The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the @ day of Z, Vuctrae. , 2015, in Leon County, Tallahassee, Florida. Filed March 10, 2015 3:08 PM Division of Administrative Hearings A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: William M. Blocker, II Medicaid Finance & Health Systems Chief Counsel Agency for Health Care Administration William.Blocker@ahca.myflorida.com (Electronic Mail) Joanne B. Erde, P.A. DUANE MORRIS, LLP 200 South Biscayne Blvd., Suite 3400 Miami, Florida 33131-2318 JErde@duanemorris.com (Electronic Mail) Thomas J. Wallace, Bureau Chief, Medicaid Program Finance Finance and Accounting Health Quality Assurance CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to _ the above named addressees by electronic mail or inter-office mail on this the re day of L Le ehy , 2015. Richard J. Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, MS #3 Tallahassee, Florida 32308-5403 (850) 412-3630/FAX (850) 921-0158
Conclusions THIS CAUSE comes before the Agency for Health Care Administration (“the Agency") concerning Certificate of Need ("CON") Application Nos. 10061 — 10065 in the second batching cycle of 2009. The Agency published a fixed numeric need for one new hospice program in Area 4A for the second batching cycle of 2009 — Other Beds and Programs Batching Cycle. No one challenged the published fixed need determination. Compassionate Care Hospice of Florida, Inc. (Compassionate), Odyssey HealthCare of Collier County, Inc. (Odyssey), Seasons Palliative Care of Florida, Inc. (Seasons), United Hospice of Florida, Inc. (United), and VITAS Healthcare Corporation of Florida (VITAS), each submitted letters of intent, initial applications, and omissions responses proposing to establish a new hospice program in Area 4A. The Agency issued its State Agency Action Report (SAAR) preliminarily approving VITAS (CON Application 10065) and denying the others. The Agency published notice of the decision in the March 5, 2010, Florida Administrative Weekly, Volume 36, No. 9, pg. 1079. United and Odyssey filed petitions challenging their respective denials and the approval of VITAS. Community Hospice of Northeast Florida, Inc. filed a petition challenging all co- 2 batched applications. VITAS filed a petition supporting its approval and the Agency’s denial of the other applications. Other applicants and existing providers filed petitions. The Agency referred the petitions for formal hearing to the Division of Administrative Hearings (“DOAH”), and DOAH consolidated the cases. Several parties dismissed their petitions as set forth below. By the time of the final hearing, the remaining parties were Community, VITAS, United, and the Agency. Community did not oppose approval of one application. It maintained, however, that only one should be approved. The final hearing in the consolidated cases convened on October 25, 2010, and concluded on November 9, 2010. On March 22, 2011, DOAH issued a recommended order, which was adopted by the Agency in a Final Order filed on May 2, 2011. Pursuant to the Final Order, the CON application of VITAS was granted with the conditions stated in its application and the CON application of United was denied. Odyssey filed a Petition for Formal Administrative Hearing and Petition for Leave to Intervene contesting the denial of CON Application No. 10062 requesting a CON to establish a hospice program, DOAH Case No. 10-1624CON. On July 23, 2010, Odyssey filed an Amended Notice of Voluntary Dismissal with regard to DOAH Case No. 10-1624CON. On July 26, 2010, DOAH entered an Order Closing File for Case No. 10-1624CON only, and on July 27, 2010, entered an Order Severing Case in regard to DOAH Case No. 10-1624CON. HCR Manor Care Services of Florida, Inc. (““HCR Manor”) and North Central Florida Hospice, Inc. d/b/a Haven Hospice (“Haven Hospice”) filed petitions for a formal administrative hearing concerning the co-batched CON Application Nos. 10061 — 10065, which were forwarded to DOAH. In their petitions, HRC Manor and Haven Hospice maintained that they were existing hospice providers in the same service area as the applicants’ proposed hospices providing hospice services similar to those proposed by the applicants. On July 19, 2010, HCR Manor filed a Notice of Voluntary Dismissal with regard to DOAH Case No. 10-1864CON. On July 20, 2010, DOAH entered an Order Severing Case and an Order Closing File in regard to DOAH Case No. 10-1864CON. On August 10, 2010, Haven Hospice filed its Notice of Voluntary Dismissal with regard to DOAH Case No. 10-1868. On August 10, 2010, DOAH entered an Order Severing Case and an Order Closing File in regard to DOAH Case No. 10-1868CON. It is therefore ORDERED: 1. The Amended Notice of Voluntary Dismissal filed by Odyssey is acknowledged and accepted and the denial of CON Application No. 10062 is UPHELD. 2. The Notice of Voluntary Dismissals filed by HCR Manor and Haven Hospice are acknowledged and accepted. ORDERED on this AX day of ar, 2011, in Tallahassee, Florida. Elizabeth Dutiek, Secretary Agency for Health Care Administration
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.
Conclusions THIS CAUSE comes before the State of Florida, Agency for Health Care Administration (“the Agency") concerning Certificate of Need (“CON”) Application No. 10194, submitted by Hope Hospice and Community Services, Inc. (“Hope Hospice”), to establish a 24-bed freestanding inpatient hospice facility in Lee County, AHCA District 8, Service Area 8C. 1. On August 19, 2013, the Agency published notice of its preliminary decision to deny CON Application No. 10194. (Ex. 1) 2. On August 23, 2013, Hope Hospice filed a petition for hearing challenging the preliminary denial of CON Application No. 10194. The matter was referred to the Division of Administrative Hearings (“DOAH”). 3. The parties have since entered into the attached settlement agreement (Ex. 2), which is adopted and incorporated into this Final Order. It is therefore ORDERED: 4. CON Application No. 10194 is approved subject to the terms and conditions set forth in the Settlement Agreement. Filed June 17, 2014 4:41 PM Division of Administrative Hearings ORDERED in Tallahassee, Florida, on this { 3 day of Creene.. 2014. Agency for Health Care Administration
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules. The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and correct copy of this Final Order was served on the below- named persons by the method designated on this/ 6 4 day of [ ow . 2014. Ll WA Ka Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 (850) 412-3630 Facilities Intake Unit Lorraine M. Novak, Esquire Agency for Health Care Administration Office of the General Counsel (Electronic Mail) Agency for Health Care Administration (Electronic Mail) David M. Maloney John Robert Griffin, Esquire Administrative Law Judge Hope Hospice and Community Services, Inc. Division of Administrative Hearings 9470 HealthPark Circle www.doah.state.fl.us Fort Myers, Florida 33908 (Electronic Mail) Bob.Griffin@hopehes.org (Electronic Mail) James McLemore, Supervisor Certificate of Need Unit Agency for Health Care Administration (Electronic Mail) Florida Administrative Register Volume 39, Number 161, August 19, 2013 Section XI Notices Regarding Bids, Proposals and Purchasing NONE Section XII Miscellaneous AGENCY FOR HEALTH CARE ADMINISTRATION Certificate of Need DECISIONS ON BATCHED APPLICATIONS The Agency for Health Care Administration made the following decisions on Certificate of Need applications for Other Beds and Programs batching cycle with an application due date of May 15, 2013: County: Hillsborough Service District: 6 CON # 10191 Decision Date: 8/16/2013 Facility/Project/Applicant: LifePath Hospice, Inc. Project Description: Establish an eight-bed inpatient hospice facility Approved Cost: $0 County: Charlotte Service District: 8 CON # 10192 Decision Date: 8/16/2013 Facility/Project/Applicant: Tidewell Hospice, Inc. Project Description: Establish a seven-bed inpatient hospice facility Approved Cost: $73,113.00 County: Desoto Service District: 8 CON # 10193 Decision Date: 8/16/2013 Facility/Project/Applicant: Tidewell Hospice, Inc. Project Description: Establish an eight-bed inpatient hospice facility Approved Cost: $49,035.00 County: Lee Service District: 8 CON # 10194 Decision Date: 8/16/2013 Decision: D Facility/Project/Applicant: Hope Hospice and Community Services, Inc. Project Description: Establish a 24-bed inpatient hospice facility Approved Cost: $0 Decision: D Decision: A Decision: A 4168 A request for administrative hearing, if any, must be made in writing and must be actually received by this department within 21 days of the first day of publication of this notice in the Florida Administrative Register pursuant to Chapter 120, Florida Statutes, and Chapter 59C-1, Florida Administrative Code. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Restriction Order with regard to the license of Darren Henry Combass, P.T.A., License # PTA 18687. This Emergency Restriction Order was predicated upon the State Surgeon General's findings of an immediate and serious danger to the public health, safety and welfare pursuant to Sections 456.073(8) and 120.60(6), Florida Statutes (2011). The State Surgeon General determined that this summary procedure was fair under the circumstances, in that there was no other method available to adequately protect the public. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Suspension Order with regard to the license of Michelle C. Broach, O.T., License # OT 9470. This Emergency Restriction Order was predicated upon the State Surgeon General’s findings of an immediate and serious danger to the public health, safety and welfare pursuant to Sections 456.073(8) and 120.60(6), Florida Statutes (2011). The State Surgeon General determined that this summary procedure was fair under the circumstances, in that there was no other method available to adequately protect the public. DEPARTMENT OF HEALTH Board of Occupational Therapy Notice of Emergency Action On August 15, 2013, the State Surgeon General issued an Order of Emergency Suspension Order with regard to the license of Melissa Terpos, R.P.T., License # RPT 39879. This Emergency Suspension Order was predicated upon the State EXHIBIT 1
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.
