The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue Whether an out-of-state corporation doing business as a psychiatric hospital located out of state and as a counseling servico located in Florida's District I is entitled to formal administrative proceedings on an application for certificate of need filed by another party seeking a certificate of need to construct an 80-bed long-term psychiatric hospital in District I? For present purposes Bay Psychiatric's well-pleaded, factual allegations in its petition for formal hearing are assumed to be true. The petition alleges essentially the following ASSUMED FACTS Bay Psychiatric proposes to build an 80-bed long-term psychiatric hospital in Bay County, Florida, and HRS proposes to grant it certificate of need No. 3204 authorizing it to do so. The proposed hospital's primary service area is to be HRS Districts l and 2. Petitioner operates a free standing psychiatric hospital in Dothan, Alabama, which "includes beds defined as long-term psychiatric beds by Rule 10- 5.11(26), Florida Administrative Code, and beds defined as short-term psychiatric beds by Rule 10-5.11(25), Florida Administrative Code." Approximately one quarter of the Dothan hospital's patients come across the state line from HRS Districts l and 2. Last year the Dothan hospital experienced less than an 80 percent occupancy rate of its long-term beds, less than a 75 percent occupancy rate of its adult short-term beds, and less than a 70 percent occupancy rate of its other short-term beds. If Bay Psychiatric receives a certificate of need, the Dothan hospital "will be substantially and adversely affected because any patients admitted to the proposed UNITED MEDICAL facility would otherwise likely have been admitted to CHARTER WOODS HOSPITAL. Petitioner also operates a "counseling and intervention facility located in Panama City, Florida, "offering various outpatient services which "at least in part" are the types of outpatient services Bay Psychiatric would offer at its proposed hospital. Because of "a finite patient population" petitioner's counseling facility would also be "substantially and adversely affected " if Bay Psychiatric receives a certificate of need.
Recommendation It is, accordingly, RECOMMENDED: That the Department of Health and Rehabilitative dismiss the petition for formal proceeding. DONE AND ENTERED this 26th day of October, 1984, at Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of October, 1984. COPIES FURNISHED: Douglas L. Mannheimer, Esquire 318 North Calhoun Street Post Office Drawer 11300 Tallahassee, Florida 32302-3300 William E. Hoffman, Jr. James A. Dyer Bondurant Miller Hishon and Stephenson 2200 First Atlanta Tower Two Peachtree Street, N.W. Atlanta, Georgia 30383 F. Philip Blank, Esquire 241 East Virginia Street Tallahassee, Florida 32301 Chris H. Bentley, Esquire Fuller & Johnson, P.A. 300 East Park Avenue Post Office Box 1739 Tallahassee, Florida 32302 David Pingree, Secretary Department of Health and Rehabilitative Services 1323 Winuwood Boulevard Tallahassee, Florida 32301
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.
Findings Of Fact Background On July 31, 1987, the Department of Health and Rehabilitative Services (HRS) published in the Florida Administrative Weekly an announcement of the fixed need pools for the subject batching cycle, which pertained to the planning horizon of July, 1992. According to the notice, the fixed need pool, which was calculated pursuant to Rules 10-5.008(6) and 10-5.011(m), (n), (o), and (q), Florida Administrative Code, was adjusted according to the occupancy rate thresholds as prescribed by said rules. The net adjusted need for short-term psychiatric beds in District 7 was zero. By letter to HRS dated August 12, 1987, the North Brevard County Hospital District, doing business as Jess Parrish Memorial Hospital (Jess Parrish), provided notice of its intent to apply for a certificate of need to convert 16 beds from medical/surgical to psychiatric. By Application for Certificate of Need dated September 14, 1987, Jess Parrish requested that HRS grant a certificate of need for the conversion of 16 medical/surgical beds to 16 adult short-term psychiatric beds at a cost of $46,100. Jess Parrish is a tax-exempt organization whose board of directors have been authorized by law to levy ad valorem taxes in a special tax district in north Brevard County for the support of the hospital. The main hospital is located at 951 North Washington Avenue in Titusville, which is in north Brevard County. Brevard County is located in HRS District 7. By letter to Jess Parrish dated October 5, 1987, HRS requested additional information. By response dated November 9, 1987, Jess Parrish supplied the requested responses to omissions. By letter dated November 18, 1987, Jess Parrish provided additional information desired by HRS. By letter dated December 22, 1987, Wuesthoff Hospital (Wuesthoff) informed HRS that it objected to the above-described application because of absence of need. The letter states that Wuesthoff maintained an occupancy rate of 74% during the past year in its 25 short-term psychiatric beds. Wuesthoff is located in Rockledge, which is in central Brevard County. By letter and State Agency Action Report dated January 25, 1988, HRS informed Jess Parrish of its intent to issue the requested certificate of need for the conversion of the 16 beds. By Petition for Formal Administrative Hearing filed February 23, 1988, Wuesthoff challenged the intent to award the certificate of need to Jess Parrish and requested a formal hearing. The Application and Approval Process The application for the certificate of need states that Jess Parrish has a total of 210 beds, consisting of 172 medical/surgical beds, 10 obstetric beds, 20 pediatric beds, and 8 intensive care unit beds. The application contains all elements required by law, including a resolution authorizing the application and financial statements. The application and omissions response state that Jess Parrish admitted about 100 psychiatric patients in fiscal year ending 1987. The omissions response adds that Jess Parrish would offer the following programs for its short-term psychiatric patients: continual evaluation, screening, and admissions; individual, family, and group therapy; occupational, recreational, and vocational therapy; psychological and psychiatric testing and evaluation; day hospital and day clinic; family and friends education and support groups; and specialized treatment programs for geriatric psychiatric patients. The omissions response reports that the only facility with adult short-term psychiatric beds within 45 minutes of Jess Parrish is Wuesthoff. The omissions response states that Wuesthoff had experienced the following occupancy rates in its adult short-term psychiatric program: 1984--59%; 1985--66%; 1986-- 7l%; and first three quarters of 1987--71%. The omissions response acknowledges that Jess Parrish and Circles of Care, Inc. (Circles of Care) had jointly prepared the application and that Jess Parrish "plans to employ by contract, Circles of Care, Inc. to operate and manage our unit" if the application is approved. The omissions response includes a letter to HRS dated November 10, 1987, from James B. Whitaker, as president of Circles of Care. The letter describes the 12-year relationship between the two parties, which began when Circles of Care leased its first 12 beds from Jess Parrish between 1974 and 1980. Mr. Whitaker states that the two parties thus "work[ed] out a management agreement; for the new sixteen bed unit that Jess Parrish has requested." In the State Agency Action Report, HRS notes that the project does not conform with Policy 4 of the applicable District 7 Local Health Plan. This policy provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rate for all existing facilities in the planning area equals or exceeds the following rates: adult--75% and adolescents/children--70%. HRS reports a similar discrepancy as to the occupancy standard in the State Health Plan, which incorporates at Objective 1.2 the same 70%/75% standards. HRS states in the State Agency Action Report that the 1986 occupancy rates for short-term psychiatric beds, which averaged 69.98% in Brevard County, were 87% at Circles of Care, 70.6% at Wuesthoff, and 14% at a new facility, C. P. C.--Palm Bay. In addition, for the first six months of 1987, the report states that the occupancy rates, which averaged 63.5% in Brevard County, were 76% at Circles of Care, 71.5% at Wuesthoff, and 43% at C. P. C.--Palm Bay. In calculating numeric need under the rule, HRS concludes that there was a net need for a total of 547 beds in the district, consisting of 312 in specialty hospitals and 235 in general hospitals. Addressing the provision of the District 7 Local Health Plan focusing upon need at the county level, HRS finds that there was a net need for a total of 38 beds. Recognizing the "sub- standard utilization" of existing short-term psychiatric beds, HRS states that the application was justified "mainly because of the enhanced access to services that the project would provide." All of the other criteria were fully satisfied with one irrelevant exception, and the State Agency Action Report concludes: Although the district and county utilization of short-term psychiatric beds falls below the 70% [sic) adult standard, this project merits a Certificate of Need because there exists numeric need in the service area and because the project affords greater access and availability to psychiatric services for underserved groups. Need District and State Health Plans Part 3 of the 1985 District 7 Local Health Plan, published by The Local Health Council of East Central Florida, Inc., sets forth policies and priorities for inpatient psychiatric services. Policy 1 establishes each of the four counties of District 7 as a subdistrict for purposes of planning inpatient psychiatric services. Policy 3 of the 1985 District 7 Local Health Plan provides a specific methodology to allocate beds when the numeric need rule methodology indicates a need for inpatient psychiatric beds. A minimum of .15 beds per 1000 projected population should be allocated to hospitals holding a general license. A total of .20 beds per 1000 projected population may be located in specialty hospitals or hospitals holding a general license. The population projections are for five years into the future. Policy 4 of the 1985 District 7 Local Health Plan provides that additional short-term inpatient psychiatric beds may be approved when the average annual occupancy rates for all existing facilities in the planning area equal or exceed 75% for adult facilities and 70% for adolescents/children facilities. The policy concludes: Additional beds should not be added to the health system' until the existing facilities are operating at acceptable levels of occupancy. Good utilization of existing facilities prior to adding beds aids in cost containment by preventing unnecessary duplication. The 1988 District 7 Local Health Plan, although inapplicable to the subject proceeding, refers to the pending application of Jess Parrish. The plan states: [T]he residents of District 7 appear to be well-served by the existing providers with only a few exceptions. First, residents of north Brevard County (Titusville area) currently have no access to any certified, short-term, inpatient psych services in less than 22 miles. In many driving situations this distance takes longer than 30-45 minutes to traverse. . . . If [the CON that has been tentatively approved] is sustained through litigation and the unit is finally opened availability of these 16 beds should ameliorate, to a large degree, the potential geographic access problems for north Brevard adult/geriatric patients at least. Objective 1.1 of the 1985-1987 State Health Plan states that the ratio of short-term inpatient hospital psychiatric beds to population should not exceed .35 beds to 1000 population. Objective 1.2 states that, through 1987, additional short-term psychiatric beds should not normally be approved unless the service districts has an average annual occupancy of 75% for existing and approved adult beds and 70% for existing and approved adolescents/children beds. Numeric Need Pursuant to HRS Rules Net Need Rule 10-5.011(1)(o)4., Florida Administrative Code, sets forth the HRS numeric need methodology. The rule provides that the projected number of beds shall be determined by applying the ratio of .35 beds to 1000 population to the projected population in five years, as estimated by the Executive Office of the Governor. The relevant projected population for District 7 is 1,564,098 persons. Applying the ratio, the gross number of beds needed in District 7 is 547. The total number of existing and approved short-term psychiatric beds in District 7 in 1987 was 410. There is therefore a net need for 137 short-term psychiatric beds in District 7. The relevant projected population for Brevard County is 441,593 persons. Applying the ratio, the gross number of beds needed in Brevard County is 155. The total number of existing and approved short-term psychiatric beds in Brevard County in 1987 was 117. There is therefore a net need for 38 short- term psychiatric beds in Brevard County. A minimum of .15 beds per 1000 population should be located in hospitals holding a general license, and .20 beds per 1000 population may be located in specialty hospitals or hospitals holding a general license. The calculations disclose that, for District 7, there is a net need of 73 beds in the former category and 65 beds in the latter category. As to Brevard County, the respective numbers are 41 and 4. Rule 10-5.011(1)(o)4.d., Florida Administrative Code, provides that new facilities for adults must be able to project a 70% occupancy rate for the first year and 80% occupancy rate for the third year. Jess Parrish projects that its short-term psychiatric program will experience a utilization rate of 66% at the end of the first complete year of operation and 82% at the end of the third complete year of operation. These projections are reasonable and substantially conform with the requirements of the rule. Rule 10-5.011(1)(o)4.e., Florida Administrative Code, provides that no additional short-term inpatient beds shall normally be approved unless the average annual occupancy rate for the preceding 12 months in a "service district" is at least 75% for all existing adult short-term inpatient psychiatric beds and at least 70% for all adolescents/children short-term inpatient psychiatric beds. HRS considered the 70%/75% occupancy standards in making the July, 1987, announcement of a zero fixed need pool for short-term psychiatric beds in Brevard County. The determination of zero fixed need was a reflection that, although numeric need existed, the occupancy standards had not been satisfied. The incorporation of the occupancy standard into the July, 1987, fixed need calculation represented a deviation from nonrule policy deferring computation of the occupancy levels until the application-review process. The prior announcement of a fixed need pool on February 27, 1987, stated that a number of beds were needed even though the occupancy situation in District 7 was about the same. Subsequent announcements likewise deferred consideration of the occupancy standard. HRS has explicated its nonrule policy of excluding occupancy standards from the calculation of numeric need when publishing fixed need pools. Unlike the relatively simple task of determining the relevant population projection and multiplying it by the proper ratio, application of the occupancy standards, especially at the time in question, required numerous determinations and calculations. By attempting to incorporate the occupancy standards into the calculations upon which the fixed need pool were based, HRS increased the potential for error, which occurred in this case, rather than increased the reliability of the information. Although adequate reason exists for revising the July, 1987, published fixed need pool, Rule 10-5.008(2)(a), Florida Administrative Code, prohibits revisions to a fixed need pool based upon a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. However, the revision of the July, 1987, fixed need pool does not represent a change in need methodologies, population estimates, bed inventories, or other factors leading to a different projection of need, if retroactively applied. The revision to the fixed need pool, which did not represent a change in need methodology or underlying facts, was a result of three legitimate considerations. First, HRS revised the fixed need pool to implement its policy decision to limit the fixed need pool to the numeric need calculation and reserve the calculations of occupancy standards to the application-review process. This consideration does not involve a change in the methodology of determining numeric need or applying occupancy standards. Second, HRS revised the fixed need pool to correct earlier, erroneous calculations. This consideration does not involve a change in the underlying facts, but merely in the computations based upon the same facts. Third, HRS revised the fixed need pool to reflect developing policy in the application of the occupancy standards. HRS decided to apply the more liberal 70% occupancy standard to facilities serving both adults and adolescents/children, exclude from the determination of occupancy levels any facilities serving only age cohorts not served by the applicant, and restrict the 75% occupancy standard to facilities serving adults only. HRS made these changes, which it felt would not harm existing providers, in recognition of the failure of data provided by health-care suppliers to distinguish between adult and adolescents/children admissions and patient days. These considerations approximate a change in methodology, but the revision resulting from such considerations does not violate the rule because HRS already has shown that consideration of the occupancy standards should not take place until after publication of the fixed need pool. In the present case, two facilities in District 7 serve only adolescents/children. These facilities are C. P. C.-- Palm Bay and Laurel Oaks, which is in Orange County. Eliminating their occupancy rates, the district occupancy rate in the year ending June 30, 1987, was 71.9%. Removing the occupancy rate of C. P. C.--Palm Bay from Brevard County, the county occupancy rate during the same period was over 75%. Under the revised policies, Brevard County had a net need of 38 short- term psychiatric beds, applicable occupancy standards in the county and district were satisfied, and the July, 1987, publication of a fixed need pool of zero did not preclude the finding of need under other than "not normal" circumstances. Accessibility Financial Accessibility The primary service area of Jess Parrish is north Brevard County. A higher percentage of the population of this area lives below the poverty level than does the population of any other sub-region of Brevard County. According to the 1980 Census data, the applicable percentages of area residents living below the poverty level were 12.7% in north Brevard County, 10% in central Brevard County, 8.4% in south Brevard County, and 9.6% in Brevard County overall. Partly as a reflection of the different sub-regions and partly as a reflection of the commitment of Jess Parrish to provide access to underserved populations, Jess Parrish provides considerably more services to Medicaid patients than does either of the other major general hospitals in central and south Brevard County. In 1987, 11.5% of the admissions and 8.9% of the patient days at Jess Parrish were Medicaid. The respective numbers are 7% and 6% for Wuesthoff and 5.8% and 3.9% for Holmes Regional Medical Center, which is in Melbourne. A key component of financial accessibility is the effect of the proposed program on Circles of Care. About 55% of the patients of Circles of Care are indigent. Another 17% of its patients earn between the minimum wage and $15,000 annually. Circles of Care has participated in all phases of the application process on behalf of Jess Parrish. The approval of the new program would not have an adverse effect on Circles of Care. To the contrary, the new program at Jess Parrish would provide Circles of Care with more treatment options, especially with respect to indigent patients, whose need for short-term psychiatric services has proven at times difficult to meet. These options are especially valuable at a time when there is no net need in Brevard County for any more short-term psychiatric beds in specialty hospitals, such as Circles of Care. The 52 psychiatric beds licensed to Circles of Care are in two different units contained within a single hospital facility located in Melbourne, which is in south Brevard County. Sheridan Oaks is a 24-bed, private unit, which cannot accept many Baker Act patients without adversely affecting the other patients and the psychiatrists who refer private-pay patients to this unit. The other unit is a public Baker Act receiving facility with 28 beds, for which Circles of Care receives state funds. Unlike Sheridan Oaks, the public receiving facility employs the psychiatrists who work there. About 85-90% of all Baker Act patients in Brevard County come through this public receiving facility, whose occupancy rate was 98% in the year ending June 30, 1987. In addition to these units, Circles of Care operates a mental health outpatient clinic in Titusville, an outpatient/inpatient treatment center in the Rockledge/Cocoa area, numerous social clubs throughout Brevard County for the chronic mentally ill, and numerous public education and awareness programs concerning the treatability of mental illness. Another limitation of being a specialty hospital is that Circles of Care does not qualify for Medicaid reimbursement. Jess Parrish, as a general hospital, qualifies for such reimbursement and projects in its application that 39% of its patient days will be Medicaid and 9% of its patient days will be indigent. Geographic Access Jess Parrish is located at the north end of Brevard County, which runs about 80 miles north-south. Wuesthoff is about 25 miles south of Jess Parrish, and Titusville is about 40 miles north of Melbourne. Intercity north-south traffic uses Interstate 95, which is west of the above-described cities, and U.S. Route 1, which runs through the center of each of these cities. Rule 10-5.011(1)(o)5.g., Florida Administrative Code, provides that short-term inpatient psychiatric services should be located within a maximum travel time of 45 minutes under average travel conditions for at least 90% of the population of the service area. This criterion is presently met without the addition of short-term psychiatric beds at Jess Parrish. This factor is outweighed, however, by another factor in this case. Jess Parrish projects about half of its patients will be indigent or Medicaid, and north Brevard County has a disproportionate share of the county's impoverished residents. Average travel conditions for these persons require public transportation, which, in north Brevard County, is limited to Greyhound/Trailways and local taxi companies. Exclusive of time waiting for the bus and traveling to and from the bus stations, the time for the 25-mile trip between Titusville and Rockledge, of which there are three or four trips daily (excluding off-hour trips), ranges from 25-35 minutes. There is evidence in the record that mentally ill bus passengers do not always make it to their intended destinations by way of intercity buses. The use of available public transportation is therefore problematic, but in any event adds considerable time to the travel time to Wuesthoff for those individuals who do not own a motor vehicle. Effect on Wuesthoff The effect of the conversion of medical/surgical beds to short-term psychiatric beds will have no material effect on Wuesthoff, even though it did reduce the number of short-term psychiatric beds from 30 to 25 in 1986. The occupancy rate for Wuesthoff's short-term psychiatric unit in 1987 was 70.6%. The prime service areas of Wuesthoff and Jess Parrish as to psychiatric admissions do not substantially overlap. Although Jess Parrish may be expected to draw more patients from Wuesthoff's prime service area following commencement of the new operation, many of Jess Parrish's patients will be from the indigent and Medicaid payor classes for which the competition is not intense. The addition of a 16-bed short-term psychiatric unit at Jess Parrish will not materially influence the availability of qualified personnel for Wuesthoff. It appears that Jess Parrish will be able to staff the relatively small 16-bed unit without employing significant numbers of professional employees of Wuesthoff. Some of the relatively few patients whom Wuesthoff can be expected to lose to Jess Parrish involve referrals from Titusville-area physicians, psychiatrists, and psychologists, who will place their patients in the closer facility once it is opened. The negative impact upon Wuesthoff is outweighed in these cases by gains for the patients in continuity of care and community support. Financial Feasibility The short-term financial feasibility is good. Jess Parrish has available to it sufficient funds to undertake the relatively modest capital outlay in constructing the facility, which will consist of about 8000 square feet on an existing floor of the hospital. The long-term financial feasibility is generally good. The financial projections are based on reasonable assumptions, which are largely derived from the actual experience of Circles of Care. The projections accurately estimate revenue sources and expenses. Jess Parrish reasonably projects an adequate supply of patients from a combination of sources, including Circles of Care, existing patients whose diagnoses include psychiatric components, and numerous health-care professionals in north Brevard County. The financial projections contemplate a material contribution by Circles of Care, but project no compensating expenditures. However, this deficiency is largely offset by the likelihood that the financial participation of Circles of Care will be restricted to a share of any excess of revenues over expenses of the new project, possibly excluding reimbursement of fairly minor expenses. If that is the case, the effect of any management agreement would be only to reduce the excess of revenues over expenses enjoyed by Jess Parrish from the operation of the short-term psychiatric unit. The management agreement would not expose Jess Parrish to losses that would not have otherwise existed but for the agreement to make payments to Circles of Care. Under these circumstances, the omission of the information, although material, does not seriously cast into doubt the long-term financial feasibility of the project. Quality of Care The quality of hospital care offered by Jess Parrish is excellent. The quality of the various psychiatric services offered by Circles of Care is also excellent. Both facilities are accredited by the Joint Commission on the Accreditation of Hospitals. The issue in this case involves the quality of care to be expected in the 16-bed short-term psychiatric unit for which Jess Parrish seeks a certificate of need. Circles of Care and Jess Parrish have agreed that Circles of Care will be responsible for recruiting most of the personnel for the new program and will employ the program's medical director, who will be responsible for treatment decisions. In addition, Circles of Care will advise Jess Parrish as to the adoption of policy, which will remain ultimately the responsibility of Jess Parrish. Jess Parrish will employ the head nurse and all other full-time professional staff working in the unit. The tentativeness of the arrangement between Circles of Care and Jess Parrish is partly explained by the desire of both parties to avoid the time and expense of negotiating an agreement in every detail prior to obtaining final approval of the certificate of need. In addition, both organizations were devoting substantial time to the subject litigation, for which Circles of Care was paying a portion of the expenses. In the final analysis, the failure to work out the agreement, although not a positive feature of the application, is not a serious problem for two reasons. First, Circles of Care and Jess Parrish have a long history of mutual cooperation. The relationship began when Jess Parrish leased Circles of Care 16 hospital beds for psychiatric use. Although the arrangement ended several years ago when Circles of Care constructed its Melbourne facility, the two organizations have since cooperated in several less intensive ways. Second, although Circles of Care has superior expertise in the area of mental health, Jess Parrish qualifies by itself to operate the proposed facility. Circles of Care has already provided much of the necessary technical information required for the preparation of budgets and pro formas. Recruiting would probably take somewhat longer without Circles of Care, but the modest construction budget obviously does not involve significant debt service, so that the delay would not be costly. Perhaps the most significant loss from a quality-of-care perspective would be the medical director, whose expertise will be critical. Again, this would be largely a problem of delay only, as Jess Parrish would have to find a replacement, although it appears likely that the director may be Dr. David Greenblum, who is already a member of the active medical staff at Jess Parrish. Given the quality of care provided by Jess Parrish in the past, there is no basis for any concern that, in the unlikely event that the parties fail to negotiate an agreement, Jess Parrish would jeopardize its reputation as a quality 200-bed general hospital in order to commence prematurely a 16-bed short- term psychiatric unit. Other Factors The record does not demonstrate that there are less costly, more efficient, or more appropriate alternatives to the inpatient services proposed in the subject application. There are no crisis stabilization units or short-term residential treatment programs available in Brevard County. The proposed project will have a measurable impact only upon Circles of Care, whose existing inpatient facilities will be enhanced, and Wuesthoff, whose existing inpatient facilities will not be materially affected. In general, these existing services are being used in an appropriate and efficient manner. On the other hand, the beds that Jess Parrish seeks to convert are underutilized in their present designation. The medical/surgical beds at Jess Parrish have been utilized at a rate of less than 60% over the past three years. There are no feasible alternatives to renovation of the existing facilities. The costs and methods of proposed construction are reasonable and appropriate. The approval of the application will foster healthy competition in the area of short-term psychiatric services and promote quality assurance.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Health and Rehabilitative Services enter a Final Order granting the application of Jess Parrish for a certificate of need to convert 16 medical/surgical beds to 16 short-term adult psychiatric beds. DONE and ENTERED this 30th day of June, 1989, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-1220 Treatment Accorded Proposed Findings of Jess Parrish 1-6 Adopted or adopted in substance. 7-8 Rejected as irrelevant. 9-10 Adopted or adopted in substance. 11 Rejected as recitation of testimony and subordinate. 12-13 Adopted or adopted in substance. Rejected as irrelevant. Adopted to the extent of the finding in the Recommended Order that there likely will be an agreement between Circles of Care and Jess Parrish. Rejected as unsupported by the evidence that such an agreement exists already. Also rejected as unnecessary insofar as the application can stand on its own without the participation of Circles of Care. 15a Adopted or adopted in substance. 15b-15c Rejected as irrelevant. 15d-15g Adopted in substance, although certain proposed facts rejected as subordinate. However, the first sentence of Paragraph 15f is rejected as against the greater weight of the evidence. 15h Rejected as recitation of testimony. 16-18 Adopted or adopted in substance except that all but the last sentence of Paragraph 18g. is rejected as against the greater weight of the evidence and legal argument. 19 First sentence adopted. 19 (remainder) -22. Rejected as subordinate and recitation of evidence. Generally adopted, although most of the facts are rejected as subordinate in the overall finding and cumulative. Adopted except that sixth sentence is rejected as against the greater weight of the evidence and the seventh sentence is rejected as subordinate. Adopted in substance. First sentence adopted. Remainder rejected as irrelevant. Rejected as irrelevant. Adopted. 28a Rejected as unsupported by the greater weight of the evidence. 28b-28d Adopted or adopted in substance. and 31 Rejected as subordinate. Rejected as unnecessary. 32-50 Adopted or adopted in substance. Treatment Accorded Proposed Findings of HRS 1-11 Adopted or adopted in substance. & 14 Rejected as irrelevant. & 15-16 Adopted. 17 Rejected as unnecessary. 18-74 See rulings on Paragraphs 16-50 in preceding section. Treatment Accorded Proposed Findings of Wuesthoff 1-3 Adopted or adopted in substance. Rejected as irrelevant. Rejected as against the greater weight of the evidence and legal argument. 6-10 & 12 Adopted or adopted in substance. 11 Rejected as against the greater weight of the evidence. Rejected as recitation of testimony and cumulative. Rejected as cumulative except that second sentence is adopted. Rejected as recitation of testimony. Rejected as cumulative, subordinate, and legal argument. Rejected as cumulative except that second sentence is adopted. First clause rejected as against the greater weight of the evidence. Remainder rejected as irrelevant. Rejected as cumulative and subordinate. 20-23 Rejected as irrelevant and unnecessary. Rejected as against the greater weight of the evidence. Rejected as irrelevant and unnecessary. Rejected as cumulative. 27-28 Rejected as irrelevant and unnecessary. 29 Rejected as legal argument. 30-32 Rejected as irrelevant. 33-41 Rejected as against the greater weight of the evidence and subordinate. 42 and 51 Rejected as recitation of evidence. 43-45 Rejected as against the greater weight of the evidence. 46 Rejected as legal argument. 47-50 and 52-54 Rejected as subordinate. 55 Rejected as against the greater weight of the evidence. 56-59 Rejected as irrelevant. 60-66 Rejected as subordinate and recitation of testimony. 67-69 Rejected as against the greater weight of the evidence. 70-73 Rejected as against the greater weight of the evidence and subordinate. 74-78 Adopted. 79 Rejected as against the greater weight of the evidence. 80-82 Adopted. 83-85 Rejected as against the greater weight of the evidence. 86 Rejected as subordinate and against the greater weight of the evidence. 87-91 Adopted or adopted in substance. 92 Rejected as against the greater weight of he evidence. 93-94 Rejected as subordinate. Rejected as against the greater weight of the evidence. Rejected as irrelevant. 97-98 Rejected as against the greater weight of the evidence. Rejected as irrelevant. Rejected as subordinate. 101-102 Rejected as against the greater weight of the evidence. Rejected as partly cumulative and partly legal argument. Rejected as against the greater weight of the 105 evidence Rejected and irrelevant. as against the greater weight of the 106-108 evidence. Rejected as subordinate. 109 110-113 Rejected evidence. Rejected as against the greater weight of as subordinate. the 114-117 118-120 Rejected evidence. Rejected as against the greater weight of as irrelevant and subordinate. the 121-122 Rejected as subordinate. 123 124-125 First sentence adopted in substance. Remainder rejected as subordinate. Rejected as subordinate. 126-129 Rejected as unsupported by the greater weight of evidence. the COPIES FURNISHED: Anthony Cleveland W. David Watkins Oertel, Hoffman, Fernandez & Cole, P.A. Post Office Box 6507 Tallahassee, Florida 32314-6507 John Rodriguez 1323 Winewood Boulevard Building 1, Room 407 Tallahassee, Florida 32399-0700 William B. Wiley Darrell White McFarlain, Sternstein, Wiley & Cassedy, P.A. Post Office Box 2174 Tallahassee, Florida 32316-2174 Stephen M. Presnell MacFarlane, Ferguson, Allison & Kelly Post Office Box 82 Tallahassee, Florida 32302 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
The Issue The issue is whether BayCare Long Term Acute Care Hospital, Inc.'s Certificate of Need Application No. 9753 and University Community Hospital's Certificate of Need Application No. 9754, both submitted to the Agency for Health Care Administration, should be approved.
Findings Of Fact LTCHs defined An LTCH is a medical facility which provides extended medical and rehabilitation care to patients with multiple, chronic, or clinically complex acute medical conditions. These conditions include, but are not limited to, ventilator dependency, tracheotomy care, total parenteral nutrition, long- term intravenous anti-biotic treatment, complex wound care, dialysis at bedside, and multiple systems failure. LTCHs provide an interdisciplinary team approach to the complex medical needs of the patient. LTCHs provide a continuum of care between short-term acute care hospitals and nursing homes, skilled nursing facilities (SNFs), or comprehensive medical rehabilitation facilities. Patients who have been treated in an intensive acute care unit at a short-term acute care hospital and who continue to require intensive care once stabilized, are excellent candidates for care at an LTCH. Included in the interdisciplinary approach is the desired involvement of the patient's family. A substantial number of the patients suitable for treatment in an LTCH are in excess of 65 years of age, and are eligible for Medicare. Licensure and Medicare requirements dictate that an LTCH have an average length of stay (ALOS) of 25 days. The Center for Medicare and Medicaid Services (CMS) reimburses for care received through the prospective payment system (PPS). Through this system, CMS reimburses the services of LTCHs separately from short-term acute care providers and other post acute care providers. The reimbursement rate for an LTCH under PPS exceeds that of other providers. The reimbursement rate for an LTCH is about twice that of a rehabilitation facility. The increased reimbursement rate indicates the increased cost due to the more intensive care required in an LTCH. The Agency The Agency is a state agency created pursuant to Section 20.42. It is the chief health policy and planning entity for the State of Florida. The Agency administers the Health Facility and Services Development Act found at Sections 408.031-408.045. Pursuant to Section 408.034, the Agency is designated as the single state Agency to issue, revoke, or deny certificates of need. The Agency has established 11 health service planning districts. The applications in this case are for facilities in District 5, which comprises Pinellas and Pasco counties. UCH UCH is a not-for-profit organization that owns and operates a 431-bed tertiary level general acute care hospital and a 120-bed acute care general hospital. Both are located in Hillsborough County. UCH also has management responsibilities and affiliations to operate Helen Ellis Hospital, a 300-bed hospital located in Tarpon Springs, and manages the 300-bed Suncoast Hospital. Both of these facilities are in Pinellas County. UCH also has an affiliation to manage the open heart surgery program at East Pasco Medical Center, a general acute care hospital located in Pasco County. As a not-for-profit organization, the mission of UCH is to provide quality health care services to meet the needs of the communities where it operates regardless of their patients' ability to pay. Baycare BayCare is a wholly-owned subsidiary of BayCare Healthsystems, Inc. (BayCare Systems). BayCare Systems is a not-for-profit entity comprising three members that operate Catholic Health East, Morton Plant Mease Healthcare, and South Florida Baptist. The facilities owned by these organizations are operated pursuant to a Joint Operating Agreement (JOA) entered into by each of the participants. BayCare Systems hospitals include Morton Plant Hospital, a 687-bed tertiary level facility located in Clearwater, Pinellas County; St. Joseph's Hospital, an 887-bed tertiary level general acute care hospital located in Tampa, Hillsborough County; St. Anthony's Hospital, a 407-bed general acute care hospital located in St. Petersburg, Pinellas County; and Morton Plant North Bay, a 120-bed hospital located in New Port Richey, Pasco County. Morton Plant Mease Health Care is a partnership between Morton Plant Hospital and Mease Hospital. Although Morton Plant Mease Healthcare is a part of the BayCare System, the hospitals that are owned by the Trustees of Mease Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside, are not directly members of the BayCare System and are not signatories to the JOA. HealthSouth HealthSouth is a national company with the largest market share in inpatient rehabilitation. It is also a large provider of ambulatory services. HealthSouth has about 1,380 facilities across the nation. HealthSouth operates nine LTCHs. The facility that is the Intervenor in this case is a CMR located in Largo, Pinellas County. Kindred Kindred, through its parent company, operates LTCH facilities throughout Florida and is the predominant provider of LTCH services in the state. In the Tampa Bay area, Kindred operates three LTCHs. Two are located in Tampa and one is located in St. Petersburg, Pinellas County. The currently operating LTCH in District 5 that may be affected by the CON applications at issue is Kindred-St. Petersburg. Kindred-St. Petersburg is a licensed 82-bed LTCH with 52 private beds, 22 semi-private beds, and an 8-bed intensive care unit. It operates the array of services normally offered by an LTCH. It is important to note that Kindred-St. Petersburg is located in the far south of heavily populated District 5. The Applications UCH proposes a new freestanding LTCH which will consist of 50 private rooms and which will be located in Connerton, a new town being developed in Pasco County. UCH's proposal will cost approximately $16,982,715. By agreement of the parties, this cost is deemed reasonable. BayCare proposes a "hospital within a hospital" LTCH that will be located within Mease Hospital-Dunedin. The LTCH will be located in an area of the hospital currently used for obstetrics and women's services. The services currently provided in this area will be relocated to Mease Hospital- Countryside. BayCare proposes the establishment of 48 beds in private and semi-private rooms. Review criteria which was stipulated as satisfied by all parties Section 408.035(1)-(9) sets forth the standards for granting certificates of need. The parties stipulated to satisfying the requirements of subsections (3) through (9) as follows. With regard to subsection (3), 'The ability of the applicant to provide quality of care and the applicant's record of providing quality of care,' all parties stipulated that this statutory criterion is not in dispute and that both applicants may be deemed to have satisfied such criteria. With regard to subsection (4), 'The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation,' it was stipulated that both applicants have all resources necessary in terms of both capital and staff to accomplish the proposed projects, and therefore, both applicants satisfy this requirement. With regard to subsection (5), 'The extent to which the proposed services will enhance access to health care for residents of the service district,' it was stipulated that both proposals will increase access. Currently there are geographic, financial and programmatic barriers to access in District 5. The only extant LTCH is located in the southernmost part of District 5. With regard to subsection (6), 'The immediate and long-term financial feasibility of the proposal,' the parties stipulated that UCH satisfied the criterion. With regard to BayCare, it was stipulated that its proposal satisfied the criterion so long as BayCare can achieve its utilization projections and obtain Medicare certification as an LTCH and thus demonstrate short-term and long-term feasibility. This issue will be addressed below. With regard to subsection (7), 'The extent to which the proposal will foster competition that promotes quality and cost- effectiveness,' the parties stipulated that approval of both applications will foster competition that will promote quality and cost effectiveness. The only currently available LTCH in District 5, unlike BayCare and UCH, is a for-profit establishment. With regard to subsection (8), 'The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction,' the parties stipulated that the costs and methods of construction for both proposals are reasonable. With regard to subsection (9), 'the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent,' it was stipulated that both UCH and BayCare have a demonstrated history and a commitment to providing services to Medicaid, Medicaid HMO, self-pay, and underinsured payments. Technically, of course, BayCare has no history at all. However, its sponsors do, and it is they that will shape the mission for BayCare. BayCare's Medicare certification as an LTCH The evidence of record demonstrates that BayCare can comply with Medicare reimbursement regulations and therefore can achieve its utilization projections and obtain Medicare certification as an LTCH. Thus short-term and long-term feasibility is proven. Because BayCare will be situated as a hospital within a hospital, in Mease Hospital Dunedin, and because there is a relationship between that hospital and BayCare Systems, Medicare reimbursement regulations limit to 25 percent the number of patients that may be acquired from Mease Hospital Dunedin or from an organization that controls directly or indirectly the Mease Hospital Dunedin. Because of this limitation, it is, therefore, theoretically possible that the regulator of Medicare payments, CMS, would not allow payment where more than 25 percent of admissions were from the entire BayCare System. Should that occur it would present a serious but not insurmountable problem to BayCare. BayCare projects that 21 percent of its admissions will come from Mease Hospital Dunedin and the rest will come from other sources. BayCare is structured as an independent entity with an independent board of directors and has its own chief executive officer. The medical director and the medical staff will be employed by the independent board of directors. Upon the greater weight of the evidence, under this structure, BayCare is a separate corporate entity that neither controls, nor is controlled by, BayCare Systems or any of its entities or affiliates. One must bear in mind that because of the shifting paradigms of federal medical regulation, predictability in this regard is less than perfect. However, the evidence indicates that CMS will apply the 25 percent rule only in the case of patients transferring to BayCare from Mease Hospital Dunedin. Most of the Medicare-certified LTCHs in the United States operate as hospitals within hospitals. It is apparent, therefore, that adjusting to the CMS limitations is something that is typically accomplished. BayCare will lease space in Mease Hospital Dunedin which will be vacated by it current program. BayCare will contract with Mease Hospital Dunedin for services such as laboratory analysis and radiology. This arrangement will result in lower costs, both in the short term and in the long term, than would be experienced in a free-standing facility, and contributes to the likelihood that BayCare is feasible in the short term and long term. Criteria related to need The contested subsections of Section 408.035 not heretofore addressed, are (1) and (2). These subsections are illuminated by Florida Administrative Code Rule 59C- 1.008(2)(e)2., which provides standards when, as in this case, there is no fixed-need pool. Florida Administrative Code Rule 59C-1.008(2)(e)2., provides as follows: 2. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, sub district or both; Medical treatment trends; and Market conditions. Population Demographics and Dynamics The applicants presented an analysis of the population demographics and dynamics in support of their applications in District 5. The evidence demonstrated that the population of District 5 was 1,335,021 in 2004. It is anticipated that it will grow to 1,406,990 by 2009. The projected growth rate is 5.4 percent. The elderly population in the district, which is defined as persons over the age of 65, is expected to grow from 314,623 in 2004, to 340,676, in 2009, which represents an 8.3 percent increase. BayCare BayCare's service area is defined generally by the geographic locations of Morton Plant Hospital, Morton Plant North Bay Hospital, St. Anthony's Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside. These hospitals are geographically distributed throughout Pinellas County and southwest Pasco County and are expected to provide a base for referrals to BayCare. There is only one extant LTCH in Pinellas County, Kindred, and it is located in the very southernmost part of this densely populated county. Persons who become patients in an LTCH are almost always moved to the LTCH by ambulance, so their movement over a long distance through heavy traffic generates little or no problem for the patient. Accordingly, if patient transportation were the only consideration, movement from the north end of the county to Kindred in the far south, would present no problem. However, family involvement is a substantial factor in an interdisciplinary approach to addressing the needs of LTCH patients. The requirement of frequent movement of family members from northern Pinellas to Kindred through congested traffic will often result in the denial of LTCH services to patients residing in northern Pinellas County or, in the alternative, deny family involvement in the interdisciplinary treatment of LTCH patients. Approximately 70 letters requesting the establishment of an LTCH in northern Pinellas County were provided in BayCare's application. These letters were written by medical personnel, case managers and social workers, business persons, and government officials. The thread common to these letters was, with regard to LTCH services, that the population in northern Pinellas County is underserved. UCH Pasco County has experienced a rapid population growth. It is anticipated that the population will swell to 426,273, in 2009, which represents a 10.1 percent increase over the population in 2004. The elderly population accounts for 28 percent of the population. This is about 50 percent higher than Florida as a whole. Rapid population growth in Pasco County, and expected future growth, has resulted in numerous new housing developments including Developments of Regional Impact (DRI). Among the approved DRI's is the planned community of Connerton, which has been designated a "new town" in Pasco County's Comprehensive Plan. Connerton is a planned community of 8,600 residential units. The plan includes space for a hospital and UCH has negotiated for the purchase of a parcel for that purpose within Connerton. The rate of growth, and the elderly population percentages, will support the proposed UCH LTCH and this is so even if BayCare establishes an LTCH in northern Pinellas County. Availability, utilization, and quality of like services in the district, sub-district, or both The Agency has not established sub-districts for LTCHs. As previously noted, Kindred is the only LTCH extant in District 5. It is a for-profit facility. Kindred was well utilized when it had its pediatric unit and added 22 additional beds. Subsequently, in October 2002, some changes in Medicare reimbursement rules resulted in a reduction of the reimbursement rate. This affected Kindred's income because over 70 percent of its patients are Medicare recipients. Kindred now uses admission criteria that have resulted in a decline in patient admissions. From 1998, the year after Kindred was established, until 2002, annual utilization was in excess of 90 percent. Thereafter, utilization has declined, the 22-bed addition has been shut down, and Kindred projects an occupancy of 55 percent in 2005. Kindred must make a profit. Therefore, it denies access to a significant number of patients in District 5. It denies the admission of patients who have too few "Medicare- reimbursable days" or "Medicaid-reimbursable days" remaining. The record indicates that Kindred only incurs charity care or Medicaid patient days when a patient admitted to Kindred with seemingly adequate funding unexpectedly exhausts his or her funding prior to discharge. Because of the constraints of PPS, Kindred has established admission criteria that excludes certain patients with conditions whose prognosis is so uncertain that it cannot adequately predict how long they will require treatment. Kindred's availability to potential patients is thus constrained. HealthSouth, a licensed CMR, is not a substitute for an LTCH. Although it is clear that there is some overlap between a CMR and an LTCH, HealthSouth, for instance, does not provide inpatient dialysis, will not accept ventilator patients, and does not treat complex wound patients. The nurse staffing level at HealthSouth is inadequate to provide for the type of patient that is eligible for treatment in an LTCH. The fact that LTCHs are reimbursed by Medicare at approximately twice the rate that a CMR is reimbursed, demonstrates the higher acuity level of LTCH services when compared to a CMR. HealthSouth is a facility which consistently operates at high occupancy levels and even if it were capable of providing the services typical of an LTCH, it would not have sufficient capacity to provide for the need. A CMR is a facility to which persons who make progress in an LTCH might repair so that they can return to the activities of daily living. SNFs are not substitutes for LTCHs although there could be some limited overlap. SNFs are generally not appropriate for patients otherwise eligible for the type of care provided by an LTCH. They do not provide the range of services typically provided by an LTCH and do not maintain the registered nurse staffing levels required for delivering the types of services needed for patients appropriate for an LTCH. LTCHs are a stage in the continuum of care. Short- term acute care hospitals take in very sick or injured patients and treat them. Thereafter, the survivors are discharged to home, or to a CMR, or to a SNF, or, if the patients are still acutely ill but stable, and if an LTCH is available, to an LTCH. As noted above, currently in northern Pinellas County and in Pasco County, there is no reasonable access to an LTCH. An intensive care unit (ICU) is, ideally, a treatment phase that is short. If treatment has been provided in an ICU and the patient remains acutely ill but stable, and is required to remain in the ICU because there is no alternative, greater than necessary costs are incurred. Staff in an ICU are not trained or disposed to provide the extensive therapy and nursing required by patients suitable for an LTCH and are not trained to provide support and training to members of the patient's family in preparation for the patient's return home. The majority of patients suitable for an LTCH have some potential for recovery. This potential is not realized in an ICU, which is often counterproductive for patients who are stabilized but who require specialized long-term acute care. Patients who remain in an ICU beyond five to seven days have an increased morbidity/mortality rate. Maintaining patients suitable for an LTCH in an ICU also results in over-utilization of ICU services and can cause congestion when ICU beds are fully occupied. UCH in Pasco County, and to a lesser extent BayCare in northern Pinellas County, will bring to the northern part of District 5 services which heretofore have not been available in the district, or, at least, have not been readily available. Persons in Pasco County and northern Pinellas County, who would benefit from a stay in an LTCH, have often had to settle for some less appropriate care situation. Medical Treatment Trends LTCHs are relatively new cogs in the continuum of care and the evidence indicates that they will play an important role in that continuum in the future. The evidence of record demonstrates that the current trend in medical treatment is to find appropriate post acute placements in an LTCH setting for those patients in need of long-term acute care beyond the stay normally experienced in a short-term acute care hospital. Market conditions The federal government's development of the distinctive PPS for LTCHs has created a market condition which is favorable for the development of LTCH facilities. Although the Agency has not formally adopted by rule a need methodology specifically for LTCHs, by final order it has recently relied upon the "geometric mean length of stay + 7" (GMLOS +7) need methodology. The GMLOS +7 is a statistical calculation used by CMS in administering the PPS reimbursement system in determining an appropriate reimbursement for a particular "diagnostic related group" (DRG). Other need methodologies have been found to be unsatisfactory because they do not accurately reflect the need for LTCH services in areas where LTCH services are not available, or where the market for LTCH services is not competitive. GMLOS +7 is the best analysis the Agency has at this point. Because the population for whom an LTCH might be appropriate is unique, and because it overlaps with other populations, finding an algebraic need expression is difficult. An acuity measure would be the best marker of patient appropriateness, but insufficient data are available to calculate that. BayCare's proposal will provide beneficial competition for LTCH services in District 5 for the first time and will promote geographic, financial, and programmatic access to LTCH services. BayCare, in conducting its need calculations used a data pool from Morton Plant Hospital, Mease Dunedin Hospital, Mease Countryside Hospital, Morton Plant North Bay Hospital, and St. Anthony's Hospital for the 12 months ending September 2003. The hospitals included in the establishment of the pool are hospitals that would be important referral sources for BayCare. BayCare then identified 160 specific DRGs historically served by existing Florida LTCHs, or which could have been served by Florida LTCHs, and lengths of stay greater than the GMLOS for acute care patients, and compared them to the data pool. This resulted in a pool of 871 potential patients. The calculation did not factor in the certain growth in the population of the geographic area, and therefore the growth of potential LTCH patients. BayCare then applied assumptions based on the proximity of the referring hospitals to the proposed LTCH to project how many of the patients eligible for LTCH services would actually be referred and admitted to the proposed LTCH. That exercise resulted in a projected potential volume of 20,265 LTCH patient days originating just from the three District 5 BayCare hospitals and the two Mease hospitals. BayCare assumes, and the assumption is found to be reasonable, that 25 percent of their LTCH volume will originate from facilities other than BayCare or Mease hospitals. Adding this factor resulted in a total of 27,020 patient days for a total net need of 82 beds at 90 percent occupancy. BayCare's GMLOS +7 bed need methodology reasonably projects a bed need of 82 beds based on BayCare's analysis of the demand arising from the three District 5 BayCare hospitals and the two Mease hospitals. UCH provided both a GMLOS +7 and a use rate analysis. The use rate analysis is suspect in a noncompetitive environment and, obviously, in an environment where LTCHs do not exist. UCH's GMLOS +7 analyses resulted in the identification of a need for 159 additional LTCH beds in District 5. This was broken down into a need of 60 beds in Pasco County and 99 additional beds in Pinellas County. There is no not-for-profit LTCH provider in District The addition of BayCare and UCH LTCHs to the district will meet a need in the case of Medicaid, indigent, and underinsured patients. Both BayCare and UCH have agreed in their applications to address the needs of patients who depend on Medicaid, or who are indigent, or who have private insurance that is inadequate to cover the cost of their treatment. The statistical analyses provided by both applicants support the proposed projects of both applicants. Testimony from doctors who treat patients of the type who might benefit from an LTCH testified that those types of facilities would be utilized. Numerous letters from physicians, nurses, and case managers support the need for these facilities. Adverse impacts HealthSouth and Kindred failed to persuade that BayCare's proposal will adversely impact them. HealthSouth provides little of the type of care normally provided at an LTCH. Moreover, HealthSouth is currently operating near capacity. Kindred is geographically remote from BayCare's proposed facility, and, more importantly, remote in terms of travel time, which is a major consideration for the families of patients. Kindred did not demonstrate that it was currently receiving a large number of patients from the geographic vicinity of the proposed BayCare facility, although it did receive some patients from BayCare Systems facilities and would likely lose some admissions if BayCare's application is approved. The evidence did not establish that Kindred would suffer a material adverse impact should BayCare establish an LTCH in Mease Dunedin Hospital. HealthSouth and Kindred conceded that UCH's program would not adversely impact them. The Agency's Position The Agency denied the applications of BayCare and UCH in the SAARs. At the time of the hearing the Agency continued to maintain that granting the proposals was inappropriate. The Agency's basic concern with these proposals, and in fact, the establishments of LTCHs throughout the state, according to the Agency's representative Jeffrey N. Gregg, is the oversupply of beds. The Agency believes it will be a long time before it can see any measure of clinical efficiency and whether the LTCH route is the appropriate way to go. The Agency has approved a number of LTCHs in recent years and is studying them in order to get a better understanding of what the future might hold. The Agency noted that the establishment of an LTCH by ongoing providers, BayCare Systems and UCH, where there are extant built-in referring facilities, were more likely to be successful than an out-of-state provider having no prior relationships with short-term acute care hospitals in the geographic vicinity of the LTCH. The Agency noted that both a referring hospital and an LTCH could benefit financially by decompressing its intensive care unit, and thus maximizing their efficiency. The Agency did not explain how, if these LTCHs are established, a subsequent failure would negatively affect the delivery of health services in District 5. The Agency, when it issued its SAAR, did not have the additional information which became available during the hearing process.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that UCH Certificate of Need Application No. 9754 and BayCare Certificate of Need Application No. 9753 satisfy the applicable criteria and both applications should be approved. DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2005. COPIES FURNISHED: Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 J. Robert Griffin, Esquire J. Robert Griffin, P.A. 1342 Timberlane Road, Suite 102-A Tallahassee, Florida 32312-1762 Patricia A. Renovitch, Esquire Oertel, Hoffman, Fernandez, Cole, & Bryant P.A. Post Office Box 1110 Tallahassee, Florida 32302-1110 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Timothy Elliott, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Mail Station 3 Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308
Conclusions THE PARTIES resolved all disputed issues and executed a settlement agreement, which is attached and incorporated by reference. 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 this_/6 & day of May _ , 2014, in Tallahassee, Leon County, Florida. Agency for Health Care Administration 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 Filed May 23, 2014 8:36 AM Division of Administrative Hearings 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: Theodore E Mack Powell & Mack 3700 Belwood Drive Tallahassee, Fl 32303 tmack@talstar.com (Via Electronic Mail) Shena L. Grantham Assistant General Counsel Mercedes Bosque, Audit Administrator (Interoffice mail) Finance & Accounting (Interoffice mail) CERTIFICATE OF SERVICE — | HEREBY CERTIFY that a true and correct copy of the foregoing has been served on the ween persons by Electronic Mail/U.S. Mail or interoffice mail as indicated on this the _/ 7 ay 0: . a, 4 . = AN Sa) State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403
The Issue Whether an application for a new hospital to be constructed in Agency for Health Care Administration Planning District 9, Subdistrict 2, should be approved.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily approved Martin's CON application No. 9981. The Petitioners are existing providers who oppose the approval of the subject CON. St. Lucie is a 194-bed acute care hospital located on U. S. Highway 1 in Port St. Lucie, Florida, that opened in 1983. Included in the bed count are 17 obstetric beds and 18 intensive care beds. St. Lucie utilizes 7 operating rooms and provides a varied list of surgical services. Although St. Lucie does not provide tertiary services, it offers an impressive array of medical options including general and vascular surgery, orthopedics, spine surgery, neurosurgery, and gynecology. Furthermore, St. Lucie is a designated stroke center and it is fully accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The JCAHO mission is to improve the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations. St. Lucie uses a hospitalist program 7 days per week, 12 hours per day. The hospitalist program is a group of physicians who are employed by the hospital to manage the care of its patients. St. Lucie believes the hospitalist program moves patient cases more quickly and efficiently. St. Lucie has committed financial resources to its hospitalist program and hopes to expand its use in the future. The emergency department (ED) at St. Lucie handles approximately 42,000 visits per year. The ED has 24 beds comprised of 16 regular beds and 8 "fast track" beds. All areas are either curtained or separated by dividers to provide for patient privacy. Historically, St. Lucie has expanded the ED to provide for additional space for emergent patients. One of the strategies it has used includes the installation of special chairs in a waiting triaged area. The other Petitioner, Lawnwood, is located in Ft. Pierce, Florida, near I-95 and the Florida Turnpike. Lawnwood has 341 beds and, in additional to traditional medical/surgical options, provides tertiary services such as neurosurgery and open heart. Lawnwood also provides Level II neonatal intensive care services. Like St. Lucie, Lawnwood is fully accredited by JCAHO. Lawnwood has provided quality health care services to its region for over 30 years. The Lawnwood ED handles approximately 40,000 visits per year in a 28-bed unit. At its current location Lawnwood can expand its facilities should it desire to do so. At the current time, however, it has no plans for expansion of its main campus. It does plan to initiate an expansion of its intensive care unit. Financing for that expansion was anticipated to become more definite in 2009. In furtherance of its efforts to promote itself as a regional provider of quality medical services, Lawnwood has begun the arduous process of becoming a Level I trauma program for a multi-county area. In this regard, Lawnwood asserts that its service area for trauma patients encompasses Indian River County, St. Lucie County, parts of Okeechobee County, and portions of Martin County, Florida. Lawnwood has invested in the capital improvements needed to fully implement this program. The Petitioners are owned and operated by Hospital Corporation of America (HCA), a for-profit corporation headquartered in Nashville, Tennessee. HCA has input into the decisions affecting Petitioners and can influence when the improvements they hope to implement will be finalized. In addition to the Petitioners, other providers in the district include Indian River Hospital located in Vero Beach, Florida, and Martin Memorial Medical Center, Inc. with two hospitals in Martin County, Florida. It is the latter competitor that seeks to establish a new hospital in the western portion of St. Lucie County, Florida. Martin is a private, not-for-profit Florida corporation licensed to operate Martin Memorial Hospital North, in Stuart, Florida, and Martin Memorial Hospital South, in Port Salerno, Florida. The northern facility has 244 licensed beds; the southern hospital has 100 licensed beds. The northern hospital is the older provider and has served patients from St. Lucie and Martin Counties for over 70 years. Like Lawnwood, Martin offers a broad range of acute care hospital services including tertiary services. The options available at Martin include open-heart surgery, complex wound care, oncology, obstetrics, neonatal intensive care, pediatrics, and orthopedics. Martin provides high-quality medical services to its patients in both outpatient and inpatient venues. To that end Martin has been active in the western portion of St. Lucie County for a number of years and has solidified relationships with physicians in that area of the district. In this regard, Martin established an urgent care center in Port St. Lucie back in 1984. Since that time it has repeatedly sought to expand its provision of medical care to the residents of St. Lucie County. Martin constructed a physicians complex that employs and provides offices for physicians most of whom are on staff at St. Lucie. Over 80 percent of the patients from the Martin physician complex get admitted to St. Lucie. Martin also established a second outpatient facility in the western portion of St. Lucie County. This 70,000 square foot center provides 500-600 treatments per month to its patients. Among the services provided at this facility include a broad range of diagnostic and laboratory services, radiation therapy, rehabilitation therapy, and pediatric medicine. Finally, Martin also intends to establish a freestanding ED in the western portion of St. Lucie County in 2009. This facility will provide another access point for patients in the western portion of the county to facilitate a quicker response for patients who seek emergency care. Martin views this proposed freestanding ED as an interim measure and will convert it to an urgent care or other non-acute use if the proposed hospital it seeks to construct is approved. The Proposal Martin seeks to construct a general acute care hospital consisting of 80 beds, with intensive care, an ED, telemetry, and obstetrics. It will not offer tertiary services. The site for the proposed hospital is in an area known as "Tradition," a planned community in the western portion of St. Lucie County. The City of Port St. Lucie has annexed the geographical area into what residents consider "West Port St. Lucie" and have designated an area of Tradition to promote the life sciences industry. Accordingly, Tradition has areas reserved for medical office buildings, research facilities, as well as the hospital site to be used by Martin. Martin's proposed site is adjacent to the Torrey Pines Molecular Research Institute. The entire Tradition and West Port St. Lucie area is within AHCA's District 9, Subdistrict 2. By locating the new hospital in the western portion of the county, Martin maintains it will promote and enhance access for current and future residents of the developing area without adversely impacting St. Lucie and Lawnwood. Another advantage to a hospital in the western portion of the county is the option of having a haven in the event of a hurricane or natural disaster in the eastern portion of the county. Since the site is located to the west of the coastline, storm surges would not likely impact the facility or dictate evacuation. Further, the site provides excellent geographic access for traffic and the population of the expanding western portions of the county. Like other geographical areas, the coastal portion of the county faces “build out” that will limit the population expansion anticipated in that area. The proposed area has yet to face any limitation in that regard. It is the most likely geographic area that will expand as the population grows. HCA also recognized the benefits of the western area for future expansion of its medical facilities. It unsuccessfully negotiated to acquire a hospital site at or near the proposed location. In relation to the other parties, the proposed site is north and west of the Martin hospitals in Martin County, west of St. Lucie, and south and west of Lawnwood. The size of the parcel is adequate to construct the hospital. In reaching its decision to seek the approval of the new hospital, Martin considered input from many sources, including, but not limited to: physicians who practice in the vicinity of the proposed hospital; emergency response personnel who transport patients to the various district hospitals; medical researchers who have located to or are locating to the proposed area; elected officials familiar with the medical needs of the community; and health care planning professionals. The St. Lucie River divides St. Lucie County east to west. Only the areas west of the river have been designated as the primary service area for the proposed hospital. The primary service area comprises the land within zip codes 34983, 34984, 34986, 34953, 34987, and 34988. The secondary service area comprises those lands encompassed by zip codes 34981, 34982, 34952, and 34957. These primary and secondary service areas have been reasonably determined to project admissions and other relevant use data. As is later addressed in more detail, the population projected for the service area will reasonably support the utilization required to make the proposed hospital financially feasible. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. In this case, the parties have identified the provisions of law that pertain to this matter. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to Martin, "need" is evidenced by a large current and projected growing population in the proposed service area (PSA), sustained population growth that exceeds the district and state averages, capacity constraints at the existing providers, geographic access barriers including traffic congestion and the St. Lucie River, the need for improved access for emergency medical services, enhanced geographic and financial access to obstetrical services for residents of the western portion of the county, growth to offset impact on existing providers, and the financial health of existing providers. As previously stated, St. Lucie County is divided by the St. Lucie River. The river is crossed west-to-east by a limited number of bridges that can back up and delay the traffic utilizing them for access to St. Lucie. The county is traveled north to south by two major roadways: U.S. Highway 1 and I-95. To travel from the western portions of the county and the Tradition community, vehicles cross I-95, the river, and travel U.S. Highway 1 to St. Lucie. The PSA is the fastest growing portion of the county. The older areas to the east are not growing at the rate associated with the development of Tradition and other communities to the west. Some of the coastal areas to the east have become "saturated." That is to say, building and growth restrictions along the coast have limited the population in those areas. The western portion of the county is one of the most rapidly growing communities in the state and has become one of the focal areas of growth for the region. Although the rate of growth has slowed in the recent economic decline, the St. Lucie County area is still predicted to grow at an increased pace in the near future. Population projections prepared by the Bureau of Economics and Business Research at the University of Florida demonstrate that the growth reasonably expected for the PSA is fairly dramatic. According to Dr. Smith, whose testimony has been credited, the primary service area population is expected to reach or exceed 180,977 by 2015. If underestimated (as is typical of these types of projections), the growth could easily exceed that projection. The projection was based upon the most currently available data and has not been contradicted by more reliable data. Claritas data also suggested that the projections produced by Dr. Smith's work were reasonable. The projected growth rate in the primary service area exceeds the projected growth rate of the district as well as for Florida for the period 2007-2015. This finding is supported by the credible weight of the data admitted into evidence. Although the population growth has slowed due to economic conditions, the county will experience renewed growth in the PSA with the projected reversal of slowing trends. Development in the PSA continues to be the most likely geographic area that will be improved first and faster than other areas of the county. Looking at the age component of the population projected for the PSA, the age 65 and over cohort is the fastest growing segment of the population; the second is the 45-64 population segment. These segments are the majority of the acute care hospital utilization. Additionally, females ages 15- 44 also reflect a high rate of growth for the primary service area. This latter statistic supports the notion that a demand for obstetrics is likely. Acute care hospital utilization in the subdistrict increased from 2003 through June 2008. The non-tertiary discharges within the primary service area increased by 42 percent for the period 2003 to 2007. Birth volume in the primary service area increased for the same period and doubled the number of obstetric admissions for the time noted. This increase in utilization supports the likelihood that population growth for the area will further increase the utilizations expected for the PSA. Historically, St. Lucie has observed this utilization and growth of demand for its services. St. Lucie has responded by adding beds to its ED but the projections would suggest that past and future growth will result in capacity constraints for St. Lucie. Demand for intensive care, medical surgical beds, and progressive care beds at St. Lucie has been high. The ICU occupancy rate at St. Lucie in particular has been at or above 85 percent capacity a significant portion of the time. Capacity issues are more pronounced during the months from November through May of each year. The subdistrict enjoys a strong seasonal influx of residents who require all the amenities of a community including medical care. In this regard, St. Lucie has seen a "bed crunch" in order to accommodate the seasonal patients. This crunch results in longer ED waits, longer waits for admissions for those requiring acute care, longer waits for those seeking elective admissions, and longer waits for some services such as blood transfusions. Although hospitals are not intended to be like fast food restaurants (providing all services on a expedited basis), extended waits for bed placement can place waiting patients on gurneys in less than optimal conditions. This scenario does not promote efficient or the most effective form of providing health care services to those in need. The bed crunch at St. Lucie is expected to continue due to increasing demand for acute care hospital services in the county. Capacity constraints are similarly demonstrated at Lawnwood and Martin. Like St. Lucie, Lawnwood and Martin experience the seasonal crunch associated with the increased population during the winter months. In Lawnwood's case, the ED has delays through out the year. This means that patients wait for a bed assignment in the ED until a suitable room placement can be made. Additionally, the intensive care unit at Lawnwood experiences high occupancy. As Lawnwood transitions to a trauma center, the demand for acute care beds will also increase. Lawnwood will be the sole trauma center for the region and will likely receive an increase in utilization from that patient source. Martin also has experienced high utilization and has operated at or near capacity for extended periods during the season. Further, the birth volume growth for Martin supports the conclusion that additional obstetric beds are needed for the subdistrict. The majority of Martin's increased birth volume has come from the PSA. Martin has also established that obstetrics patients travel from areas closer to Lawnwood or St. Lucie to seek services at Martin. This demand for obstetrical services in the PSA also suggests that the proposed hospital would enhance access to obstetrics in the subdistrict. Patients who might be induced (as the mother is past her due date) for labor must, at times, wait for a delivery bed. Additionally, patients who present in labor do not always have a labor bed. The new facility would ease these constraints. The location of the hospital at Tradition will also improve geographic access to medical facilities. The traffic and natural barriers to health care services (limited west to east roadways and the river) would be eliminated by the proposed facility. Additionally, during periods of storm events, residents throughout the subdistrict would have access to an acute care hospital without driving to the coastal area. The demand for emergency medical response and transport in St. Lucie County has increased dramatically. The St. Lucie County Fire Department transports all patients requiring advanced life support services in the county. When traveling from the western portions of the county, the emergency transports use the same roadways to cross the river as the general population. Delays are common. Even after delivering a patient to the St. Lucie ED, the transport must return west from its point of origin in order to return to service. The delays in traversing the county result in delays for the unit to be able to respond to the next call. Although it is impractical to have a hospital on every corner, the establishment of a hospital at Tradition would greatly enhance the response times for emergency vehicles and enhance their ability to return to service more quickly. To respond to the increased population and need in the Tradition community, the county has established two new fire stations in the area. The primary service area has the greatest need for additional fire and emergency services according to Chief Parrish. To help address the problem of having rescue units out of service for extended periods of time while transporting patients to an existing hospital east of the river (or while they are returning west to their service area), the Fire Department has doubled rescue trucks and paramedics at two stations in the western portion of the county. This duplication of manpower and equipment increases emergency costs for the county. Although there are plans for the construction of another bridge across the river that would ease some of the congestion in crossing the county, it is unknown when that bridge will be funded and constructed. City personnel do not expect the bridge to be started prior to 2017. The proposed hospital will provide improved access for emergency medical services. The proposed hospital will provide enhanced access to obstetrical services for the residents of the PSA. With regard to financial access, the weight of the credible evidence supports the finding that residents of the PSA are able to adequately access medical services. Existing providers are meeting the needs of the needy and those without ability to pay. Although the new hospital would provide a closer point of service for the indigent or Medicaid recipients who may lack transportation advantages of the more affluent, the needy are currently being served by existing providers. The existing providers are financially healthy and are well able to meet the needs of the indigent. Should the new hospital siphon off the more desirable patients (ie. the insured, Medicare, self-pay, etc.), the existing providers should be able to continue to provide the indigent care needed by the subdistrict. Additionally, the new hospital would also be expected to accept Medicaid or indigent patients. Travel times within the subdistrict further suggest that the addition of a new hospital would reduce the time for all residents to arrive at an acute care hospital. Although the travel times currently suggest that patients could access an existing provider within 40 minutes, the addition of the new facility would ensure that during crunch times or times of traffic congestion or other times when factors extend the time for access to service, any patient from the PSA can be assured of prompt medical care. Establishment of the new hospital will also improve access in the event of a catastrophe or disaster. Given the recent history of hurricanes in the state, improved access to medical facilities in times of crisis can be critical to the patient as well as the emergency crews working during such events. To the extent that any existing provider loses admissions to the new hospital, the growth in population and projected admissions will adequately offset the loss of admissions. Further, the utilization expected by all providers will adequately assure their financial stability as the new provider achieves or exceeds its projected goals. Martin has demonstrated a strong financial position for a number of years. The establishment of the new hospital will not compromise Martin's financial strength or detract from its provision of services at the two hospital campuses it currently utilizes. The new, third campus will complement and enhance the Martin Health Care System. Martin has demonstrated the project is financially feasible both in the short and long term. Martin's past financial performance and continued strong financial position assure that it will be able to obtain financing for the proposed hospital construction and start up. Moreover, the projected patient days to be captured by the new hospital will assure that the hospital will achieve its "break even" financial point at a reasonable future date. The project should achieve revenues in excess of expenses by its third year of operation. The projections for utilization are reasonable and are based upon reasonable assumptions including the premise that Martin will redirect admissions from its southern facilities to services more geographically accessible at the new hospital. Martin has an established presence in the PSA and should be able to achieve its expected admissions without adversely impacting St. Lucie or Lawnwood. The revenue projections for the new hospital are reasonable and should be achieved. Martin has the resources, the workforce, and physician coverage to provide for the new hospital. Additionally, it is expected that new physicians will seek privileges at the new hospital and will provide emergency on-call coverage as may be needed. St. Lucie and Lawnwood have coverage for the medical specialties and ED departments at their facilities. Martin has a low vacancy and turnover rate for both nursing and non-nursing personnel. It partners with the community to sponsor initiatives that promote continued success in these areas. It is a favored employer among those in Martin County. The staffing projections for nursing and clinical support for the new hospital are reasonable. The projected salaries are also in line with those currently offered and should be reasonable and easily achieved. In short, the applicant has demonstrated that Schedule 6A of the application is supported by the record in this cause. Martin has demonstrated it is able to implement the project and to staff its needs at the levels projected by the application. St. Lucie County will grow at a sufficient rate to assure that all providers, including the proposed hospital, will have admissions to meet the financial needs of the institutions. Moreover, the growth anticipated is sufficient to fund the future improvements or expansions that may be required by the providers. Essentially, when considered as a whole, west to east, the county has sufficient growth potential to support the additional acute care hospital beds proposed by the applicant. Competition for the future beds will be enhanced by the additional provider. St. Lucie and Lawnwood will continue to perform well in the market. St. Lucie will continue to achieve the lion's portion of the market east of the river while Lawnwood will continue to serve the region as it has with tertiary and the newly added trauma services. If anything, Martin will take the largest hit from the establishment of the new hospital as it will seek to allow its patients from the PSA that currently travel south and east to Martin hospitals to remain in their community at the new facility. Acting as the "mother ship," Martin is willing to promote the new hospital so that the stresses it has at the Martin County hospitals may be alleviated. The Martin system as a whole will continue to grow and benefit from the addition of the new hospital. Martin is the chief initiator of medical services to the western St. Lucie County community. No HCA hospital has attempted to establish a presence in the Tradition area that matches or exceeds the commitment Martin has made to the residents of western St. Lucie County. St. Lucie and Lawnwood will continue to provide quality care to their patients and will continue to be financially strong should the new hospital come on line. The adverse impact suggested by the HCA hospitals is not supported by the weight of the credible evidence in this cause. In short, the market projections are adequate to assure all providers will continue to share a significant portion of the health care pie. The growth in population, growth in admissions and utilization, the demographics of the population, and the reputation of all providers to provide quality care support the long term success of all providers in the subdistrict. The establishment of the new hospital will also promote competition as medical and clinical research also come into play. Should the new hospital located near the research facilities promote clinical trials, all providers in the subdistrict would benefit from any successful achievements. Martin has agreed to the following conditions for the CON: Martin will partner with Torrey Pines Institute for Molecular Studies for the provision of resources associated with clinical trials and life science research. Martin will continue to support the Volunteers in Medicine program with free inpatient and outpatient hospital services, outpatient laboratory, diagnostic and treatment services at a value of not less than $750,000 of charges per year for the next 10 years. Martin will support other community social services organizations in the form of cash, goods and services valued at not less than $75,000 annually for the next 10 years. This represents a commitment of $750,000 to support organizations such as Meals on Wheels, American Cancer Society, American Heart Association, etc. Martin will support Florida Atlantic University Nursing School, Indian River Community College and other area nursing and allied health schools with at least $75,000 per year in services or goods for the next 10 years to help ensure an adequate supply of well-trained health care professionals. Martin will establish a volunteers program (based on its current successful program in Martin County) in Port St. Lucie area to involve local high schools in encouraging teens to volunteer in health care settings and to encourage health care careers. Martin will partner with the St. Lucie school system in the development of a High School Medical Academy. Martin will make the West Port St. Lucie Hospital available as a training site for area nursing and allied health schools and for the Florida State University physician training program. Martin will locate the new hospital south of Tradition Parkway, east of Village Parkway, adjacent to the Torrey Pines headquarters and the I-95 Gatlin Boulevard exit. Martin will provide a minimum of 11.1 percent of its total annual patient days in the new hospital to Medicaid and Medicaid HMO patients. Martin will also provide a minimum of $250,000 per year for Medicaid and/or charity outreach programs within the western Port St. Lucie area for the first five years of operation. This is not the first CON application submitted by Martin to establish a hospital in the western portion of St. Lucie County. The current application differs from others in that the updated population and utilization data more clearly establish that the projected growth for the subdistrict will support the new facility without unduly impacting the existing providers. The planning horizon for the instant application and the pertinent data show that the western portion of the county more closely resembles areas that have been granted satellite or new hospital facilities in other areas of the state. The growth projected for the county mandates additional healthcare resources be devoted to the PSA. Additionally, similar to its commitment to the Martin County residents, the applicant has demonstrated it will partner with the St. Lucie County resources to establish the same programs that have benefited other areas of the subdistrict. Finally, while the Torrey Pines affiliation was represented in prior applications, that facility is now a reality and operational. The benefits of having the Martin hospital adjacent to its facility is no longer speculative. Torrey Pines is a nationally recognized research entity. The State of Florida and St. Lucie County governmental entities have pursued this type of research facility for location to the state and this area. According to the Torrey Pines leadership, the location of the Martin hospital in proximity to its facility would enhance their efforts. The architectural schematics, project completion schedule, design narratives, and code compliance information set fort in Martin's application are reasonable. The site preparation and construction costs set forth on Schedule 9 are reasonable for the project proposed. Additionally, the equipment costs are reasonable. There is no financial barrier to access hospital services by the residents of the PSA. The quality of care rendered by all hospitals in the subdistrict is excellent. Although there may be some impact on the admissions and utilization at St. Lucie, the impact is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. The impact expected at Lawnwood should be less than St. Lucie, nevertheless, it too is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. Section 408.035(2), Florida Statutes (2007), specifies that the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district must be considered. As noted above, there is no barrier to services in the subdistrict. Nevertheless, Martin has demonstrated that access to additional services will be enhanced by the establishment of the new hospital in the western area of the county. Additionally, delays in admissions and capacity constraints at the existing hospitals although not chronic or at a critical juncture are evidenced in the record. Section 408.035(3), Florida Statutes (2007), requires the consideration of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. This criterion is not in dispute in this cause. Section 408.035(4), Florida Statutes (2007), requires the review of the availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. In this regard, Martin has established that it is able to provide the resources necessary for this project. Additionally, it has shown that projected salaries for the nurses (as depicted on Schedule 6A) are reasonable and within the general guidelines of Martin's provision of those services at its other hospitals. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require that a CON applicant demonstrate that the existing acute care providers within the PSA are failing in order to approve a new hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a hospital would be appropriate or inappropriate. In fact, AHCA has approved hospitals when residents of the PSA live within twenty minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case, the proposed hospital will provide a convenience to residents of western St. Lucie County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the hospital. Patients who would not benefit from the convenience of the proposed hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C-1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of the subdistrict will continue to use the existing providers who offer those services. The new hospital will not compete for those services. Lawnwood will continue to provide tertiary services to the PSA and will continue to be a strong candidate for any patient in the PSA requiring trauma services when that service comes on line. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The new Martin hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider or entity an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. This subdistrict enjoys a varied range of healthcare providers. All demonstrate strong financial stability and utilization. A new hospital will promote continued quality and cost-effectiveness. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. No more effective method of construction has been proposed. The financial soundness of the proposal should cover the actual costs associated with the construction of the project. Additionally, the free-standing ED that Martin is constructing will be transitioned to a urgent care clinic or some other health care facility, it will not continue to provide emergent services when the new hospital is on line. Therefore, it should not be considered a less costly alternative for ED services. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. Martin has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The new hospital would be expected to continue this tradition. Moreover, this criterion is adequately addressed by the proposed conditions to the CON approval. Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Agency's Rationale The SAAR set forth the Agency's rationale for the proposed approval of the CON application. The SAAR acknowledged that the proposal received varied support from numerous sources. Further, the SAAR acknowledged that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the applicant meets its projected occupancy levels; that the project would have a positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule is reasonable. The SAAR also recognized the improved access for obstetrical services for residents of the growing western St. Lucie County. This also reinforced the generally recognized improvements to access geographically given the limitations in east-west traffic access. Finally, the SAAR recognized that Martin is the provider that has invested in the western portion of the subdistrict by establishing clinics and physician networks to provide care to the residents of the PSA. Opponents to the new hospital have not similarly committed to the residents of western St. Lucie County. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9981 with the conditions noted in the SAAR. DONE AND ENTERED this 31st day of July, 2009, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2009. COPIES FURNISHED: Paul H. Amundsen, Esquire Julie Smith, Esquire Amundsen & Smith 502 East Park Avenue Post Office Drawer 1759 Tallahassee, Florida 32302 Karin M. Byrne, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive, Suite 3431 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 Stephen A. Ecenia, Esquire J. Stephen Menton, Esquire David Prescott, Esquire Rutledge, Ecenia, & Purnell 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Holly Benson, Secretary Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308-5403
