiple “Tier 1” terrorist targets is not unique to Brevard County and is not, in and of itself, a special circumstance that justifies approval of a new hospital. Brevard County has developed emergency management plans in conjunction with the state and federal governments to prepare for and respond to terrorist attacks on those targets. Those plans have been in place for many years, but they have been significantly strengthened since September 11, 2001. VMC will include decontamination areas and other design features to facilitate the treatment of victims of bio- terrorism. The existing hospitals in Brevard County have similar design features as well as comprehensive plans for dealing with bio-terrorism. The evidence was not persuasive that VMC, as an 84- bed, non-tertiary satellite hospital, will materially enhance County’s ability to deal with a large-scale terrorist attack, whether biological or otherwise. Similarly, the evidence was not persuasive that Brevard County’s emergency management plans for hurricanes and/or terrorism are deficient in any way or that the approval of VMC would result in material enhancements to those plans. Any enhancements attributable to VMC would be marginal, at best. The DMAT staging area and other design elements included at VMC to facilitate the hospital’s participation in the Brevard County’s response to hurricanes, terrorist attacks, or other contingencies are positive attributes. Inclusion of those features in VMC (or any new hospital for that matter) is reasonable despite the infrequency of those contingencies, but it does not follow that VMC should be approved simply because it will include those features. IT Innovations and Design Features The evidence was not persuasive that VMC will provide a higher quality of care than is currently being provided at the existing hospitals serving central and south Brevard County as a result of the “innovative” IT systems and the other design features that will be incorporated into VMC. See Part F(1)(b) below. Accordingly, the approval of VMC is not justified on that basis. Enhanced Access to Care for the Uninsured Holmes’ contention that VMC will enhance access for the uninsured implicates the issue of “financial access.” Financial access concerns arise when there is evidence that necessary services are being denied to patients based upon their inability to pay or their uninsured status. Holmes’ health planner acknowledged at the hearing that VMC was not intended to address any financial access concerns for patients in the Viera area and, indeed, there was no credible evidence of any financial access concerns in PSA and SSA targeted by VMC. As discussed in Part E(2) above, VMC’s PSA include a higher percentage of insured patients than Brevard County as a whole, and as discussed in Part F(1)(g) below, the existing hospitals are adequately serving the medically indigent patients in central and south Brevard County, both at the hospital and through outreach efforts such as the Holmes’ HOPE program and Wuesthoff’s free clinics. Accordingly, the evidence failed to establish that VMC will enhance access to care for the uninsured, and approval of VMC is not justified on that basis. Subsection (3) -- Applicant’s Quality of Care Holmes, the applicant, provides a high quality of care at HRMC and PBCH, and it is reasonable to expect that it will provide the same high quality of care at VMC. The Wuesthoff hospitals also provide a high quality of care, and Holmes' witnesses acknowledged that VMC was not proposed to address any problem with quality of care in central or south Brevard County. The evidence was not persuasive that the quality of care at VMC will be materially better (or worse) than that provided at Wuesthoff-Melbourne, which has a similar range of services that will be provided at VMC. The award-winning IT systems in place at the Wuesthoff hospitals are materially the same as those proposed for VMC except for e-ICU at VMC. The evidence was not persuasive that the e-ICU significantly enhances quality of care, and because the e-ICU is being used at the existing Health First hospitals in Brevard County, VMC will not be providing any new technology or service that is not already available to physicians and patients in the county. Thus, the "innovative" IT systems proposed for VMC do not provide an independent basis for approving the CON application. The evidence was not persuasive that VMC would exacerbate nursing or physician shortages in Brevard County thereby negatively affecting quality of care in the county. See Part F(1)(c) below. Subsection (4) -- Availability of Personnel and Resources for Operations Holmes and Health First have the management resources necessary to establish and operate VMC. Holmes’ CON application projects that VMC will have 241.4 full-time equivalents (FTEs) in its first year of operation, and that by its third year of operation, it will have 355.7 FTEs. Nursing positions -- registered nurses, licensed practical nurses, nursing aides, and nursing directors -- account for 123.1 of the FTEs in the first year of operation, and 189.2 of the FTEs in the third year of operation. According to the CON application, a significant number of the initial FTEs at VMC are expected to be filled by persons who transfer from Holmes’ existing campuses, HRMC and PBCH. The parties stipulated that the projected number of FTEs needed by position and the projected salaries contained in Holmes’ CON application are reasonable for the census projected at VMC. However, Wuesthoff disputed whether Holmes will be able to adequately staff VMC due to nurse and physician shortages in Brevard County and/or that VMC will exacerbate those shortages and make it more difficult to staff the existing hospitals in the county. There is a nursing shortage in Brevard County, as there is around Florida and across the nation, but the situation in Brevard County is improving. Wuesthoff was able to fully staff Wuesthoff-Melbourne prior to its opening in December 2002, even though the nursing shortage was more severe at that time. Additionally, Wuesthoff is currently in the process of adding beds at Wuestoff-Melbourne and Wuesthoff-Rockledge, and it expects to be able to recruit and retain the nurses necessary to staff those additional beds despite the current state of the nursing shortage. Holmes received “magnet designation” from the American Nurses Credentialing Center, which is a recognition of its excellence in nursing. No other hospital in Brevard County has magnet designation, and that designation helps Holmes attract and retain nurses. The evidence establishes that Holmes will be able to recruit and retain the nursing and other staff needed for VMC, and the evidence was not persuasive that the staffing of VMC will exacerbate the nursing shortage or otherwise significantly impact Wuesthoff. There is a shortage of physicians in Brevard County with certain specialties, including neurosurgery, neurology, orthopedics, dermatology, and gastroenterology. Like the nursing shortage, this problem is not unique to Brevard County and it is not as severe in Brevard County as it is elsewhere in the state. The shortage of physician specialists in Brevard County is to some extent hospital-specific. For example, there is only one neurosurgeon covering Wuesthoff-Rockledge and Cape Hospital, and Wuesthoff-Melbourne only has part-time coverage neurosurgical coverage, but Holmes has several neurosurgeons. Holmes has recently had success in recruiting new physicians to Brevard County, including specialists. One of the largest multi-specialty physician groups in Brevard County, whose physicians are on staff at Holmes’ and Wuestoff's hospitals, has also been successful recently in recruiting new physicians to the area. That group, Melbourne Internal Medicine Associates, will be adding more physicians whether or not VMC is approved. The evidence establishes that Holmes will be able to attract the necessary physician staff for VMC, just as Wuesthoff-Melbourne was able to do when it opened. Indeed there are a number of physicians who have offices in the Viera area that are closer to VMC than the existing hospitals where they have privileges. Holmes and Wuesthoff require physicians with privileges at their hospitals to provide coverage for ER calls on a rotational basis. Physicians with privileges at more than one of the hospitals are required to provide ER call coverage at multiple hospitals, which can create a problem if the physician is on-call at two (or more) hospitals at the same time. Physicians who choose obtain privileges at VMC will be required to provide ER call coverage at VMC. ER call coverage is a problem in Brevard County, but the evidence was not persuasive that the problem is as significant in Brevard County as it is elsewhere in the state or that VMC would seriously exacerbate the problem. More specifically, the evidence was not persuasive regarding the extent to which VMC would cause physicians to be on call at more than one hospital at the same time. Nor was the evidence persuasive regarding the likelihood that physicians would relinquish privileges at other hospitals in Brevard County to obtain privileges at VMC in such numbers that ER call coverage problems would be created for the other hospitals. Subsection (6) -- Financial Feasibility The parties stipulated that VMC is financially feasible in the short-term and that Holmes has sufficient availability of funds for VMC's capital and operating expenses. The long-term financial feasibility of VMC is in dispute. Generally, if a CON project will at least break even in the second year of operation, it is financially feasible in the long-term. If, however, the project continues to show a loss in the second year of operation it is not financially feasible in the long-term unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. Agency precedent (e.g., Wellington, supra, at 73-74) and the evidence in this case (e.g., Exhibit W-57, at 22) establish that in the context of a satellite hospital project that is expected to “cannibalize” patients from the applicant’s existing hospital, it is important to consider the impact of the project on the entire hospital system in evaluating the long- term financial feasibility of the project. The net operating revenue projected on Schedule 7A of the CON application, which is the starting point for the net income/loss projected on Schedule 8A, is reasonable.9 On Schedule 8A of the CON application, in the column titled “VMC only,” Holmes projects that VMC will generate a net loss of $5.71 million in its first year of operation, but that it will generate net profits of $1.48 million and $5.11 million in its second and third years of operation. Thus, as a stand-alone entity, VMC is financially feasible in the long-term. However, the “VMC only” figures do not provide the complete picture of the financial feasibility of the VMC project because of the significant percentage of its patients that will be cannibalized from HRMC and PBCH. In evaluating the long-term financial feasibility of the VMC project, it is also important to consider the “incremental difference” column in Schedule 8A. That column reflects VMC’s net financial benefit (or burden) to Holmes after taking into account the patients that VMC is cannibalizing from HRMC and PBCH. The “incremental difference” column in Schedule 8A shows a net loss of $695,000 in the VMC’s first year of operation, and net profits of $605,000 and $983,000 in the second and third years of VMC’s operation. The incremental figures presented in the CON application identify the profit/loss that will be generated by the patients treated at VMC that are new to the Holmes’ system, but they do not take into account the fact that the patients treated at VMC that were cannibalized from the other Holmes’ hospitals would have generated a different profit/loss for the Holmes’ system if they were treated at one of the other Holmes’ hospitals. When incremental profit/loss associated with treating the cannibalized patients at VMC rather than HRMC or PBCH is factored in, the “incremental difference” generated by VMC will be net profits of $498,000 (year one); $720,000 (year two); and $252,000 (year three). Included in the “incremental difference” column on Schedule 8A (and embedded in the revised figures in the preceding paragraph) are negative figures on the “depreciation and amortization” line and the “interest” line. Those figures are intended to reflect the depreciation, amortization, and interest expenses that Holmes will “save” by building VMC rather than by adding 84 beds at HRMC. A critical assumption underlying the “savings” shown on those lines is that it would cost $120 million to add 84 beds to HRMC. To the extent that cost is overstated, then the depreciation, amortization, and interest expense “savings” on Schedule 8A are also overstated, as is the incremental net profit of the VMC project. The extent to which the net profit is overstated depends upon the extent to which the $120 million cost is overstated. For example, if the cost of adding 84 beds to HRMC is the same as the cost of VMC (i.e., $106 million rather than $120 million), then the depreciation, amortization, and interest expense shown in the “incremental difference” column on Schedule 8A would be $0 (rather than a negative number) because the depreciation, amortization, and interest expenses in the “with this project” and “without this project” columns would be the same. If, on the other hand, there was no cost associated with the addition of 84 beds at HRMC, then the depreciation, amortization, and interest expense shown in the “without this project” column would be $10.662 million lower in 2010 (see Endnote 10) and that amount would appear as a positive number -- i.e., expense -- rather than a negative number -- i.e., “savings” -- in the “incremental difference” column. The evidence was not persuasive that it will cost $120 million to add beds to HRMC, which is the amount underlying the projected “savings” in depreciation, amortization, and interest expense shown on Schedule 8A. Indeed, as discussed in Part F(1)(a)(iii) above, the evidence establishes that the alternative that gave rise to the $120 million cost estimate was not a viable option and that Holmes could add 84 beds at HRMC with little or no cost if it chose to do so by reducing the number of semi-private rooms that it converts to private rooms as part of the North Expansion and/or by finishing the shelled- in space on the eighth floor of the North Expansion. Accordingly, the “savings” embedded in Schedule 8A are grossly overstated as is the incremental net profit shown in that schedule. Specifically, in the third year of operation, when VMC is at a near-optimal occupancy level of 76 percent, the incremental net profit generated by VMC will be no more than $234,000 and, more likely, will be a net loss between $497,000 and $10.41 million.10 A net profit of $234,000 is a very marginal return on the $106 million cost of VMC, and is well below the three percent return that Holmes' seeks to achieve for its capital projects. However, according to Holmes' chief financial officer, the return generated by a project is not Holmes' paramount concern as a not-for profit organization, and at that level, the project would be considered financially feasible in the long-term. A $497,000 to $10.41 million incremental net loss would mean that the project is not financially feasible in the long-term. The “including this project” column on Schedule 8A projects that Holmes will have net income of approximately $31.1 million in 2010. Thus, even if VMC actually generated an incremental net loss in the range of $497,000 to $10.41 million in 2010, the Holmes' system would still be profitable. Subsection (7) -- Fostering Competition that Promotes Cost-Effectiveness Generally, competition for hospital services benefits consumers because it leads to lower prices and it creates incentives for hospitals to lower costs. It is not necessary for hospitals to be equal in size to compete, but the beneficial effects of competition will be greater if the hospitals are more equal. As explained by Dr. David Eisenstadt, Wuesthoff’s expert economist, “competitive constraints are a matter of degree” and “while it is true that a small hospital can pose some competitive constraint, it’s not correct that a small hospital can impose the same competitive constraint . . . as a large hospital could.” (Transcript at 1571-72). Holmes is, and historically has been, the dominant provider of hospital services in south Brevard County, with market shares exceeding 80 percent prior to the opening of Wuesthoff-Melbourne. Holmes still has a market share in excess of 70 percent in south Brevard County. A dominant hospital has the ability to set prices above competitive levels by commanding higher prices in negotiations with commercial payors. Holmes has done so in the past and, based upon the comparison of the commercial average net inpatient revenues reported by the Health First hospitals and the Wuesthoff hospitals in 2003 and 2004, it continues to do so. Holmes ability to set prices above competitive levels is enhanced by the fact that the largest managed care plan in Brevard County, HFHP, is operated by Health First. The original approval of the CON for Wuesthoff- Melbourne was based upon the Agency’s determinations that there was at that time a “compelling” need for competition for hospital services in south Brevard County; that the entry of a new, non-Health First provider into the market would give commercial payors and, ultimately, patients an alternative to Holmes, which because of its relationship with HFHP, had no incentive to negotiate competitive rates with other providers; and that competition would have the effect of reducing prices paid by the commercial payors to the hospitals and, ultimately, the premiums paid by patients. Wuesthoff-Melbourne’s entry into the market in December 2002 has not yet resulted in any material price reductions. Indeed, notwithstanding Wuesthoff-Melbourne’s presence in the market, HRMC increased its charges by 15 percent in 2003-04 and by an additional five percent in 2004-05. A hospital’s charges do not necessarily correspond to the prices that the hospital negotiates with commercial payors. However, in this case, there appears to be a correlation because Holmes had an 11.6 percent increase in net revenue per admission between 2003 and 2004 and it also had significant increases in the commercial average inpatient revenues per admission at HRMC and PBCH between 2003 and 2004. Moreover, the significant increase in charges at Holmes over the past two years is a strong indication that Holmes is not feeling any significant competitive pressure as a result of Wuesthoff-Melbourne’s presence in the market. Wuesthoff-Melbourne will be able to exert more competitive pressure on Holmes as its market share increases, particularly if Holmes’ market share continues to decline at the same time as is projected. As a result, Wuesthoff-Melbourne’s ability to expand and increase (or at least maintain) its market share in the growing Viera market is particularly significant to achieving price reductions (and/or minimizing price increases) in Brevard County.11 Holmes contends that even if VMC is approved, there will be sufficient competition in Viera because, according to Table 33 in the CON application, in 2010 the Health First hospitals will have a 50.5 percent market share of the PSA targeted by VMC and the Wuesthoff hospitals will have a 44.3 percent market share of the PSA. However, the approval of the VMC will have the effect of dramatically slowing the upward trend in Wuesthoff’s market share and corresponding downward trend of Health First’s market share in the PSA targeted by VMC because according to Tables 28 and 33 of the CON application, without VMC, the market share of the Wuesthoff hospitals in the PSA is projected to increase from 43.3 percent (in 2003) to 52.3 percent (in 2010), and the market share of the Health First Hospitals in the PSA is expected to decline from 51.2 percent (in 2003) to 42.5 percent (in 2010). Moreover, if VMC is approved, it is less likely that there will be sufficient need for additional acute care beds in the area to justify expanding Wuesthoff-Melbourne beyond 134 beds. That, in turn, will limit the competitive pressure that Wuesthoff-Melbourne will be able to exert on Holmes in the future. The evidence was not persuasive regarding the extent of the competitive pressure and/or price reductions that would result from the expansion of Wuesthoff-Melbourne rather than the approval of VMC.12 However, the fact remains that VMC will strengthen Holmes’ market position in central and south Brevard County, which will not foster competition that promotes cost effectiveness. Not only will the approval of VMC negatively affect the evolution of competition in south Brevard County, but it will effectively preclude the construction of another hospital in the Viera area until 2029 when the exclusivity provisions and restrictive covenants discussed in Part D(2) above expire. The evidence was not persuasive that there was an anticompetitive motivation underlying Holmes’ decision to propose VMC, but the evidence does establish that the approval of VMC will have anticompetitive effects. As a result, the criteria in Section 408.035(7), Florida Statutes, strongly weigh against the approval of Holmes’ CON application. Subsection (8) -- Costs and Methods of Construction The parties stipulated that the costs (including equipment costs), methods of construction, and energy provision for VMC are reasonable; that the architectural drawings for the VMC satisfy the applicable code requirements; and that the construction schedule for VMC is reasonable. Thus, VMC satisfies the criteria in Section 408.035(8), Florida Statutes. Subsection (9) -- Medicaid and Charity Care Holmes conditioned the approval of its application on VMC providing the following levels of Medicaid and charity care: At least 3.0 percent of inpatients at [VMC] will be covered by Medicaid and/or Medicaid HMOs. At least 2.3 percent of the gross revenues of [VMC] will be attributable to patients who meet the guidelines for charity care. The Medicaid and charity commitments are lower than the averages for Brevard County, but they are reasonable and attainable in light of the demographics of the area that will be served by VMC. Holmes has a history of providing considerable services to Medicaid and charity patients, both at its existing facilities and through community programs such as HOPE. Wuesthoff also has a history of providing considerable services to Medicaid and charity patients at its existing facilities and through community programs such as its free clinic in Cocoa. Wuesthoff-Rockledge is a Medicaid disproportionate share provider, which entitles it to a higher Medicaid reimbursement rate from the State as a “reward” for serving more than its fair share of Medicaid patients. Holmes' hospitals and Wuesthoff-Melbourne are not Medicaid disproportionate share providers. Wuesthoff-Melbourne has not been open long enough to qualify. The Wuesthoff hospitals have a contract with Well Care, which is the only Medicaid HMO in Brevard County. Holmes' hospitals do not have a contract with Well Care. On a dollar-amount basis, Holmes provides considerably more Medicaid and charity care than any other hospital in Brevard County, including the Wuesthoff hospitals. In fiscal year 2003, for example, Holmes’ Medicaid gross revenues were $53.7 million (as compared to $39.7 million for the Wuesthoff hospitals) and its charity care gross revenues were $27.8 million (as compared to $10.9 million for the Wuesthoff hospitals). The larger dollar-amount of Medicaid and charity care provided by Holmes is due, at least in part, to Holmes being almost twice the size of the Wuesthoff hospitals. On a percentage basis, Holmes provides approximately the same level of charity care as Wuesthoff-Rockledge, but it provides less Medicaid care than Wuesthoff-Rockledge. In fiscal year 2003, for example, 2.8 percent of Holmes’ gross revenue was charity care (as compared to 2.5 percent for Wuesthoff- Rockledge) and seven percent of Holmes’ patient days were attributable to Medicaid patients (as compared to 10.9 percent for Wuesthoff-Rockledge). According to Mr. Gregg, the Agency gives more weight to the percentage of Medicaid and charity care provided by a hospital than it does to the dollar amount of such services. However, Mr. Gregg acknowledged that Holmes satisfies the criteria in Section 408.035(9), Florida Statutes, based upon its history of providing services to the medically indigent and its Medicaid and charity commitments at VMC. Holmes' satisfaction of the criteria in Section 408.035(9), Florida Statutes, is not given great weight in this proceeding because the medically indigent in central and south Brevard County are currently being adequately served by the existing facilities and, more significantly, zip code 32940, in which VMC will be located and from which it is projected to draw the largest percentage of its patients, has a lower percentage of Medicaid/charity patients and a higher median household income than Brevard County as a whole. Subsection (10) -- Designation as a Gold Seal Nursing Homes The parties stipulated that Section 408.035(10), Florida Statutes, is not applicable because Holmes is not proposing the addition of any nursing home beds. Rule Criteria The Agency rules implicated in this case -- Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038 -- do not contain any review criteria that are distinct from the statutory criteria discussed above. The “health care access criteria” and “priority considerations” in those rules focus primarily on the impact of the proposed facility on the medically indigent and other underserved population groups, as well as the applicant’s history of and/or commitment to serving those groups. Holmes satisfies those rule criteria, but they are not given great weight for the reasons discussed in Part F(1)(g) above. Impact of VMC on the Wuesthoff Hospitals As discussed above, VMC is projected to take patients that are currently being served by, or would otherwise be served by one of the existing hospitals in central or south Brevard County. Approximately 30 percent of VMC’s patient volume will come at the expense of the Wuesthoff hospitals. As a result of the projected population growth in central and south Brevard County over the planning horizon, the Wuesthoff hospitals are projected to have more admissions in 2010 than they currently have, whether or not VMC is approved. However, if VMC is approved, the Wuesthoff hospitals will have fewer admissions in 2010 than they would have had without VMC. The health planners who testified at the hearing agreed that in determining the impact of VMC on the Wuesthoff hospitals it is appropriate to focus on the number of admissions that the Wuesthoff hospitals would have received but for the approval of VMC. The Agency’s precedent is in accord. See Wellington, supra, at 54, 109 n.13. Holmes’ health planner projected in the CON application that the approval of VMC will result in the Wuesthoff hospitals having 1,932 fewer admissions in 2010 than they would have had without VMC, 998 at Wuesthoff-Rockledge and 934 at Wuesthoff-Melborune. Wuesthoff’s health planner projected that the approval of VMC will result in the Wuesthoff hospitals having 2,399 fewer admissions in 2010 than they would have had without VMC, 1,541 at Wuestoff-Rockledge and 858 at Wuesthoff-Melborune. The projections of Wuesthoff’s health planner are more reasonable because they are based upon more current market share data and, as to Wuesthoff-Melbourne, the projections may even be understated because its market share is still growing in the areas targeted by VMC. On a contribution-margin basis, the lost admissions projected by Wuesthoff’s health planner translate into a loss of approximately $3.9 million of income at Wuesthoff-Rocklege and a loss of approximately $2 million of income at Wuesthoff- Melbourne. Using the lost admissions projected by Holmes’ health planner, the lost income at Wuesthoff-Rockledge would be $2.51 million and the lost income at Wuesthoff-Melbourne would be $2.15 million. Thus, impact of VMC on the Wuesthoff system would be a lost income of at least $4.66 million and, more likely, $5.9 million. A loss of income in that range would be significant and adverse to the Wuesthoff hospitals, both individually and collectively. Even though the Wuesthoff system has a net worth of approximately $70.95 million, its net income (i.e., “excess of revenues over expenses”) was only $971,000 in 2003 and $1.1 million in 2004. The system is still recovering from a “devastating” financial year in 1999 when it reported a loss of almost $12 million. Wuesthoff-Melbourne reported a $4.1 million net loss in 2003, and as of June 2004, it had yet to show a profit. The significance of the projected lost income at the Wuesthoff hospitals is tempered somewhat by the increased patient volume that the hospitals are projected to have in 2010 even if VMC is approved. However, the evidence was not persuasive that the increased patient volumes will necessarily result in greater profits at the Wuesthoff hospitals in 2010.13 The approval of VMC will also likely result in a loss of outpatient volume at the Wuesthoff hospitals. However, there is no credible evidence regarding the amount of outpatient volume that would be lost or the financial impact of the lost outpatient volume on Wuesthoff.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Holmes’ application, CON 9759. DONE AND ENTERED this 17th day of June, 2005, 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 17th day of June, 2005.
The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.
Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).
Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1985.
The Issue The Petitioner, St. Joseph's Hospital, Inc., d/b/a St. Joseph's Hospital (Petitioner, Applicant, or St. Joseph's) filed Certificate of Need (CON) Application No. 9833 with the Agency for Health Care Administration (Agency or AHCA). The application seeks authority to establish a 90-bed acute care satellite hospital in southeastern Hillsborough County, Florida. St. Joseph's intends to transfer 90 acute care beds from its existing location in Tampa to the new facility. The issue in this case is whether the Agency should approve the CON application.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily denied St. Joseph's CON application No. 9833. The Petitioner is the applicant for the CON in this case. The Petitioner is a not-for-profit organization licensed to operate St. Joseph's Hospital, a general acute care facility located in the urban center of Tampa, Florida. It was originally founded by a religious order and has grown from approximately 40 beds to a licensed bed capacity of 883 beds. St. Joseph's provides quality care in a comprehensive range of services. Those services include tertiary and Level II trauma services. St. Joseph's provides services to all patients regardless of their ability to pay. To meet its perception of the growing healthcare needs of the greater Hillsborough County residents, St. Joseph's has proposed to construct a satellite hospital on a site it purchased in the mid-1980s. According to St. Joseph's, the satellite hospital, together with its main campus, would better address the growing community needs for acute care hospital services. To that end, St. Joseph's filed CON application No. 9833 and seeks approval of its satellite facility. It proposes to transfer 90 of its acute care beds from its current hospital site to the new satellite facility. The main hospital will offer support services as may be necessary to the satellite facility. Tampa General is an 877-bed acute care hospital located on Davis Island in urban Tampa, Florida. Prior to 1997, it was a public hospital operated by the Hillsborough County Hospital Authority but has since been operated and managed by a non- profit corporation, Florida Health Sciences, Inc. Tampa General provides quality care in a wide range of services that include tertiary and Level I trauma. Tampa General addresses the medical needs of its patients without consideration of their ability to pay. It is a "safety net" provider and is the largest provider of services to Medicaid and charity patients in the AHCA District 6/Subdistrict 1. Medicaid has designated Tampa General a "disproportionate share" provider. Tampa General is also a teaching hospital affiliated with the University of South Florida's College of Medicine. Recently, Tampa General has undergone a major construction project that brings on line a new emergency trauma center as well as additional acute care beds, a women's center, a cardiovascular center and a digestive diagnostic and treatment center. Tampa General opposes the CON request at issue. South Bay and Brandon also oppose St. Joseph's CON application. South Bay is a 112-bed community acute care hospital located in Sun City Center, Florida. South Bay has served the community for about 25 years and offers quality care but does not provide obstetrical services primarily because its closest population and patient base is a retirement community restricted to persons over 55 years of age. In contrast, Brandon is an acute care hospital with 367 beds located to South Bay's north in Brandon, Florida. Brandon provides quality care with a full range of hospital services including obstetrics, angioplasty, and open-heart surgery. Brandon also has neonatal intensive care (NICU) beds to serve Level II and Level III needs. It is expected that Brandon could easily add beds to its facility as it has empty "shelled-in" floors that could readily be converted to add 80 more acute care beds. Both Brandon and South Bay are owned or controlled by Hospital Corporation of America (HCA) and are part of its West Florida Division. The Proposal St. Joseph's has a wide variety of physicians on its medical staff. Those physicians currently offer an array of general acute care services as well as medical and surgical specialties. St. Joseph's provides Levels II and III NICU, open heart surgery, interventional radiology, primary stroke services, oncology, orthopedic, gynecological oncology, and pediatric surgical. Based upon its size, reputation for quality care, and ability to offer this wide array of services, St. Joseph's has enjoyed a well-deserved respect in its community. To expand its ties within AHCA's District 6/Subdistrict 1 healthcare community, St. Joseph's affiliated with South Florida Baptist Hospital a 147-bed community hospital located in Plant City, Florida. This location is east of the main St. Joseph Hospital site. Further, recognizing that the growth of greater Hillsborough County, Florida, has significantly increased the population of areas previously limited to agricultural or mining ventures, St. Joseph's now seeks to construct a community satellite hospital located in the unincorporated area of southeastern Hillsborough County known as Riverview. The Petitioner owns approximately 50 acres of land at the intersection of Big Bend Road and Simmons Loop Road. This parcel is approximately one mile east of the I-75 corridor that runs north-south through the county. In relation to the other parties, the proposed site is north and east of South Bay, south of Brandon, and east and south of Tampa General. South Florida Baptist Hospital, not a party, is located to the north and farther east of the proposed site. The size of the parcel is adequate to construct the proposed satellite as well as other ancillary structures that might compliment the hospital (such as medical offices). If approved, the Petitioner's proposal will provide 66 medical-surgical beds, 14 beds within an intensive care unit, and 10 labor and delivery beds. All 90 beds will be "state-of- the-art" private rooms along with a full-service emergency department. The hospital will be fully digital, use an electronic medical record and picture archiving system, and specialists at the main St. Joseph's hospital will be able to access images and data at the satellite site in real time. A consultation would be, theoretically, as close as a computer. In reaching its decision to seek the satellite hospital, St. Joseph's considered input from many sources; among them: HealthPoint Medical Group (HealthPoint) and BayCare Health System, Inc. (BayCare). HealthPoint is a physician group owned by an affiliate of St. Joseph's. HealthPoint has approximately 80 physicians who operate 21 offices throughout Hillsborough County. All of the HealthPoint physicians are board certified. At least five of the HealthPoint offices would have quicker access to the proposed satellite hospital than to the main St. Joseph's Hospital site. The HealthPoint physicians support the proposal so that their patients will have access to, and the option of choosing, a St. Joseph facility in the southeastern part of the county. BayCare is an organization governed by a cooperative agreement among nonprofit hospitals. Its purpose is to assist its member hospitals to centralize and coordinate hospital functions such as purchasing, staffing, managed care contracting, billing, and information technology. By cooperatively working together, its members are able to enjoy a cost efficiency that individually they did not enjoy. The "synergy" of their effort results in enhanced quality of care, efficient practices, and a financial savings to their operations. The proposed St. Joseph's satellite would also share in this economy of efforts. Understandably, BayCare supports the proposal. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: ...If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to St. Joseph's, "need" is evidenced by a large and growing population in the proposed service area (PSA), sustained population growth that exceeds the District and state average, highly occupied and seasonally over capacity acute care beds at the existing providers, highly occupied and sustained increases in demand for hospital services, a scarcity of emergency medical service resources within the PSA compounded by budget cuts, increases in traffic congestion and travel times to the existing hospitals, the lack of a nonprofit community hospital near the proposed site, and the lack of local obstetrical services. In this case the Petitioner has identified the PSA as a 10 zip code area with 7 being designated the "primary" area of service (PSA) and 3 zip codes to the north being identified as the "secondary" area of service (SSA). The population of this PSA is projected to reach 322,913 by the year 2011 (from its current 274,696). All parties used Claritas data to estimate population, the PSA growth, and various projections. Claritas is a conservative estimator in the sense that it relies on the most recent U. S. census reports that may or may not track the most recent growth indicators such as building starts or new home sales. Nevertheless, if accurate, the estimated 17.5 percent population growth expected in the new satellite hospital's PSA exceeds the rate of growth estimated for AHCA District 6 as well as the projected State of Florida growth rate. From the 7 primary zip codes within the PSA alone the area immediately adjacent to the subject site is estimated to grow by 14,900 residents between 2006 and 2011. Over the last 20 years the PSA has developed from rural farming and mining expanses with scattered housing and trailer parks to an area characterized by modern shopping centers, apartment complexes, housing subdivisions, churches, libraries, and new schools. Physicians in the area now see as many as 60 patients per day and during the winter peak months may admit up to 20 patients per week to hospitals. Travel times from the southern portion of the PSA to St. Joseph's Hospital, Tampa General, or Brandon, can easily exceed 30 minutes. Travel times to the same providers during "rush" or high traffic times can be longer. All of the opponent providers have high occupancy rates and experience seasonal over capacity. During the winter months visitors from the north and seasonal residents add significant numbers to the population in Hillsborough County. These "snow birds" drive the utilization of all District 6/Subdistrict 1 hospitals up. Further, increased population tends to slow and congest traffic adding to travel times within AHCA District 6/Subdistrict 1. Both Brandon and Tampa General have recently added beds to address the concerns of increased utilization. Additionally, Tampa General has expanded its emergency department to provide more beds. South Bay has elected to not increase its bed size or emergency department. South Bay has experienced difficulty staffing its emergency department. When faced with capacity problems, South Bay "diverts" admissions to other hospitals. When the emergency rooms of the Opponent providers are unable to accommodate additional patients, the county emergency transport is diverted to other facilities so that patients have access to emergency services. During the winter season and peak flu periods this diversion is more likely to occur. Another hospital in the southeastern portion of the county, within St. Joseph's satellite PSA, would alleviate some of the crowding. More specifically, South Bay's annual occupancy rate in 2006 was 80.1 percent. For the first seven months of 2007, South Bay's average occupancy rate was 88.4 percent. These rates indicate that South Bay is operating at a high occupancy. Operating at or near capacity is not recommended for any hospital facility. Long term operation at or near occupancy proves to be detrimental to hospital efficiencies. Similarly, Brandon operates at 70 percent of its bed capacity. Even though it has recently added beds it intends to add more beds to address continuing increases in admissions. Brandon's emergency room is also experiencing overcrowded conditions. When Brandon's emergency room diverts patients their best option may be to leave District 6/Subdistrict 1 for care. Tampa General is a large complex and its emergency department has been expanded to attempt to address an obvious need for more services. It is unknown whether the new emergency department will adequately cure the high rates of diversion Tampa General experienced in 2007. New beds were added and an improved emergency department was designed and constructed with the expectation that Tampa General's patients would be better served. Based upon Tampa General's expansion and its projected growth, Tampa General could experience an occupancy rate over 75 percent by 2011. If so, Tampa General could easily return to the utilization problems previously experienced. There are no obstetrical services offered south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer obstetrics and has designated a 10-bed unit to accommodate those patients. There are no nonprofit hospitals south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer patients in the PSA with the option of using such a hospital. Section 408.035(2), Florida Statutes (2007), requires the consideration of 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. As previously stated, all of the parties provide quality care to their patients. Although delays in emergency departments may inconvenience patients, the quality of the medical care they receive is excellent. Similarly, hospital services are available and can be accessed in AHCA District 6/Subdistrict 1. The parties provide a full range of healthcare service options that address the medical and surgical needs of the residents of AHCA District 6 Subdistrict 1. An additional hospital would afford patients with another choice of provider in the southeastern portion of the county. The St. Joseph satellite hospital would afford such patients with a hospital option within 30 minutes of the areas within the PSA. This access would promote shorter wait times and less crowded facilities. Section 408.035(3), Florida Statutes (2007), mandates review of CON applications in light of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As previously stated St. Joseph's has a well-deserved reputation for providing quality care within a wide range of hospital services to its patients. It is reasonable to expect the satellite hospital would continue in the provision of such care. The management team and affiliations established by St. Joseph's will continue to pursue quality care to all its patients regardless of their ability to pay. Section 408.035(4), Florida Statutes (2007), considers the availability of resources for project accomplishment and operation. Resources that must be considered include healthcare personnel, management personnel, and funds for capital and operating expenditures. St. Joseph's has the resources to accomplish and operate the satellite hospital proposed. St. Joseph's has a successful history of recruiting and retaining healthcare personnel and management personnel. The estimates set forth in its CON application for these persons were reasonable and conservative. Salaries and benefits for healthcare personnel and management personnel should be within the estimated provisions set forth in the application. Although there is a nationwide shortage of nursing personnel and physicians in certain specialties, St. Joseph's has demonstrated it has a track record of staffing its facility to meet appropriate standards and provide quality care. There is no reason to presume it will not be similarly successful at the satellite facility. St. Joseph's has also demonstrated it has the financial ability to construct and operate the proposed satellite hospital. The occupancy rates projected for the new hospital will produce a revenue adequate to make the hospital financially feasible. Further, if patients who reside closer to the satellite facility use it instead of the main St. Joseph Hospital, a lower census at the main hospital will not adversely impact the financial strength of the organization. There will be adequate growth in the healthcare market for this PSA to support the new facility as well as the existing providers. It must be noted, however, that construction costs for the satellite hospital will exceed the amounts disclosed by the CON application. Some of the increases in cost are significant. For example, the estimate for the earthwork necessary for site preparation has risen from $417,440 to $1,159,296. Additionally, most of the unit prices for construction have gone up dramatically in the past couple of years. Hurricanes and the resulting increased standards for building codes have also driven construction costs higher. More stringent storm water provisions have resulted in higher construction costs. For this project it is estimated the storm water expense will be $500,000 instead of the original $287,000 proposed by the CON application. In total these increases are remarkable. They may also signal why development in AHCA's District 6/Subdistrict 1 has slowed since the CON application was filed. Regardless, St. Joseph's should have the financial strength to construct and operate the project. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require a CON applicant to demonstrate that the existing acute care providers within the PSA are failing in order to approve a satellite hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a satellite hospital would be appropriate or inappropriate. In fact, AHCA has approved satellite hospitals when residents of the PSA live within 20 minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case the proposed satellite hospital will provide a convenience to residents of southeastern Hillsborough County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the satellite hospital. Patients who would not benefit from the convenience of the proposed satellite hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C- 1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of AHCA District 6/Subdistrict 1 will continue to use the existing providers who offer those services. The approval of the St. Joseph satellite will not adversely affect the tertiary providers in AHCA District 6/Subdistrict 1 in terms of their ability to continue to provide those services. The new satellite will not compete for those services. Tampa General has a unique opportunity to provide tertiary services and will continue to be a strong candidate for any patient in the PSA requiring such services. As a teaching hospital and major NICU and trauma center, Tampa General offers specialties that will not be available at the satellite hospital. If non-tertiary patients elect to use the satellite hospital, Tampa General should not be adversely affected. Tampa General has performed well financially of late and its revenues have exceeded its past projections. With the added conveniences of its expanded and improved facilities it will continue to play a significant roll in the delivery of quality health care to the residents of the greater Tampa area. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new satellite hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The satellite hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. AHCA's District 6/Subdistrict 1 enjoys a varied range of healthcare providers. From the teaching hospital at Tampa General to the community hospital at South Bay, all demonstrate strong financial stability and utilization. A new satellite hospital will promote continued quality and cost-effectiveness. As a member of the BayCare group the satellite will benefit from the economies of its group and provide the residents of its PSA with quality care. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. The costs, however, are not accurate in that most have gone up appreciably since the filing of the CON application. No more effective method of construction has been proposed but the financial soundness of the proposal should cover the increased costs associated with the construction of the project. The delays in resolving this case have worked to disadvantage the Applicant in this regard. Unforeseeable acts of nature, limitations of building supplies, and increases inherent with the passage of time will make this project more costly than St. Joseph's envisioned when it filed the CON application. Further, it would be imprudent to disregard the common knowledge that oil prices have escalated while interest rates have dropped. These factors may also impact the project's cost. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. St. Joseph's has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The satellite hospital would be expected to continue this tradition. Moreover, as a provision of its CON application, St. Joseph's has represented it will provide 12.5 percent of its patient days to Medicaid/Medicaid HMO/Charity/Indigent patients. 57 Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Opposition The SAAR set forth the Agency's rationale for the proposed denial of the CON application. The SAAR acknowledged that the proposal had received 633 letters of support (80 from physicians, 365 from St. Joseph employees, and 191 from members of the community); that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the Applicant meets its projected occupancy levels; that the project would have a marginally positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule "seems to be reasonable" for the project. Notably in opposition to the CON application, the SAAR represented that: It is not clear that projected population growth for this area will outpace the ability of subdistrict facilities to add beds to accommodate population growth. The subdistrict's most recent average utilization rate was 63.40 percent, and an additional facility has already been approved for this applicant in this county for the purpose of handling forecasted growth. Growth projected for females aged 15-44 is not significantly higher for the county than for the district or state, and it is not demonstrated that need exists for obstetric services in the subdistrict. The foregoing analysis did not credit the projected population growth for the PSA applicable to this proposal heavily. The population growth expected for the PSA will support the utilization necessary for the proposed project. Applying the Agency's assessment, all existing hospital providers could add beds to meet "need" for a Subdistrict and thereby eliminate the approval of any satellite community facility that would address local concerns. Also, South Bay has conceded it will not add beds at its location. Additionally, the SAAR stated: While both South Bay Hospital and Brandon Regional Hospital have occupancy rates such that the introduction of a competing facility would not likely inhibit their abilities to maintain operations, the same cannot be stated for Tampa General Hospital, the only designated Disproportionate Share Hospital in this subdistrict. Any impact on Tampa General Hospital as a result of the proposed project would likely be negative, limiting Tampa General's ability to offset its Medicaid and charity care services. The applicant facility does not currently have a significant presence in the proposed market, and would have to gain market share in this PSA in order to meet its projected occupancy levels. Much of the market share gained by the applicant with the proposed facility would likely be at the expense of existing facilities in this area, most notably Tampa General due to its lower occupancy level and higher Medicaid and charity care provisions. In reaching its decision, the Agency has elected to protect Tampa General from any negative impact that the proposed satellite hospital might inflict. Tampa General has invested $300 million in improvements. It is a stand-alone, single venue hospital that has not joined any group or integrated system. It relies on its utilization levels, management skill and economies of practice to remain solvent. Tampa General considers itself a unique provider that should be protected from the financial risks inherent in increased competition. It is the largest provider of services to indigent patients in AHCA District 6/Subdistrict. Brandon opposes the proposed satellite hospital in part because it, too, has expanded its facility and does not believe additional beds are needed in AHCA District 6/Subdistrict 1. Nevertheless when a related facility sought to establish a satellite near the St. Joseph's site, Brandon supported the project. Brandon provides excellent quality of care and has a strong physician supported system. It will not be adversely affected in the long run by the addition of a satellite hospital in St. Joseph's PSA. Similarly, South Bay opposes the project. South Bay will not expand and does not provide obstetric services. It has had difficulty staffing its facility and believes the addition of another competitor will exacerbate the problem. Nevertheless, South Bay has a strong utilization level, a track record of financial strength, and will not likely be adversely impacted by the St. Joseph satellite. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new satellite hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9833 with the conditions noted. DONE AND ENTERED this 13th day of May, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH 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 13th day of May, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Holly Benson, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P. A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32304-0551 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 Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308
The Issue The issue is whether the Agency should approve the Certificate of Need applications filed by Manatee Memorial and/or HMA, each of which proposes to establish a new acute care hospital to serve the city of North Port in Sarasota County, Acute Care Subdistrict 8-6.
Findings Of Fact Parties Manatee Memorial Manatee Memorial, the applicant for CON 9767, is a subsidiary of Universal Health Services, Inc. (UHS). UHS is a publicly-traded corporation that is headquartered in Pennsylvania. UHS is a financially-sound company. In 2003, its net revenues were approximately $3.6 billion, its net operating income was $355.7 million, and its after-tax net income was $199.2 million. Manatee Memorial is also financially-sound despite a net loss of $2.5 million in 2003. It had net income of $13.9 million in 2002, and its net revenues increased from $164.5 million in 2002 to $180.9 million in 2003. As of December 31, 2003, Manatee Memorial’s total assets exceeded its total liabilities by $56.3 million. UHS operates approximately 100 healthcare facilities in the United States and abroad. The facilities operated by UHS include behavioral health/psychiatric facilities, surgery centers, and 37 acute care hospitals. Three of the acute care hospitals operated by UHS are in Florida. They are Wellington Regional Medical Center in south Palm Beach County, Manatee Memorial Hospital (MMH) in Bradenton, and Lakewood Ranch Medical Center (Lakewood Ranch) in Manatee County, near the Manatee County/Sarasota County border. MMH and Lakewood Ranch are operated under a single license issued by the Agency. Manatee Memorial is the licensee. MMH started as a community hospital in the 1950’s. It was acquired by UHS in 1996 and has undergone significant capital improvements since the acquisition. MMH has 319 beds. It provides tertiary services, including open-heart surgery (OHS) and interventional cardiology services. It has a Level II neonatal intensive care unit (NICU), and a full-service emergency department (ED) that operates 24 hours a day, 7 days a week (24/7). Lakewood Ranch opened in September 2004. It has 120 beds and a 24/7 ED. It offers obstetrical (OB) services, but it does not have any NICU beds. It does not provide any tertiary services. MMH and Lakewood Ranch are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). MMH and Lakewood Ranch accept all patients without regard to their ability to pay. MMH has been recognized as a “Top 100” hospital by Solucent, and it has received other accolades for the quality of care and community support that it provides. There is significant overlap in the medical staffs at Lakewood Ranch and MMH. The Lakewood Ranch CON application projected that the hospital would have an average daily census (ADC) of 46.8 in its first year of operation, which equates to a 39 percent utilization rate. Manatee Memorial’s witnesses acknowledged at the hearing that Lakewood Ranch would likely not meet those projections. The total cost of Lakewood Ranch was $48.7 million, which is $8.1 million more than was projected in the CON application for the hospital. Approximately $2.9 million of the “cost overrun” was attributed to additional IT systems beyond those specified in the CON application. HMA HMA, the applicant for CON 9768, is a subsidiary of Health Management Associates, Inc. (HMA, Inc.) HMA, Inc., is a publicly-traded corporation that is headquartered in Naples. It operates 57 hospitals in 16 states. HMA, Inc., is a financially-sound company. Its net revenues increased from $1.1 billion in 1998 to $3.2 billion in 2004. Its net income increased from $137 million to $325 million over that same period. HMA, Inc., operates 14 acute care hospitals and two behavioral health/psychiatric facilities in Florida. It also has CON approval for new acute care hospitals in Brooksville and Naples. Most of the hospitals operated by HMA, Inc., are in non-urbanized areas. According to its 2004 annual report, HMA, Inc., “focuses on non-urban America because many of those communities are underserved medically, have populations that are growing faster than the national average, and offer competitive advantages compared to major urban areas.” The Florida hospitals operated by HMA, Inc., include Charlotte Regional Medical Center (Charlotte Regional) in Punta Gorda, Peace River Regional Medical Center (Peace River) in Port Charlotte, and Venice Hospital in Venice. Charlotte Regional has 208 beds, including 156 acute care beds and 52 psychiatric beds. It has a 24/7 ED and it offers OHS and inpatient psychiatric care. It does not offer OB services. Peace River has 212 beds, but only 170 of the acute care beds were available for use at the time of the final hearing. It has a 24/7 ED and a 20-bed skilled nursing unit. It offers OB services, but it does not have any NICU beds. Venice Hospital has 342 licensed beds. It has a 24/7 ED and a skilled nursing unit. It offers OHS and inpatient rehabilitation services. A majority of the beds at Charlotte Regional, Peace River, and Venice Hospital are in semi-private rooms. Charlotte Regional, Peace River, and Venice Hospital are all accredited by JCAHO, and they all accept patients without regard to their ability to pay. Charlotte Regional has been recognized as one of the top 100 cardiovascular hospitals in the country. Peace River and Venice Hospital were formerly not-for- profit hospitals operated by the Bon Secuors organization. Peace River was formerly known as Bon Secours St. Joseph’s Hospital (BS-St. Joe) and Venice Hospital was formerly known as Bon Secours Venice Hospital (BS-Venice). HMA, Inc., entered into an agreement to acquire BS-St. Joe and BS-Venice in November 2004. The acquisition, which was completed in February 2005, also included a hospital in Virginia, a nursing home in Port Charlotte, and “health parks” in northern Charlotte County, Venice, and North Port. BS-St. Joe and BS-Venice were not profitable at the time that they were acquired by HMA. The financial performance of those hospitals has improved significantly under HMA’s management, primarily through better management of accounts receivable. Englewood Englewood is owned and operated by HCA, Inc. (HCA). HCA is a publicly-traded corporation and the largest for-profit acute care hospital chain in the country. Englewood is located in the city of Englewood, which is in Sarasota County on the Cape Haze Peninsula near the Sarasota County/Charlotte County line. Englewood has 100 beds and a 24/7 ED. It does not offer OB services. Its largest service lines are cardiology, general medicine, orthopedics, and pulmonology. Englewood is accredited by JCAHO. It has received special accreditation for its chest pain center and certification from the American Stroke Association for its stroke care. Englewood accepts all patients without regard to their ability to pay. Englewood’s building has one floor. All of its beds are in semi-private rooms, except for four isolation rooms. Englewood is authorized to use its acute care beds as “swing beds” to provide skilled nursing care. Englewood’s primary service area (PSA) includes the Cape Haze Peninsula. Its secondary service area (SSA) includes south Venice and the mostly-undeveloped portion of North Port to the west of the Myakka River in zip code 34287. Englewood’s census ranges from 30 to 90 patients, depending upon the time of the year. During the “season” in 2005, its census peaked at 93 patients and averaged 73 patients. At the time of the final hearing, Englewood’s census was in the mid-50’s. Fawcett Fawcett is owned and operated by HCA. Fawcett is located in Port Charlotte, directly across the street from Peace River and five miles south of the city of North Port. Fawcett has 238 beds, a 24/7 ED, a 20-bed intensive care unit (ICU), a 20-bed comprehensive medical rehabilitation (CMR) unit, and a diagnostic cardiac cath lab. Fawcett does not offer OB services. It will be opening an ambulatory surgical center in December 2005. Fawcett is accredited by JCAHO, and it was recently designated as a primary stroke center. Its oncology unit is affiliated with the Moffitt Cancer Center. Fawcett accepts all patients without regard to their ability to pay. Fawcett’s building has four floors. All of its beds are in semi-private rooms, except for the ICU beds and two isolation rooms. Fawcett suffered significant damage during Hurricane Charley in August 2004. The hospital’s fourth floor, which had 78 beds (including 10 ICU beds), was closed as a result of the damage. At the time of the final hearing, Fawcett was still in the process of repairing the damage to the fourth floor, and it had only 165 beds (including the CMR beds and 14 ICU beds) available for use. Fawcett’s PSA includes two of the North Port zip codes, 32486 and 32487. Those zip codes encompass the vast majority of the city’s geographic area. Agency The Agency is the state agency that administers the CON program. It is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Review and Preliminary Agency Action Manatee Memorial and HMA each filed letters of intent and CON applications in the February 2004 batching cycle for hospital beds and facilities. Each application sought Agency approval to establish a new acute care hospital in Subdistrict 8-6 to serve the city of North Port. The fixed need pool published by the Agency for the February 2004 batching cycle identified a need for zero new acute care beds in Subdistrict 8-6. There were no challenges to the fixed need pool. HMA’s letter of intent was filed in the “grace period” established by Florida Administrative Code Rule 59C-1.008(1)(d) in direct response to Manatee Memorial’s earlier-filed letter of intent. Manatee Memorial’s application was designated CON 9767, and HMA’s application was designated CON 9768. The applications complied with the technical submittal requirements in the statutes and Agency rules, and they were properly accepted for review by the Agency. The Agency comparatively reviewed the CON applications filed by Manatee Memorial and HMA. The Agency’s review of the applications complied with the applicable statutes and Agency rules. The Agency’s review culminated in a State Agency Action Report (SAAR) issued on June 11, 2004. The SAAR recommended denial of Manatee Memorial’s CON 9767 and approval of HMA’s CON 9768. The SAAR was issued prior to HMA’s acquisition of BS- St. Joe and BS-Venice. The Agency’s preference for HMA’s application over Manatee Memorial’s application was primarily based upon its assessment that HMA’s projected utilization was more reasonable and attainable than Manatee Memorial’s projected utilization. The SAAR recommended that the approval of HMA’s application be conditioned upon HMA providing 6.9 percent of the patient days at its North Port hospital to Medicaid patients and 2.9 percent of the patient days to charity patients. Those percentages were derived from the payor-mix assumptions used in the revenue projections in Schedule 7A of HMA’s CON application. The Agency published notice of its decisions on the CON applications in the Florida Administrative Weekly on June 25, 2004. The petitions for administrative hearing were all timely filed. The Agency reaffirmed its support for HMA’s application and its opposition to Manatee Memorial’s application at the final hearing through the testimony of Jeffrey Gregg, the bureau chief over the Agency’s CON program. Mr. Gregg testified that the Agency’s support of HMA’s application is unaffected by HMA's acquisition of BS-St. Joe and BS-Venice even though he acknowledged that the acquisition may have implications on the competition for acute care services in market in and around the city of North Port. Subdistricts 8-1 and 8-6 District 8 is comprised of Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. There are six subdistricts in District 8, only two of which are relevant to this case. They are Subdistricts 8-1 and 8-6. Subdistrict 8-6 is comprised of Sarasota County. There are no other counties in the subdistrict. There are four acute care hospitals in Subdistrict 8-6: Sarasota Memorial Hospital (Sarasota Memorial), Doctors Hospital of Sarasota (Doctors), Venice Hospital, and Englewood. Sarasota Memorial and Doctors are in northern Sarasota County in the city of Sarasota. Venice Hospital and Englewood are in southern Sarasota County. Sarasota Memorial is a not-for-profit, taxpayer supported hospital. Doctors is an HCA hospital. Sarasota County is bordered on the south by Charlotte County, which is the only county in Subdistrict 8-1. There are three acute care hospitals in Subdistrict 8-1: Peace River, Charlotte Regional, and Fawcett. There are a total of 1,776 licensed acute care beds at the seven hospitals in Subdistricts 8-1 and 8-6. That number has remained constant since at least 2002. The overall annual occupancy rate for the hospitals in Subdistricts 8-1 and 8-6 was 49.53 percent in 2002. In 2003 and 2004, the overall annual occupancy rate was approximately 46.4 percent. Between 2002 and 2004, Charlotte Regional had the highest occupancy rate of any of the hospitals in Subdistricts 8-1 and 8-6, but its occupancy rate did not exceed 67 percent in any of those years. In 2004, its annual occupancy rate was only 56.6 percent. The occupancy rates at the existing hospitals is higher during the “season,” but the evidence was not persuasive that any of the existing hospitals are routinely at or over capacity during the “season” or at any other time during the year. In 2002, there were a total of 321,696 patient days at the hospitals in Subdistricts 8-1 and 8-6. By 2004, the total number of patient days had declined to 301,099. Some, but not all, of that decline is attributable to Hurricane Charley, which directly hit the Port Charlotte area in August 2004 causing significant damage to Fawcett and disrupting service at the other hospitals in the area. There are no geographic barriers between Sarasota and Charlotte Counties. The service areas of the hospitals in southern Sarasota County and the hospitals in northern Charlotte County overlap, and there is significant cross-migration of patients between the counties. There is significant competition for acute care services in both Charlotte and Sarasota Counties. No hospital organization has a dominant market position. In 2004, for example, Sarasota Memorial had a 47 percent market share in Sarasota County, the HCA hospitals had a 22.8 percent market share, and the HMA hospitals (including the former Bon Secours hospitals) had a 21.4 percent market share. In the combined Sarasota County/Charlotte County “market,” the HMA hospitals (including the former Bon Secours hospitals) had a 33.7 percent market share, Sarasota Memorial had a 31.4 percent market share, and the HCA hospitals had a 25.6 percent market share. City of North Port (1) Generally The city of North Port is located in southern Sarasota County. The southern border of the city is the Sarasota County/Charlotte County line. The city roughly corresponds to the area encompassed by zip codes 34286, 34287, and 34288. Zip code 34289 is also a North Port zip code, but there is no geographic area assigned to that zip code. The city was platted in the 1960’s by General Development Corporation. The plats covered approximately 75 square miles of land and included approximately 70,000 residential lots, only 20 percent of which have been developed. There are also several large "developments of regional impact" under construction or in the planning stages within the city that together are projected to add at least 15,000 more residential units to the city over the next 15 to 20 years. A number of the streets that were constructed when the city was originally platted have fallen into disrepair, which hampers the provision of police, fire, and EMS. The city is currently conducting a comprehensive street inventory to assess the extent of the problem. Additional undeveloped land has been annexed into the city over the years, which has increased the city's size to 103 square miles. Currently, North Port is the fourth largest city in the state in terms of landmass. The Myakka River runs through the western portion of the city. The land to the west of the Myakka River is mostly undeveloped and includes the Myakka State Forest. Residential lots and open space make up approximately 95 percent of the city’s platted land area. The non-residential uses are clustered in five “activity centers” around the city. Major roadways through North Port include Interstate 75 (I-75), which runs east-west in the vicinity of the northern city limit and then north-south in the vicinity of the eastern city limit; U.S. Highway 41 (US 41), which runs parallel to I-75 in the southern portion of the city; Price Boulevard, which runs parallel to I-75 and US 41 through the center of the city; and Toledo Blade Boulevard and Sumter Boulevard, which run north- south near the center of the city. Toledo Blade, Sumter, and Price Boulevards are in need of widening, and there are several intersections on those roads that are operating below their adopted levels of service. It is not clear when the widening will occur, and the city’s concurrency management ordinance may soon require a moratorium on the issuance of building permits in the geographic areas impacting those intersections. The city is also in the process studying how to control its growth. The possibility of a moratorium is part of that study, but no recommendations had been formulated on that issue as of the date of the hearing. As a result, the likelihood of a moratorium on building permits in areas other than those which impact the intersections referenced above is unknown. Two of the activity centers are located on Toledo Blade Boulevard, two are located on Sumter Boulevard, and the other is located US 41. Hospitals are considered a permitted use in the activity centers. There is currently no acute care hospital or 24/7 urgent care facility in North Port. The North Port Health Park, which was acquired by HMA in February 2005 along with BS-St. Joe and BS-Venice, offers a variety of outpatient services and diagnostic procedures (e.g., echocardiography, mammograms, and “CAT scans”). It also includes approximately 20 physician offices and a clinical laboratory. The volume of diagnostic procedures at the North Port Health Park increased significantly between 1999 and 2004. There has also been steady growth in its laboratory volume over that period. Patients frequently come to the North Port Health Park with conditions requiring emergency services or hospitalization, which requires an ambulance to be called to transport the patient to one of the existing hospitals in the area. North Port city officials have been actively pursuing the establishment of a hospital in the city for several years. In 2003, the city engaged health planner Gene Nelson to study the feasibility of a hospital in the city. At the time, the City was considering filing its own CON application. Mr. Nelson presented a report to the City Council in June 2003, in which he concluded that it was “premature” for a hospital in North Port at that time. He projected that a hospital in North Port could “eventually” reach census levels to support a 59-bed to 74-bed hospital, and that even under more “aggressive” or “optimistic” assumptions, there would be a need for only 84 beds in 2010. The city ultimately decided to devote its efforts to encouraging an existing hospital company to build a hospital in the city and, in that regard, the City Commission voted to actively support those efforts through a “locally based campaign to collect letters of support for the hospital.” In January 2004, the City Council adopted a resolution reaffirming its “objective” to get a hospital in the city and expressing its support for Manatee Memorial’s proposal to build the hospital. There is considerable support for the establishment of a hospital in North Port from the residents of the city. The Agency received more than 20,000 letters and petitions from city residents urging the Agency to approve a hospital in the city. A community’s desire for a new hospital does not mean there is a “need” for a new hospital. Under the CON program, the determination of need for a new hospital must be based upon sound health planning principles, not the desires of a particular local government or its citizens. There are approximately 40 physicians who practice in North Port, but only nine of those physicians have full-time practices in the city. The others have part-time practices, meaning that they are in their North Port office for only part of the week. Most of the physicians practicing in North Port are primary care physicians, but there are also specialists in cardiology, oncology, general surgery, radiology, and other fields. Many of the physicians have their offices in the North Port Health Park. Population The city of North Port has grown steadily since 1970. In 2000, according to the U.S. Census Bureau, the city’s population was 22,797. Approximately 31 percent of the city’s residents are in the 65 and older (65+) age cohort. The largest percentage of the residents in the 65+ age cohort are in zip code 34287, which is growing at a slower rate than the other zip codes in the city. The median age in the city is declining. In 1990, the median age was 49, and in 2000, the median age was 41. In 2004, according to the University of Florida’s Bureau of Economic and Business Research (BEBR), the city’s population was 35,721. BEBR publishes the “official” population estimates for cities and counties in Florida. It does not project future populations and it does not provide population data by zip code. Claritas is a national demographic research firm. It projects future population by zip code, by age cohort, and with other demographic information. Health planners commonly rely upon the population projections from Claritas in preparing CON applications. Claritas projects future population in five-year increments, and it updates its population projections annually. At the time Manatee Memorial and HMA filed their CON applications, the most current Claritas data was for the period of 2003-2007. Population projections beyond 2007 were extrapolated based upon the annual population increases reflected in the available Claritas data. At the time of the final hearing, the most current Claritas data was for the period of 2004-2008. The North Port Planning and Zoning Department uses its own methodology to project future population for the city. The population projections are used in the city’s capital improvement planning and in the development of its comprehensive plan. The city’s methodology uses Census data as the starting point and then projects the future population by using a “rolling average” of the number of residential building permits issued in the previous five years to develop a projected number of residential building permits for each future year. A factor of 2.48 individuals per household (which is a North Port- specific figure from the U.S. Census Bureau) is then used to project the annual increase in population for each year in the future. A factor of 10 percent is added to the projection for seasonal residents. The evidence was not persuasive that the projections based upon the city's methodology are reliable. The city’s methodology typically results in population projections that are materially higher than the official BEBR estimates. For example, the city’s methodology projected a 2004 population of 39,662, which is approximately 11 percent higher than the official BEBR estimate of 35,721. The city’s methodology is based upon building permits, not certificates of occupancy or some other measure that would indicate that the residence was completed and, more importantly, inhabited. The city’s methodology also assumes continued growth at the historical rate and does not take into account the possibility of a moratorium on the issuance of building permits, which was being studied by the city at the time of the final hearing. The Claritas population projections are not entirely accurate either. Claritas typically under-projects future population in fast-growing areas, such as North Port. For example, the 2003-2007 Claritas data projected that the city’s 2004 population would be 32,487, which was approximately 9.1 percent lower than the official BEBR estimate of 35,721. The variance between the Claritas population projections and the projections based upon the city’s methodology are more pronounced in the later years. In 2010, for example, the city’s projected population based upon an extrapolation of the 2003-2007 Claritas data was 39,446 as compared to 72,066 based upon the city’s methodology. The population projections based upon the 2003-2007 Claritas data are too low and the projections based upon the city’s methodology are too high. On balance, the most reasonable population projections for the city of North Port contained in the record are those in Exhibit EF-10. Those projections, which were based upon the updated Claritas data for 2004-2008 and then extrapolated for 2009 and 2010, are as follows: 36,733 in 2004; 38,613 in 2005; 40,601 in 2006; 42,703 in 2007; 44,928 in 2008; 47,283 in 2009; and 49,777 in 2010. The 2004-2008 Claritas data better takes into account the city’s historically-high growth rate than does the 2003-2007 Claritas data, but it results in a more realistic projection of the city’s 2010 population than does the city’s methodology. Hospital Discharges There were 4,473 non-tertiary patients from the North Port zip codes discharged from a hospital in Florida in 2004.1 Only 1,356 (or approximately 30.3 percent) of the non-tertiary patients from the North Port zip codes were discharged from a hospital in Subdistrict 8-6, which means that almost 70 percent of the patients “out-migrated” from the subdistrict. Approximately 86.9 percent of the patients who “out-migrated” were discharged from a hospital in Subdistrict 8-1, which is adjacent to the city’s southern border. Overall, in 2004, approximately 91 percent of the non-tertiary patients from the North Port zip codes were discharged from a hospital in Subdistrict 8-1 (60.5 percent) or Subdistrict 8-6 (30.3 percent). Those percentages were similar in 2002 and 2003. The average length of stay (ALOS) related to those discharges was approximately 4.5 days, which means that North Port patients generated approximately 20,129 non-tertiary patient days in 2004. If a hospital had captured 100 percent of North Port’s non-tertiary patients in 2004, it would have had an ADC of 56 patients. There were 499 OB patients from the North Port zip codes discharged from a Florida hospital in 2004. Those discharges resulted in 1,172 OB patient days, which means that the ALOS for the OB patients from the North Port zip codes was 2.34 days. Approximately 95 percent of the North Port OB patients were discharged from either Sarasota Memorial (56.5 percent) or BS-St. Joe (38.3 percent), which is now Peace River. If a hospital captured 100 percent of the North Port OB patients in 2004, its OB unit would have had an ADC of 4 patients. The Proposed North Port Hospitals (1) HMA Generally HMA’s proposed North Port hospital (hereafter “North Port HMA”) will be an 180,167 square foot (SF) facility with 80 beds. All of the beds at North Port HMA will be in private rooms. The rooms are large enough to be converted into semi- private rooms, if necessary. The design of North Port HMA is similar to that of other HMA hospitals, but the size of the hospital and scope of the services offered at North Port HMA was tailored based upon North Port's demographics. North Port HMA will have a 9-bed OB unit, a 12-bed ICU, a 24/7 ED, and it will offer some outpatient services. The hospital will not have a cardiac cath lab or a dedicated pediatric unit, and it will not offer tertiary services. The total project cost for North Port HMA will be approximately $78 million, or $975,730 per bed. The project will be funded by HMA, Inc., from its “existing cash, future cash flow, and possible proceeds from the issuance of debt [by HMA, Inc].” HMA’s CON application includes a letter from the Corporate Comptroller of HMA, Inc., confirming that HMA, Inc., “will provide any and all funding or financial resources which may be required for the completion and continued operation of [North Port HMA].” HMA did not commit in its CON application to build North Port HMA in the city of North Port, but its witnesses testified at the final hearing that the hospital will be built in the city. The precise location of the hospital was not specified. North Port HMA will have three floors. The first floor will include the ED, operating rooms, radiology department, the clinical laboratory, outpatient services, and ancillary space such as kitchen/dining, medical records, and administrative offices. The second floor will include patient rooms and the ICU. The third floor will include patient rooms. North Port HMA is designed and engineered for vertical expansion, and it will be “pre-stressed” for additional floors. North Port HMA will utilize a picture archive communication system (PACS) and other digital IT systems. Patient clinical information will be maintained electronically, updated at the point of care, and will be available to clinicians through a secure network in the hospital. Service Area and Utilization Projections The PSA for North Port HMA is the city of North Port, which is comprised of zip codes 34286, 34287, 34288, and 34289. The PSA is reasonable. A SSA is not geographically defined, but HMA projected in the application that 20 percent of the admissions at North Port HMA would come from outside of the PSA. The projected 20 percent in-migration from the SSA is somewhat optimistic for a non-tertiary community hospital, but it is nevertheless reasonable under the circumstances.2 HMA used Claritas' population projections to project the utilization of North Port HMA. The utilization projections assumed that North Port HMA will have a 55 percent market share in the PSA in its first year of operation and a 70 percent market share in the PSA in its second year of operation. These market share assumptions are reasonable and attainable based upon HMA's historical experience and the considerable community support for a hospital in the city. North Port HMA was projected to open in 2007, and HMA’s CON application includes utilization projections for the hospital’s first two years of operation in 2007 and 2008. The application projected that North Port HMA would have 15,695 patient days in its first year of operation and 20,629 patient days in its second year of operation, which is an ADC of 43 patients and a utilization rate of 53.8 percent in year one (2007) and an ADC of 57 patients and a utilization rate of 70.6 percent in year two (2008). The methodology used to calculate those figures was as follows: first, the projected patients from the PSA were calculated by applying the 2003 age-cohort specific use rates to the PSA’s projected 2007 and 2008 populations; then, the market share assumptions were applied and a factor of 20 percent was added to reflect “in-migration” from the SSA; and finally, an ALOS of 4.6 was used to convert the discharges to patient days. The 4.6 ALOS, which is based upon the actual 2003 discharge data for residents of the PSA, is reasonable even though the 2004 discharge data reflects a slightly lower ALOS of 4.5. Use of age-cohort specific use rates to project future discharges is reasonable. However, application of the 2003 use rates to the projected 2007 and 2008 populations is not reasonable because the median age in the city of North Port is declining, and as the population’s age declines, so does its use rate. Nevertheless, the utilization projections for North Port HMA are reasonable and attainable. The utilization projections in HMA's CON application are more conservative than the projections based upon the updated Claritas population projections, a declining use rate, and the lower 2004 ALOS of 4.5.3 (2) Manatee Memorial (a) Generally Manatee Memorial’s proposed North Port hospital (hereafter “North Port Hospital”) will be a 200,000 SF facility with 120 beds. It will have a mix of private and semi-private rooms. North Port Hospital will have a 20-bed “women’s center,” a 20-bed ICU/critical care unit (CCU), a 24/7 ED, and a diagnostic cardiac cath lab. It will not offer tertiary services. The “women’s center” will be more than an OB unit. It will offer range of services related to women’s health, including general gynecological care, pre-natal and post-natal care, delivery of babies, mammography and other breast cancer services, and gynecological surgery. The total project cost for North Port Hospital will be approximately $59.7 million, or $497,448 per bed. The funding for the project will be provided by UHS from its “net cash flow from operation.” Manatee Memorial’s CON application includes a letter from UHS’s Senior Vice President and Chief Financial Officer confirming that UHS will finance North Port Hospital. Manatee Memorial committed in its CON application to build North Port Hospital in the city of North Port, but no specific site was identified. Manatee Memorial has not yet acquired or contracted to purchase any property in the city. North Port Hospital will have three floors. The first floor includes the “women’s center,” ED, laboratory, outpatient services, cardiac cath labs, surgery suites, and ancillary space such as medical records, kitchen/dining, and administrative offices. The second floor includes the ICU/CCU, pediatric unit, and patient rooms. The third floor includes patient rooms. The design, space plan, methods of construction, and equipment at North Port Hospital will be similar to that at Lakewood Ranch. Indeed, Manatee Memorial’s witnesses described North Port Hospital as a “mirror image” of Lakewood Ranch, which is also a 120-bed non-tertiary hospital with a 20-bed ICU/CCU and a 20-bed “women’s center.” North Port Hospital is designed for horizontal expansion, which causes less disruption to the ongoing operations of the hospital than does vertical expansion. North Port Hospital will utilize a PACS and other “state of the art” IT systems. Patient clinical information will be maintained electronically, updated at the point of care, and will be available to clinicians through the hospital’s secure wireless network. The mechanical and engineered systems at North Port Hospital are appropriate, as is the hospital's design.4 Manatee Memorial will not fully equip North Port Hospital at start-up. Instead, as it did with Lakewood Ranch, it will minimally equip each patient room with the required equipment (e.g., bed, headwall, etc.) but it will only provide the specialized equipment necessary to serve the projected patient census for the first year of operation. Additional equipment will be incrementally added as census increases. (b) Service Area and Utilization Projections The PSA and SSA for North Port Hospital, which are the same as the PSA and SSA for North Port HMA, are reasonable. North Port Hospital was projected to open in 2008, and Manatee Memorial’s CON application includes utilization projections for the first three years of operation, 2008-2010. The utilization projections assume that North Port Hospital will have a 45 percent market share in the PSA in its first year of operation, a 60 percent market share in its second year of operation, and a 70 percent market share in its third year of operation. These market share assumptions, which are slightly more conservative than those projected for North Port HMA, are reasonable and attainable. Manatee Memorial projected in its CON application that North Port Hospital would have 17,413 patient days in 2008; 25,798 patient days in 2009; and 33,327 patient days in 2010. Those patient days equate to ADCs of 48 patients in 2008, 71 patients in 2009, and 92 patients in 2010, which, in turn, equate to utilization rates of 39.7 percent in 2008, 58.9 percent in 2009, and 76.1 percent in 2010. The methodology used by Manatee Memorial to calculate those figures was as follows: first, the 2008-2010 populations were projected by using the 2003 BEBR estimate as a starting- point and then applying the city’s building permit-based methodology described in Part D(2) above; then a use rate of 142 was applied to the 2008-2010 populations to calculate the discharges from the PSA; then, after applying the market share assumptions, a 20 percent factor was added to reflect “in- migration” from the SSA; and, finally, the discharges were converted to patient days by applying an ALOS of 4.2. The results of this methodology are not reasonable. As discussed in Part D(2), the city’s methodology for projecting future population is not reliable and tends to overstate the future population. Moreover, the use rate is overstated because it is not age-cohort specific and it did not take into account the declining age of the city’s population. The combined effect of applying an overstated use rate to the overstated 2008-2010 populations is a significant overstatement in the projected patient days and utilization rates at North Port Hospital. The most reasonable projections of the discharges from the PSA for 2008-2010 are those in Exhibit EF-10 (pages XI- 1, XII-1, and XII-2): 5,433 in 2008; 5,709 in 2009; and 6,000 in 2010. Those projections are based upon the updated Claritas population projections and a declining use rate. Applying the market share assumptions and ALOS used in the methodology in Manatee Memorial’s CON application to those more reasonable discharge projections results in projected patient days at North Port Hospital of 12,835 in 2008; 17,983 in 2009; and 22,050 in 2010.5 If an ALOS of 4.5 were used (rather than the 4.2 ALOS used in Manatee Memorial’s CON application), the projected patient days would be 13,752 in 2008; 19,268 in 2009; and 23,625 in 2010.6 The utilization rate at North Port Hospital based upon those patient-day projections will be between 29.3 and 31.4 percent in 2008, between 41.1 and 44 percent in 2009, and between 50.3 and 53.9 percent in 2010. Statutory and Rule Criteria There was no credible evidence that there is a need for two new acute care hospitals in the city of North Port or in southern Sarasota County. Therefore, if either of the CON applications at issue in this proceeding is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria. (1) § 408.035(1), (2), and (5), Fla. Stat. (2005),7 and Fla. Admin. Code R. 59C-1.008(2)(e)2. (a) Generally Subsections 408.035(1), (2), and (5), Florida Statutes, are interrelated and require an evaluation of the availability and accessibility of the existing hospitals in the district and the extent to which the proposed new hospital would “enhance access” for residents of the district. Florida Administrative Code Rule 59C-1.008(2)(e)2. also requires consideration of those issues, as well as population demographics and dynamics and market conditions. Florida Administrative Code Rule 59C-1.008(2)(e)2. is implicated when the Agency does not have a rule methodology or policy for calculating need, which is now the case for acute care beds. The utilization levels at the existing hospitals is a measure of their availability, but the Agency does not focus on utilization levels to the same extent that it did before the recent “deregulation” of acute care bed additions at existing hospitals. North Port Population Growth and Demographics There has been steady population growth in the city of North Port since 2000, and that the growth is projected to continue over the applicable planning horizon. The city's population grew by 56.7 percent between 2000 and 2004, and it is projected to grow by an additional 39.3 percent between 2004 and 2010. These percentage growth rates are misleading, however, because of the city’s small size.8 The actual population figures are a better measure of the city’s projected growth for CON purposes. Those figures reflect an increase of only an additional 14,000 persons between 2004 and 2010, which is a modest amount of growth. In 2010, the city’s population is still projected to be less than 50,000. The percentage of the city’s population in the 65+ age cohort is declining, as is the median age of the city’s population. These declines are significant because the elderly generally utilize hospital services at a higher rate than younger persons. The projected population growth in the city of North Port through 2010 is not in and of itself a basis for approving a new hospital in the city, and the declining elderly population and median age in the city also weigh against the approval of a hospital in the city. Quality of Care and Utilization at the Existing Hospitals and Market Conditions Manatee Memorial and HMA do not contend that there are problems with the quality of care at the existing hospitals currently serving the city of North Port, and the evidence establishes that the existing hospitals, which are all JCAHO- accredited, provide high quality care. There is not a shortage of acute care beds in the existing hospitals serving the city of North Port, and the evidence establishes that there are more than enough available beds at the existing hospitals, even during the “season.” The capacity constraints experienced at several of the hospitals during the 2004-2005 “season” are attributable to the impacts of Hurricane Charley, which resulted in the loss of 78 beds (including a 10-bed ICU) at Fawcett and also caused strains on the other hospitals. Even though the utilization rates at the existing hospitals are not as significant now as they once were, it is still noteworthy that none of the hospitals in Charlotte and Sarasota Counties had a occupancy rate above 57 percent in 2004 and that the number of patient days in those hospitals decreased by approximately 20,000 between 2002 and 2004. Availability and Accessibility of the Existing Hospitals and Enhancing Access The accessibility of the existing hospitals in an area is typically evaluated in terms of geographic, programmatic, cultural, and financial access. Geographic access concerns arise when there are substantial impediments to patients obtaining services at the existing hospitals in a timely manner, and typically involve distance, travel time, geographic barriers, or other similar factors. Programmatic access concerns arise when specific programs or services are not available at the existing hospitals or when the quality of the existing programs or services is inadequate. Cultural access concerns arise when cultural factors, such as race, ethnicity, and/or national original, impede patients from obtaining services at the existing hospitals. Financial access concerns arise when indigent patients are denied or have difficulty in obtaining care because of policies or practices in place at the existing hospitals. Manatee Memorial and HMA did not contend in their CON applications, nor is the evidence persuasive that a hospital in North Port is needed to address programmatic, cultural, or financial access concerns. Manatee Memorial and HMA contend that a hospital is needed in North Port to address existing geographic access problems and/or to enhance geographic access to acute care and emergency services for North Port residents. Geographic Access, Generally There are no significant geographic barriers between North Port and the existing hospitals, although it is necessary to cross a drawbridge over the Intracoastal Waterway to get to Venice Hospital. There are five acute care hospitals within 20 miles of North Port. Two of the hospitals, Peace River and Fawcett, are less than five miles south of the city’s southern border. As discussed in Part D(3) above, there is significant "out-migration" of patients from North Port in Subdistrict 8-6 to hospitals outside of the subdistrict. "Out-migration" of patients from one subdistrict to hospitals in another subdistrict can be an indication of an access problem. The proximity of North Port to Peace River and Fawcett explains the significant level of “out-migration” of patients from the city to those hospitals in Subdistrict 8-1. Indeed, in 2004, approximately 72.2 percent of the North Port patients who were discharged from a hospital outside of Subdistrict 8-6 were discharged from either BS-St. Joe (now Peace River) or Fawcett.9 Thus, the significant level of “out- migration” of patients from the city to hospitals outside of Subdistrict 8-6 does not, in and of itself, indicate an access problem. The CON applications indicate that there are as many as six hospitals within a 30-minute drive of North Port, and that four are within a 17-minute drive. Those drive times were corroborated by several of the witnesses who testified at the hearing. A 30-minute drive time is the generally accepted standard for access to acute care services. There was anecdotal testimony that the drive times can be significantly longer if there is an accident on US 41 or I-75, but the more persuasive evidence was that the “typical” drive times are those reflected in the CON applications. The evidence was not persuasive that the current drive times will be longer in the future even though the city’s population is expected to increase. Indeed, although there was testimony that the city is considering a moratorium on development due, in part, to the congestion on the city’s roads, there was also testimony that there are planned or ongoing capital improvements to expand the capacity of the roads. A hospital in North Port is not necessary to address a geographic access problem. As recognized by Mr. Nelson in his report to the city regarding the need for a hospital in North Port, “[t]he proximity of two hospitals within 10 miles negates a geographic access argument.” It cannot be determined whether, or to what extent, a hospital in North Port will enhance geographic access because it is unknown where the hospital will be located. Indeed, it is possible that because of the city’s large landmass some North Port residents will be as close to one or more of the existing hospitals even if there is a hospital within the city limits. Access to Emergency Care Another “access” argument advanced by Manatee Memorial and HMA focuses on perceived problems with access to emergency care in the existing hospitals. One measure of access to emergency care is the length of time that patients stay in the ED from the time of their arrival to the time of their discharge (hereafter “ED-LOS”). A related measure of access to emergency care is the number of patients who leave the ED without treatment or against medical advice (collectively “LWOTs”). A longer ED-LOS does not directly correlate to a “delay” in access to emergency care because the ED-LOS includes not only the time that the patient is waiting to be seen, but also the time that the patient is being assessed and treated, which can vary based upon the complexity or severity of the patient’s medical condition. A two to three-hour ED-LOS is a reasonable standard. HMA has established a two-hour “goal” for ED-LOS at its hospitals. Charlotte Regional, Peace River, and Venice Hospital have been unable to meet the two-hour goal. ED-LOS fluctuates throughout the year. It is higher between December and April, which generally corresponds to the “season” in Sarasota and Charlotte Counties. The number of LWOTs also fluctuates throughout the year and, like ED-LOS, LWOTs are typically higher during the “season.” This indicates that, as would be expected, there is a correlation between longer ED-LOS and LWOTs. The ED-LOS at Charlotte Regional has increased over the past several years. For example, its average annual ED-LOS increased from two hours and 46 minutes in 2003 to three hours and 16 minutes in 2005 (through March), and its average ED-LOS in March 2005 was three hours and 45 minutes. The ED-LOS at Venice Hospital has also increased over the past several years. In 2003, its average annual ED-LOS was 2.94 hours and, in 2005 (through March), its average ED-LOS was 3.55 hours. The average ED-LOS in February 2005 was 4.18 hours. The record does not reflect the average ED-LOS at Peace River, although there was anecdotal testimony that the ED- LOS can be as long as six to eight hours during the “season.” The number of LWOTs at Charlotte Regional has been increasing over the past several years, as has the number of LWOTs at Venice Hospital. LWOTs have also been a problem at Peace River. The ED-LOS at Fawcett was approaching two hours prior to Hurricane Charley, but it has increased since the hurricane. The anecdotal testimony that the ED-LOS at Fawcett is “routinely” six-to-eight hours during the “season” was not persuasive. The ED-LOS at Englewood is two-to-three hours. Charlotte Regional’s ED has 12 beds and had approximately 19,000 visits in 2004. The ED has long been in need of expansion and/or renovation, but there are no current plans to expand the ED. Expansion of the ED would be difficult because of the age of the hospital, its location in a floodplain, and limited space on the current site. Peace River’s ED was expanded in December 2003 to include 24-beds and a 10-bed observation unit. Its patient volume has grown from 16,000 visits in 1990 to 32,000 visits in 2004, and despite the expansion, Peace River’s ED continues to be overburdened during the “season.” Fawcett’s ED is 5,700 SF and has 13 treatment “rooms,” some of which are separated by curtains. The ED has not been expanded since 1992 despite increasing volumes. In 2004, Fawcett’s ED had 21,000 visits. In April 2005, Fawcett received approval from HCA for a $7.3 million expansion to its ED. The expansion will increase the size of the ED to 12,500 SF and 20 treatment rooms. Architectural plans for the expansion had not been prepared at the time of the final hearing, but it was expected that construction on the expansion would begin by the end of 2005 and be completed by December 2006. The expansion of Fawcett's ED will help to enhance access to emergency care at Fawcett. Englewood’s ED has eight beds and two “fast track” beds. It had approximately 17,000 visits in 2004. Englewood’s ED is approximately the same size as Fawcett’s ED, but with fewer beds. There are no plans to expand the ED at Englewood because, as noted above, ED-LOS has not been a problem at Englewood. Another measure of access to emergency care is the frequency that the existing hospitals are on “diversion.” A hospital goes on diversion when it is unable to receive any additional emergency patients and the EMS providers are instructed to take additional patients to another hospital. There are a number of reasons that a hospital may go on diversion. Common reasons include an overcrowded ED, a lack of ICU beds or inpatient beds to move ED patients into, or a piece of equipment (such as a CT scanner) being unavailable. A hospital may be on “full” diversion status, meaning that it is unable to accept any patients, or it may be on diversion status for only certain types of patients, such as OB patients or patients in need of CT scans. Diversion has not been a significant problem in Charlotte County, but it is becoming more common for one or more of the hospitals in the county -– Charlotte Regional, Peace River, and Fawcett -– to be on diversion, particularly during the “season.” When one of the hospitals goes on diversion, there is often a “domino” effect at the other hospitals resulting in all three of the hospitals being on diversion at the same time. When all of the hospitals are on diversion at the same time, EMS requires each hospital to take patients on a rotational basis. The most common reason that Charlotte Regional goes on diversion is a lack of inpatient beds to receive patients admitted through the ED, which results in a “bottleneck” of patients in the ED. The length of time that Charlotte Regional remains on diversion typically ranges from two to 12 hours. The most common reason that Fawcett goes on diversion is a lack of inpatient beds to move patients into from the ED. This problem was exacerbated by the damage to the hospital caused by Hurricane Charley and, as a result, Fawcett has been on diversion considerably more since the hurricane than it was prior to the hurricane. For example, in February 2005, Fawcett was on diversion for a total of 260 hours, as compared to 13 hours in February 2004 and 62 hours in February 2003. Fawcett also has gone on diversion when its CT scanner is unavailable. Fawcett recently received approval from HCA to add a second CT scanner, which should alleviate the need to go on diversion based upon the unavailability of its CT scanner. The expansion of Fawcett's ED will help to reduce Fawcett's need to go on diversion, as will the completion of the repair work to the fourth floor of the hospital. Englewood rarely has to go on diversion. In 2005, it was only on diversion three times and, in 2004, it was only on diversion twice. The primary reason that Englewood goes on diversion is when its CT scanner is unavailable. Emergency patients from North Port do not significantly contribute to the ED overcrowding issues faced by the Charlotte County hospitals. The only persuasive evidence regarding the number of emergency patients from North Port who utilized the EDs at the existing hospitals was the transport data compiled by North Port EMS. That data reflects that between March 1, 2004, and March 1, 2005, 706 patients were transported by North Port EMS to BS-St. Joe/Peace River and 701 patients were transported by North Port EMS to Fawcett, which is less than two patients per day to each hospital and only a small fraction of the total ED visits at Peace River (32,000 in 2004) and Fawcett (21,000 in 2004). On average, a North Port EMS ambulance is “out of service” for 86 minutes when it is transporting a patient to an area hospital. That time starts when the ambulance is dispatched on a call and ends when the ambulance returns to the city. The average “out of service” times for transports to Peace River and Fawcett (which are the two closest hospitals to the city) are 67 minutes and 82 minutes, respectively. The only variable portion of the “out of service” time is the time that the ambulance is in transit from the location where the patient is picked up to the hospital and the time that it is in transit from the hospital back to the city. The remainder of the “out of service” time is fixed in the sense that it will occur no matter where the patient is ultimately transported. As reflected in Exhibit HMA-14 (page 14-22), the fixed portion of the out of service time can be 31 to 36 minutes, and includes the time between dispatch and arrival at the patient’s location, the time that it takes the paramedics to deliver the patient to the hospital’s nursing staff and exchange report information, and the time that it takes the paramedics to clean and restock the ambulance. The North Port EMS system is strained when one of its ambulances is out of service because the city only has three ambulances. North Port EMS is expected to get another ambulance in 2005. A hospital in North Port may reduce the strain on the North Port EMS system by reducing the variable component of the “out of service” time for its ambulances. However, the evidence was not persuasive as to the extent of the reduction since it is unknown where the hospital would be located in the city. Approval of a hospital in North Port would not eliminate the strain on the North Port EMS. Even if one of the proposed hospitals at issue in this proceeding were approved, trauma patients and patients in need of tertiary services would still need to be transported to another hospital in the area. Even though the EDs at the existing hospitals are heavily utilized and, at times, overcrowded, the evidence was not persuasive that there is a significant access problem for emergency services in the area. The evidence was also not persuasive that the approval of a hospital in North Port would materially enhance access to emergency services. Access to OB Service The evidence was not persuasive that there are access problems for North Port residents with respect to OB services, and, to the contrary, the evidence establishes that OB services are available and reasonably accessible at Peace River and Sarasota Memorial. A hospital in North Port would provide more convenient access to OB services for North Port residents, at least those who are closer to the North Port hospital than they are to Peace River. OB patients would also benefit from having more convenient pre-natal care and other OB/GYN services that are proposed as part of the “women’s center” center at Manatee Memorial’s North Port Hospital. However, it is not necessary to provide many of those services in a hospital setting, and the inclusion of those services does not justify the approval of a hospital in North Port. More convenient or enhanced access to OB services resulting from a hospital in North Port does not, in and of itself, justify the approval of the CON applications. In 2010, there are projected to be only 686 OB discharges from the North Port zip codes, which, based upon the 2004 ALOS of 2.34, will generate 1,606 patient days. If a North Port hospital captured 100 percent of those patients, its OB unit would have an ADC of only five patients in 2010. There is more than enough capacity at the existing hospitals that offer OB services to accommodate those patients, and it is unlikely that a hospital in North Port would get 100 percent of the OB patients from the city because the high-risk patients will likely go to a hospital that has a NICU. Summary In sum, the evidence was not persuasive that there is a “need” for a hospital in North Port due to the projected population growth in the city or that there are significant problems in accessing emergency or other care at the existing hospitals in the area that would be materially enhanced through the approval of a hospital in North Port. As a result, and in light of the relatively low utilization rates at the existing hospitals, the criteria in Subsections 408.035(1), (2), and (5), Florida Statutes, and Florida Administrative Code Rule 59C- 1.008(2)(e)2. strongly weigh against the approval of either CON application. (2) § 408.035(3), Fla. Stat. Subsection 408.035(3), Florida Statutes, requires consideration of the applicants’ ability to, and record of, providing quality of care. Manatee Memorial and HMA each has a history of providing a high quality of care at its existing hospitals, and it is reasonable to expect that each would provide a high quality of care at its proposed North Port hospital. All of the existing hospitals that currently serve North Port are JCAHO-accredited, and it is undisputed that they provide a high quality of care. The evidence was not persuasive that the quality of care provided at either of the proposed North Port hospitals would be materially higher than that provided at the existing hospitals currently serving North Port.10 In some respects, the quality of care provided at the proposed North Port hospitals will be lower than that provided at the existing hospitals. For example, neither hospital will offer interventional cardiology services, which is (or is becoming) the standard of care for treating heart attack patients, and neither hospital will have any NICU beds to provide “back-up” for high-risk deliveries. The evidence was not persuasive that the quality of care provided at North Port HMA will be materially higher than that provided at Manatee Memorial’s North Port Hospital, or vice versa.11 In sum, Manatee Memorial and HMA each satisfies the criteria in Subsection 408.035(3), Florida Statutes, and that statute does not materially weigh in favor of either CON application over the other. (3) § 408.035(4), Fla. Stat. Subsection 408.035(4), Florida Statutes, requires consideration of the availability of staff, funds, and other resources necessary to establish and operate the proposed hospitals. It was undisputed that, with the assistance of their parent companies, Manatee Memorial and HMA have the financial and managerial wherewithal to establish and operate their respective North Port hospitals. Schedule 6 of Manatee Memorial's CON application projects that North Port Hospital will have 252.93 full-time equivalents (FTEs) in its first year of operation and 399.96 FTEs by its third year operation. The number of “nursing” FTEs –- registered nurses (RNs), licensed practical nurses, nursing aides, etc. -- in each of those years are 124.01 and 225.48. Schedule 6 of HMA's CON application projects that North Port HMA will have 307.7 FTEs in its first year of operation and 352 FTEs in its second year operation. The number of “nursing” FTEs in each of those years are 158.8 and 180.07. The staffing projections, including the number of “nursing” FTEs, in each of the CON applications are reasonable. The salary projections in each of the CON applications are reasonable.12 There has been an adequate supply of RNs and other clinical staff in Charlotte and Sarasota Counties despite the nursing shortage in Florida. Although some of the existing hospitals in the area experienced increased vacancy rates after Hurricane Charley, they generally have had relatively low vacancy and turnover rates. For example, the pre-Hurricane Charley vacancy rate at Fawcett was only four percent and, even after the hurricane, the vacancy rate at Englewood was only three percent. Manatee Memorial and HMA will each be able to attract the nurses and other personnel necessary to staff their proposed North Port hospitals at the FTE and salary levels identified in their respective CON applications. The evidence was not persuasive regarding the extent to which a hospital in North Port would draw staff from or otherwise impact the operations of the existing hospitals from a staffing perspective. The testimony offered by Englewood and Fawcett witnesses on these issues was imprecise and largely speculative. With respect to attracting physicians to the proposed North Port hospitals, it is significant that there are a number of specialists and other physicians who already have offices in the city of North Port and who have expressed support for a hospital in the city. It is reasonable to expect that many of those physicians will obtain staff privileges at a North Port hospital and, indeed, several testified that they would do so. HMA is in a better position to attract physicians to its proposed North Port hospital with minimal impact on the existing hospitals than is Manatee Memorial because HMA already employs physicians at the three hospitals it operates in the area from which it can draw medical staff (as Manatee Memorial did from MMH when Lakewood Ranch opened), and HMA also owns the North Port Health Park where a large number of the physician offices in the city are located. In sum, Manatee Memorial and HMA each satisfy the criteria in Subsection 408.035(4), Florida Statutes, and between the two competing applications, the criteria in that subsection marginally weigh in favor of HMA. (4) § 408.035(6), Fla. Stat. Subsection 408.035(6), Florida Statutes, requires consideration of the short-term and long-term financial feasibility of the proposed hospitals. Generally A CON project is financially feasible in the short- term if the applicant has the ability to fund or secure the funding for the capitalized project costs and initial working capital needs of the project in conjunction with the applicant’s other ongoing and planned capital projects. A CON project is financially feasible in the longterm if it will at least break-even in the second year of operation. If the project continues to show a loss in the second year of operation, it is not financially feasible in the longterm unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. HMA It is undisputed that North Port HMA is financially feasible in the shortterm. Schedule 8A of HMA's CON application projects that North Port HMA will have an after-tax net profit of approximately $3.05 million in its second year of operation. The reasonableness of the revenue and cost projections that resulted in that projected net profit was not contested and, as discussed in Part E(1)(b) above, the underlying patient days and utilization are reasonable and attainable. Therefore, North Port HMA is financially feasible in the longterm. Manatee Memorial Manatee Memorial’s North Port Hospital is financially feasible in the shortterm. Even if the construction and other start-up costs for North Port Hospital are materially higher than projected in the CON application (see Part F(6) below), UHS has the financial wherewithal to fund the project. With respect to long-term financial feasibility, Schedule 8A of Manatee Memorial's CON application projects that North Port Hospital will generate a net profit of approximately $3.5 million in its second year of operation (2009), and that by its third year of operation (2010), the hospital will generate a net profit of approximately $12.3 million. It is not unreasonable to look at North Port Hospital’s third year of operation (rather than its second year) in evaluating the hospital’s long-term financial feasibility because, unlike North Port HMA, North Port Hospital is not projected to “mature” until its third year of operation. For example, North Port Hospital is not projected to obtain a 70 percent share of the North Port market until its third year of operation, whereas North Port HMA is projected to have a 70 percent market share by its second year of operation. The projected net profits in Schedule 8A of Manatee Memorial’s CON application are overstated because, as discussed below, the underlying revenues have been overstated and the underlying expenses have been understated in several material respects. First, the revenues are based upon unreasonable and overstated utilization projections. The 2010 ADC at Manatee Memorial’s North Port Hospital will likely be no more than 64.7 patients (see Part E(2)(b) above), rather than the ADC of 76.1 projected in the CON application. The financial impact of the overstated utilization is an overstatement of the hospital’s projected 2010 net profit by at least $4.7 million.13 Second, the revenues attributable to the cardiac cath lab are based upon significantly overstated projections of cardiac cath volume. The cardiac cath lab at North Port Hospital is projected to have 10,359 inpatient and outpatient “procedures” in 2010, which, according to an expert in the administration of cardiac cath labs, is an “unheard of” number for a single cardiac cath lab at a non-tertiary hospital. The projections of cardiac cath procedures are based upon the experience at MMH. For example, the ratio of inpatient to outpatient procedures at MMH is 2.43, which is the same ratio projected for North Port Hospital. It is not reasonable to base the projected volume of cardiac caths and/or cardiac cath “procedures” at North Port Hospital on the experience at MMH because MMH has an OHS program and hospitals with OHS programs perform considerably more cardiac caths than hospitals without OHS programs. In 2004, for example, the District 8 hospitals without OHS programs averaged only 190 cardiac caths, as compared to an average of 1,476 cardiac caths for hospitals with OHS programs. Manatee Memorial acknowledges in its PRO that the projected cath procedures in the CON application are “on the high side,” but it contends that it is “not materially out of line” with the lab’s capacity because MMH did 24,629 inpatient and outpatient procedures in its two cardiac cath labs in 2003. In 2003, MMH did 17,467 inpatient "procedures" and had 1,387 cardiac cath cases, which is a ratio of 12.6 procedures per case. Manatee Memorial’s North Port hospital will likely have a ratio closer to 4.5 procedures per case, which is the ratio at Englewood and Fawcett and, as reflected in Exhibit HMA-59, is more in-line with the experience at the other hospitals in the area that do not offer OHS. The most reasonable projection of the number of cardiac cath procedures at North Port Hospital is contained in Exhibit EF-12 (at pages 6-7) which projects that the hospital will have a total of 1,473 inpatient and outpatient cardiac cath “procedures” in 2010. Indeed, that projection is likely slightly overstated because it is based upon the overstated population projections in Manatee Memorial’s CON application. The financial impact of the overstatement of cardiac cath procedures is an overstatement of the 2010 net income at North Port Hospital by approximately $5.5 million. Third, the revenues attributable to the OB unit are based upon overstated projections of OB patient days. The application projects that Manatee Memorial’s North Port hospital will have 3,770 OB patient days in 2010, which equates to 1,573 births. The record does not reflect how those figures were calculated. The health planner who prepared Manatee Memorial’s CON application testified that she did not project the number births and/or OB patient days that would likely be generated by North Port residents between 2008-10. The most reasonable projections of the number of births and OB patient days generated by North Port residents in 2010 are those referenced in Part D(3) above, which were derived from the data in Exhibit EF-10, at pages XV-1 through XV-3. The overstatement of OB patient days in Manatee Memorial’s CON application results in an overstatement of OB “charges” by approximately $1.81 million.14 The record does not reflect the degree to which net profit is overstated as a result of the overstatement in OB charges because the OB costs referenced in Manatee Memorial’s CON application are not projected on a patient-day basis. Finally, depreciation expenses are understated due to the significant understatement of the total project cost for North Port Hospital discussed in Part F(6) below. The understatement of the total project cost directly impacts North Port Hospital’s net profit by understating the depreciation expense by approximately $3.9 million per year. North Port Hospital will more likely than not generate a net loss in its third year of operation as a result of the overstated revenue projections and understated depreciation expense. Therefore, North Port Hospital is not financially feasible in the longterm. Summary In sum, the criteria in Subsection 408.035(6), Florida Statutes, weighs in favor of HMA because its proposed North Port hospital is financially feasible. (5) § 408.035(7), Fla. Stat. Subsection 408.035(7), Florida Statutes, requires consideration of “[t]he extent to which the proposal will foster competition that promotes quality and cost effectiveness.” The market for acute care services in Sarasota and Charlotte Counties is competitive, as is the North Port market. There are multiple hospitals (and hospital companies) serving the area, none of which has a dominant share of the market. The 2004 market shares of the acute care discharges from the North Port zip codes were as follows: BS-St. Joe (26.9 percent); Fawcett (20.19 percent); Sarasota Memorial (14.7 percent); BS-Venice Venice (13.78 percent); Charlotte Regional (6.94 percent); Englewood (5.9 percent); Doctors Hospital (2.39 percent); all other providers (9.19 percent). Thus, in 2004, the Bon Secours hospitals had a 40.68 percent market share, HMA had a 6.94 percent market share, HCA had a 28.48 percent market share, and Sarasota Memorial had a 14.7 percent market share. The hospitals’ respective market shares were similar in 2002 and 2003, which reflects a relatively stable market for acute care services. HMA now has the largest market share of the North Port market (approximately 47.6 percent) as a result of its acquisition of the Bon Secours hospitals in February 2005. The stated purpose of HMA’s acquisition of the Bon Secours hospitals was to create a “strategic southwest Florida network encompassing Collier County, Lee County, Charlotte County, and Sarasota County.” According to HMA, “these strategic networks will provide patients and communities with an improved continuity of care and access to even more quality health care close to home.” The evidence was not persuasive that the addition of North Port HMA to this “strategic network” will give HMA inordinate leverage with physicians or payors, although the possibility will exist. The approval of North Port HMA will increase HMA’s share of the North Port "market" from 47.6 percent to 82.7 percent. It will also increase HMA’s share of the Sarasota County "market" (from 21.4 to 29.1 percent) and HMA's share of the Sarasota County/Charlotte County "market" (from 33.7 to 39 percent). The evidence was not persuasive that the approval of North Port HMA would be anti-competitive even though it would result in HMA becoming a dominant provider in North Port. Indeed, there will still be healthy competition for acute care services in the broader Sarasota County or Sarasota County/Charlotte County "markets". Nevertheless, the approval of North Port HMA will certainly not “foster” competition. The approval of North Port Hospital would add a new competitor to the market and, to that end, it would “foster” competition. However, the evidence was not persuasive as to how or to what extent the competition fostered by Manatee Memorial’s entry into the market would promote cost effectiveness. In sum, the criteria in Subsection 408.035(7), Florida Statutes, marginally favors Manatee Memorial over HMA, but this criteria is not given significant weight because of the significant competition that currently exists in North Port and the surrounding areas and that will continue to exist in Sarasota and Charlotte Counties even if a hospital is approved in North Port. (6) § 408.035(8), Fla. Stat. Subsection 408.035(8), Florida Statutes, requires consideration of the costs and methods of the proposed construction, including the availability of alternative, less costly, or more effective methods of construction. It was stipulated that the site development costs contained in the CON applications are reasonable and appropriate even though neither of the applicants has identified a site for its proposed North Port hospital. It was undisputed that the construction costs ($39.8 million or $221 per SF) and the total project costs ($78 million) for North Port HMA are reasonable. The reasonableness of the construction costs and the total project costs for North Port Hospital is in dispute. Schedule 1 of Manatee Memorial’s CON application reflects that the construction costs for North Port Hospital will be $32.9 million, which equates to $165 per SF. The $165/SF construction cost includes “bricks and mortar only.” Manatee Memorial’s architect unequivocally testified that the cost does not include any equipment costs. The $165/SF construction cost is not reasonable, and as described by one construction cost expert, it is “way off the Richter scale.” The $165/SF construction cost would be even more unreasonable if, as suggested by several Manatee Memorial witnesses, that figure includes fixed equipment costs, notwithstanding the unequivocal testimony of Manatee Memorial’s architect that the $165/SF construction cost does not include such costs. The $165/SF cost is only slightly higher than the construction cost of Lakewood Ranch, as reflected on the Final Project Cost Report (Cost Report) for that hospital, even though Lakewood Ranch was completed in 2004 and the construction of North Port Hospital will not begin until 2008. The Cost Report reflects that the actual construction costs for Lakewood Ranch were $33,111,591 and that the facility had 185,000 SF. The Cost Report indicates that that the $33 million figure includes fixed equipment costs, but it does not itemize those costs. The fixed equipment costs were estimated in the Lakewood CON application at $4 million, and using that figure, the “bricks and mortar” construction costs at Lakewood Ranch were approximately $157/SF.15 Inflating the $157/SF cost of Lakewood Ranch to 2008 would result in construction costs of approximately $180/SF. A construction cost of $180/SF is more reasonable than the $165/SF estimate in Manatee Memorial’s CON application, but it is still lower than would be expected for a hurricane-hardened hospital in southwest Florida. A more reasonable construction cost for North Port Hospital is between $200/SF and North Port HMA’s $221/SF. Thus, North Port Hospital’s construction costs are understated by $7.1 million to $11 million. Schedule 1 of Manatee Memorial’s CON application estimates $12 million of equipment costs for North Port Hospital. That cost includes fixed and movable equipment costs. The $12 million figure does not include all of the IT systems and other “state-of-the-art” equipment identified in Manatee Memorial’s CON application. Manatee Memorial’s equipment expert testified that the total budget for the IT equipment alone will be $10 million to $14 million. The $12 million figure only includes the cost of the equipment necessary for the hospital’s first year of operation because UHS typically does not fully equip its hospitals before they open. Manatee Memorial followed a similar approach -– i.e., incrementally equipping the hospital as census increased -– at Lakewood Ranch. The reasonableness of that approach is not specifically addressed in the Lakewood Ranch Recommended or Final Orders. This approach has the effect of understating the total cost of the project by including only a portion of the equipment costs that will be necessary to fully equip the hospital. A more reasonable estimate of the equipment costs for North Port Hospital is between $23 million to $29 million, which includes the costs of movable equipment, the IT systems, and the other “state of the art” equipment described in Manatee Memorial’s CON application. Thus, Manatee Memorial’s equipment costs are understated by as much as $17 million. Schedule 1 of Manatee Memorial’s CON application projects pre-opening expenses of $250,000. Lakewood Ranch had pre-opening expenses of approximately $3.2 million. It is reasonable to expect similar pre-opening expenses at North Port Hospital since it was modeled after Lakewood Ranch. When Lakewood Ranch's pre-opening expenses adjusted for inflation, the pre-opening expenses at North Port Hospital will likely be $3.5 million. As a result, the pre-opening expenses for North Port Hospital have been understated by approximately $3.25 million. In sum, the total cost of Manatee Memorial’s proposed North Port hospital is understated by as much as $32 million. Each of the proposed hospitals has certain design features that are better than the other hospital. For example, North Port HMA has a full complement of private rooms and shorter hallways, whereas North Port Hospital has a better separation of its various patient entrances. The evidence was not persuasive that either hospital is materially superior to the other from a design perspective.16 In sum, the criteria in Subsection 408.035(8), Florida Statutes, weighs in favor of HMA because its project costs are more reasonable than those projected by Manatee Memorial. (7)_ § 408.035(9), Fla. Stat. and Fla. Admin. Code R. 59C-1.030(2) Subsection 408.035(9), Florida Statutes, requires consideration of the applicants’ past and proposed commitment to Medicaid patients and the medically indigent. Similarly, Florida Administrative Code Rule 59C- 1.030(2) requires consideration of the impact of the proposed projects on the ability of low-income persons and other medically underserved groups to access care. The statutory reference to “the medically indigent” encompasses what are typically referred to as charity patients. HMA, Inc., and Manatee Memorial each provide a significant level of care to Medicaid and charity patients at their existing hospitals. HMA, Inc., provided approximately $101 million in uncompensated charity care at its Florida hospitals for the 12- month period ending September 30, 2004, which is approximately four percent of its gross patient revenues. For that same period, approximately 7.6 of the gross patient revenues at those hospitals were attributable to Medicaid patients. Manatee Memorial provides more than 90 percent of the charity care in Manatee County, which is not surprising since MMH is the largest and one of the oldest hospitals in the county. In 2004, Manatee Memorial provided approximately $16.6 million in charity care, which is approximately three percent of its gross charges. That figure was offset by a $2.8 million subsidy that Manatee Memorial received from Manatee County for indigent care. Neither HMA nor Manatee Memorial conditioned the approval of its CON application on the provision of a particular level of care to Medicaid or charity patients. HMA offered to condition the approval of its application on a commitment to “accept all Medicaid and indigent patients that are clinically appropriate for services offered by [North Port HMA].” Similarly, Manatee Memorial offered to condition the approval of its application on a commitment that “[a]ll Medicaid & indigent patients will be accepted as are clinically appropriate for services.” The Agency reasonably construed those proposed conditions to be offering nothing more than the law currently requires. Moreover, it is unclear how the proposed conditions could be monitored by the Agency. The Agency did not accept the condition proposed by HMA. Instead, in the SAAR, it conditioned the approval of HMA’s application on the provision of 6.9 percent of the patient days at North Port HMA to Medicaid patients and 2.9 percent of the patient days to charity patients. Those figures were derived from Schedule 7A of HMA’s CON application and the notes thereto. HMA did not challenge those conditions and, therefore, is bound by them if its CON application is ultimately approved notwithstanding the recommendation herein. Mr. Gregg testified that if Manatee Memorial’s application is ultimately approved, the approval should include conditions similar to those imposed in the SAAR on the approval of HMA’s application. The revenues projected in Schedule 7A of Manatee Memorial’s CON application were calculated based upon the assumption that 7.25 percent of the patient days at North Port Hospital will be attributable to Medicaid patients. The percentage of patient days at North Port Hosptial attributable to charity care is not specified on Schedule 7A or the notes thereto,17 but it appears that the percentage is approximately 2.6 percent.18 Thus, if contrary to the recommendations herein, the Agency ultimately approves Manatee Memorial’s CON application, it should condition the approval North Port Hospital providing 7.25 percent of its patient days to Medicaid patients and 2.6 percent of its patient days to charity patients. A new hospital in North Port is not necessary to address any financial access problems in the area. There was no persuasive evidence that there is an access problem for Medicaid, charity, or other traditionally medically underserved patients at the existing hospitals in south Sarasota County and north Charlotte County. To the contrary, the evidence reflects that all of the existing hospitals in the area provide access to patients without regard to their ability to pay. As a result, the criteria in Subsection 408.035(9), Florida Statutes, is given minimal weight in determining whether a hospital is needed in North Port. The criteria in Subsection 408.035(9), Florida Statutes, do not materially weigh in favor either CON application over the other. Each applicant has a history of providing Medicaid and charity care and each has proposed to provide approximately 9.8 percent of its patient days to Medicaid and charity patients combined. (8) § 408.035(10), Fla. Stat. Subsection 408.035(10), Florida Statutes, which requires consideration of the applicant’s designation as a Gold Seal Program nursing facility, is not applicable because HMA and Manatee Memorial are not proposing to add nursing home beds. Impact of the Proposed North Port Hospitals on the Existing Hospitals in the Area North Port is in the PSA of both Fawcett and Englewood, if, as is common, the PSA is defined as the zip codes from which the hospital receives 75 percent of its admissions. In 2004, approximately 12 percent of Fawcett’s non- tertiary patients came from the North Port zip codes, and approximately 6.6 percent of Englewood’s non-tertiary patients came from the North Port zip codes. The approval of either of the proposed North Port hospitals will have an adverse impact on Englewood and Fawcett because they will lose patients to the new hospital. The impact on Englewood and Fawcett will be materially the same, no matter which application is approved because, as discussed above, Manatee Memorial is unlikely to achieve its more aggressive utilization projections. If Manatee Memorial somehow achieved its utilization projections, its North Port Hospital would have a significantly greater impact on the existing providers than would North Port HMA. The existing providers’ shares of the North Port market have remained relatively stable since at least 2002 and, therefore, it is reasonable to expect that they would have similar market shares in the future absent a significant change of circumstances, such as the approval of a new hospital in the area. As a result, it is reasonable to use the current market shares when assessing the impact of the proposed North Port hospitals on the existing providers. The approval of North Port HMA will result in a loss of 227 patients (1,046 patient days) at Englewood and a loss of 772 patients (3,553 patient days) at Fawcett in 2008, which will be the North Port hospital’s second year of operation. The financial impact of that lost patient volume is approximately $807,000 at Englewood and $3.1 million at Fawcett. The approval of North Port Hospital will result in a loss of 259 patients (1,191 patient days) at Englewood and 883 patients (4,064 patient days) at Fawcett in 2010, which will be the North Port hospital’s third year of operation.19 The financial impact of that lost patient volume is approximately $917,000 at Englewood and $4 million at Fawcett.20 Those figures only take into account the patients in the North Port zip codes that Englewood and Fawcett will “lose” to the new North Port hospital. They do not take into account additional patients that Englewood and Fawcett are likely to “gain” through growth in the population in the other zip codes in their service areas. The population growth in Englewood and Fawcett’s service area will largely off-set the patient volume that the hospitals would lose from the North Port zip codes. For example, if North Port HMA is approved, Englewood is projected to have only 16 fewer patients in 2008 than it did in 2004, and Fawcett will have only 28 fewer patients in 2008 than it had in 2004. Fawcett is a profitable hospital. Its earnings before depreciation, interest, taxes, and amortization (EBDITA) was approximately $14 million in 2004, and its operating income was $7.7 million in 2002, $5.1 million in 2003, and $1.7 million in 2004. The lower operating income in 2004 was due to the impacts of Hurricane Charley. Englewood is a less profitable hospital than Fawcett. It had operating losses of $1.7 million in 2002, $2.8 million in 2003, and $1.3 million in 2004. Its highest net income before taxes in any of those years was $631,000 in 2004. However, Englewood’s EBDITA (which is the financial indicator that its chief financial officer “really concentrate[s] on”) was approximately $3.6 million in 2004 and was budgeted to be “a little over 3 million” in 2005. The financial impact of the lost patient volume from the North Port zip codes on Englewood and Fawcett is not significant when compared to the EBDITA at those hospitals. The financial impact is even less significant when the population growth in the other zip codes in Englewood and Fawcett’s service area are taken into account. Indeed, the projected net loss of 28 patients at Fawcett equates to a reduction in net income of only $126,700, and the projected net loss of 16 patients at Englewood equates to a reduction in net income of only $56,624. The approval of a hospital in North Port would also impact Peace River and Venice Hospital. In terms of lost patient volume, the impact on Peace River would be slightly greater than the impact at Fawcett and the impact on Venice Hospital would be slightly less than the impact at Fawcett and slightly more than the impact on Englewood. The record does not reflect the financial impact of that lost patient volume at Peace River or Venice Hospital, which experienced significant operating losses prior to their acquisition and financial turn- around by HMA. In sum, the approval of a hospital in North Port will adversely impact the existing hospitals serving the area, including Englewood and Fawcett. The impacts are significant enough to give Englewood and Fawcett standing in this proceeding, but the impact on Englewood and Fawcett (and the other existing hospitals) is not so significant that it independently warrants denial of the CON applications. Stated another way, the adverse impact on the existing hospitals is a factor weighing against approval of the applications, but that factor is given minimal weight.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Manatee Memorial’s CON 9767 and also denying HMA’s CON 9768. DONE AND ENTERED this 1st day of December, 2005, 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 1st day of December, 2005.
