The Issue The Petitioner, St. Joseph's Hospital, Inc., d/b/a St. Joseph's Hospital (Petitioner, Applicant, or St. Joseph's) filed Certificate of Need (CON) Application No. 9833 with the Agency for Health Care Administration (Agency or AHCA). The application seeks authority to establish a 90-bed acute care satellite hospital in southeastern Hillsborough County, Florida. St. Joseph's intends to transfer 90 acute care beds from its existing location in Tampa to the new facility. The issue in this case is whether the Agency should approve the CON application.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily denied St. Joseph's CON application No. 9833. The Petitioner is the applicant for the CON in this case. The Petitioner is a not-for-profit organization licensed to operate St. Joseph's Hospital, a general acute care facility located in the urban center of Tampa, Florida. It was originally founded by a religious order and has grown from approximately 40 beds to a licensed bed capacity of 883 beds. St. Joseph's provides quality care in a comprehensive range of services. Those services include tertiary and Level II trauma services. St. Joseph's provides services to all patients regardless of their ability to pay. To meet its perception of the growing healthcare needs of the greater Hillsborough County residents, St. Joseph's has proposed to construct a satellite hospital on a site it purchased in the mid-1980s. According to St. Joseph's, the satellite hospital, together with its main campus, would better address the growing community needs for acute care hospital services. To that end, St. Joseph's filed CON application No. 9833 and seeks approval of its satellite facility. It proposes to transfer 90 of its acute care beds from its current hospital site to the new satellite facility. The main hospital will offer support services as may be necessary to the satellite facility. Tampa General is an 877-bed acute care hospital located on Davis Island in urban Tampa, Florida. Prior to 1997, it was a public hospital operated by the Hillsborough County Hospital Authority but has since been operated and managed by a non- profit corporation, Florida Health Sciences, Inc. Tampa General provides quality care in a wide range of services that include tertiary and Level I trauma. Tampa General addresses the medical needs of its patients without consideration of their ability to pay. It is a "safety net" provider and is the largest provider of services to Medicaid and charity patients in the AHCA District 6/Subdistrict 1. Medicaid has designated Tampa General a "disproportionate share" provider. Tampa General is also a teaching hospital affiliated with the University of South Florida's College of Medicine. Recently, Tampa General has undergone a major construction project that brings on line a new emergency trauma center as well as additional acute care beds, a women's center, a cardiovascular center and a digestive diagnostic and treatment center. Tampa General opposes the CON request at issue. South Bay and Brandon also oppose St. Joseph's CON application. South Bay is a 112-bed community acute care hospital located in Sun City Center, Florida. South Bay has served the community for about 25 years and offers quality care but does not provide obstetrical services primarily because its closest population and patient base is a retirement community restricted to persons over 55 years of age. In contrast, Brandon is an acute care hospital with 367 beds located to South Bay's north in Brandon, Florida. Brandon provides quality care with a full range of hospital services including obstetrics, angioplasty, and open-heart surgery. Brandon also has neonatal intensive care (NICU) beds to serve Level II and Level III needs. It is expected that Brandon could easily add beds to its facility as it has empty "shelled-in" floors that could readily be converted to add 80 more acute care beds. Both Brandon and South Bay are owned or controlled by Hospital Corporation of America (HCA) and are part of its West Florida Division. The Proposal St. Joseph's has a wide variety of physicians on its medical staff. Those physicians currently offer an array of general acute care services as well as medical and surgical specialties. St. Joseph's provides Levels II and III NICU, open heart surgery, interventional radiology, primary stroke services, oncology, orthopedic, gynecological oncology, and pediatric surgical. Based upon its size, reputation for quality care, and ability to offer this wide array of services, St. Joseph's has enjoyed a well-deserved respect in its community. To expand its ties within AHCA's District 6/Subdistrict 1 healthcare community, St. Joseph's affiliated with South Florida Baptist Hospital a 147-bed community hospital located in Plant City, Florida. This location is east of the main St. Joseph Hospital site. Further, recognizing that the growth of greater Hillsborough County, Florida, has significantly increased the population of areas previously limited to agricultural or mining ventures, St. Joseph's now seeks to construct a community satellite hospital located in the unincorporated area of southeastern Hillsborough County known as Riverview. The Petitioner owns approximately 50 acres of land at the intersection of Big Bend Road and Simmons Loop Road. This parcel is approximately one mile east of the I-75 corridor that runs north-south through the county. In relation to the other parties, the proposed site is north and east of South Bay, south of Brandon, and east and south of Tampa General. South Florida Baptist Hospital, not a party, is located to the north and farther east of the proposed site. The size of the parcel is adequate to construct the proposed satellite as well as other ancillary structures that might compliment the hospital (such as medical offices). If approved, the Petitioner's proposal will provide 66 medical-surgical beds, 14 beds within an intensive care unit, and 10 labor and delivery beds. All 90 beds will be "state-of- the-art" private rooms along with a full-service emergency department. The hospital will be fully digital, use an electronic medical record and picture archiving system, and specialists at the main St. Joseph's hospital will be able to access images and data at the satellite site in real time. A consultation would be, theoretically, as close as a computer. In reaching its decision to seek the satellite hospital, St. Joseph's considered input from many sources; among them: HealthPoint Medical Group (HealthPoint) and BayCare Health System, Inc. (BayCare). HealthPoint is a physician group owned by an affiliate of St. Joseph's. HealthPoint has approximately 80 physicians who operate 21 offices throughout Hillsborough County. All of the HealthPoint physicians are board certified. At least five of the HealthPoint offices would have quicker access to the proposed satellite hospital than to the main St. Joseph's Hospital site. The HealthPoint physicians support the proposal so that their patients will have access to, and the option of choosing, a St. Joseph facility in the southeastern part of the county. BayCare is an organization governed by a cooperative agreement among nonprofit hospitals. Its purpose is to assist its member hospitals to centralize and coordinate hospital functions such as purchasing, staffing, managed care contracting, billing, and information technology. By cooperatively working together, its members are able to enjoy a cost efficiency that individually they did not enjoy. The "synergy" of their effort results in enhanced quality of care, efficient practices, and a financial savings to their operations. The proposed St. Joseph's satellite would also share in this economy of efforts. Understandably, BayCare supports the proposal. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: ...If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to St. Joseph's, "need" is evidenced by a large and growing population in the proposed service area (PSA), sustained population growth that exceeds the District and state average, highly occupied and seasonally over capacity acute care beds at the existing providers, highly occupied and sustained increases in demand for hospital services, a scarcity of emergency medical service resources within the PSA compounded by budget cuts, increases in traffic congestion and travel times to the existing hospitals, the lack of a nonprofit community hospital near the proposed site, and the lack of local obstetrical services. In this case the Petitioner has identified the PSA as a 10 zip code area with 7 being designated the "primary" area of service (PSA) and 3 zip codes to the north being identified as the "secondary" area of service (SSA). The population of this PSA is projected to reach 322,913 by the year 2011 (from its current 274,696). All parties used Claritas data to estimate population, the PSA growth, and various projections. Claritas is a conservative estimator in the sense that it relies on the most recent U. S. census reports that may or may not track the most recent growth indicators such as building starts or new home sales. Nevertheless, if accurate, the estimated 17.5 percent population growth expected in the new satellite hospital's PSA exceeds the rate of growth estimated for AHCA District 6 as well as the projected State of Florida growth rate. From the 7 primary zip codes within the PSA alone the area immediately adjacent to the subject site is estimated to grow by 14,900 residents between 2006 and 2011. Over the last 20 years the PSA has developed from rural farming and mining expanses with scattered housing and trailer parks to an area characterized by modern shopping centers, apartment complexes, housing subdivisions, churches, libraries, and new schools. Physicians in the area now see as many as 60 patients per day and during the winter peak months may admit up to 20 patients per week to hospitals. Travel times from the southern portion of the PSA to St. Joseph's Hospital, Tampa General, or Brandon, can easily exceed 30 minutes. Travel times to the same providers during "rush" or high traffic times can be longer. All of the opponent providers have high occupancy rates and experience seasonal over capacity. During the winter months visitors from the north and seasonal residents add significant numbers to the population in Hillsborough County. These "snow birds" drive the utilization of all District 6/Subdistrict 1 hospitals up. Further, increased population tends to slow and congest traffic adding to travel times within AHCA District 6/Subdistrict 1. Both Brandon and Tampa General have recently added beds to address the concerns of increased utilization. Additionally, Tampa General has expanded its emergency department to provide more beds. South Bay has elected to not increase its bed size or emergency department. South Bay has experienced difficulty staffing its emergency department. When faced with capacity problems, South Bay "diverts" admissions to other hospitals. When the emergency rooms of the Opponent providers are unable to accommodate additional patients, the county emergency transport is diverted to other facilities so that patients have access to emergency services. During the winter season and peak flu periods this diversion is more likely to occur. Another hospital in the southeastern portion of the county, within St. Joseph's satellite PSA, would alleviate some of the crowding. More specifically, South Bay's annual occupancy rate in 2006 was 80.1 percent. For the first seven months of 2007, South Bay's average occupancy rate was 88.4 percent. These rates indicate that South Bay is operating at a high occupancy. Operating at or near capacity is not recommended for any hospital facility. Long term operation at or near occupancy proves to be detrimental to hospital efficiencies. Similarly, Brandon operates at 70 percent of its bed capacity. Even though it has recently added beds it intends to add more beds to address continuing increases in admissions. Brandon's emergency room is also experiencing overcrowded conditions. When Brandon's emergency room diverts patients their best option may be to leave District 6/Subdistrict 1 for care. Tampa General is a large complex and its emergency department has been expanded to attempt to address an obvious need for more services. It is unknown whether the new emergency department will adequately cure the high rates of diversion Tampa General experienced in 2007. New beds were added and an improved emergency department was designed and constructed with the expectation that Tampa General's patients would be better served. Based upon Tampa General's expansion and its projected growth, Tampa General could experience an occupancy rate over 75 percent by 2011. If so, Tampa General could easily return to the utilization problems previously experienced. There are no obstetrical services offered south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer obstetrics and has designated a 10-bed unit to accommodate those patients. There are no nonprofit hospitals south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer patients in the PSA with the option of using such a hospital. Section 408.035(2), Florida Statutes (2007), requires the consideration of the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. As previously stated, all of the parties provide quality care to their patients. Although delays in emergency departments may inconvenience patients, the quality of the medical care they receive is excellent. Similarly, hospital services are available and can be accessed in AHCA District 6/Subdistrict 1. The parties provide a full range of healthcare service options that address the medical and surgical needs of the residents of AHCA District 6 Subdistrict 1. An additional hospital would afford patients with another choice of provider in the southeastern portion of the county. The St. Joseph satellite hospital would afford such patients with a hospital option within 30 minutes of the areas within the PSA. This access would promote shorter wait times and less crowded facilities. Section 408.035(3), Florida Statutes (2007), mandates review of CON applications in light of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As previously stated St. Joseph's has a well-deserved reputation for providing quality care within a wide range of hospital services to its patients. It is reasonable to expect the satellite hospital would continue in the provision of such care. The management team and affiliations established by St. Joseph's will continue to pursue quality care to all its patients regardless of their ability to pay. Section 408.035(4), Florida Statutes (2007), considers the availability of resources for project accomplishment and operation. Resources that must be considered include healthcare personnel, management personnel, and funds for capital and operating expenditures. St. Joseph's has the resources to accomplish and operate the satellite hospital proposed. St. Joseph's has a successful history of recruiting and retaining healthcare personnel and management personnel. The estimates set forth in its CON application for these persons were reasonable and conservative. Salaries and benefits for healthcare personnel and management personnel should be within the estimated provisions set forth in the application. Although there is a nationwide shortage of nursing personnel and physicians in certain specialties, St. Joseph's has demonstrated it has a track record of staffing its facility to meet appropriate standards and provide quality care. There is no reason to presume it will not be similarly successful at the satellite facility. St. Joseph's has also demonstrated it has the financial ability to construct and operate the proposed satellite hospital. The occupancy rates projected for the new hospital will produce a revenue adequate to make the hospital financially feasible. Further, if patients who reside closer to the satellite facility use it instead of the main St. Joseph Hospital, a lower census at the main hospital will not adversely impact the financial strength of the organization. There will be adequate growth in the healthcare market for this PSA to support the new facility as well as the existing providers. It must be noted, however, that construction costs for the satellite hospital will exceed the amounts disclosed by the CON application. Some of the increases in cost are significant. For example, the estimate for the earthwork necessary for site preparation has risen from $417,440 to $1,159,296. Additionally, most of the unit prices for construction have gone up dramatically in the past couple of years. Hurricanes and the resulting increased standards for building codes have also driven construction costs higher. More stringent storm water provisions have resulted in higher construction costs. For this project it is estimated the storm water expense will be $500,000 instead of the original $287,000 proposed by the CON application. In total these increases are remarkable. They may also signal why development in AHCA's District 6/Subdistrict 1 has slowed since the CON application was filed. Regardless, St. Joseph's should have the financial strength to construct and operate the project. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require a CON applicant to demonstrate that the existing acute care providers within the PSA are failing in order to approve a satellite hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a satellite hospital would be appropriate or inappropriate. In fact, AHCA has approved satellite hospitals when residents of the PSA live within 20 minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case the proposed satellite hospital will provide a convenience to residents of southeastern Hillsborough County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the satellite hospital. Patients who would not benefit from the convenience of the proposed satellite hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C- 1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of AHCA District 6/Subdistrict 1 will continue to use the existing providers who offer those services. The approval of the St. Joseph satellite will not adversely affect the tertiary providers in AHCA District 6/Subdistrict 1 in terms of their ability to continue to provide those services. The new satellite will not compete for those services. Tampa General has a unique opportunity to provide tertiary services and will continue to be a strong candidate for any patient in the PSA requiring such services. As a teaching hospital and major NICU and trauma center, Tampa General offers specialties that will not be available at the satellite hospital. If non-tertiary patients elect to use the satellite hospital, Tampa General should not be adversely affected. Tampa General has performed well financially of late and its revenues have exceeded its past projections. With the added conveniences of its expanded and improved facilities it will continue to play a significant roll in the delivery of quality health care to the residents of the greater Tampa area. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new satellite hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The satellite hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. AHCA's District 6/Subdistrict 1 enjoys a varied range of healthcare providers. From the teaching hospital at Tampa General to the community hospital at South Bay, all demonstrate strong financial stability and utilization. A new satellite hospital will promote continued quality and cost-effectiveness. As a member of the BayCare group the satellite will benefit from the economies of its group and provide the residents of its PSA with quality care. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. The costs, however, are not accurate in that most have gone up appreciably since the filing of the CON application. No more effective method of construction has been proposed but the financial soundness of the proposal should cover the increased costs associated with the construction of the project. The delays in resolving this case have worked to disadvantage the Applicant in this regard. Unforeseeable acts of nature, limitations of building supplies, and increases inherent with the passage of time will make this project more costly than St. Joseph's envisioned when it filed the CON application. Further, it would be imprudent to disregard the common knowledge that oil prices have escalated while interest rates have dropped. These factors may also impact the project's cost. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. St. Joseph's has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The satellite hospital would be expected to continue this tradition. Moreover, as a provision of its CON application, St. Joseph's has represented it will provide 12.5 percent of its patient days to Medicaid/Medicaid HMO/Charity/Indigent patients. 57 Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Opposition The SAAR set forth the Agency's rationale for the proposed denial of the CON application. The SAAR acknowledged that the proposal had received 633 letters of support (80 from physicians, 365 from St. Joseph employees, and 191 from members of the community); that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the Applicant meets its projected occupancy levels; that the project would have a marginally positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule "seems to be reasonable" for the project. Notably in opposition to the CON application, the SAAR represented that: It is not clear that projected population growth for this area will outpace the ability of subdistrict facilities to add beds to accommodate population growth. The subdistrict's most recent average utilization rate was 63.40 percent, and an additional facility has already been approved for this applicant in this county for the purpose of handling forecasted growth. Growth projected for females aged 15-44 is not significantly higher for the county than for the district or state, and it is not demonstrated that need exists for obstetric services in the subdistrict. The foregoing analysis did not credit the projected population growth for the PSA applicable to this proposal heavily. The population growth expected for the PSA will support the utilization necessary for the proposed project. Applying the Agency's assessment, all existing hospital providers could add beds to meet "need" for a Subdistrict and thereby eliminate the approval of any satellite community facility that would address local concerns. Also, South Bay has conceded it will not add beds at its location. Additionally, the SAAR stated: While both South Bay Hospital and Brandon Regional Hospital have occupancy rates such that the introduction of a competing facility would not likely inhibit their abilities to maintain operations, the same cannot be stated for Tampa General Hospital, the only designated Disproportionate Share Hospital in this subdistrict. Any impact on Tampa General Hospital as a result of the proposed project would likely be negative, limiting Tampa General's ability to offset its Medicaid and charity care services. The applicant facility does not currently have a significant presence in the proposed market, and would have to gain market share in this PSA in order to meet its projected occupancy levels. Much of the market share gained by the applicant with the proposed facility would likely be at the expense of existing facilities in this area, most notably Tampa General due to its lower occupancy level and higher Medicaid and charity care provisions. In reaching its decision, the Agency has elected to protect Tampa General from any negative impact that the proposed satellite hospital might inflict. Tampa General has invested $300 million in improvements. It is a stand-alone, single venue hospital that has not joined any group or integrated system. It relies on its utilization levels, management skill and economies of practice to remain solvent. Tampa General considers itself a unique provider that should be protected from the financial risks inherent in increased competition. It is the largest provider of services to indigent patients in AHCA District 6/Subdistrict. Brandon opposes the proposed satellite hospital in part because it, too, has expanded its facility and does not believe additional beds are needed in AHCA District 6/Subdistrict 1. Nevertheless when a related facility sought to establish a satellite near the St. Joseph's site, Brandon supported the project. Brandon provides excellent quality of care and has a strong physician supported system. It will not be adversely affected in the long run by the addition of a satellite hospital in St. Joseph's PSA. Similarly, South Bay opposes the project. South Bay will not expand and does not provide obstetric services. It has had difficulty staffing its facility and believes the addition of another competitor will exacerbate the problem. Nevertheless, South Bay has a strong utilization level, a track record of financial strength, and will not likely be adversely impacted by the St. Joseph satellite. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new satellite hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9833 with the conditions noted. DONE AND ENTERED this 13th day of May, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 13th day of May, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Holly Benson, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P. A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32304-0551 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, the applicant is 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 and 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. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2019.
Findings Of Fact Status of the case South Broward Hospital District (SBHD) is a special taxing district created in 1947 by a special act of the Florida Legislature to provide health services to the residents of South Broward County and surrounding areas. SBHD is a designated disproportionate share provider of medical services to the indigent, and currently operates two Class I General Hospitals in Broward County, to wit: Memorial Hospital, located in Hollywood, and Memorial Hospital West, located in Pembroke Pines. Pertinent to this case, SBHD was authorized to establish Memorial Hospital West by Certificate of Need (CON) number 4019 issued by the Department of Health and Rehabilitative Services (the predecessor to respondent, Agency for Health Care Administration) on December 21, 1988. The certificate's project description read as follows: Construction of a new 100 bed satellite hospital facility, which will be composed of 92 medical surgical and 8 intensive care beds, in southwestern Broward County, HRS District 10, via the transfer of 100 beds from an existing facility, Memorial Hospital, Hollywood, and retiring an additional 25 medical/surgical beds from the existing facility upon the opening of the satellite facility . . . . By letter of June 3, 1992, respondent forwarded to SBHD License No. 3288, effective May 12, 1992, which authorized it to operate Memorial Hospital West as a Class I General hospital with 100 acute care beds. Contemporaneously, respondent forwarded to SBHD License No. 3289, effective May 12, 1992, which reduced Memorial Hospital's licensed acute care beds to 489, "reflecting the transfer of 100 acute beds to Memorial Hospital West, and the delicensure of 25 additional acute care beds," "[p]ursuant to Certificate of Need Number 4019." SBHD filed a timely petition challenging the respondent's issuance of License No. 3289, and, more particularly, the provision in such license reflecting "the delicensure of 25 additional acute care beds." It was SBHD's position that the provision of CON 4019 which required the retirement of the additional 25 beds upon the opening of Memorial Hospital West was invalid or, alternatively, that the CON should be modified to delete such requirement. Respondent disagreed with SBHD's assertion that the provision of the CON requiring retirement of the additional 25 beds was invalid and contended that SBHD's request for modification could not be accommodated under the modification provisions of Rule 59C-1.019, Florida Administrative Code, but required certificate of need review. Accordingly, these formal proceedings to review, de novo, the agency's decision were commenced at SBHD's request. The quest for CON 4019 The quest by SBHD to construct a satellite hospital in southwest Broward County had its genesis in January 1984 when the Department of Health and Rehabilitative Services (HRS) evidenced its intention to deny SBHD's application for CON 2834 and SBHD requested a formal hearing pursuant to Section 120.57(1), Florida Statutes. That matter was referred to the Division of Administrative Hearings (DOAH) for the assignment of a Hearing Officer and designated DOAH Case No. 84-0235. Thereafter, in 1985, SBHD filed another application with HRS, designated as CON application No. 4019, for authorization to develop and operate a 100-bed satellite hospital in southwest Broward County by transferring 100 beds from Memorial Hospital. After HRS's initial denial of that application, SBHD requested a formal hearing and the matter was referred to DOAH. That case was assigned DOAH Case No. 85-3940, and was consolidated with the other application of SBHD, DOAH Case No. 84-0235. On April 11, 1986, SBHD updated its two applications to construct the satellite hospital, by proposing to transfer 100 beds from Memorial Hospital to the new facility, which would be composed of 92 medical/surgical beds and 8 intensive care beds. Subsequently, SBHD agreed to the retirement of 25 additional medical/surgical beds from Memorial Hospital upon the opening of its satellite facility, HRS agreed to support such project, and SBHD's application was duly updated. Accordingly, when the final hearing was held in DOAH Case Nos. 84-0235 and 85-3940 on September 12-16, 1986, October 22, 1986, and December 1, 1986, the issue was: . . . whether South Broward Hospital District's (District) application for a certificate of need to build and operate a satellite facility in southwest Broward County by transferring 100 beds and retiring 25 medical/surgical beds from its existing facility should be granted. On August 4, 1987 a recommended order was rendered in DOAH Case Nos. 84-0235 and 85-3940, which recommended that SBHD's application be denied. While recommending denial, such order ultimately metamorphosed into a final order, discussed infra, granting SBHD's application, and adopting a number of the findings of fact set forth in the recommended order. Those findings adopted included the recognition of the agency's evolving policy relating to bed transfers and relocation, as well as its consideration of a reduction of excess capacity within the district as affecting its decision to support such transfer. Specifically, the order noted: The Department has formulated a draft policy with respect to standards for evaluating applications to transfer beds or convert facilities. This policy was first written on August 7, 1986, and is based on the agency's prior experience in health planning. The Department's general policy for transfers and conversions is to try to "work off" any overbedding in a service district when approving transfers by requiring bed retirement as a condition to the approval of transfers. This strategy is the Department's attempt to reduce the excess of licensed and approved medical/surgical beds. The Department does not believe it possesses statutory authority to delicense acute care beds or retire acute care beds. Voluntary reduction of surplus beds in conjunction with applications to transfer beds or convert facilities provides one means for reduction of the number of beds in a service district. While the hearing officer observed that the agency did not believe it possessed the statutory authority to require the retirement or delicensure of acute care beds as a precondition for approval of a CON application, such observation, considering other findings of the hearing officer and the proof in this case, does not suggest that a proposed reduction in beds was not a legitimate factor for the agency to consider when evaluating an application and deciding whether it does or does not, on balance, satisfy relevant statutory and rule criteria. 1/ Indeed, one criteria to be considered in evaluating a CON application is its consistency with the State and Local Health Plan. At the time SBHD's application was reviewed, the State Health Plan set an appropriate ratio of medical/surgical beds to the population as a ratio of 4.11 to 1,000. Broward County (District X) was significantly overbedded at the time, with a medical/surgical bed ratio of approximately 5.1 to 1,000 and the Local Health Plan encouraged a reduction of licensed beds to achieve a ratio of 4.5 to 1,000 by 1988. Moreover, a proposed reduction in beds could also influence other criteria, such as, access, efficiency, and utilization. Following rendition of the recommended order on August 4, 1987, SBHD's pursuit of CON 4019 to final order took a tortuous route. In this regard, a final order of the agency dated August 18, 1988 observed: A prior invalid order of October 7, 1987, was vacated by order of February 29, 1988. After the order of February 29 was submitted to the First District Court of Appeal pursuant to relinquishment of its jurisdiction, the appeal of the final order was dismissed. Petitioner [SBHD] then moved for entry of a new final order. By order of June 27, 1988, the case was then remanded to the Division of Administrative Hearings for reevaluation of the merits of the application and additional findings based on the existing record, consistent with the rulings on exceptions by the Department contained in the Order of Remand. The Division of Administrative Hearings, by order of July 26, 1988, declined remand and ordered that the record be returned to the Department for entry of final order. The order then proceeded to adopt, except as specifically noted, the findings of fact and conclusions of law set forth in the recommended order, and granted SBHD's application for CON 4019. SBHD's pursuit of its CON had not, however, met fruition. The final order of August 18, 1988, "was quashed on procedural grounds by the First District Court of Appeal in an Order dated September 15, 1988". Subsequently, by "order dated December 13, 1988, the District Court dismissed [the case] on the basis of a voluntary dismissal by the parties". The agency then observed that "it is now time for the disposition of the application for CON 4019." Accordingly, by final order rendered December 21, 1988, the agency resolved: . . . I conclude that CON 4019 should be approved for the reasons set forth in the Order rendered August 18, 1988. Therefore, the Order rendered August 18, 1988, is incorporated by reference. Based on the foregoing, it is ADJUDGED that the application of South Broward Hospital District for certificate of need number 4019 to construct a satellite facility in south- western Broward County be APPROVED. Consistent with that final order, CON 4019, dated December 29, 1988, with an issue date of December 21, 1988, was granted to SBHD. As heretofore noted, the certificate, consistent with SBHD's updated application, included the requirement that an additional 25 medical/surgical beds would be retired at Memorial Hospital upon the opening of Memorial Hospital West. The validity of the provision of CON 4019 requiring retirement of 25 medical/surgical beds. Here, SBHD has challenged the propriety of respondent's delicensure of 25 medical/surgical beds at Memorial Hospital based on the contention that the provision of CON 4019, which provided for the retirement of 25 medical/surgical beds upon the opening of Memorial Hospital West, was invalid. SBHD's contention, as well as the proof offered to support it, is unpersuasive. In support of its contention, SBHD offered proof a hearing that it was HRS that initiated the proposal to retire beds, and that HRS did not have the unilateral authority to "require" the retirement or delicensure of beds as a prerequisite or condition for approval of a CON application. 2/ Accepting that HRS initiated the dialogue, as well as the fact that HRS could not unilaterally require SBHD to retire beds, does not, however, compel the conclusion that the provision for the retirement of beds was invalid. To the contrary, as heretofore discussed, overbedding in District X was of legitimate concern to HRS, a reduction of beds was an appropriate consideration in the course of CON review, and SBHD elected to update/amend its application to include such a reduction and thereby garner HRS support in the face of opposition from other competitors. Accordingly, that HRS could not "require" SBHD to retire beds is irrelevant. SBHD updated/amended its application and affirmatively proposed, as part of its project, a reduction of beds. Such reduction was an integral part of the project reviewed and ultimately approved, and was a factor appropriately considered by the agency in evaluating the application. Finally, to support its contention that the provision of CON 4019 requiring the retirement of 25 beds was invalid, SBHD suggests, essentially, that the update/amendment of its application to include such a proposal was inappropriate or contrary to law. Such contention, as well as the proof offered to support it, is likewise unpersuasive. Rather, the credible proof demonstrates that, at all times material to the subject application, HRS had no policy and there existed no rule or statute, that precluded an update or an amendment to an application for a CON during the course of an administrative proceeding. Accordingly, the amendment by SBHD of its application to include a provision for the retirement of 25 medical/surgical beds was not improper, and such provision can hardly be characterized as invalid. 3/ The request to modify CON 4019 to delete the requirement that 25 medical/surgical beds be retired. Accepting the validity of the provision of CON 4019 requiring the retirement of 25 medical/surgical beds, and therefore the propriety of the agency's decision to delicense those beds, SBHD has requested that the CON be modified to delete such requirement due to changed circumstances since its issuance. The agency opposes SBHD's request, contending that the change in bed capacity requires CON review. Pertinent to this case, Rule 59C-1.019, Florida Administrative Code, establishes the procedure and the circumstances under which a certificate of need holder may seek a "modification" of a certificate of need. For purposes of the rule, "modification" is defined as: . . . an alteration to an issued, valid certificate of need or to the condition or conditions on the face of a certificate of need for which a license has been issued, where such an alteration does not result in a project subject to review as specified in . . . subsection 408.036(1) . . . Florida Statutes. Rule 59C-1.019(1), Florida Administrative Code. Subsection 408.036(1), Florida Statutes, provides in pertinent part: . . . all health-care-related projects, as described in paragraphs (a)-(n), are subject to review and must file an application for a certificate of need with the department. The department is exclusively responsible for determining whether a health-care- related project is subject to review under ss. 381.701-381.715. * * * (e) Any change in licensed bed capacity. In this case, the agency contends that the CON cannot be modified to delete the 25-bed retirement provision because such alteration would result in a "change in licensed bed capacity," and therefore a project subject to CON review. Contrasted with the agency's position, SBHD contends that it timely challenged the agency's decision to delicense the 25 beds, based on its contention that the provision requiring the retirement of beds was invalid, and "there can be no actual change in licensed bed capacity at Memorial Hospital prior to final resolution of . . . this proceeding." [SBHD proposed recommended order, at p.17]. As stated by SBHD, Rather than seeking to change its licensed bed capacity, SBHD is opposing a change in its licensed bed capacity in order to maintain the status quo. [SBHD proposed recommended order, at p. 17]. Considering the provisions of law and analysis, as discussed in the conclusions of law infra, it is concluded that the agency's position is founded upon a reasonable interpretation of law and is, therefor, accorded deference. 4/
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be rendered dismissing SBHD's protest to the delicensure of 25 acute care beds at Memorial Hospital, and denying SBHD's request to modify certificate of need number 4019 to delete the requirement that 25 acute care beds be retired. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23rd day of September 1994. WILLIAM J. KENDRICK 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 23rd day of September 1994.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Based upon an agreement between the petitioner and the respondent, and a later addendum, petitioner received Certificate of Need Number 1460 in February of 1981 granting the petitioner the authority to construct 126 additional general medical/surgical beds but to only license and operate 72 of such beds. The instant proceeding involves petitioner's application for a Certificate of Need to license and operate the remaining 54 beds which have been previously constructed under Certificate of Need Number 1460. St. Joseph's Hospital is a 649-bed full service major referral hospital in Hillsborough County owned and operated by the Franciscan Sisters of Allegheny. Its services include a comprehensive community mental health center, a comprehensive pediatric unit with 88 beds, a radiation therapy center, a 60- bed community cancer center, cardiac catheterization, cardiac surgery and a large and active emergency room. It serves a considerable number of indigent patients and participates in the Medicaid and Medicare programs. Petitioner is now requesting permission to license the regaining 54 beds which were authorized to be constructed pursuant to Certificate of Need Number 1460. The project involves no additional construction or renovation inasmuch as all 126 beds previously authorized have been completed. No capital expenditure will be required in order to place the 54 beds into operation. If the Certificate of Need is granted, petitioner intends to create two specialty medical/surgical units: a 32-bed cardiac surgical unit to accommodate patients from the open heart surgical program and a 22-bed medical unit for psychiatric patients requiring medical treatment. There currently are no other beds available in the hospital to convert for use for the psychiatric patient or for the cardiac surgical unit. Petitioner has been operating, on occasion, at occupancy levels in excess of 90 percent. At times, it has been necessary to place non-emergency patients in the emergency room and have them remain there until beds become available. There are sometimes up to 40 patients on the waiting list for elective surgery. Due to the shortage of empty beds, petitioner cannot now admit new members to its medical staff. Steady operation of the hospital at occupancy levels exceeding 90 percent can have an adverse effect upon the efficiency of the nursing staff and the quality of care offered to patients. Because the bulk of projected growth in Hillsborough County is expected to occur in the center and northwestern area of the county, it is anticipated that the pattern of utilization of petitioner's facility will continue. While the licensing of the 54 additional beds involves no capital expenditure on petitioner's part, it is estimated that, if petitioner is not permitted to license these beds, a total yearly loss of over $3.8 million will be experienced. This figure is the sum of lost net revenues from the beds in the amount of $87,339 and lost net ancillary revenues in the amount of $2.36 million, as well as the absorption of $232,750 in yearly depreciation costs and $1.14 million in committed indirect costs. Petitioner anticipates a loss per patient day, calculated at 100 percent occupancy, of $16.82 if the licensing of the beds is not approved. This would result in an increase of current patient charges by 9.1 percent in order to maintain petitioner's budgeted profit margin. Petitioner is located in HRS District VI which, at the time of the hearing, was composed of Hillsborough and Manatee Counties. Some 81 percent of all beds in the District are located in Hillsborough County. As of the time of the hearing, the District had 3,899 licensed acute care beds, with 606 additional beds having been approved but not yet operational. The generally accepted optimum utilization rate for acute care beds is 80 to 85 percent. For District VI, the overall utilization rate is below the optimum level. In Manatee County, utilization of acute care beds is at 78.3 percent. In Hillsborough County, the utilization level is at 77.4 percent, with the major referral hospitals experiencing a higher level of utilization than the smaller community hospitals. Rule 10-5.11(23), Florida Administrative Code, contains the governing methodology for determining acute care bed needs of the various Districts. Applications for new or additional acute care hospital beds in a District will not normally be approved if approval would cause the number of beds in that District to exceed the number of beds calculated to be needed. Application of the Rule's formula to District VI results in a total acute care bed need of 3,622 projected for the year 1988. Given the 4,505 existing and approved beds in the District, there are 883 excess beds in District VI under the Rule's formula methodology for projecting need. The 1982 Health Systems Plan adopted by the Florida Gulf Health Systems Agency makes no bed need projections for other specialty medical/surgical beds," but shows no need for medical/surgical beds. Rule 10-5.11(23), Florida Administrative Code, provides that other criteria may result in a demonstration of bed need even when the formula approach illustrates no need for beds. When additional beds are approved pursuant to other criteria, those beds are counted in the inventory of existing and approved beds in the area when applying the bed need formula to review future projects. The formula methodology does account for the inflow and outflow of patients in a specific area. While Rule 10-5.11(23) permits the Local Health Councils to adopt subdistrict bed allocations by type of service, the Council for District VI had not adopted its local health plan as of the date of the hearing in this matter. The Rule itself simply addresses the need for general acute care bed needs in the future.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of St. Joseph's Hospital, Inc. for a Certificate of Need to license 54 acute care medical/surgical beds be DENIED. Respectfully submitted and entered this 10th day of November, 1983, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1983. COPIES FURNISHED: Ivan Wood, Esquire David Pingree Wood, Lucksinger & Epstein Secretary One Houston Center Department of Health and Suite 1600 Rehabilitative Services Houston, Texas 77010 1323 Winewood Boulevard Tallahassee, Florida 32301 Steven W. Huss, Esquire 1323 Winewood Boulevard, Suite 406 Tallahassee, Florida 32301
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): 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 The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(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 the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue Whether the Certificate of Need (CON) Application No. 9610, filed by St. Joseph's Hospital to establish a new 76-bed acute care satellite hospital in Hillsborough County, through the transfer of 76 acute care beds from the existing St. Joseph's Hospital, should be approved.
Findings Of Fact Agency for Health Care Administration AHCA is the single state agency responsible for administration of the CON program in Florida, pursuant to Section 408.034, Florida Statutes (2003). AHCA reviewed SJH's application to build a new, 76-bed, satellite hospital and preliminarily approved it. St. Joseph's Hospital, Inc. SJH is a Florida not-for-profit corporation, licensed to operate three existing hospitals on a single urban campus in District 6 including St. Joseph's Hospital, St. Joseph's Women's Hospital, and Tampa Children's Hospital. Although SJH has unused bed capacity, it is licensed to operate 883 beds distributed among its three hospitals and is one of Florida's largest acute care, safety-net providers. SJH has approximately 1,200 physicians on its active or senior active medical staff. The main adult SJH facility offers a full range of adult medical and surgical specialties and subspecialties, including adult open heart surgery, comprehensive oncology treatment and therapy, interventional radiology, inpatient psychiatric services, comprehensive neurological and orthopedic services, pulmonary rehabilitation, and hyper-baric services, including wound care. It is accredited by the Joint Commission of Health Care Organizations (JCAHO). St. Joseph's Women's Hospital is the only free-standing women's hospital in Florida, and is comprised of 234 acute care beds. It offers a comprehensive array of women's acute care medical and surgical services, including obstetrics, and Level II and Level III Neonatal Intensive Care Unit (NICU) services. St. Joseph's Women's Hospital provides the highest number of births among all District 6 obstetrics providers, with over 6,000 births in 2001. Tampa Children's Hospital is comprised of 111 medical/surgical pediatric rooms, and offers comprehensive pediatric and pediatric specialty services, including pediatric intensive care and pediatric open heart surgery. Tampa Children's Hospital's medical staff includes over 80 pediatric specialists practicing in 20 specialties and sub-specialties. SJH is a member of BayCare Health System which operates seven independent, affiliated hospitals in the Tampa Bay area. BayCare Health System coordinates quality standards among its member hospitals, promotes community access to health care, and facilitates joint operating efficiencies through combined purchasing, economies of scale, and consolidation of duplicative, non-patient-care services, such as administration, human resources, information management, and financial services. SJH is affiliated with and jointly manages South Florida Baptist Hospital (SFBH), a 147-bed primary acute care hospital in Plant City, Florida, in eastern Hillsborough County. SFBH provides Level I obstetrics services. SJH and SFBH operate under a single chief medical officer and board of directors, and utilizes similar policies and procedures. SFBH is accredited by JCAHO with high standing, and is certified by the Medicare and Medicaid programs. University Community Hospital, Inc. University Community Hospital, Inc., is another hospital provider in District 6. It is a not-for-profit entity licensed to operate UCH Fletcher and UCH Carrollwood. UCH Fletcher is a 431-bed Class I general hospital that provides a full range of acute care hospital services, including open heart surgery, obstetrics, and Level II and Level III NICU services. It is located in the southeastern portion of the SJH satellite proposed service area and has unused bed capacity. UCH Carrollwood is a 120-bed primary acute care hospital located in North Tampa. It provides ICU and medical/surgical services, but not obstetrics. It too has unused bed capacity. Tampa General Hospital TGH is an 846-bed Class I general hospital located in South Tampa on Davis Island. It is a not-for-profit hospital that provides a comprehensive range of services, including general acute care, organ transplant, open heart surgery, and NICU care. It is a designated teaching hospital and a Level I trauma and burn treatment center. TGH is an important safety- net hospital and a large provider of Medicaid and indigent care. SJH Proposal SJH proposes to establish a 76-bed, acute care satellite hospital in North Hillsborough County on a site acquired twenty years ago. It seeks to transfer 76 acute care beds from the SJH Main urban campus to the new suburban hospital site. The proposed location is in an area of rapid population growth where SJH annually draws 8,000 admissions. The SJH satellite will be integrated with and function as a satellite of SJH Main. It will incorporate state-of-the art technology, including the Path Speed Picture Archive & Communications System (PACS) that is currently in use at SJH enabling physicians at the satellite facility to simultaneously review digital diagnostic images and medical records with physicians at SJH Main. The SJH satellite will be a primary acute care facility with obstetrics, and will not duplicate the tertiary or other specialized services provided at SJH Main. Since acquiring the site for the proposed satellite, SJH has established several outpatient, primary care, and home health services in the satellite proposed service area. HealthPoint Medical Group, a physician group affiliated with and managed by SJH, and comprised of approximately 56 physicians, currently has three offices in the proposed service area and plans to expand. SJH also operates two outpatient imaging centers in the area. The SJH proposal seeks to enhance access to acute care and emergency medical services for SJH's existing patients residing in the proposed service area and serve future population growth in the rapidly developing northwest Hillsborough County area. It seeks to alleviate some of the volume in the SJH Main ER, allow for conversion of semi-private rooms to private rooms, and mitigate parking congestion. Relevant Statutory Criteria Section 408.035(1), Florida Statutes (2003). The need for SJH proposed satellite hospital project in relation to the applicable district health plan. The review of SJH's proposal does not involve the traditional calculation and determination of need for the 76 beds proposed at the satellite since the applicant intends to transfer existing beds within the sub-district. The Agency's fixed need pool determination does not apply to SJH's proposal, nor is SJH required to demonstrate "not-normal" circumstances for approval. However, need is reviewed in relation to the local district health plan. The District 6 Local Health Plan (LHP) identifies six factors applicable to proposed bed transfers. First, the plan considers whether a transfer will help indigent patients. Although the transfer may slightly enhance access to the poor, there is minimal access problems for indigent patients. Second, the plan considers whether a bed transfer is needed so an existing hospital can meet licensure standards. SJH is not seeking to meet any new licensure standards. The third factor is whether a bed transfer includes a proposed reduction in excess bed capacity. SJH is reducing excess bed capacity in the downtown area of Tampa and transferring beds to a growing area with increasing demand. The fourth factor considered in the LHP is whether a bed transfer adversely impacts a disproportionate provider of Medicaid/indigent care by taking away paying patients. While the transfer may reduce, to some degree, paying patient volume at TGH, the transfer will increase the volume at SJH, another safety net provider. The fifth factor is whether the proposed bed transfer will improve the existing hospital's physical plant. SJH Main, and its patients will benefit from the ultimate renovation, increased space and single patient rooms. Finally, the plan considers whether the bed transfer is more cost-efficient than improving the existing hospital. The options are incomparable. SJH is seeking to construct a satellite hospital and expand its market area, not merely transfer beds to an existing facility. It is unknown and virtually incalculable whether the proposed satellite facility will be more cost-efficient than an improvement to the existing hospital. Section 408.035(2), Florida Statutes. The availability, quality of care, accessibility and extent of utilization of existing facilities and health services in the service district. Undoubtedly, health services exist and are available in the service district. In fact, nearly all of the residents of SJH's proposed service area live within 45 minutes of an existing hospital. However, Northwest Hillsborough County is experiencing rapid growth. Many of its major roads and arteries are already congested and overcapacity. The expected growth in the proposed service area will inevitably aggravate the problem. More importantly, despite the fact that virtually all of the residents in the proposed service area live within 45 minutes of an existing hospital, the population growth is affecting health care delivery. Hospital departments, including many of the emergency rooms, are experiencing similar congestion and acute care patients often wait several hours for treatment upon arrival. UCH is experiencing capacity constraints. The demand for general acute care and emergency room services in the area is high and reasonably expected to increase throughout the foreseeable future. UCH Fletcher has experienced significant growth in utilization since 1999, and UCH Carrollwood has experienced consistent gains over the same time period. During the first four months of 2003, UCH Fletcher operated near 75 percent capacity overall, and 85 percent capacity in its general medical/surgical beds. Moreover, the hospital ER was at or near capacity. UCH Fletcher's ER, which is comprised of 39 beds, experienced 65,000 patient visits in 2002 and exceeded 70,000 visits in 2003. During peak periods, Fletcher ER patients have often been required to wait in the ER six to eight hours for an inpatient bed. UCH's birth volume has also increased with the rapid population growth in the service area and is less affected by seasonal residents. In fact, UCH recently built a new women's center and expanded its obstetrics capacity to accommodate between 3,000 and 3,500 births annually and projects it will achieve 3,100 births by the end of 2004, and operate at 90 percent of capacity. SJH also experiences capacity issues. SJH Main is completely comprised of semi-private rooms. It's composition makes it less attractive and competitive in the market and less able to maximize its utilization of existing acute care beds. However, SJH Main experiences a huge demand for emergency services at its urban campus. The emergency department is one of the busiest in Florida and increasing each year. In 2002, SJH treated 104,000 ER patients, approximately 300 each day, and nearly 18,000 of those treated originated from the satellite hospital's proposed service area. SJH's emergency department is a large, urban ER with 58 beds. It is organized into separate patient treatment areas, including a 23-bed adult treatment area, an eight-bed pediatric treatment area with a separate ER entrance, a four-bed adult psychiatric emergency treatment area, a 13-bed First Care unit, and a ten-bed Clinical Decision Unit. While SJH historically has provided excellent quality of care in its ER, its increasing volumes often result in patients receiving or waiting for treatment in corridors while more critical patients occupy the ER treatment rooms. In peak season, hallways are temporarily used for patient care. SJH has actively sought to improve the delivery of emergency care. It invested substantial capital towards improvements and expansion of its existing ER. It established a unique service known as "First Care," that provides quick emergency care to less critical ER patients, such as patients with sore throats, sprains, and simple lacerations. It created a ten-bed Clinical Decision Unit to supplement the existing ER by converting hospital space adjacent to the ER into a permanent nursing unit. In addition, it increased ER staffing and physician coverage, and implemented protocols to improve the ER receiving and treatment processes. Despite its efforts, the SJH ER continues to experience difficulties with extremely high patient volume. In addition to the capacity constraints at UCH and in SJH's ER, ER bypass in Hillsborough County presents additional problems for emergency personnel, providers, and patients. Hospital bypass or diversion occurs when a hospital requests that emergency medical transport teams bypass the hospital's ER because the hospital lacks capacity to treat additional patients or categories of emergency patients. In response to the increasing problems associated with hospital ER bypass, the Hillsborough County Trauma Agency established a committee to analyze the situation, establish protocols, and recommend solutions. In addition, Hillsborough County implemented an Internet-based system whereby hospitals electronically place themselves on and off bypass without a dispatcher. Hospital ER bypass adversely impacts the availability and accessibility of acute care services, particularly emergency services in Northwest Hillsborough County. The credible evidence demonstrates that hospitals in Hillsborough County go on bypass as often as every day during peak season, and frequently several hospitals are concurrently on bypass. Of the hospitals in Northwest Hillsborough County, UCH Fletcher and UCH Carrollwood together had the highest incidence of hospital bypass in the first six months of 2003. In an effort to minimize the problems associated with transport, Hillsborough County Fire Rescue (HCFR) tracks all of its calls. It provides all Advanced Life Support emergency transport services in the county and responds to approximately 55,000 emergency calls annually, or about 4,300 calls each month. Approximately half, or 27,000 calls annually, originate in HCFR's Northwest Hillsborough County area and nearly 10,000 of those calls result in transport of a patient to an acute care facility. HCFR currently has 12 stations in Northwest Hillsborough County and is scheduled to open four additional stations in the northwest area in the near future. Hospital ER bypass is an obstacle for HCFR that causes delays in transport, emergency care, and return to service. The applicant's proposed satellite facility will improve access to patients in need of emergency services in Northwest Hillsborough County and alleviate some of the capacity problems at UCH and SJH, as well as problems caused by frequent or extended periods of hospital ER bypass. Section 408.035(3), Florida Statutes. The ability of SJH to provide quality of care and its record of quality of care. Pursuant to the parties' stipulation, SJH's record of providing quality of care at its existing hospital is applicable, but not in dispute. SJH's ability to provide quality of care at the proposed new satellite hospital is in dispute. In general, SJH has consistently provided excellent quality of care in the provision of a sophisticated range of services. It is accredited by JCAHO and certified by the Medicare and Medicaid programs. It has received consistent recognition for its provision of high quality of care and has been awarded the Consumer Choice Award in health care in Tampa for eight consecutive years. SJH's proposed satellite hospital will be able to provide excellent quality of care and serve the vast majority of patients seeking acute care and emergency services. SJH's proposed satellite hospital will enhance access and quality of care for residents of the Northwest Hillsborough County area. Although it will not provide tertiary services, emergency patients will receive immediate, high-quality care at the facility. In addition, the smaller subset of emergency patients requiring immediate tertiary-level services will continue to have access to the tertiary hospital providers. In fact, HCFR has developed sophisticated transport protocols designed to ensure that all patients are safely delivered to the appropriate facility as efficiently as possible, and HCFR paramedics are highly skilled and trained to assess the condition of each patient. In addition, the evidence indicates that SJH will provide high-quality Level I obstetrics services at its satellite facility. While the opponents assert that the proposed program will not match the quality or scope of obstetric services provided at SJH and UCH, the evidence indicates that the SJH obstetrical program will not be sub-par or beneath the standard of care in the area. While an on-site NICU program is clearly preferable, the need for quality Level I obstetric providers is not obviated. SJH will provide quality obstetrical care. Moreover, SJH's existing quality management policies, protocols, and processes will be instituted at the satellite hospital. It will be operated under the same quality management personnel team currently responsible for quality at SJH Main. Section 408.035(4), Florida Statutes. The need in the service district for special health care services reasonably and economically accessible in adjoining areas. AHCA and SJH demonstrated that that the proposed satellite does not intend to offer nor impact special health care services that may be reasonably and economically accessible in adjoining areas. The criterion is not applicable. Section 408.035(5), Florida Statutes. The needs of research and educational facilities, including, but not limited to, facilities with institutional training programs and community training programs of health care practitioners and for doctors of osteopathic medicine and medicine at the student, internship, and residency training levels. This criterion is not applicable. Section 408.035(6), Florida Statutes. The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures for project accomplishment and operation. The evidence demonstrates that SJH has the necessary resources and experience to provide quality health and management personnel to the satellite hospital. While there is some shortage of available nurses in Florida, including the Tampa area, the vacancy rate at SJH, including RNs and staff positions, is consistently below the state average. SJH has a well-developed nurse recruitment and retention program and has achieved steady increases in the retention rate of its RNs. Management has developed a flexible pool of employed nurses enabling it to maintain appropriate and cost-effective staffing based on patient day levels. In addition, SJH has successfully recruited and retained an enormous number of recent nurse graduates as well as experienced nurses without resorting to the use of agency or contract nurses. It is also working closely with several local colleges to increase nursing enrollment. SJH will develop, recruit, and retain necessary staff to implement its proposal. While SJH competes with other hospitals for nursing personnel, the proposed satellite will have little impact on competing hospitals. UCH and TGH have consistently been able to obtain sufficient nursing staff to provide high-quality care at their facilities. UCH and TGH have impressive R.N. retention rates and are well below the state and national averages. Finally, SJH has sufficient funds for capital and operating expenditures to complete and operate the proposed satellite hospital. SJH will provide half of the $75 million project cost and finance the balance through the BayCare system. 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. In many ways, the SJH satellite hospital will enhance access to acute care and emergency services for the vast majority of patients residing in its proposed service area. First, commuting time will significantly decrease. Annually, the satellite's proposed service area supplies SJH Main with over 8,000 admissions from residents who endure significant traffic congestion and lengthy delays. Commuting time from the residential neighborhoods in the proposed service area to SJH Main has nearly doubled over the past ten years and is currently 45 minutes to an hour. The reliable travel time evidence demonstrates that the SJH satellite will significantly reduce travel times to acute care services for residents in Northwest Hillsborough County, including those in the Cheval, Northdale, Ehrlich Road, Lutz, and Lake Magdelane residential areas. Second, SJH's satellite hospital will significantly enhance patient access to emergency care and relieve pressure on the UCH Fletcher and SJH Main ERs. The SJH Main ER annually treats nearly 18,000 patients who originate from the satellite's proposed service area. It is reasonable to expect many of those patients to be redirected to the SJH satellite. Third, the SJH satellite proposal will provide another point of delivery access to HCFR and facilitate faster service to ER patients and improve "back-in-service" times for HCFR. Fourth, the availability of another ER in Northwest Hillsborough County will minimize the adverse effects of hospital bypass, and likely reduce the frequency of bypass by diverting volume from existing ERs. Fifth, the relocation of 76 acute care beds from SJH Main to the satellite will enable SJH to convert many of its underutilized, semi-private rooms into more usable, attractive, private rooms. Finally, redirection of volume from the urban SJH Main campus to a satellite campus in a high-growth, suburban area will reduce traffic congestion, minimize parking problems, save time, and save lives. Section 408.035(8), Florida Statutes. The immediate and long-term financial feasibility of the proposal. With respect to the project's short-term financial feasibility, SJH demonstrated that it can immediately finance the construction and implementation of the proposed satellite hospital project and meet its existing capital obligations. The satellite proposal is immediately financially feasible. With respect to the satellite's long-term financial feasibility, while the opponents argue that SJH's projected volumes, revenues, and expenses are inaccurate and unreasonable, SJH, on balance, sufficiently proved that the proposed satellite is financially feasible. Specifically, SJH's utilization projections are reasonable. As its basis for the projections, SJH relied on the expected population growth in the proposed service area and its historic levels of similar service in that area. Without doubt, the satellite's proposed service area, located in the northwest sector of Hillsborough County, is a region of rapid population growth and development. The population in the proposed service area has increased by 35 percent over the past ten years and is projected to grow much faster over the next three years. The area is being invaded by young adults, and the demand for obstetric services is dramatically increasing. SJH's historic levels of similar service in the area are persuasive. According to the un-refuted evidence, nearly 8,000 patient admissions, or 20 percent of SJH's existing inpatient volume, originated from the SJH satellite proposed service area, and 18,000 ER patient visits, or 17 percent of the entire SJH Main ER volume, derived from the proposed service area in 2002. In addition, SJH's strong presence in the proposed service area has enabled it to capture 32 percent of the patient days originating in the proposed service area. Given the existing patient days and expected population growth in the area, after culling out the tertiary and dissimilar services that the satellite will not provide, it is reasonable to expect that there will be over 121,000 available patient days in the proposed service area in 2007. The evidence also demonstrates that it is reasonable to expect the new satellite hospital to capture 40 percent of the patient days otherwise served at SJH Main. Moreover, given its market position, it is not unreasonable to expect the satellite to capture 15 percent of the available pool of non- tertiary patient days in the proposed service area by the second year of operation. In addition, SJH can expect 7.5 percent of the satellite patient days to originate from outside the service area thereby providing it with a reasonable projected utilization of nearly 20,000 patient days. Although the opponents argue otherwise, the evidence demonstrates that SJH's projected revenues are also reasonable. Again, SJH based the satellite's projected revenues, with some minor errors, on historic revenues for non-tertiary, non- specialty patients at SJH Main and conservatively assumed that it will achieve 90 percent of the 19,688 patient day utilization projections, or 17,800 patient days. After multiplying the financial-class-specific patient revenue per patient day by the financial-class-specific incremental patient days at the satellite facility, and applying a three percent annual inflation factor, the satellite reasonably expects approximately $1,604 in net revenue per adjusted patient day. The figure is consistent with the projected net revenue per adjusted patient day of $1,832 at SJH Main, $1,672 at UCH Fletcher, $1,432 at UCH Carrollwood and $1,408 at SFBH. SJH's projected expenses for its satellite hospital are also reasonable. SJH modeled its projections on similar historical expenses and determined that it will incur fewer maintenance expenses at the new hospital facility. Its pro forma allowances for plant operations and non-labor expenses per adjusted patient day are reasonable and consistent with the actual experience of UCH, UCH Carrollwood, Helen Ellis, Suncoast, SFBH, and Tampa General hospitals. SJH's staffing projection for new FTEs is also reasonable. The redirection of patient volume from SJH Main to the satellite will enable SJH to transfer some of its experienced FTEs to the satellite. New FTEs will be hired at the 2001 area market average salary rate for new registered nurses annually inflated by three percent. With respect to the reasonableness and appropriateness of SJH's pro forma, the opponents also argue that SJH fatally failed to include financial projections for the satellite on a stand-alone basis and, thereby, made it impossible to determine its long-term financial feasibility. The opponents assertions, while interesting, are not persuasive. AHCA's CON application forms require applicants to demonstrate the financial impact of the proposed project on the CON applicant. Within Schedules 7a and 8a of its application, SJH reasonably demonstrated the satellite's effect on SJH. Specifically, the first presented set of Schedules 7a and 8a entitled "Main" demonstrates SJH without the satellite hospital and provides a clear current baseline financial position for SJH. The second presented set of Schedules 7a and 8a, entitled "Satellite Hospital," demonstrates the projected financial benefit to SJH and the incremental increase in patient days when the satellite hospital is operational. SJH appropriately demonstrated the incremental financial benefit of the proposed project to the applicant, SJH. Furthermore, SJH's pro forma illustrate that even with an immediate loss in revenues to SJH arising from the transfer of patient days from SJH Main to the satellite, the project will generate revenues in excess of expenses in the long term. Logically, and obviously understood in the application pro forma, had SJH included a third pro forma showing the positive financial gain to the satellite relating to the additional revenues from the cannibalized patient days, the overall project would have shown even greater profitability. SJH's pro forma include and account for all revenues and expenses associated with implementation and operation of the satellite hospital. Moreover, AHCA supports SJH's method of presentation of the financial pro forma information in its CON application, and argues that it meets the Agency's requirements and is consistent with the method employed by other approved CON applicants. In light of the evidence, SJH's proposed satellite hospital project will achieve long-term financial feasibility. Section 408.035(9), Florida Statutes. The extent to which the project will foster competition that promotes quality and cost effectiveness. SJH's proposed satellite hospital will foster competition that promotes quality and cost effectiveness without significantly adversely affecting existing providers. The evidence demonstrates that the opponents will remain strongly competitive. Specifically, TGH is financially secure and will not be placed at material risk by the satellite hospital. While TGH is a safety-net provider and relies, in-part, on government funding, it achieved a net profit of $10.8 million in 2001, $56.2 million in 2002, and $25.7 million through May 2003, annualized to approximately $40 million. It also increased its admissions 10 percent from 2000 to 2002 and expects further gains. Furthermore, TGH marginally serves the rapidly developing area where the satellite will draw most of its patients. In fact, TGH receives less than one percent of its non-tertiary admissions in six of the nine ZIP codes which comprise SJH's proposed service area. TGH's projected adverse impact by the satellite hospital is overstated and unreliable. It is based on a contribution margin of $5,997 per adjusted admission and is completely inconsistent with SJH's margin for 2001 of $2,664, UCH Fletcher's contribution margin of $2,367, and UCH Carrollwood's contribution margin of $2,622. Similarly, UCH will experience only minor adverse effect from the satellite. UCH is financially strong and has limited capacity to absorb the anticipated growth in demand for acute care services. Although UCH's net profit numbers have fluctuated from 2001 through the second quarter of 2002, UCH is expecting a net profit greater than $5 million in 2003 and a net profit of $7.3 million in 2004. In addition, its inpatient admissions increased seven percent from 2000 to 2002. UCH's loss projections are patently overstated. It erroneously used a 4.2 average length of stay and exaggerated its projected lost admissions by nearly 20 percent. It admitted that the satellite would have its lowest admissions in the service area in the ZIP codes proximate to UCH, yet argued the satellite would draw admissions equally from all zip codes in the proposed service area including those immediately adjacent to UCH. It admitted that its obstetrical program will remain near capacity when the satellite is actually constructed, but argued that the satellite will substantially drain obstetric patients away. Although the satellite will inevitably draw some admissions away from UCH and TGH, the projected growth in patient days in the service area will offset any potential material adverse impact. The satellite will foster healthy competition, promote cost effectiveness, and provide faster quality health care in the area. Section 408.035(10), Florida Statutes. 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. On balance, the proposed costs and methods of construction are reasonable. The construction of the proposed satellite facility is projected to cost $49,560,000, or $652,105 per bed, which includes a 15 percent construction contingency. The satellite is expected to cost $175 per gross square foot and is reasonable, given the existing range in the area. While the total per bed "project cost" is nearly $1 million, as shown in Schedule 9, Line S, the figure is misleading. It includes nearly $20 million in equipment and other expensive, non-construction cost items. SJH also plans to construct a medical office building and imaging center prior to construction of the hospital. Upon completion of the hospital, a portion of the square footage of the imaging center will be integrated with the hospital, at minimal cost, and serve as the inpatient radiology department. SJH has committed to construct the building and has obtained the necessary permits. Although it is not CON reviewable, the construction cost for the facility, approximately $155 per square foot, is reasonable. Finally, the proposed architectural design for the satellite hospital is reasonable and satisfies applicable building codes. It consists of three medical-surgical pods of 16 beds each, one 14-bed intensive care pod, one 14-bed obstetrics pod, and one 16-bed observation pod. While the non- integrated, designed facility is rather large given its bed capacity, approximately 211,000 gross square feet, the satellite will consist of all private rooms and allow for future addition of licensed beds without major expansion or new construction. The design provides easy access and convenient parking. Notwithstanding the reasonableness of the construction costs and design, the opponents argue that there are less costly alternatives. First, the project could be rejected and the community could resort to the status quo. Given the evidence, including emergency data, denial is unreasonable. Second, the applicant could build a freestanding ER and/or an additional non-urgent care facility and minimize some of the existing problems. Given the evidence, including population trends and existing providers, the limited approach is unreasonable. Third, the applicant could be approved to build a scaled down version of its proposal. Although the facility is appropriate and reasonable as proposed in the application, a scaled down facility is clearly a less costly method of construction. However, there is insufficient evidence to determine whether a smaller version is a reasonable alternative. Section 408.035(11), Florida Statutes. The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. SJH has an impressive record of service to Medicaid patients and the medically indigent. It has long been recognized as a "safety net" provider of acute care services. In 2002, nearly 19 percent of SJH's total patient days were rendered to Medicaid-eligible patients. SJH also provides $40 million each year in uncompensated services to the community. It is a voluntary participant in the Hillsborough County Health Plan that provides funding for medically indigent or uninsured patients who do not qualify for Medicaid benefits. Consistent with its commitment to the community, SJH has conditioned approval of its CON on providing at least 15.6 percent of the satellite patient days to Medicaid and charity patients. Section 408.035(12), Florida Statutes. The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility. This criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued to approve the application. DONE AND ENTERED this 20th day of July, 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 20th day of July, 2004. COPIES FURNISHED: Lori C. Desnick, Esquire Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. Post Office Box 10909 Tallahassee, Florida 32302 Elizabeth McArthur, Esquire Radey, Thomas, Yon & Clark, P.A. 313 North Monroe Street, Second Floor Post Office Box 10967 Tallahassee, Florida 32301 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 Kenneth W. Gieseking, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 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 Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The issue in these proceedings is whether HRS should grant petitioners' application for a certificate of need to build a 100-bed general acute care hospital in Deltona, Florida. The parties have stipulated to the applicants' ability to staff the proposed facility and that no issue remains as to the criteria set forth in Section 381.494(6)(c)(3), (5), (6), (7), (10), (11), and , Florida Statutes (1983).
Findings Of Fact Petitioners propose to "transfer" 100 beds from Daytona Beach General Hospital (DBGH) in Subdistrict 4 of District 4 to Deltona, which lies in Subdistrict 5 of District 4; and have agreed to "delicensure" of an additional 50 beds at DBGH (for a total of 150) if their application for a certificate of need (CON) to build in Deltona is granted. Saxon General Hospital, Inc. (Saxon) is a wholly owned subsidiary of Daytona Beach General Hospital, Inc., which operates DBGH. HCA's Central Florida Regional Hospital (CFRH), is located outside of District 4 altogether in Sanford, which is in Seminole County. Baker, Clay, Duval, Flagler, Nassau, St. Johns and Volusia Counties make up HRS District 4, the domain of the Health Planning Council of Northeast Florida, Inc. District 4 as a whole has more hospital beds than it needs. The present controversy concerns medical/surgical hospital beds in the two southern subdistricts of District 4, Subdistricts 4 and 5. Flagler County and Volusia County east of Little Haw Creek and Deep Creek comprise Subdistrict 4 of District 4. Deland, Deltona, Orange City and DeBary are in Subdistrict 5 of District 4, which is congruent with Volusia County west of Little Haw Creek and Deep Creek. See Appendix. THE DISTRICT PLAN The Health Planning Council of Northeast, Florida, Inc. has adopted a district health plan, Petitioner's Exhibit No. 6, but the plan has not been promulgated as a rule. HRS, but not CFRH, has admitted that petitioners' proposal is consistent with the district health plan. Among the policies stated in the plan is the following: If the district as a whole has a surplus of acute care hospital beds but the subdistrict has a substantial shortage, or if beds are not available or accessible within 30 minutes travel time in an urban county or 45 minutes travel time in a rural county to at least 90 percent of the county's residents, the state should consider the need for more beds on a subdistrict basis. (Reference: Chapter 10-5.11(23)(i) of the Florida Administrative Code.) Given the provisions as outlined above and so long as there is an overall surplus of hospital beds in the district, it is the policy of the Health Planning Council not to support approval of additional beds within a subdistrict until it can be clearly demonstrated by the circumstances that the number of beds needed in the subdistrict is substantial. With respect to subdistrict five, the plan makes the following recommendation: Within the framework of the most appropriate planning for the entire West Volusia-East Seminole County area, the State Office of Community Medical Facilities could give consideration to the transfer of acute care beds from within the district to the Deltona area--so long as the total number of licensed beds in the district does not increase. Any applicant to open hospital beds and other hospital services in Deltona should take into consideration the general needs of the Deltona area population. The Health Planning Council of Northeast Florida, Inc. adopted this recommendation with the specific purpose of declaring itself neutral as between then competing applications to build a hospital in Deltona. BED NEED BY RULE HRS has by rule specified a need for 195 medical/surgical, 18 intensive and cardiac care, ten obstetric and eight pediatric beds in Subdistrict 4 for the year 1988. Rule 10-16.005(1)(b) Petitioner's Exhibit No. 37, codified as Rule 10-17.005(1)(b), Florida Administrative Code. This represents 23 fewer medical/surgical beds than are presently licensed or authorized, but three more medical/surgical beds than are presently available in fact; the same number of intensive and coronary care beds as are presently available; two fewer obstetric and three fewer pediatric beds than are presently available in Subdistrict 5. Excess capacity in Subdistrict 4 is even more pronounced, according to Rule 10-17.005(1)(b), Florida Administrative Code. This HRS rule specifies a need for 911 medical/surgical, 122 intensive and coronary care, 26 obstetric and 33 pediatric beds in Subdistrict 4 for the year 1988. These figures represent a projected excess of 254 medical/surgical, 14 intensive and cardiac care, four obstetric and 35 pediatric, licensed or approved beds for Subdistrict 4 in 1988, assuming no more beds are licensed, approved, delicensed or disapproved, in the interim. BEDS IN PLACE In District 4's Subdistrict 4, there are seven general acute care hospitals. Bunnell Community Hospital, with 81 licensed or approved beds, is the only hospital in Flagler County. The other six are clustered along the coast between Ormond Beach and New Smyrna Beach. Licensed and approved beds aggregate 1,165 medical/surgical, 136 intensive and cardiac care, 30 obstetric and 68 pediatric for Subdistrict4. Not all of these beds are actually available for occupancy, however. DBGH, for example, is licensed at 297 beds but had only 115 beds available for use on average between October 1, 1980, and September 30, 1981. (At the time of hearing, its average daily census was 50 patients.) There are only two existing hospitals in District 4's Subdistrict 5, Fish Memorial Hospital (Fish) and West Volusia Memorial Hospital (West Volusia), both of which are located in or near Deland, an older population center in western Volusia County to the north of Deltona. West Volusia, which is further than Fish from the emerging Deltona-DeBary-Orange City population center in the southwestern part of the county, has 162 beds, of which 128 are medical/surgical; eleven are intensive or cardiac care; twelve are obstetric and eleven are pediatric. West Volusia had a 1983 average occupancy rate, based on 139 medical/surgical and intensive and coronary care beds, of 67 percent. During fiscal year 1981, most of West Volusia's admissions were of persons from Deland, but 22.34 percent of the total came from DeBary, Deltona and Orange City. Fish has 97 licensed beds, but only 71 are available for use. Of these, 64 are medical/surgical, and the remaining seven beds are devoted to cardiac and intensive care. Fish's physical plant is older and in need of replacement or rehabilitation. The Fish Memorial Hospital physical plant is a composite structure which is the result of three decades of renovation and add-on construction. * * * As a result, much of the facility does not comply with current building codes, the recommendations of the Joint Commission for Accreditation of Hospitals (JCAH) or current patient care management practices. An internal survey was begun to identify and quantify the extent of work necessary to bring the entire physical plant into compliance with all applicable codes or standards. The survey included all major components of the physical plant or hospital-wide systems that will have to be replaced or repaired within the next three year period just to maintain the current facility operations as a comparison to the replacement cost. The survey identified over thirty projects, ranging between $4,000 and $1,500,000 each. Furthermore, these direct costs do not account for interruption of medical services to the community residents, nonproductive staff time due to phasing of renovation, and patient inconveniences during construction. Intervenor's Exhibit No. 1., p.1. Rehabilitation would involve direct costs of some $4,500,000.00. In July, August and September of 1980, Fish had 105 admissions of persons residing in the Deltona and DeBary-Orange City census division, or 22.9 percent of its total admissions. In the same months the year before 87 admissions or 23 percent of the total was attributable to the Deltona and DeBary-Orange City census divisions. The great majority of Fish's patients came from the Deland census division during both periods. Fish's 1983 average occupancy rate was 46.7 percent, but, at time of hearing, occupancy was at 80 percent. Licensed at 226 beds, CFRH had about 200 beds staffed at the time of the hearing, including ten pediatric and nine obstetrical beds. (T. 592) CFRH's average occupancy was 72 percent for January and February of 1984, down from 76.9 percent for the same period last year. During the two months preceding the hearing, CFRH was on "red flag" status. No admissions were allowed, unless approved by the chief of staff; but no true emergencies were turned away. Some 34.8 percent of CFRH's admissions are of people who reside in the Deltona- DeBary-Orange City area or elsewhere in Volusia County. CFRH meets most of the need for medical/surgical beds attributable to the population in southwestern Volusia County. (Testimony of Scott) Most people living in the Deltona-DeBary- Orange City area who need hospitalization leave the county, in order to be admitted at intervenor CFRH. ACCESSIBILITY The evidence did not establish what proportion of the population of Subdistrict 5, if any, is further than 30 minutes' driving time from the nearest hospital at present, or what proportion would be in the future. Petitioners' expert measured travel times from central points in DeBary, Orange City, Sanford and Deland to area hospitals and to the site proposed for a new hospital, with the following results: West Volusia Fish Memorial Central Florida Proposed Memorial Hospital Regional Daytona Beach TO: Hospital (Central (West Sanford) General (North Deland) (Saxon Blvd. Deland) at 1-4) (A) (B) (C) (D) DeBary 32.2 26.4 18.2 14.9 Orange 28.6 22.8 26.3 17.7 City Deltona 36.8 31.0 24.6 11.5 Sanford 51.6 44.9 17.1 33.7 Deland 20.7 14.9 41.7 32.6 In computing these averages, peak travel times were weighted equally with other travel times measured in December of 1983, and January and February of 1984. One route to Sanford and CFRH from Deltona entails crossing a drawbridge. It takes Beverly Spitz "20 minutes just to get out of Deltona," with its winding roads and abundance of elderly drivers. Mary Lou Foster takes 29 to 45 minutes to drive from her Deltona home to CFRH. John Schmeltz can do it in "about 25 minutes." In February of 1982, When Mrs. Schmeltz passed out, the ambulance he summoned took 22 minutes to arrive. John Mosley made the drive from his Deltona home to CFRH in 25 minutes, but that was the night he thought his wife had had a heart attack and he "averaged over 100 miles an hour." (T. 204) "[A]t night . . . you realize just how far it is." (T. 211) Clyde Mann's testimony to the effect that the remoteness of existing hospitals had cost lives went unchallenged. Mary Meade, a registered nurse, reported that the Deltona area "ha[s] lost several patients, several people" (T. 216) in the time it takes to get to a hospital. Bernie Levine, a public witness, testified that there were "constant people dying. They didn't make it to the hospital." (T. 210) A hospital in Deltona would significantly improve access for the people of Deltona, and would also improve access for residents of Orange City and DeBary, albeit less dramatically. FINANCIAL FEASIBILITY The parties stipulated that land is available for the project, and that projected construction costs are reasonable. Daytona Beach General Hospital, Inc. (DBGH, Inc.) plans to lend its subsidiary Saxon General Hospital, Inc. $4,159,700; and petitioners plan to borrow the remaining $12,569,000 necessary to build the hospital, at 13 percent, repayable over a 25 year period, with the new hospital serving as collateral. DBGH, Inc. had "[a]pproximately one-million-three, one-million-four" (T. 245) on hand which could be devoted to construction of a new hospital in Deltona, at the time of hearing. The remaining "equity," $2,900,000 or so, is to be raised by sales of DBGH, Inc.'s common stock. Of the 2,000,000 shares of common stock authorized, Daytona Beach General Hospital, Inc. has issued 600,000. The hope is that additional shares can be issued and sold at $15 a share, which is about five times as much as the stock is currently trading for over the counter. John E. Kaye and Jackson B. Bragg, the osteopaths who between them own 405,000 shares of DBGH, Inc. common, each plan to guarantee purchase of another $1,400,000 worth of DBGH, Inc. common stock, when it is issued. The net worth statements of each man came in as exhibits at hearing, for the purpose of showing their supposed ability to honor such a guarantee. Aside from the DBGH, Inc. stock, however, neither man had sufficient net assets, and this assumes the accuracy of their financial statements, which listed as assets $253,000 in unsecured receivables of unstated age. Cars and boats were valued at cost, as was a pick-up truck ($3,000) while real estate was apparently valued at somebody's idea of market. Between them, the two doctors purport to have $150,000 worth of household furniture. For obvious reasons, no accountant's name appeared on these documents. The doctors have an agreement between them to the effect that neither sells DBGH, Inc. stock unless the other also sells. Their unaudited statements put the value of DBGH, Inc. stock at $20 a share. A few days after the Daytona Beach News Journal reported that "HCA had lost the right to purchase Fish," (T. 264) Robert E. Hardison, Jr. of HCA spoke to Drs. Kaye and Bragg and told them "he realized it was futile to try to continue seeking a CON for Deltona adding new beds unless he could get some existing beds from [DBGH] and move them to Deltona." (T. 266) Mr. Hardison asked Drs. Bragg and Kaye what they would be willing to sell their stock for but did not offer to buy it. Shortly before the hearing they were offered $25 a share for all their holdings on condition the prospective buyer could arrange financing, and on condition that Saxon receive a certificate of need. This price is almost certainly higher than could be gotten in the market for shares which would not give the buyer a controlling interest in DBGH, Inc. One Milton W. Pepper appeared at hearing and testified without contradiction that, in the event a certificate of need issued, he was willing and able to invest approximately $1,500,000 "in the beginning. . . and make arrangements for the additional $5,000,000 if necessary." Drs. Kaye and Bragg may lose control of the corporate petitioners in the process, but there is every reason to believe that money to build a hospital would be available. After raising a quarter of the project cost, DBGH, Inc. proposes to lend that sum to Saxon, at one percent above prime. Although this arrangement would mean that the money was "debt" as between the subsidiary and its parent, outside financers would apparently treat the money as equity. Loy D. Deloney, an underwriter for Stephens, Inc., "the ninth-ranking investment banking firm in the country in terms of equity," knows "of at least 10 major financial institutions that would be interested in" providing long-term financing, if the CON issues. The future holds many uncertainties for hospitals, but whether this money could be repaid and whether a new hospital would be otherwise feasible financially depends finally on how many patients it would serve. POPULATION GROWTH FORECAST The population of census tracts 908, 909, 910.02, 910.03 and 910.04, in which Deltona, Orange City and DeBary are located, is projected to increase by some 11,000 persons between 1984 and 1989, when the population in this part of southwestern Volusia County is expected to be 48,789. Of the projected 1989 population of census tracts 908, 909, 910.02, 910.03, 910.04, eleven thousand one hundred twenty-four persons are expected to be over 65 and eleven thousand one hundred twenty-four persons are expected to be less than 65 but older than Some three fifths of Deltona's present population (about 26,000) is over 55 years old. EFFICIENT UTILIZATION LIKELY IN SUBDISTRICT Even without the lure of a hospital, physicians have opened offices in southwest Volusia County. Seven specialists on the medical staff at CFRH have part-time practices in the Deltona-DeBary-Orange City area. A half dozen family practice physicians practice in the area full-time. They admit to hospital an average of 50 patients daily, 80 percent of them to CFRH. Before HCA abandoned its application for a certificate of need to "transfer Fish's beds" and build a new 97-bed hospital in Deltona, it caused a health service study to be done by John Short & Associates. CFRH offered the study as evidence at hearing. Intervenor's Exhibit No. 1. The CFRH study looked at the western area of Volusia County, as a whole, including Deland, and concluded that 1987 would see 12,686 medical/surgical discharges of residents of western Volusia County. The CFRH study calculated the average length of a patient's stay in hospital at 7.03 days. CFRH's own evidence shows, therefore, that 89,183 medical/surgical patient days attributable to the population of the DeBary-Orange City, Deland and Deltona census districts can be expected in 1987. CFRH's administrator, James D. Tesar, predicted that CFRH "could lose 80 percent of its admissions from the area including Deltona, Geneva, DeBary, Osteen, and Orange City," if Saxon built a new hospital in Deltona. In 1983, CFRH admissions from these Volusia County communities totalled 3,150. If a new hospital in Deltona did indeed change patient flow to the extent Mr. Tesar warns is possible, there would still be 630 admissions annually to CFRH of residents leaving southwest Volusia County for hospitalization. If west Volusia Countians' admissions drop to 630 at CFRH, CFRH will be supplying only 4,429 patient days (630 X 7.03) to residents of West Volusia County. In that case, some 84,754 medical/surgical patient days will have to be accommodated in 1987 by hospitals within Subdistrict Five (or outside the subdistrict at hospitals other than CFRH). In 1987, to the extent patient days attributable to southwest Volusia County residents admitted to pediatric or obstetric beds at CFRH exceed patient days at CFRH attributable to Subdistrict Five residents living outside Deltona, Geneva, DeBary, Osteen and Orange City, 84,754 would be an understatement. Dividing patient days by the number of days in a year (84,754/365) yields an average daily medical/surgical census of 232. Medical/surgical beds are put to good use when they are full 80 percent of the time, almost all health planners agree. In order to accommodate an average daily census of 232 at an 80 percent average occupancy rate, 290 medical/surgical beds will be needed as early as 1987. Only 192 medical/surgical beds are now open in Subdistrict Five. Chances are good that 292 hospital beds in Subdistrict Five could be used efficiently long before the spring of 1989. IMPACT OUTSIDE SUBDISTRICT A new 100-bed hospital in Deltona could operate consistently with efficient utilization of the medical/surgical beds already open in Subdistrict Five, even if the new hospital achieved 80 percent average occupancy as early as 1987 but only by diverting patients from CFRH. The effect on CFRH would be significant, but temporary, since population growth would ensure its efficient utilization once again within two to four years of the 1986 opening of a 100-bed hospital in Deltona. All along, CFRH's loss of patients to a new Deltona hospital would be offset to some extent by ongoing population growth in Seminole County where CFRH is located. CFRH's own application for a certificate of need was granted on the theory that a new hospital of CFRH's size was needed just to serve the population of Seminole County. Petitioners' expert concluded that CFRH, Fish and West Volusia had had only 1,139 more medical/surgical patient days to split among themselves in 1983 than they could be expected to have in 1988, with a 100-bed hospital in its second year of operation in Deltona. DBGH's surrender of the right to open 150 additional beds would have no immediate economic impact; the effect would be to reduce excess capacity in Subdistrict Four, but on paper only. No beds would be closed, no staff dismissed, no expenses pared. But, if petitioners' efforts to obtain a CON for a new hospital in Deltona fail, they intend to expend $10,000,000 for renovation of DBGH, a project for which they already have a CON. This would inevitably mean recovering additional costs from payers for hospital care in Subdistrict Four. Like the Deltona proposal, the renovation proposal contemplates some reduction in beds in Subdistrict Four, although fewer: "50-some-odd." (T. 293) The 150 bed reduction in approved beds in Subdistrict Four contemplated by the pending application would mean that, if and when new hospital beds are needed in Subdistrict Four, they could be added wherever they are needed rather than being added at DBGH whenever management decrees.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That HRS grant petitioners' application for a certificate of need to construct a 100-bed acute care general hospital in Deltona. DONE and ENTERED this 9th day of July, 1984, in Tallahassee, Florida. ROBERT T. BENTON II Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of July, 1984. APPENDIX * * NOTE: APPENDIX to this Recommended Order is a map which is available for review in the Division's Clerk's Office. COPIES FURNISHED: F. Philip Blank, Esquire 241 East Virginia Street Tallahassee, Florida 32301 Ronald L. Book, Esquire Sparber, Shevin, Shapo & Heilbroner 30th Floor AmeriFirst Building One Southeast Third Avenue Miami, Florida 33131 James M. Barclay, Esquire 1317 Winewood Blvd. Building 2, Suite 256 Tallahassee, Florida 32301 Thomas A. Sheehan, III, Esquire Jon C. Moyle, Esquire Donna Stinson, Esquire, and Thomas M. Beason, Esquire, of Moyle, Jones & Flanigan Post Office Box 3888 West Palm Beach, Florida 33402 David Pingree, Secretary Department of HRS 1323 Winewood Blvd. Tallahassee, Florida 32301
The Issue The issue is whether the Agency should approve the Certificate of Need applications filed by Bethesda and/or JFK, each of which proposes to establish an 80-bed satellite hospital in the West Boynton area of Acute Care Subdistrict 9-5.
Findings Of Fact The Parties (1) Bethesda Bethesda operates Bethesda Memorial, which is a 362-bed not-for-profit hospital in Boynton Beach. Bethesda also operates Bethesda Health City, which is a “medical mall” located in the West Boynton area of South Palm Beach County. As a not-for-profit community-based health care organization, Bethesda’s mission is to provide quality health care services to the residents of South Palm Beach County that it serves regardless of their ability to pay. Bethesda Memorial opened in 1959 as a public hospital under the ownership of Palm Beach County’s former hospital taxing district. Bethesda Memorial was reorganized in 1984 as a private not-for-profit hospital owned by Bethesda. Bethesda Memorial provides tertiary-level care. Bethesda Memorial’s 362 licensed beds include 347 general medical-surgical (med-surg) acute care beds and a 15-bed Level II and Level III neonatal intensive care unit (NICU). A 28-bed comprehensive medical rehabilitation (CMR) unit will open at Bethesda Memorial in 2005, increasing the hospital’s licensed capacity to 390 beds. Not all of Bethesda Memorial’s licensed beds are available for general patient use; 14 of the beds are leased to a hospice program and 14 of the beds are operated under contract as a special care unit (SCU). The hospice lease and the SCU contract run through 2005. Even though the hospice lease and SCU contract have been profitable ventures for Bethesda, several Bethesda witnesses testified that those agreements would not be renewed if Bethesda Memorial needs those 28 beds to accommodate its general patients after its capacity is reduced through the transfer of 80 beds to its proposed satellite hospital; however, as of the date of the hearing, Bethesda had not taken any formal steps to terminate those agreements. It is unclear how the patients that are currently being served in the hospice unit and SCU would be served in the community if Bethesda terminates the agreements. Bethesda Memorial also has a 10-bed “VIP” unit that is generally available only to patients that have contributed at least $50,000 to Bethesda’s charitable foundation and are willing to pay an up-front $750.00 per day charge for the room; however, the beds in the VIP unit can be and have been utilized by other patients when all of the other beds in the hospital are full. Bethesda Memorial has a high-volume obstetrics (OB) program and an active emergency department (ED). Bethesda Memorial also offers a number of specialized programs including a comprehensive cancer program, a pediatrics program, a diagnostic cardiac catheterization program, and a wide variety of outpatient services. Bethesda Memorial is a well-utilized facility; its overall occupancy rate was 73.25 percent from July 2001 though June 2002. Bethesda Memorial does not currently offer interventional cardiology services or open heart surgery, but it has been attempting to get CON or legislative approval to offer those services for the past several years because of their profitable nature. Bethesda Memorial has designated, shelled-in space in its hospital for those services if it ever gets the necessary approvals. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at Bethesda Memorial or that would make such expansions cost-prohibitive. Bethesda recently purchased property adjacent to Bethesda Memorial and was able to get that property rezoned from residential to hospital use. It is unclear how large that property is and what use, if any, Bethesda has planned for that property. Bethesda also owns 1.4 acres of vacant property that is several blocks from Bethesda Memorial. The property is not currently zoned for hospital use, and because it is somewhat isolated from Bethesda Memorial, Bethesda intends to sell the property rather than develop it. Bethesda Memorial is accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Bethesda Health City is a 135,000 square foot “medical mall” or “hospital without beds” that opened in 1995. The facility is located in the West Boynton area at the intersection of Hagan Ranch Road and Boynton Beach Boulevard, just east of the Florida Turnpike. Bethesda Health City offers services such as diagnostic imaging, outpatient rehabilitation, radiation therapy, and a woman’s center. The facility has offices for approximately 20 physician groups, and it also provides community outreach services targeted to the large senior population in the West Boynton area. Bethesda Health City was established to help Bethesda Memorial capture patients from the growing West Boynton area, and it has done so. There is capacity to add an additional 30,000 to 40,000 square feet of space to Bethesda Health City, and Bethesda intends to expand the facility whether or not its proposed satellite hospital is approved. Bethesda Health City provides Bethesda a significant physical presence in the West Boynton area. The facility has contributed to Bethesda Memorial’s significant and stable market share in the West Boynton area. In addition to Bethesda Memorial and Bethesda Health City, Bethesda administers a charitable foundation whose primary purpose is to fund Bethesda Memorial’s capital acquisitions and improvements. The foundation has considerable assets and is in the midst of a $100 million capital campaign through which it has already raised approximately $37 million. Bethesda Memorial experienced considerable and constant growth in its admissions and patient days between 1997 and 2003; its admissions grew by 45 percent and its patients days grew by 44 percent over that period. Bethesda Memorial is financially sound. It has substantial cash reserves and it is well-rated by the financial markets. The evidence was not persuasive that Bethesda’s current or long-term financial situation is distressed. Unlike other not-for-profit hospitals in District 9, Bethesda Memorial is a profitable hospital. Between 1997 and 2002, Bethesda Memorial’s operating income averaged approximately $5.5 million and in 2003, its operating income was approximately $7 million. In each of those years, the hospital also had significant non-operating revenues such that its total revenues over expenses during that period averaged approximately $10 million. The Bethesda system as a whole is also profitable. It had operating income of $2.4 million in 2002 and $2.1 million in 2001. Bethesda Memorial and the Bethesda system did not perform as well financially as JFK, Delray, or Wellington between 1997 and 2002; each of those hospitals had higher returns on assets, returns on equity, and total margin over that period than did Bethesda Memorial and Bethesda, and JFK and Delray had considerably more operating income over that period than did Bethesda Memorial. Bethesda Memorial’s CMR unit is projected to have a positive financial impact on Bethesda starting in 2005, and if approved, Bethesda Memorial’s open heart surgery program is also projected to have a positive impact on Bethesda’s long-term financial condition. (2) JFK JFK is owned by HCA, Inc. (HCA). HCA is nationwide, for-profit hospital chain. JFK is a 424-bed for-profit hospital in Atlantis, which is a small municipality in the Lake Worth area. JFK provides tertiary-level care. JFK is the most highly utilized hospital in District 9, and one of the most highly utilized hospitals in the state. JFK’s annual occupancy rate was 89.96 percent between July 2001 and June 2002, JFK is one of thee HCA hospitals in Palm Beach County. The others are Columbia and Palms West, both of which are in North Palm Beach County, Subdistrict 9-4. JFK operated as a not-for-profit hospital for approximately 30 years until it was purchased by HCA in 1996. Approximately $120 million of the purchase price paid by HCA was used to establish a charitable foundation, the Quantum Foundation, which funds a variety of health-related projects in the South Palm Beach County area. The services provided at JFK include orthopedics, cancer services, interventional cardiology and open heart surgery, neurologic services, and internal medicine. JFK does not offer pediatric or OB services. HCA has made significant capital improvements at JFK since it acquired the hospital. The community image of the hospital and the morale of its employees has significantly improved since the acquisition by HCA. JFK is accredited by JCAHO. JFK recently received a CON to add 36 beds, which will increase its licensed capacity to 460 beds. The beds will be located in shelled-in space on the fifth floor of JFK’s south tower, but they have not yet been brought on-line. JFK’s recently-constructed northwest tower was engineered so that an additional two floors can be added to that tower in the future, which would allow JFK to add 36 more beds. The evidence was not persuasive that there are physical or other constraints that would preclude further incremental bed expansions at JFK beyond the 72 beds identified above. JFK is attempting to acquire a long-term lease for 19 acres across the street from its hospital that would be used for parking and medical office buildings. If that property is leased and developed, JFK may be able to free-up additional space for future bed expansions; however, the record does not establish the likelihood of the lease being consummated, the amount of space that might be freed-up if that property was developed, or any of the costs associated therewith. JFK recently constructed a medical office building in the West Boynton area that includes a wound care center and a diabetes center. That facility is on Jog Road, north of Boynton Beach Boulevard. Aside from the medical office building, JFK had not formally targeted the West Boynton area for expansion; its most recent strategic plan did not mention the prospect of locating a satellite hospital in that area. (3) Delray Delray is owned by Tenet Healthcare Corporation (Tenet). Tenet is a nationwide, for-profit hospital chain. Tenet operates four hospitals in Palm Beach County in addition to Delray, including West Boca Medical Center (West Boca) in South Palm Beach County, and Good Samaritan, St. Mary’s, and Palm Beach Gardens in North Palm Beach County. Delray is a 372-bed for-profit hospital in Delray Beach. Delray is located approximately 2.5 miles south of Atlantic Boulevard. Delray is in zip code 33484, but it is near the eastern boundary of zip code 33446. Delray opened in 1982, and is accredited by JACHO. Delray provides tertiary-level care. Delray is located on a “campus” that includes the hospital building, a 53-bed in-patient psychiatric facility known as Fair Oaks Pavillion (Fair Oaks), and a 90-bed CMR facility known as Pinecrest Rehabilitation Hospital. There is a separately-licensed 120-bed nursing home located adjacent to the campus. Delray’s 372 licensed beds include the 53 in-patient psychiatric beds at Fair Oaks, which is approximately 200 yards from Delray’s main hospital. Delray has added 108 beds to its hospital since 1996. Even with those bed additions, Delray remains a very highly utilized facility; its annual occupancy rate between July 2001 and June 2002 was 82.32 percent. Delray shelled-in space for an additional 31 beds as part of a recent expansion of its ED and ambulatory care unit. Delray intends to put those beds into service as soon as it can. Delray has the ability to further expand its hospital beyond the 31 beds planned for the shelled-in space. It already has local government approval for a total of 616 beds on its campus. The services provided at Delray include general medical and surgery services, trauma, interventional cardiology, open heart surgery, in-patient psychiatric services, orthopedics, and neurosurgery, with a special focus on chronically-ill elderly patients. Delray does not provide OB services. Delray has been the only provider of in-patient psychiatric services in South Palm Beach County since October 2001 when Bethesda Memorial discontinued its program. Delray has been a state-designated Level II trauma center since 1991, which requires it to have a neurosurgeon, trauma surgeon, and other specialists and specialized equipment available at all times. Delray receives funding from the local health district to help offset a large portion of the costs associated with providing its trauma services. Delray leases space in a medical office building in the West Boynton area where it provides diagnostic imaging, mammography, and laboratory services. Delray’s service area includes zip codes 33437, 33446, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Delray is currently, and historically has been a very profitable hospital. It reported a “total margin” of approximately $32.9 million on its May 2002 “Prior Year Report” filed with the Agency,4 and it reported operating income of $40.5 million in its audited financial statements for fiscal year 2003. (4) Wellington Wellington is owned by Universal Health System (Universal). Universal is a nationwide, for-profit hospital chain. Wellington is a 121-bed for-profit hospital in the northwestern portion of South Palm Beach County. Wellington is located in zip code 33414, approximately 2.5 miles south of Southern Boulevard at the intersection of State Road 7 (also known as U.S. Highway 441) and Forest Hill Boulevard. Wellington opened in 1986 as an osteopathic hospital, and approximately 25 percent of its current medical staff is osteopathic physicians. Wellington is accredited by JCAHO and the American Osteopathic Association. Wellington provides tertiary-level care. Wellington is easily accessible from Forest Hill Boulevard and State Road 7, and the hospital is served by the Palm Beach County bus system, which has a stop in Wellington’s parking lot. Wellington has made substantial capital improvements to its hospital over the past five years. Those improvements were designed to enhance the hospital’s efficiency in serving its current patients and also to anticipate future patient demand. Wellington owns 29 acres of property adjacent to the 26-acre site on which the hospital is located. The adjacent property is currently undeveloped and it is available for future expansions of Wellington. Wellington’s chief executive officer (CEO) testified that Wellington has a site plan approved for its undeveloped property and that it has “vested concurrency” for the future development of that property; however, that testimony was not corroborated (as was the case with Delray’s approved master plan) and therefore is not persuasive. The services at Wellington include an ED, an OB program, general medical and surgical care, an orthopedic unit, a comprehensive cancer center, a wound care center, a cardiology program with a dedicated cardiovascular intensive care unit, and an outpatient diagnostic center. Wellington’s OB program includes 18 labor rooms, 19 post-partum rooms and a 10-bed Level II NICU. Wellington delivers approximately six babies per day and has the capacity to deliver up to 15 babies per day. Wellington’s utilization has steadily grown over the years, but it is still one of the lowest utilized facilities in South Palm Beach County; its annual occupancy rate was 64.27 percent between July 2001 and June 2002. Wellington derives approximately 90 percent of its patients from a geographic area bounded by Military Trail on the east, the Loxahatchee National Wildlife Refuge on the west, Okeechobee Boulevard to the north, and Boynton Beach Boulevard to the south. That area includes zip codes 33414, 33437, 33463, and 33467, which are being targeted by Bethesda and JFK with their proposed satellite hospitals. Wellington has teaching and training programs for physician assistants and certified nurse anesthetists under contracts with Florida International University and Florida Atlantic University. Wellington also has a family practice residency/internship teaching program for osteopathic doctors that is affiliated with Lake Erie School of Osteopathic Medicine, and a three-year dermatology teaching program. When Wellington was established in 1986, there was very little population in the western portion of South Palm Beach County to support the hospital. As a result, the hospital was unprofitable in its early years, and by 2000, it had accumulated a deficit of $22 million. Wellington’s financial performance has improved significantly in the past several years, but it still has a large accumulated deficit. Wellington is relying on its ability to retain or increase its market share in the growing West Boynton area in order to remain profitable and eliminate its accumulated deficit. (5) Agency The Agency is the state agency responsible for administering the CON program and licensing hospitals and other health care facilities. Application Submittal and Review and Preliminary Agency Action Bethesda and JFK each filed CON applications with the Agency in the first “hospital beds and facilities” batching cycle of 2003. Each application sought to establish a new 80- bed satellite hospital in the West Boynton area of South Palm Beach County, Subdistrict 9-5. The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero acute care beds in Subdistrict 9-5. There were no challenges to the published fixed need pool. The letters of intent and CON applications filed by Bethesda and JFK for their respective satellite hospitals were timely filed and complied with all of the technical submittal requirements in the governing statutes and rules. JFK’s letter of intent was filed within the “grace period” (see Florida Administrative Code Rule 59C-1.008(1)(d)2.) in direct response to Bethesda’s earlier-filed letter of intent. There is nothing inherently improper about a “grace period” letter of intent, and very little significance has been given to the responsive nature of JFK’s proposal in the comparative evaluation of the CON applications. A public hearing was held on the applications by the local health council on April 24, 2003.5 Presentations were made at the public hearing in support of and in opposition to the applications. The opposition came primarily from a representative of Delray; the support came from representatives of Bethesda and JFK and several residents of the West Boynton area. The reasons offered by the speakers for their opposition or support of the applications were essentially the same as those presented at the hearing, and no independent significance has been given to the testimony and “evidence” presented at the public hearing. Bethesda’s and JFK’s applications were comparatively reviewed by the Agency in accordance with the Agency’s rules and standard procedures. On June 13, 2003, the Agency issued its State Agency Action Report (SAAR) based upon its comparative review of the applications. The SAAR recommended approval of Bethesda’s application and denial of JFK’s application. The Agency’s published notice of intent to approve Bethesda’s application and to deny JFK’s application in the June 27, 2003, edition of the Florida Administrative Weekly as required by statute and Agency rule. The Agency reaffirmed its preliminary decisions on the applications through the hearing testimony of Jeffrey Gregg, the Bureau Chief of the Agency’s CON program. The petitions for administrative hearing challenging the Agency’s preliminary decisions on the CON applications at issue in this proceeding were all timely filed. Acute Care Subdistricts 9-4 and 9-5 The Agency calculates the inventory of acute care beds on a subdistrict basis, and it considers CON applications for additional acute care beds on a subdistrict basis. Palm Beach County is in District 9, which is divided into five subdistricts. Only two of the subdistricts, 9-4 and 9-5, are relevant in this case. Subdistrict 9-4 is North Palm Beach County, and Subdistrict 9-5 is South Palm Beach County. The dividing line between the two subdistricts is Southern Boulevard. There are six existing acute care hospitals in Subdistrict 9-5: Bethesda Memorial, JFK, Delray, Wellington, West Boca, and Boca Raton Community Hospital (Boca Community). Boca Community and Bethesda are the only not-for- profit hospitals in Subdistrict 9-5; the others are for-profit hospitals. The service area of Palms West, which is located on Southern Boulevard in Subdistrict 9-4, includes portions of Subdistrict 9-5 and the West Boynton area. The utilization of hospital services in Subdistrict 9- 5 has historically been higher than the utilization of hospital services in Subdistrict 9-4. In calendar year 2002, for example, the average occupancy rate of the Subdistrict 9-5 hospitals was 78.2 percent as compared to 55.6 percent for the Subdistrict 9-4 hospitals; and during the “peak season” of January through March 2002, the average occupancy rates were 88.4 percent in Subdistrict 9-5 and 62 percent in Subdistrict 9-4. The West Boynton Area The West Boynton area is an unincorporated area of South Palm Beach County. Its approximate boundaries are Congress avenue on the east, the Loxahatchee National Wildlife Reserve on the west, the L-30 canal (which is several miles north of Atlantic Avenue) on the south, and Hypoluxo Road on the north. The West Boynton area roughly corresponds to the geographic area that is included in zip codes 33436, 33437, 33463, and 33467. The Florida Turnpike, which runs north-south, roughly bisects the West Boynton area. The Turnpike is not a geographic barrier between the east and west portions of the West Boynton area, but it served as the de facto boundary of the urban service area until approximately 10 years ago when significant amounts of development began to “jump” the Turnpike. Boynton Beach Boulevard is the primary east-west road in the West Boynton area, although there are several other east- west arterial roads within the area including Lantana Road and Hypoluxo Road. Other major east-west roads in close proximity to the West Boynton area are Forest Hill Boulevard, Lake Worth Road, and Atlantic Avenue. There are several major north-south roads in the West Boynton area in addition to the Turnpike, including Jog Road, Hagen Ranch Road, and State Road 7. State Road 7 is the westernmost major north-south road in South Palm Beach County. As a result of local zoning restrictions, very little development in the West Boynton area is or will be west of State Road 7. The 2002 population of the West Boynton area, as defined by the four zip codes identified above, was approximately 156,000. There are seasonal variations in the population, but they are not as significant as the seasonal variations in the population of the more easterly portions of Palm Beach County. The population of the West Boynton area is projected to grow to approximately 181,000 by 2007, which corresponds to an annual growth rate of approximately 3.1 percent per year. That growth rate is higher than the annual growth rate projected over that period for the state as a whole (1.6 percent), Palm Beach County (two percent), and District 9 (1.9 percent). Approximately 89 percent of the 2003 population of the West Boynton area was located to the east of the Turnpike. The portion of the West Boynton area to the west of the Turnpike is projected to grow at a considerably faster rate through 2008 than the area to the east of the Turnpike, which is consistent with the extensive amount of residential development that is underway or approved in the West Boynton area west of the Turnpike. In 2002, approximately 28.6 percent of the residents of the West Boynton area were in the age 65 and older (“65+”) age cohort. That percentage is higher than the percentages in that age cohort for the state as a whole (17.5 percent), Palm Beach County (22.5 percent), or District 9 (22.5 percent). The 65+ age cohort is projected to remain the largest segment of the West Boynton area population through 2008. A large number of the existing residential communities and the communities under development in the West Boynton area are retirement communities that are deed-restricted to persons over the age of 55, which contributes to the higher percentage of the population in the 65+ age cohort currently and projected in the future. The West Boynton area is more affluent than and offers a better payer-mix than the existing service areas of Bethesda Memorial and JFK. As compared to the existing service areas of those hospitals, the West Boynton area has a lower percentage of uninsured residents, a higher percentage of Medicare and insured residents, a lower percentage of households with annual incomes below $20,000, and a higher percentage of households with annual incomes above $60,000. There is currently healthy competition in the West Boynton area for acute care services. That competition includes each of the four hospital parties in this case as well as several other hospitals. JFK, Bethesda, Wellington, and Delray, collectively accounted for approximately 72 percent of the discharges from the West Boynton area in calendar years 2000, 2001, and 2002. The percentage of the West Boynton area discharges attributable to each of those hospitals or, stated another way, the hospitals' market shares in the West Boynton area over that period are as follows6: JFK Bethesda Delray Wellington 2000 31.7% 23.2% 10.6% 6.1% 2001 30.1% 24.0% 11.2% 6.9% 2002 28.8% 23.9% 11.4% 7.7% There is no credible evidence that there will be any significant changes in those relative market shares over the five-year planning horizon applicable to the applications at issue in this case if a new hospital is not approved in the West Boynton area. Stated another way, the competitive balance that currently exists in the West Boynton market is expected to continue unless something disrupts that balance, such as the approval of a new hospital in the area. As discussed below, if either of the proposed satellite hospitals are approved, the market share of the approved hospital will increase to the detriment of the other hospitals. There is considerable community support for a new hospital in the West Boynton area from the residents of that area, as reflected in the letters of support included in the CON applications, the testimony at the local public hearing on the applications, and the deposition testimony from area residents and the related exhibits introduced at the hearing. The community support is not, on balance, directed to the approval of Bethesda's proposed satellite hospital over JFK’s proposed satellite hospital, or vice versa; it is simply for the expeditious approval of a hospital. Need for OB Services in the South Palm Beach County and/or the West Boynton Area There are currently four OB programs in Subdistrict 9-5. The programs are at Bethesda Memorial, Wellington, West Boca, and Boca Community. The evidence is not persuasive that an additional OB program is needed in Subdistrict 9-5. Indeed, Dr. Samuel Kaufman, an OB/GYN who has practiced in the area for many years, testified credibly that the four existing OB programs in the subdistrict are just now beginning to do enough deliveries to be efficient. There was no persuasive evidence that there are accessibility problems at the existing OB programs because of their utilization rates. Indeed, the OB unit at Wellington has the capacity to handle up to an additional nine deliveries per day. Each of the existing OB programs offers Level II and/or Level III NICU services, which is typically referred to as “NICU backup.” It is not feasible to provide NICU backup at a low-volume OB program such as the 10-bed OB unit proposed in JFK’s satellite hospital. It is important to have NICU backup because it is not uncommon for high-risk OB patients to unexpectedly present to the hospital and, in such circumstances, it is better for the child to have NICU services at the hospital where he or she is delivered rather than having to be transferred to another hospital. The standard of care in South Palm Beach County requires NICU backup and, based upon malpractice liability concerns, some OB/GYNs will not deliver babies at a hospital that does not have NICU backup. OB is among the top ten discharges in the proposed service area of JFK’s satellite hospital, which is not uncommon around the state; however, because of the lower average length of stay (ALOS) associated with an OB admission, the high number of discharges does not correlate to a large number of patient days in the service area. The population group that is most likely to utilize OB services is females between the ages of 15 and 44 (hereafter “the Female 15-44 age cohort”). Only 16 percent of the 2002 population of the West Boynton area was in the Female 15-44 age cohort, and that cohort is projected to grow at a slower annual rate (2.3 percent) than the population of the West Boynton area as a whole (3.1 percent) through 2007.7 The relatively small portion of the population in the Female 15-44 age cohort is consistent with the data showing the highest percentage of the population in the West Boynton area in the 65+ age cohort. It is also consistent with the testimony and evidence regarding the number of existing and planned deed- restricted retirement communities in the West Boynton area. The logic of including an OB unit in the proposed JFK satellite hospital is undercut by the recent closure of the OB unit at Columbia. According to Columbia’s CEO, Columbia’s OB unit was closed in 2002 because it “was a small unit” with a low volume, because the service area from which Columbia was drawing its patients was predominately elderly, and because there were several other hospitals within close proximity to Columbia that had larger OB units with NICU backup. Based upon those factors, Columbia’s CEO concluded that “there was no real community need to do OB” and that “it just didn’t make sense” to do OB. The same factors exist in the West Boynton area and, as a result, the comments of Columbia’s CEO are equally applicable to the inclusion of an OB unit in the proposed JFK satellite hospital. The Proposed Satellite Hospitals (1) Bethesda West Bethesda’s application, CON 9659, proposes to establish an 80-bed satellite hospital in the West Boynton area by de-licensing 80 beds at Bethesda Memorial and then transferring those beds to the proposed satellite hospital. The transfer of beds proposed in Bethesda’s application will not increase the inventory of acute care beds in either District 9 or Subdistrict 9-5. The 80-bed increase at Bethesda West will be offset by the 80-bed decrease at Bethesda Memorial, both of which are in Subdistrict 9-5. The beds transferred to Bethesda West will come from double-occupancy rooms, thereby allowing Bethesda Memorial to convert those rooms to private rooms. The conversion to private rooms will create efficiencies at Bethesda Memorial by eliminating gender-based or disease-based conflicts between patients that often arise with double-occupancy rooms. The transfer of 80 beds to Bethesda West will reduce Bethesda Memorial’s licensed capacity to 282 beds. That figure includes the 15 NICU beds, the 14 hospice beds, and the 14-bed SCU; therefore, after the bed transfer, Bethesda Memorial will have only 239 beds available for general patient use. Bethesda Memorial is projected to have 80,630 patient days (excluding NICU and CMR patient days) in Bethesda West’s second year of operation.8 That equates to an ADC of 221 patients and an occupancy rate of 92.4 percent for the 239 beds available for general patient use. If the hospice lease and the SCU contract are not renewed in 2005, then Bethesda Memorial would have 267 beds available for general patient use and its occupancy rate would be 82.7 percent. The non-renewal of the hospice lease and the SCU contract would not add new acute care beds to Subdistrict 9- 5 because those beds are still considered to be acute care beds for purposes of the Agency's bed inventory for the subdistrict, even though they are currently designated for specific purposes. With an annual occupancy rate of 92.4 percent or even 82.7 percent, there would likely be days on which Bethesda Memorial’s occupancy rate would exceed 100 percent. This is not an uncommon occurrence at the hospitals in Subdistrict 9-5, particularly during the “peak season” of January through March. Bethesda Memorial could operate efficiently and provide high quality care with an occupancy rate of 82.7 percent or 92.4 percent without adding new beds. Indeed, JFK and Delray each have similar occupancy rates (and even higher occupancy rates during the “peak season”), and it is undisputed that they provide high quality care. Because the addition of new acute care beds at an existing hospital is no longer linked to the hospital’s occupancy rate, Bethesda Memorial (like any other existing hospital) is free to add new acute care beds whenever it chooses to do so; however, the evidence was not persuasive that Bethesda will, in fact, add new beds at Bethesda Memorial after the bed transfer to Bethesda West notwithstanding the resulting high utilization rate at Bethesda Memorial.9 Bethesda West will include 68 general med-surg beds, 12 critical care beds, a full service ED, and related ambulatory and outpatient services. All of the beds at Bethesda West will be in private rooms. Bethesda West will not offer OB services or dedicated pediatric services, and it will not include a cardiac catheterization lab. Bethesda West will be in a new 190,130 square foot building. The space plan for Bethesda West is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of Bethesda West is also reasonable. Bethesda West will be located at the intersection of Boynton Beach Boulevard and State Road 7, which is approximately two miles west of the Turnpike. That location is three miles from Bethesda Health City, eight to nine miles from Wellington, and ten to 11 miles from Delray, JFK, and Bethesda Memorial. Bethesda West could not be collocated with Bethesda Health City because there is not enough property at that location to construct a satellite hospital with the necessary parking facilities. Bethesda has contracted to purchase 54 acres of property at the intersection of Boynton Beach Boulevard and State Road 7 known as the “Amestoy Property.” The purchase price of the Amestoy Property was $110,000 per acre. Bethesda intends to develop Bethesda West on approximately 30 acres of the Amestoy Property and then lease or sell the remainder of the property for the development of medical office buildings. A 30-acre site is adequate for the proposed 80-bed satellite hospital, although it may inhibit future expansion. Bethesda West intends to utilize the same medical staff as Bethesda Memorial; however, Bethesda has not discussed the issue with its medical staff as a whole10 nor has it developed specific plans to implement its dual-staffing approach. Bethesda West will share management and administrative support services with Bethesda Memorial rather than duplicating those services. The total cost of Bethesda West is $73.8 million. The primary service area (PSA) for Bethesda West consists of zip codes 33436, 33437, 33463, and 33467, which roughly correspond to the boundaries of the West Boynton area. The hospital’s secondary service area (SSA) includes zip codes 33414 and 33446. There is significant overlap in the proposed service area of Bethesda West and the current service area of Bethesda Memorial; four of the six zip codes in Bethesda West’s service area are in Bethesda Memorial’s service area. There is also significant overlap between the proposed service area of Bethesda West and the service areas of Delray, Wellington, and JFK; each of the zip codes in Bethesda West’s proposed service area is also within the service area of at least two of those hospitals. Bethesda West is projected to have 10,430 patient days in its first year of operation and 14,570 patient days in its second year of operation. Those patient days equate to ADCs of 29 and 40, and occupancy rates of 35.7 percent and 49.9 percent in the first and second years of operations. By the fourth year of operation, Bethesda West is projected to have an ADC of 56, which equates to an occupancy rate of 65.2 percent. These occupancy rates are reasonable, as is the “ramp up” concept on which they are based. The projected utilization at Bethesda West is based upon an ALOS of 4.6 days. That ALOS was derived from information in the Agency’s in-patient database for residents of the West Boynton area who received in-patient services of the kind that would be offered at Bethesda West. It is a reasonable ALOS.11 The projected utilization assumes that Bethesda West will have an overall market share of 7.5 percent in its service area in the first year of operation, and that Bethesda West’s overall market share will increase to 13.5 percent by its fourth year of operation. Bethesda West is not projected to have a market share of greater than 15 percent in any individual zip code until its third year of operation. The utilization and market shares projected for Bethesda West are reasonable and attainable based upon the demographics and projected population growth in the West Boynton area. Bethesda West is projected to take patients from the hospitals that currently serve the West Boynton area, including Bethesda Memorial. Bethesda's application projects that 3,040 patients from Bethesda Memorial will be “redistributed” to, or “cannibalized” by Bethesda West in Bethesda West’s first year of operation and that the number will increase to 4,530 patients in Bethesda West's second year of operation. The remainder of Bethesda West’s projected patient days – 7,390 in its first year of operation and 10,040 in its second year of operation – will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to these projected in-patient admissions, Bethesda West is projected to have outpatient registrations ranging from 22,440 (first year of operation) to 46,310 (fourth year of operation) and ED visits ranging from 8,990 (first year of operation) to 19,720 (fourth year of operation). The projected outpatient registrations and ED visits are reasonable and attainable. Some of the outpatient registrations at Bethesda West will come at the expense of Bethesda Health City because it is currently providing some of the same outpatient services that are proposed for Bethesda West. There is no persuasive evidence quantifying the number of Bethesda West’s outpatient registrations that would have otherwise gone to Bethesda Health City, nor is there any persuasive evidence quantifying the financial impact of the redistribution of those outpatients. (2) Proposed JFK Satellite Hospital JFK’s application, CON 9660, proposes to establish an 80-bed satellite hospital in the West Boynton area by de- licensing 80 beds at Columbia and then transferring those beds to the proposed JFK satellite hospital. Columbia is located in Subdistrict 9-4 and, like JFK, it is an HCA hospital. The bed transfer proposed by JFK will increase the inventory of acute care beds in Subdistrict 9-5 by 80 beds, but the bed inventory in District 9 will remain the same; the 80-bed increase in Subdistrict 9-5 at JFK’s proposed satellite hospital will be offset by an 80-bed decrease in Subdistrict 9-4 at Columbia. Columbia has 250 licensed beds, of which 150 are acute care beds, 12 are skilled nursing beds, and 88 are psychiatric beds. Columbia’s acute care beds include a 20-bed intensive care unit/critical care unit (ICU/CCU), but only 10 of those beds are currently being used. The 12-bed skilled nursing unit is not currently being used. The acute care beds at Columbia are not well- utilized. In calendar year 2002, the utilization rate for Columbia’s 150 acute care beds was only 40 percent and during the “peak season” in 2002, the utilization rate of those beds was only 47.6 percent. The proposed bed transfer would enable Columbia to convert its existing semi-private rooms to private rooms, but according to Columbia’s CEO, to do so Columbia would also need to convert its 12 skilled nursing beds to acute care beds. JFK’s CON application did not make reference to that necessary bed conversion. The conversion of the 12 skilled nursing beds to acute care beds may require Agency approval, which Columbia had not requested as of the date of the hearing. If the bed conversions described by Columbia’s CEO did not occur, the utilization rate of the 70 remaining acute care beds at Columbia after the transfer will likely exceed 80 percent on an annual basis and, during the “peak season,” the occupancy rate will likely exceed 100 percent. Indeed, applying the number of patient days at Columbia in calendar year 2002 to 70 beds results in an annual occupancy rate of 85.7 percent and an occupancy rate of 102 percent in the “peak season.” Under the pre-2004 law, those occupancy rates would allow Columbia to add beds without CON review, and Columbia’s CEO testified that she would take steps to add beds at Columbia if necessary based upon the facility’s occupancy rates after the bed transfer. There is no credible evidence that JFK planned to construct a satellite hospital in the West Boynton area prior to February 2003. The proposal was not included in any of JFK’s strategic or business plans prior to that date. There is also no credible evidence that the Columbia planned to de-license any beds at its facility prior to the CON application at issue in this proceeding; Columbia’s long-term business plan includes the beds that are being transferred to JFK’s proposed satellite hospital. The decision to de-license and transfer 80 beds from Columbia was made by HCA officials, not Columbia’s management team. The proposed JFK satellite hospital will include 60 general med-surg beds, a 10-bed OB unit, a 10-bed ICU/CCU, a full-service ED, and surgical suites. The hospital will provide radiation oncology services, diagnostic cardiac catheterization services, and outpatient psychiatric services, and all of its beds will be in private rooms. In addition to the 80 beds described above, the proposed JFK satellite hospital will have a 12 “observation” beds in private rooms. The observation beds will be sized and equipped in the same manner as the general med-surg beds. As a result, the proposed JFK satellite hospital will effectively have 92 beds even though it will only be licensed for 80 beds. The proposed JFK satellite hospital will be in a new 195,195 square foot building. The space plan for the hospital is reasonable, and its design complies with all applicable building and construction codes. The projected timetable for construction and completion of the hospital is also reasonable. The proposed JFK satellite hospital will be located at the intersection of Boynton Beach Boulevard and the Turnpike on a 50-plus acre site known as the “Mazzoni Property.” That location is eight to nine miles from Delray and Bethesda Memorial, and 11 to 12 miles from Wellington and JFK. JFK has offered to purchase the Mazzoni Property for $130,000 per acre, but as of the date of the hearing, it had not entered into a contract to purchase the property. Bethesda had been in negotiations for the purchase of the Mazzoni Property at a similar price before it settled on, and entered into a contract to purchase the Amestoy Property. Like Bethesda, JFK intends to develop medical office buildings on its site in addition to the proposed satellite hospital. The size of the Mazzoni Property is adequate for those purposes. JFK intends to utilize its medical staff to cover the proposed satellite hospital; however, there is no credible evidence in the record detailing how the dual-staffing would work. The proposed JFK satellite hospital will share some of its management and administrative support services with JFK, but not to the same extent as those services are shared between Bethesda West and Bethesda Memorial. Indeed, the proposed JFK satellite hospital was planned and staffed as a “stand alone economic entity.” The total cost of the proposed JFK satellite hospital is approximately $109.8 million. The service area of JFK’s proposed satellite hospital is considerably larger than the service are of Bethesda West. The PSA consists of zip codes 33437, 33467, 33446, and 33484; the SSA consists of zip codes 33436, 33463, 33414, 33413, 33445, 33496, and 33498. There is significant overlap between the service area of the proposed JFK satellite hospital and the existing service areas of Bethesda, Delray, Wellington, and JFK; each of the zip codes in the proposed service area is within the service area of at least two of those hospitals. Zip codes 33437 and 33467 are expected to generate over 92 percent of the patients for the proposed JFK satellite hospital. The inordinately high number of patients that these two zip codes are expected to generate calls into question the reasonableness of service area defined by JFK, or at least the relevance of the SSA. The proposed JFK satellite hospital is projected to have 20,851 patient days in its first year of operation and 21,576 patient days in its second year of operation, which equate to ADCs of 57 and 59 and occupancy rates of 71.4 percent and 73.7 percent. By the fifth year of operation, the proposed JFK satellite hospital is projected to have an occupancy rate of percent. The projected utilization of the proposed JFK satellite hospital was based on an ALOS of 3.9 days. That figure is reasonable. See Endnote 11. To achieve the projected utilization, the proposed JFK satellite hospital will have to immediately achieve inordinately high market shares in its two primary zip codes, 33437 and 33467. Indeed, the CON application projects that the proposed JFK satellite hospital will have a 27 percent market share in zip code 33437 and a 24 percent market share in zip code 33467. It is unreasonable to expect that a new, start-up hospital will be able achieve the market share or utilization rates projected by JFK for its proposed satellite hospital even though it will be affiliated with JFK, which has an established market reputation in the area. Instead, similar to other new hospitals, the proposed JFK satellite hospital will likely have a “ramp up” period before it achieves its target market penetration and/or utilization. The 10-bed OB unit at the proposed JFK satellite hospital is projected to have an ADC of 6 in each of the first two years of operation, and approximately one half of the admissions are projected to come from zip code 33467. That zip code has fewer residents in the Female 15-44 age cohort than does zip code 33463, which is in the West Boynton area but is in the SSA of the proposed JFK satellite hospital. The utilization of the OB unit assumes market shares of 65 percent in zip code 33437, which is the zip code where the proposed JFK satellite hospital will be located (i.e., its “home zip code”), and 60 percent in the adjacent zip code 33467. Those market shares are not inherently unreasonable for OB services since OB patients are more likely to utilize a facility closer to their home; however, the market shares are materially higher than the market shares that the established programs at Palms West (45 percent) and Wellington (41 percent) have in their home zip codes. The market shares proposed for the other zip codes in the proposed JFK satellite hospital’s service area are also somewhat higher than would be expected, particularly for a start-up OB program, but they are not inherently unreasonable. Even though the OB market shares assumed by JFK are not inherently unreasonable, they are unrealistic under the circumstances of this case because the OB unit at the proposed JFK satellite hospital will not have NICU backup, which is the standard of care in South Palm Beach County, and it is unlikely that obstetricians will refer their patients to the proposed satellite hospital when other hospitals with NICU backup (e.g., Wellington and Bethesda Memorial) are available in close proximity to the West Boynton area. The patient days for the OB unit were projected based upon a population-based use rate rather than based upon a fertility rate applied to the Female 15-44 age cohort. Because the Female 15-44 age cohort is growing at a slower rate than the population as a whole, JFK’s methodology had the effect of overstating the OB patient days and the ADC of the OB unit. The fertility rate methodology is a more reasonable approach under the circumstances of this case. That methodology results in an ADC of only two to four patients in the OB unit at the proposed JFK satellite hospital, which is a more reasonable projection and is more consistent with the largely elderly demographic of the West Boynton area. In sum, the projected utilization of the proposed JFK satellite hospital is overstated, particularly in the first two years of operation, as a result of the unrealistic market shares projected for the hospital’s two primary zip codes and the overstated projection of OB patient days in the West Boynton area. The proposed JFK satellite hospital is projected to take patients from the hospitals that currently serve the West Boynton area, including JFK. JFK projects that approximately 40 percent of its patients will be “cannibalized” by the proposed JFK satellite hospital, which is a materially higher percentage than that projected for Bethesda West in its first (29.1 percent) and second (31.1 percent) years of operation. The remainder of the proposed JFK satellite hospital’s admissions will come from patients who are currently being served by an existing hospital or from growth in the service area. In addition to the projected in-patient admissions discussed above, the proposed JFK satellite hospital is expected to have outpatient registrations and ED visits; however, the number of registrations and visits is not expressly projected in the application. Accordingly, it cannot be determined whether those projections are reasonable or not.12 Institution-specific Justifications for the Proposed Satellite Hospitals Other than the prospect of enhancing access to acute care services for residents of the West Boynton area (see Part I(1)(b) below), the primary justifications offered by Bethesda and JFK for their respective satellite hospitals were institution-specific. The primary justification offered by Bethesda for the establishment of Bethesda West was its need to maintain or increase its market share of the favorable payer-mix in the West Boynton area in order to ensure its long-term financial viability. Although the evidence establishes that the West Boynton area has a more favorable payer-mix than Bethesda Memorial’s current service area, the evidence was not persuasive that Bethesda’s long-term financial viability is at risk or that it is at risk of losing market share in the West Boynton area if it is not allowed to construct Bethesda West. Bethesda also presented evidence regarding its inability to add new beds at Bethesda Memorial because of physical and/or cost constraints, but that evidence was not persuasive. The primary justification offered by JFK for the establishment of its proposed satellite hospital was its inability to expand its current facility to accommodate patients coming from the West Boynton area or elsewhere; however, the preponderance of the evidence fails to support that claim because, as of the date of the hearing, JFK still had the ability to add at least 72 more beds to its existing facility, including 36 beds without any additional construction. Impact of the Proposed Satellite Hospitals on the Existing Hospitals in Subdistrict 9-5 The evidence is not persuasive that Bethesda West or the proposed JFK satellite hospital can achieve their in-patient utilization projections through population growth in their projected service areas alone. Instead, the evidence establishes that the proposed satellite hospitals will achieve their projected utilization primarily by taking patients who are currently being served by, or would otherwise be served by one of the existing hospitals in Subdistrict 9-5. Bethesda West and the proposed JFK satellite hospital are each projected to “cannibalize” patients from Bethesda Memorial and JFK, respectively; however, they will also take patients “out of the hide” of Delray, Wellington, and each other. The projected growth in the West Boynton area will result in the existing hospitals having more patient days in the future than they currently have, whether or not either of the satellite hospitals is approved; however, the approval of either of the proposed satellite hospitals will result in the existing hospitals losing some of the growth-related admissions that they would have otherwise captured. It is appropriate to consider the loss of those growth-related admissions as part of the impact analysis because the market shares in the West Boynton area and the service areas of the proposed satellite hospitals have been relatively stable over the past several years, and it is reasonable to expect that absent a significant change of circumstances (such as the approval of a satellite hospital in the area) the existing hospitals would continue to maintain their respective market shares into the future.13 The most persuasive analysis of the impact on the existing providers of the approval of the proposed satellite hospitals is that prepared by Wellington’s health planner, Thomas Davidson (Exhibit W-4). Based upon Mr. Davidson’s analysis, the number of admissions that the existing providers would lose because of Bethesda West in its first two years of operation are as follows: Year 1 Year 2 Delray 377 512 Wellington 138 187 JFK 554 752 Based upon Mr. Davidson’s analysis, the number of patient days that the existing providers would lose because of the proposed JFK satellite hospital in its first two years of operation are as follows: Year 1 Year 2 Delray 1,035 663 Wellington 735 615 Bethesda 1,638 1,178 These lost admissions and patient days constitute a substantial adverse impact on the existing hospitals, as does the loss of income resulting from the lost admissions and patient days. The proposed JFK satellite hospital will have a slightly greater adverse financial impact on Wellington than will Bethesda West, primarily because of the OB program and larger service proposed for the JFK satellite hospital; the proposed JFK satellite hospital and Bethesda West will have materially similar adverse financial impacts on Delray. The overall effect of the lost admissions, patient days, and the resulting loss of income is greater on Wellington than it is on any of the other hospitals because Wellington has historically been less profitable than the other hospitals. There are other adverse impacts on the existing providers, including the increases in costs and/or potential impacts to quality of care resulting from the exacerbation of the emergency room (ER) call shortage of specialty physicians discussed below; however, there is no persuasive evidence quantifying those impacts. Comparative Evaluation of the CON Applications Based Upon the Applicable Statutory and Rule Criteria There is no credible evidence to justify the approval of two 80-bed hospitals in the West Boynton area. As a result, if either of the proposed satellite hospitals is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria. Statutory Criteria – Section 408.035, Florida Statutes (2003)14 Subsection (1): Need in Relation to the District Health Plan15 The applicable provisions of the Local Health Plan for District 9 are as follows: Priority shall be given to area hospitals, which can show a commitment to, or historical record of service to Medicaid/indigent, handicapped and underserved population groups. Priority shall be given to applicants who can document cost containment practices in their facilities. Cost containment practices, such as sharing services with other area hospitals, enhances efficient resource utilization and assists in avoiding duplication of services. Priority shall be given to an applicant who proposes to use existing space rather than new construction, including space created by previous voluntary de- licensure of underutilized or unused beds and/or through transfer of beds within a subdistrict. As more fully discussed below in connection with Section 408.035(11), Florida Statutes, the first preference weighs in favor of Bethesda based upon its historical record of service to Medicaid and charity patients, which is marginally better than JFK’s record, and its commitment to provide five percent of the patient days at Bethesda West to Medicaid and charity patients, which is more realistic than JFK’s 10 percent commitment; however, the weight associated with this preference is minimal in light of the demographics of the West Boynton area, which is generally more wealthy and, hence, less likely to generate significant Medicaid or charity care patient days. As to the second preference, the record does not “document” any material cost containment practices at JFK or Bethesda Memorial. JFK and Bethesda each intend to use their existing medical staffs to cover their proposed satellite hospitals as a cost-containment effort; however, Bethesda has proposed a greater degree of integration (and, hence, less duplication) in the administrative functions at Bethesda West and Bethesda Memorial than did JFK at is proposed satellite hospital. Thus, the second preference also marginally weighs in favor of Bethesda. As to the third preference, both applicants are proposing new construction rather than the use of existing space. Although JFK is proposing the de-licensure of underutilized beds at Columbia, it is not using the space created by those beds for its proposed satellite hospital as the rule preference contemplates. The beds that Bethesda is transferring to Bethesda West are not underutilized and they are being transferred to a new to-be-constructed facility rather than to existing space. In sum, the local health plan preferences marginally weigh in favor of the approval of Bethesda’s application over JFK’s application. Subsections (2) and (7): Availability, Quality of Care, etc. of Existing Facilities and Enhancing Access The primary justification offered by the applicants for their respective proposed satellite hospitals (other than the hospital-specific issues discussed above) is that the facility will "enhance access" to acute care services for residents of the West Boynton area. More specifically, the applicants contend that the establishment of a new hospital in the West Boynton area will address an “access” problem that exists or soon will exist in the area. As discussed below, this contention is not supported by the preponderance of the evidence. In the CON context, “access” is typically evaluated from the vantage points of programmatic, financial, cultural, and geographic access. “Programmatic access” refers to the adequacy of the programs and services provided at existing facilities in relation to the specific health care needs of the persons served by those facilities. Programmatic access concerns arise when specific programs or services are not available for patients that need them, or when the quality of care provided in the existing programs is inadequate. The evidence was not persuasive that there are any programmatic access problems in Subdistrict 9-5 and, in any event, neither of the proposed satellite hospitals would enhance programmatic access in the subdistrict because they will not offer any programs or services that are not already offered at one or more of the tertiary hospitals in the subdistrict that currently serve the West Boynton area. Indeed, the proposed satellite hospitals will offer a more narrow range of services than the existing tertiary hospitals presently serving the area. This is significant because the elderly, who make of a large portion of the West Boynton area and who are more likely to have co-morbidities or more complex medical needs, are generally better served in a hospital offering tertiary services and more complete care. Similarly, it is reasonable to expect that many physicians will continue to admit their patients to the larger tertiary hospitals rather than shifting those patients to a satellite hospital that provides a more narrow range of services. “Financial access” refers to the extent to which persons have access to health care services without regard to their ability to pay. The evidence was not persuasive that there are any financial access problems in Subdistrict 9-5 or the West Boynton area that the proposed satellite hospitals will address. None of the existing hospitals that serve the West Boynton area have policies or practices that discourage indigent patients from seeking care at their facilities and, in any event, the low- income population makes up a relatively small portion of the West Boynton area. Cultural access” refers to the extent to which certain persons cannot or do not access the existing facilities due to cultural factors such as race, ethnicity, and national origin. Cultural access was not advanced by Bethesda or JFK as a basis for the approval or their respective applications. “Geographic access” refers to the physical accessibility of the existing facilities or services in a subdistrict taking into account population density, distance and time of travel, and geographic barriers or other impediments to access. Geographic access has been referred to as a “foundation of health planning.” Bethesda and JFK focus primarily on the projected growth of the West Boynton area and the road congestion that comes with that growth as the basis for their contention that there is, or soon will be a access problem for residents of the West Boynton area; Bethesda states in its PRO (at page 29) that "[g]eographic access is at the heart of [its] proposal." A reasonable geographic access standard for persons living in an urban area is a drive time of 30 to 40 minutes to an acute care hospital. Under that standard, there is currently no geographic access problem for residents of the West Boynton area. Indeed, there are as many as 12 hospitals within a 30-minute drive of the West Boynton area, and a “fair number” of residents have access to four hospitals -– Bethesda, JFK, Wellington, and Delray -- within a 15 to 20-minute drive time.16 All of the hospitals within the 30-minute drive time offer tertiary-level care, and a number of them offer OB services. There are no physical geographic barriers that limit access to the existing hospitals by residents of the West Boynton area. Indeed, there are a number of different major north-south and east-west roads that residents have to chose from when accessing the existing hospitals, and most of those roads have at least four lanes. The major roads in the West Boynton area have expanded along with growth of the population in the area, and they are expected to continue to do so. The infrastructure plan adopted by Palm Beach County includes continued road expansions and improvements over the planning horizon applicable to this case, and developers are often required to widen or otherwise improve the roads as a condition of the approval of new development. There is insufficient evidence that the current travel times are significantly different for the elderly population in the area. The anecdotal testimony offered by various Bethesda witnesses was not persuasive. The evidence was not persuasive that the travel times will be materially higher over the applicable five-year planning horizon. The analysis and opinion presented by Bethesda’s traffic engineer on this issue was not persuasive.17 The concurrency analysis performed by Bethesda’s traffic engineer only assessed Boynton Beach Boulevard; it did not assess any of the other major roads between the West Boynton area and the existing hospitals. Moreover, the analysis focused on the level of service (LOS) on various segments of Boynton Beach Boulevard, as measured by the projected number of trips on those segments in 2007; it did not quantify the increase in travel time along that road, if any, resulting from the reduction in the LOS which the analysis showed. The hospitals in Subdistrict 9-5 are some of the most highly-utilized hospitals in the state; however, the evidence was not persuasive that the high utilization at these hospitals has caused any access problems for residents of the West Boynton area, either for general acute care services or for OB services. The existing hospitals in Subdistrict 9-5 have been able to meet the needs of the subdistrict by incrementally expanding their facilities when the need arises. An additional 67 beds can be added to the bed inventory of Subdistrict 9-5 without any additional construction; JFK has shelled-in space for 36 new beds and Delray has shelled-in space for 31 new beds. Additionally, Delray has a master plan that has been approved by Palm Beach County that will allow it to add as many as 123 more beds on its current campus as needed, and Wellington also has plenty of space on the undeveloped property adjacent to its hospital to add more beds as needed. Having a hospital in the West Boynton area might be more convenient for residents of that area west of the Turnpike, at least in those instances where the patient is able to receive all of the necessary care at that hospital; however, convenience alone is not valid basis for the approval of a new hospital, particularly where there are as many as 12 tertiary-level hospitals within a 30-minute drive of the West Boynton area. In sum and on balance, the criteria in Subsections 408.035(2) and (7), Florida Statutes, weigh strongly against approval of either application. Indeed, despite the relatively high utilization rates at the existing hospitals in Subdistrict 9-5, the preponderance of the evidence fails to establish that there currently are, or that over the applicable planning horizon there will be any material deficiencies in the availability, quality of care, or accessibility of the existing hospitals in the subdistrict that would warrant the approval of a new hospital in the West Boynton area at this time. Subsection (3): Ability of Applicant to Provide Quality of Care The parties do not dispute the quality of care provided at any of the existing hospitals in Subdistrict 9-5, and the evidence affirmatively demonstrates that a high quality of care is currently provided at Bethesda Memorial, JFK, Delray, and Wellington. Bethesda and JFK each intend to rely on their existing medical staff, at least in part, to staff their respective satellite hospitals. As a result, the quality of care provided at the satellite hospitals will also be good, but it will be less than ideal in several respects. First, neither satellite hospital will offer interventional cardiology services, which is, or is becoming the standard of care for treating heart attack patients that present to the hospital’s ED. Second, JFK’s proposed satellite will offer OB services without NICU backup, which is below the standard of care in South Palm Beach County. Accordingly, the criterion in Section 408.035(3), Florida Statutes, weighs against the approval of either application. Subsection (4): Special Health Care Services The parties stipulated that this criterion is inapplicable, and in any event, the criterion was deleted by Chapter 2004-383, Laws of Florida, effective July 1, 2004. Subsection (5): Educational Facilities and Training Programs18 Neither JFK nor Bethesda Memorial is a teaching hospital, and neither is proposing educational or training programs at its proposed satellite hospital. The evidence was not persuasive that Wellington’s teaching programs will be adversely affected by the approval of either of the proposed satellite hospitals. The criterion in Section 408.035(5), Florida Statutes, does not materially weigh in favor of or against the approval of either of the applications. Subsection (6): Availability of Resources and Personnel for Operations The parties stipulated that Bethesda and JFK each have the ability to fund the capital and operating expenditures for their proposed satellite hospitals. The reasonableness of the financing-related costs proposed by Bethesda and JFK in their respective applications is also not in dispute. Delray and Wellington argue that neither Bethesda nor JFK will be able to adequately staff their proposed satellite hospitals due to physician and nurse shortages in South Palm Beach County and/or that the staffing of the proposed satellite hospitals will make it more difficult and costly for the existing hospitals in Subdistrict 9-5 to staff certain programs. Bethesda and JFK challenge the adequacy of each other’s staffing projections. As more fully discussed below, the evidence is not persuasive that the staffing projected for either of the proposed satellite programs is inadequate; however, the evidence establishes that the approval of either program would exacerbate physician shortages in Subdistrict 9-5 in certain specialties. Bethesda West’s staffing projections include 242.8 full-time equivalents (FTEs) in the first year of operation and 294.5 FTEs in the second year of operation. The staffing projections for the proposed JFK satellite hospital include FTEs in the first year of operation and 448.5 FTEs in the second year of operation. The disparity in the staffing levels primarily results from the higher occupancy rate projected at the proposed JFK satellite hospital, which is projected to be 71.4 percent in the first year of operation. By contrast, the occupancy rate at Bethesda West is projected be 35.7 percent in the first year of operation and then “ramp up” to approximately 69 percent by the fourth year of operation. The staffing levels at each of the proposed satellite hospitals are reasonable based upon the ADCs projected and the services to be provided at each hospital. Indeed, the staffing levels are comparable when viewed as a ratio of staff to projected ADC; the ratios at Bethesda West are 8.37 and 7.36 in the first two years of operation, and the ratios at the proposed JFK satellite hospital for its first two years of operation are 7.74 and 7.60. The evidence is not persuasive that Bethesda West’s staffing projections are understated or that they fail to include nursing and other positions necessary to ensure high quality care is provided. Nor is the evidence persuasive that the salaries projected for Bethesda West’s staff are understated. The evidence is not persuasive that the staffing projections for the proposed JFK satellite hospital are inherently unreliable based upon the manner in which they were prepared or as a result of the proxy that was used as a basis of the projections. There is a nursing shortage statewide and in South Palm Beach County, but it is not as severe as it has been in the past. Indeed, it is significant that despite the large number of beds added over the past five years at the various hospitals in South Palm Beach County, those beds have been adequately staffed with nurses and ancillary clinical personnel. JFK and Bethesda Memorial have each been successful in recruiting nursing staff despite the nursing shortage. They each have implemented innovative programs to aid in their recruiting efforts and to reduce their turnover and vacancy rates, and those programs are expected to be utilized at the proposed satellite hospitals. JFK and Bethesda Memorial each use “traveler” and per-diem nurses to supplement their full time nursing staffs, which is not uncommon in South Palm Beach County. Typically, a physician who has privileges at a hospital is required to be on ER call on a rotational basis. Many physicians have privileges at more than one hospital in South Palm Beach County, which means that they are responsible for providing ER call coverage at more than one hospital. Because of malpractice and other concerns, it is becoming increasingly difficult for hospitals to attract physicians who are willing to take ER calls. The Palm Beach County Medical Society and the CEOs of the existing hospitals in the county met as recently as December 2003 to discuss the problems related to ER call coverage; however, as of the date of the hearing, the problem still existed and was severe. It is possible for a physician to be providing ER calls to more than one hospital at the same time. This can become a serious problem if the physician is attending to a patient at one hospital when he or she is called to the ER at another hospital. The problem of ER call coverage is most significant in specialties such as neurosurgery, hand surgery, urology, OB, and ear/nose/throat. Several of the hospitals in South Palm Beach County, including Wellington and Delray, have begun to pay physicians, and particularly specialty physicians to take ER call. Adding a new hospital in South Palm Beach County will exacerbate this problem in several respects. First, it will add another hospital to the ER call rotations of the physicians who chose to obtain privileges at the satellite hospitals, thereby increasing the prospect of a physician being on call at more than one hospital at the same time. Second, it will make it even more difficult or costly for existing hospitals to obtain call coverage by the specialty physicians that are already in short supply. It is unlikely that OB/GYNs will admit their patients to the small OB unit at the proposed JFK satellite hospital. OB/GYNs typically try to keep all of their patients in one hospital because it makes it easier on them to do rounds and to respond quickly to emergency situations, and because the OB unit at the proposed JFK satellite hospital will not have NICU backup, it is unlikely that many OB/GYNs will choose that hospital as the one where they admit the bulk of their patients. In sum, the staffing levels for each of the proposed satellite hospitals are reasonable and appropriate for the services being offered at the hospitals, the projected staffing costs at each of the proposed satellite hospitals are also reasonable and appropriate, and JFK and Bethesda will be able to staff their respective satellite hospitals at the levels projected; however, the proposed satellite hospitals will exacerbate the shortage of specialty physicians in South Palm Beach County and will make it more difficult for the existing hospitals to get specialty physicians for ER call coverage. Accordingly, the criterion in Section 408.035(6), Florida Statutes, weighs against the approval of either application, and between the competing applications, this criterion does not materially weigh in favor of either application over the other. Subsection (8): Financial Feasibility The parties did not seriously contest the short-term financial feasibility of either of the proposed satellite hospitals, and the preponderance of the evidence establishes that both of the proposed satellite hospitals are financially feasible in the short-term; both applicants have the ability to fund the construction and initial capital needs of their respective projects in conjunction with the other capital projects listed on Schedule 2 of their respective CON applications. The long-term financial feasibility of each of the proposed satellite hospitals is in dispute. The general rule for assessing the long-term financial feasibility of a CON project is if the project will at least break even by the end of the second year of operation, then the project is financially feasible in the long-term; if, however, the project continues to show a loss in the second year of operations and it is not demonstrated that the project will reach a break-even point within a reasonable period of time, then the project is not financially feasible in the long-term. As more fully discussed below, Bethesda West is financially feasible in the long-term, but the proposed JFK satellite hospital is not. Accordingly, the criterion in Section 408.035(8), Florida Statutes, weighs in favor of approval of Bethesda’s application over JFK’s application. Bethesda West Schedule 8A of Bethesda's application projects that Bethesda West will generate a net loss of $3.7 million in its first year of operation and a net profit of $1.7 million in its second year of operation. The financial projections for Bethesda West were based upon conservative utilization projections, which leads a reasonable projection of operating income. The financial projections for Bethesda West are not defective based upon an overstatement of the “other operating revenue” or an understatement of the depreciation expense projected by Bethesda. The testimony of Bethesda’s expert financial witnesses is accepted over the testimony of the other financial experts on these issues. The financial projections for Bethesda West are not defective based upon understatements in land costs, construction costs, equipment costs of staffing projections. The testimony of Bethesda’s experts related to these issues is accepted over the testimony of the other experts. As discussed above, Bethesda West will “cannibalize” 3,040 and 4,530 patient days from Bethesda Memorial in its first and second years of operation. The financial impact of this “cannibalization” on Bethesda Memorial is a loss of $1.4 million and $2.1 million in the first and second years of Bethesda West’s operation. The income loss from “cannibalization” is not accounted for on Schedule 8A. Although the patient days used to calculate the “per patient day” figures in the middle two columns of that schedule take into account the “cannibalized” patient days, the dollar amounts shown in those columns do not. On this issue, the testimony of Delray’s financial expert is more logical and persuasive than the testimony of Bethesda’s financial expert. When the losses from “cannibalization” are taken into account, the approval of Bethesda West will have a negative impact on the Bethesda system of $5.1 million in its first year of operation and $400,000 in its second year of operation, which are consistent with the figures shown in Exhibit B-2 (pages 48 and 54). Even so, the system will show a net income of $300,000 and $5.6 million in the first two years of Bethesda West’s operation. The impact of the “cannibalization” on Bethesda Memorial is projected to decrease as Bethesda West becomes more established. At the same time, the profitability of Bethesda West is projected to increase as its census grows. Thus, by the third year of its operation, Bethesda West is projected to have a positive impact on the Bethesda system of $2.2 million (i.e., $4.1 million in net income at Bethesda West less $1.9 million in “cannibalization” from Bethesda Memorial). Bethesda West will not have a negative impact on Bethesda’s cash flow after its first year of operation. On this issue, the testimony of Bethesda’s expert is more persuasive than the testimony of the other financial experts. Accordingly, Bethesda West is financially feasible in the long-term. Proposed JFK Satellite Hospital Schedule 8A of JFK's application projects that its proposed satellite hospital would generate a net loss of $1.2 million in its first year of operation and a net loss of $392,000 in its second year of operation. Over the next three years, however, JFK projects its satellite hospital to generate net income from operations of $509,000, $1.5 million, and $2.5 million. The financial projections in JFK’s application were based upon overly-aggressive occupancy rates, both in the facility as a whole and in the small OB unit without NICU backup. As a result, the resulting financial projections are not reasonable. JFK’s application does not include any analysis of the financial impact on Columbia of the transfer of 80 beds to the satellite hospital, nor does it include any analysis of the impact of the “cannibalization” of JFK’s patient days that would necessarily occur if JFK’s proposed satellite was approved. As a result, the financial impact of JFK’s proposed satellite hospital, in the words of one of JFK’s financial experts, is “probably incomplete.” As a result of the unreasonable utilization projections and the incomplete presentation of the financial impact of the “cannibalization” of JFK’s patient days, JFK failed to establish that its proposed satellite hospital is financially feasible in the long-term. Subsection (9): Fostering Competition that Promotes Cost-effectiveness Neither of the proposed satellite hospitals will foster competition that proposes cost-effectiveness. The West Boynton market currently has healthy competition for the acute services proposed for the satellite hospitals, and there is no dominant provider of those services. Locating a new hospital in the West Boynton area will have the long-term effect of increasing the market share of the provider that operates the new hospital to the detriment of the other providers that are currently competing in that market. In this regard, the approval of a new hospital in the West Boynton area would adversely affect the competitive balance that currently exists in that area and which is projected to continue over the planning horizon. The approval of either of the proposed satellite hospitals would also adversely affect cost-effectiveness by exacerbating the shortage of specialty physicians and other qualified staff in the subdistrict, which in turn would require existing hospitals to raise salaries, benefits and other expenses in order to remain competitive. The approval of Bethesda West would have less of an adverse impact on competition and cost-effectiveness than would the approval of JFK’s proposed satellite hospital for several reasons. First, Bethesda West does not duplicate as many administrative services as does JFK’s proposed satellite hospital. Second, JFK currently has a higher market share in the West Boynton area than does Bethesda or any other hospital, which means that the competitive balance would be tipped to a greater extent if JFK’s satellite hospital was approved. Third, the approval of the JFK satellite would give HCA four hospitals in Palm Beach County and increase its leverage in physician and staff recruitment and the negotiation of HMO contracts. Accordingly, the criterion in Section 408.035(9), Florida Statutes, weights against the approval of either application; however, on balance between the two applications, this criterion favor’s Bethesda’s application over JFK’s application. Subsection (10): Costs and Methods of Construction The costs and methods of energy provision at the proposed satellite hospitals is not in dispute. Although the proposed satellite hospitals are similar in size, the total project costs included in the CON applications are significantly different. The $73.8 million total project cost for Bethesda West equates to a cost of $922,700 per bed. The $109.8 million total project cost for JFK’s proposed satellite hospital equates to a cost of $1.37 million per bed. The portion of the total project costs for each of the proposed satellite hospitals attributable directly to “construction” is materially similar. Bethesda West’s construction costs are approximately $34.2 million, or $180 per square foot; the construction costs for the proposed JFK satellite hospital are $40.9 million, or $210 per square foot. The estimated construction costs for each of the proposed satellite hospitals are within the range of reasonableness that can be gleaned from the testimony of the various hospital construction experts. JFK’s cost is towards the higher end of the range, and Bethesda’s cost is towards the lower end of the range. The primary differences in the total project costs are in the land purchase prices, the site preparation costs, and the equipment costs. The land purchase price included in Bethesda’s application was $4.2 million, which was based upon a 30 to 40- acre site. The land purchase price included in JFK’s application was $8 million, which was based upon a 50-acre site. Bethesda acquired the 54-acre Amestoy Property for $110,000 per acre. At $110,000 per acre, the $4.2 million attributed by Bethesda to land purchase price would be sufficient to acquire 38.2 acres, which is more than adequate for the 80-bed Bethesda West facility. Consistent with the estimate in the CON application, JFK has made an offer to purchase the 50-plus acre Mazzoni Property for $130,000 per acre. The total land purchase price in each application, and the actual cost-per-acre of the Amestoy and Mazzoni Properties are reasonable. The site development costs included in Bethesda’s application were $3.75 million, or $125,000 per acre for the 30 acres on which Bethesda West will be located. The site development costs included in JFK’s application were $6.5 million, or $150,000 per acre for the 50 acres on which JFK’s proposed satellite hospital will be located. The site development costs for each project include on-site and off-site utility (e.g., water and sewer) and roadway work, geotechnical and environmental remediation costs, stormwater retention, landscaping, and concurrency impact fees. Each of the proposed sites is relatively flat and was formerly agricultural property and, as a result, there are not expected to be any unusual costs associated with the development of either site. Bethesda West will be located further west than the proposed JFK satellite hospital and, as a result, its “radius of influence” includes fewer congested roadway links than does the proposed JFK satellite hospital; but, the Amestoy Property where Bethesda West will be located is farther away from the existing utility lines than the Mazzoni Property where the proposed JFK satellite hospital will be located. Thus, even though the cost of running utilities to Bethesda West will likely be higher than the cost of running utilities to the proposed JFK satellite hospital, the currency impact fees for Bethesda West will likely be lower than the currency impact fees for the proposed JFK satellite hospital; and, on balance, the overall per-acre and total site development costs included in each of the applications are reasonable. Bethesda’s application included equipment costs of approximately $16 million, all of which was attributable to movable equipment. The cost of fixed equipment was included in the estimated construction costs as part of the building contract. JFK’s application included total equipment costs of approximately $34.2 million. That amount was broken into fixed equipment not in the building contract ($13.9 million), movable equipment ($17.8 million), and information systems ($2.4 million). Some, but not all of the difference between the equipment cost estimates are attributable to the additional services –- e.g., OB and diagnostic cardiac catheterization –- that will be provided at the proposed JFK satellite hospital but not at Bethesda West. Additionally, some of the difference are attributable to the 12 "observation" rooms at the proposed JFK satellite hospital that are being equipped in the same manner as the hospital’s general med-surg beds. When compared on an “apples to apples” basis, the total equipment costs for Bethesda West are not materially different than the total equipment costs for the proposed JFK satellite hospital. JFK is proposing to provide more specialized equipment than Bethesda in areas such as the surgical suites and the ICU/CCU and more information technology (IT) equipment; however, the evidence is not persuasive that such specialized equipment or the IT equipment is necessary to provide high quality care or that the absence of such equipment will adversely affect the quality of care at Bethesda West. The $16 million in equipment costs at Bethesda West, which equates to approximately $200,700 per bed, is reasonable for the level and type of services that will be provided at Bethesda West. The evidence is not persuasive that Bethesda’s equipment costs are understated even though its costs are considerably less than the equipment costs proposed by JFK. If anything, JFK has over-equipped its proposed satellite hospital with specialized equipment resulting in the higher equipment costs included in JFK’s CON application.19 Although the more expensive proposed JFK satellite hospital offers some benefits, such as a larger site to facilitate future expansions and more specialized equipment in some areas, those benefits are outweighed by the additional $35 million costs associated with that facility as compared to Bethesda West. This cost saving is particularly significant since each of the proposed facilities is supposed to be a satellite of a larger, tertiary hospital rather than a stand- alone community hospital. The evidence was not persuasive that Bethesda Memorial and JFK have physical constraints that will limit their ability to add beds at their existing facilities in a cost- efficient manner. Even if the construction of a satellite hospital were the most cost-efficient way for Bethesda Memorial and JFK to add beds, the evidence was not persuasive that it is the most cost-efficient way to add beds from the perspective of the entire health care system of Subdistrict 9-5. Indeed, there are less costly methods of adding new beds to the subdistrict than the construction of a new 80-bed hospital for $73.8 million or $109.8 million. For example, 36 additional beds can be added at JFK and 31 additional beds can be added at Delray in shelled-in space that has already been constructed. The incremental cost of constructing space for additional bed expansions at Delray and Wellington would also be less than the construction costs of the proposed satellite hospitals. In sum, because there are less costly ways to add beds to the subdistrict than the construction of a new hospital, the criterion in Section 408.035(10), Florida Statutes, weighs against the approval of either application; however, between the two applications, this criterion weighs in favor of the approval of Bethesda’s application over JFK’s application since its proposed satellite hospital will cost approximately $35 million less and will provide effectively the same services in similar physical space. Subsection (11): Medicaid and Indigent Care Bethesda characterizes itself as a “safety net” hospital because its Medicaid and charity care percentages typically exceed the averages for Subdistrict 9-5 and District 9 as a whole, and because Bethesda Memorial provides the largest percentage of the Medicaid and charity care provided by all of the hospitals in Subdistrict 9-5. There is no statutory or rule provision that would support Bethesda’s designation of itself as a “safety net” provider. Moreover, the significance of Bethesda’s characterization of itself as a “safety net” hospital is diminished by the fact that the Palm Beach County Health Care District (District) reimburses all hospitals in the county through an indigent care subsidy for care provided to patients that meet the District’s indigency standards. The subsidy helps to ensure that indigent patients are able to receive medical care from any hospital in the county and, to that end, provides a county-wide “safety net” for such patients. The subsidies paid by the District do not cover the full cost of indigent care provided by the hospital, nor does the total amount of subsidies received by a hospital directly correlate to the total amount of indigent care provided by the hospital. Thus, it is not dispositive that JFK received the largest amount of subsidies from the District over the past several years or that JFK received approximately $1.6 million more in subsidies from the District in 2003 than did Bethesda. JFK recently qualified as a “disproportionate share provider,” which means that at least 15 percent of its patient days are attributed to Medicaid or supplemental security income patients. As a disproportionate share provider, JFK receives incrementally larger reimbursements from Medicaid for the provision of indigent care. Bethesda is not currently a disproportionate share provider although it has been in the past. None of the hospitals in South Palm Beach County have policies or practices that discourage Medicaid or uninsured patients. Bethesda Memorial, JFK, Wellington, and Delray each accept patients without regard to their ability to pay. Bethesda and JFK conditioned the approval of their respective CON applications on the provision of a specified percentage of patient days to Medicaid and charity patients. The percentage committed to by JFK (10 percent) is higher than the percentage committed to by Bethesda (five percent). The percentages of Medicaid and charity care committed to by the applicants may be difficult to achieve as a result of the demographics of the West Boynton area. Indeed, the more favorable payer-mix in the West Boynton area was a significant factor, and in Bethesda’s case it was the primary motivating factor for the establishment a new hospital in that area. Bethesda Memorial and JFK each have a history of providing significant levels of Medicaid and charity care at their existing hospitals. The hospitals are each located in areas with large indigent populations, which significantly contribute to the high level of indigent care that they provide. Bethesda Memorial has historically provided a larger amount of Medicaid care than has JFK in terms of a percentage of patient days, e.g., 16.1 percent verses 7.3 percent in 2001. Those percentages each exceed the Subdistrict 9-5 average of 6.3 percent. Bethesda Memorial has also historically provided a larger amount of charity care than has JFK in terms of dollars (e.g., $16.2 million verses $5.2 million in 2002) and in terms of a percentage of charges (e.g., 3.7 percent verses 0.4 percent in 2001 and 2.9 percent verses 0.6 percent in 2002). The Subdistrict 9-5 average for 2001 was 1.4 percent. These comparisons are somewhat skewed because a large portion of Bethesda’s indigent care is attributable to Bethesda Memorial’s high-volume, well-established OB and neonatal programs which tend to be “magnets” for uninsured patients. When only like-services are considered, the utilization of JFK and Bethesda Memorial by Medicaid and indigent patients is similar. JFK provides a significant amount of care to “self- pay” patients (e.g., $43.5 million in 2002), which JFK attempted to equate to charity care. Although there is often overlap between self-pay and charity care patients, the evidence was not persuasive that there is a direct correlation urged by JFK in this case. For example, JFK’s internal definitions of self-pay and charity care patients are markedly different and considerably more liberal than the Agency’s definition of charity care patients for reporting purposes. Bethesda makes a $1 million per year “contribution” to the District to help fund the District’s indigent care program. That contribution was required as part of the settlement of litigation arising out of Bethesda’s conversion from a public hospital to a private not-for-profit hospital and, as a result, it cannot be fairly characterized as additional evidence of Bethesda’s commitment to serving indigent patients. Even though both applicants demonstrated a history of and commitment to serving Medicaid and indigent patients, the criterion in Section 408.035(11), Florida Statutes, weighs in favor of Bethesda because the level of Medicaid and charity care historically provided by Bethesda Memorial is higher than that provided by JFK. On balance with the other statutory and rule criteria, the criterion in Section 408.035(11), Florida Statutes, is not given significant weight because Bethesda has committed to providing a lower percentage of Medicaid and charity care patient days at Bethesda West than JFK committed to at its proposed satellite hospital, and because the demographics of the West Boynton area make it unlikely that a significant level of indigent care will be provided at either of the proposed satellite hospitals. Subsection (12): Designation as a Gold Seal Nursing Facility The parties stipulated that this criterion is inapplicable because neither applicant is proposing additional nursing home beds. (2) Rule Criteria – Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038(6) The criteria in Florida Administrative Code Rule 59C- 1.030(2) are subsumed in the statutory criteria discussed above related to the accessibility (or not) of existing acute care services in Subdistrict 9-5 and the need (or not) for new acute care beds in the West Boynton area. For the same reasons that the CON applications do not satisfy those statutory criteria, they do not satisfy the related criteria in Florida Administrative Code Rule 59C-1.030(2). Under Florida Administrative Code Rule 59C- 1.038(6)(a), priority is given to applicants with “a documented history of providing services to medically indigent patients or a commitment to do so.” This priority weighs in favor of Bethesda for the reasons discussed above in connection with Section 408.035(11), Florida Statutes. Under Florida Administrative Code Rule 59C- 1.038(6)(b), priority is given to applications that “meet the need for additional acute care beds in a particular service through the conversion of existing underutilized beds.” This priority does not materially weigh in favor either application over the other; the underutilized beds at Columbia that JFK proposes to transfer to its satellite hospital are in a different subdistrict, and the beds that Bethesda proposes to transfer from Bethesda Memorial to its proposed satellite hospital are not underutilized beds in light of the historical occupancy rate at Bethesda Memorial.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Bethesda’s CON application No. 9659 and also denying JFK’s CON application No. 9660. DONE AND ENTERED this 29th day of September, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of September, 2004.
