The Issue Whether the Agency for Health Care Administration (AHCA or the Agency) should approve the application for certificate of need (CON) 7700 filed by Miami Beach Healthcare Group, LTD. d/b/a Miami Heart Institute (Miami Heart or MH).
Findings Of Fact The Agency is the state agency charged with the responsibility of reviewing and taking action on CON applications pursuant to Chapter 408, Florida Statutes. The applicant, Miami Heart, operates a hospital facility known as Miami Heart Institute which, at the time of hearing, was comprised of a north campus (consisting of 273 licensed beds) and a south campus (consisting of 258 beds) in Miami, Florida. The two campuses operate under a single license which consolidated the operation of the two facilities. The consolidation of the license was approved by CON 7399 which was issued by the Agency prior to the hearing of this case. The Petitioner, Mount Sinai, is an existing health care facility doing business in the same service district. On February 4, 1994, AHCA published a fixed need pool of zero adult inpatient psychiatric beds for the planning horizon applicable to this batching cycle. The fixed need pool was not challenged. On February 18, 1994, Miami Heart submitted its letter of intent for the first hospital batching cycle of 1994, and sought to add twenty adult general inpatient psychiatric beds at the Miami Heart Institute south campus. Such facility is located in the Agency's district 11 and is approximately two (2) miles from the north campus. Notice of that letter was published in the March 11, 1994, Florida Administrative Weekly. Miami Heart's letter of intent provided, in pertinent part: By this letter, Miami Beach Healthcare Group, Ltd., d/b/a Miami Heart Institute announces its intent to file a Certificate of Need Application on or before March 23, 1994 for approval to establish 20 hospital inpatient general psychiatric beds for adults at Miami Heart Institute. Thus, the applicant seeks approval for this project pursuant to Sections 408.036(1)(h), Florida Statutes. The proposed capital expenditure for this project shall not exceed $1,000,000 and will include new construction and the renovation of existing space. Miami Heart Institute is located in Local Health Council District 11. There are no subsdistricts for Hospital Inpatient General Psychiatric Beds for Adults in District 11. The applicable need formula for Hospital General Psychiatric Beds for Adults is contained within Rule 59C-1.040(4)(c), F.A.C. The Agency published a fixed need of "0" for Hospital General Psychiatric Beds for Adults in District 11 for this batching cycle. However, "not normal" circumstances exist within District which justify approval of this project. These circumstances are that Miami Beach Community Hospital, which is also owned by Miami Beach Healthcare Group, Ltd., and which has an approved Certificate of Need Application to consol- idate its license with that of the Miami Heart Institute, has pending a Certificate of Need Application to delicense up to 20 hospital inpatient general psychiatric beds for adults. The effect of the application, which is the subject of this Letter of Intent, will be to relocate 20 of the delicensed adult psychiatric beds to the Miami Heart Institute. Because of the "not normal" circumstances alleged in the Miami Heart letter of intent, the Agency extended a grace period to allow competing letters of intent to be filed. No additional letters of intent were submitted during the grace period. On March 23, 1994, Miami Heart timely submitted its CON application for the project at issue, CON no. 7700. Notice of the application was published in the April 8, 1994, Florida Administrative Weekly. Such application was deemed complete by the Agency and was considered to be a companion to the delicensure of the north campus beds. On July 22, 1994, the Agency published in the Florida Administrative Weekly its preliminary decision to approve CON no. 7700. In the same batch as the instant case, Cedars Healthcare Group (Cedars), also in district 11, applied to add adult psychiatric beds to Cedars Medical Center through the delicensure of an equal number of adult psychiatric beds at Victoria Pavilion. Cedars holds a single license for the operation of both Cedars Medical Center and Victoria Pavilion. As in this case, the Agency gave notice of its intent to grant the CON application. Although this "transfer" was initially challenged, it was subsequently dismissed. Although filed at the same time (and, therefore, theoretically within the same batch), the Cedars CON application and the Miami Heart CON application were not comparatively reviewed by the Agency. The Agency determined the applicants were merely seeking to relocate their own licensed beds. Based upon that determination, MH's application was evaluated in the context of the statutory criteria, the adult psychiatric beds and services rule (Rule 59C-1.040, Florida Administrative Code), the district 11 local health plan, and the 1993 state health plan. Ms. Dudek also considered the utilization data for district 11 facilities. Mount Sinai timely filed a petition challenging the proposed approval of CON 7700 and, for purposes of this proceeding only, the parties stipulated that MS has standing to raise the issues remaining in this cause. Mount Sinai's existing psychiatric unit utilization is presently at or near full capacity, and MS' existing unit would not provide an adequate, available, or accessible alternative to Miami Heart's proposal, unless additional bed capacity were available to MS in the future through approval of additional beds or changes in existing utilization. Miami Heart's proposal to establish twenty adult general inpatient psychiatric beds at its Miami Heart Institute south campus was made in connection with its application to delicense twenty adult general inpatient psychiatric beds at its north campus. The Agency advised MH to submit two CON applications: one for the delicensure (CON no. 7474) and one for the establishment of the twenty beds at the south campus (CON no. 7700). The application to delicense the north campus beds was expeditiously approved and has not been challenged. As to the application to establish the twenty beds at the south campus, the following statutory criteria are not at issue: Section 408.035(1)(c), (e), (f), (g), (h), (i), (j), (k), (m), (n), (o) and (2)(b) and (e), Florida Statutes. The parties have stipulated that Miami Heart meets, at least minimally, those criteria. During 1993, Miami Heart made the business decision to cease operations at its north campus and to seek the Agency's approval to relocate beds and services from that facility to other facilities owned by MH, including the south campus. Miami Heart does not intend to delicense the twenty beds at the north campus until the twenty beds are licensed at the south campus. The goal is merely to transfer the existing program with its services to the south campus. Miami Heart did not seek beds from a fixed need pool. Since approximately April, 1993, the Miami Heart north campus has operated with the twenty bed adult psychiatric unit and with a limited number of obstetrical beds. The approval of CON no. 7700 will not change the overall total number of adult general inpatient psychiatric beds within the district. The adult psychiatric program at MH experiences the highest utilization of any program in district 11, with an average length of stay that is consistent with other adult programs around the state. Miami Heart's existing psychiatric program was instituted in 1978. Since 1984, there has been little change in nursing and other staff. The program provides a full continuum of care, with outpatient programs, aftercare, and support programs. Nearly ninety-nine percent of the program's inpatient patient days are attributable to patients diagnosed with serious mental disorders. The Miami Heart program specializes in a biological approach to psychiatric cases in the diagnosis and treatment of affective disorders, including a variety of mood disorders and related conditions. The Miami Heart program is distinctive from other psychiatric programs in the district. If the MH program were discontinued, the patients would have limited alternatives for access to the same diagnostic and treatment services in the district. There are no statutes or rules promulgated which specifically address the transfer of psychiatric beds or services from one facility owned by a health care entity to another facility also owned by the same entity. In reviewing the instant CON application, the Agency determined it has the discretion to evaluate each transfer case based upon the review criteria and to consider the appropriate weight factors should be given. Factors which may affect the review include the change of location, the utilization of the existing services, the quality of the existing programs and services, the financial feasibility, architectural issues, and any other factor critical to the review process. In this case, the weight given to the numeric need criteria was not significant. The Agency determined that because the transfer would not result in a change to the overall bed inventory, the calculated fixed need pool did not apply to the instant application. In effect, because the calculation of numeric need was inapplicable, this case must be considered "not normal" pursuant to Rule 59C-1.040(4)(a), Florida Administrative Code. The Agency determined that other criteria were to be given greater consideration. Such factors were the reasonableness of the proposal, the ability to afford access, the applicant's ability to provide a quality program, and the project's financial feasibility. The Agency determined that, on balance, this application should be approved as the statutory and other review criteria were met. Although put on notice of the other CON applications, Mount Sinai did not file an application for psychiatric beds at the same time as Miami Heart or Cedars. Mount Sinai did not claim that the proposed delicensures and transfers made beds available for competitive review. The Agency has interpreted Rule 59C-1.040, Florida Administrative Code, to mean that it will not normally approve an application for beds or services unless the statutory and rule criteria are met, including the need determination criteria. There is no list of circumstances which are routinely considered "not normal" by the Agency. In this case, the proposed transfer of beds was, in itself, considered "not normal." The approval of Miami Heart's application would allow an existing program to continue. As a result, the overhead to maintain two campuses would be reduced. Further, the relocation would allow the program to continue to provide access, both geographically and financially, to the same patient service area. And, since the program has the highest utilization rate of any adult program in the district, its continuation would be beneficial to the area. The program has an established referral base for admissions to the facility. The transfer is reasonable for providing access to the medically under-served. The quality of care, while not in issue, would be expected to continue at its existing level or improve. The transfer would allow better access to ancillary hospital departments and consulting specialists who may be needed even though the primary diagnosis is psychiatric. The cost of the transfer when compared to the costs to be incurred if the transfer is not approved make the approval a benefit to the service area. If the program is not relocated, Medicaid access could change if the hospital is reclassified from a general facility to a specialty facility. The proposed cost for the project does not exceed one million dollars. If the north campus must be renovated, a greater capital expenditure would be expected. The expected impact on competition for other providers is limited due to the high utilization for all programs in the vicinity. The subject proposal is consistent with the district and state health care plans and the need for health care facilities and services. The services being transferred is an existing program which is highly utilized and which is not creating "new beds." As such, the proposal complies with Section 408.035(1)(a), Florida Statutes. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing services in the district will not be adversely affected by the approval of the subject application. The proposed transfer is consistent with, and appropriate, in light of these criteria. Therefore, the proposal complies with Section 408.035(1)(b), Florida Statutes. The subject application demonstrates a full continuum of care with safeguards to assure that alternatives to inpatient care are fully utilized when appropriate. Therefore, the availability and adequacy of other services, such as outpatient care, has been demonstrated and would deter unnecessary utilization. Thus, Miami Heart has shown its application complies with Section 408.035(1)(d), Florida Statutes. Miami Heart has also demonstrated that the probable impact of its proposal is in compliance with Section 408.035(1)(l), Florida Statutes. The proposed transfer will not adversely impact the costs of providing services, the competition on the supply of services, or the improvements or innovations in the financing and delivery of services which foster competition, promote quality assurance, and cost-effectiveness. Miami Heart has taken an innovative approach to promote quality assurance and cost effectiveness. Its purpose, to close a facility and relocate beds (removing unnecessary acute care beds in the process), represents a departure from the traditional approach to providing health care services. By approving Miami Heart's application, overhead costs associated with the unnecessary facility will be eliminated. There is no less costly, more efficient alternative which would allow the continuation of the services and program Miami Heart has established at the north campus than the approval of transfer to the south campus. The MH proposal is most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. The renovation of the medical surgical space at the south campus to afford a location for the psychiatric unit is the most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. In totality, the circumstances of this case make the approval of Miami Heart's application for CON no. 7700 the most reasonable and practical solution given the "not normal" conditions of this application.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the Agency for Health Care Administration enter a final order approving CON 7700 as recommended in the SAAR. DONE AND RECOMMENDED this 5th day of April, 1995, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH 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 5th day of April, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-4755 Note: Proposed findings of fact are to contain one essential fact per numbered paragraph. Proposed findings of fact paragraphs containing multiple sentences with more than one statement of fact are difficult to review. In reviewing for this case, where all sentences were accurate and supported by the recorded cited, the paragraph has been accepted. If the paragraph contained mixed statements where one sentence was an accurate statement of fact but the others were not, the paragraph has been rejected. Similarly, if one sentence was editorial comment, argument, or an unsupported statement to a statement of fact, the paragraph has been rejected. Proposed findings of fact should not include argument, editorial comments, or statements of fact mixed with such comments. Rulings on the proposed findings of fact submitted by Petitioner, Mount Sinai: Paragraphs 1 through 13 were cited as stipulated facts. Paragraph 14 is rejected as irrelevant. With regard to paragraph 15 it is accepted that Miami Heart made the business decision to move the psychiatric beds beds from the north campus to the south campus. Any inference created by the remainder of the paragraph is rejected as irrelevant. Paragraph 16 is rejected as irrelevant. Paragraph 17 is rejected as irrelevant. Paragraph 18 is accepted. Paragraph 19 is rejected as irrelevant. Paragraph 20 is rejected as contrary to the weight of the credible evidence. Paragraph 21 is rejected as contrary to the weight of the credible evidence. Paragraph 22 is accepted. Paragraph 23 is rejected as irrelevant. Paragraph 24 is accepted. Paragraph 25 is rejected as repetitive, or immaterial, unnecessary to the resolution of the issues. Paragraph 26 is rejected as irrelevant or contrary to the weight of the credible evidence. Paragraph 27 is rejected as comment or conclusion of law, not fact. Paragraph 28 is accepted but not relevant. Paragraphs 29 and 30 are accepted. Paragraphs 31 through 33 are rejected as argument, comment or irrelevant. Paragraph 34 is rejected as comment or conclusion of law, not fact. Paragraph 35 is rejected as comment or conclusion of law, not fact, or irrelevant as the FNP was not in dispute. Paragraph 36 is rejected as irrelevant. Paragraph 37 is rejected as repetitive, or comment. Paragraph 38 is rejected as repetitive, comment or conclusion of law, not fact, or irrelevant. Paragraph 39 is rejected as argument or contrary to the weight of credible evidence. Paragraph 40 is accepted. Paragraph 41, 42, and 43 are rejected as contrary to the weight of the credible evidence and/or argument. Paragraph 44 is rejected as argument and comment on the testimony. Paragraph 45 is rejected as argument, irrelevant, and/or not supported by the weight of the credible evidence. Paragraph 46 is rejected as argument. Paragraph 47 is rejected as comment or conclusion of law, not fact. Paragraph 48 is rejected as comment, argument or irrelevant. Paragraph 49 is rejected as comment on testimony. It is accepted that the proposed relocation or transfer of beds is a "not normal" circumstance. Paragraph 50 is rejected as argument or irrelevant. Paragraph 51 is rejected as argument or contrary to the weight of credible evidence. Paragraph 52 is rejected as argument or contrary to the weight of credible evidence. Paragraph 53 is rejected as argument, comment or recitation of testimony, or contrary to the weight of credible evidence. Paragraph 54 is rejected as irrelevant or contrary to the weight of credible evidence. Paragraph 55 is rejected as irrelevant, comment, or contrary to the weight of credible evidence. Paragraph 56 is rejected as irrelevant or argument. Paragraph 57 is rejected as irrelevant or argument. Paragraph 58 is rejected as contrary to the weight of credible evidence. Paragraph 59 is rejected as irrelevant. Paragraph 60 is rejected as contrary to the weight of credible evidence. Paragraph 61 is rejected as argument or contrary to the weight of credible evidence. Paragraph 62 is rejected as argument or contrary to the weight of credible evidence. Paragraph 63 is accepted. Paragraph 64 is rejected as irrelevant. Mount Sinai could have filed in this batch given the not normal circumstances disclosed in the Miami Heart notice. Paragraph 65 is rejected as irrelevant. Paragraph 66 is rejected as comment or irrelevant. Paragraph 67 is rejected as argument or contrary to the weight of credible evidence. Paragraph 68 is rejected as argument or irrelevant. Paragraph 69 is rejected as argument, comment or irrelevant. Paragraph 70 is rejected as argument or contrary to the weight of credible evidence. Rulings on the proposed findings of fact submitted by the Respondent, Agency: Paragraphs 1 through 6 are accepted. With the deletion of the words "cardiac catheterization" and the inclusion of the word "psychiatric beds" in place, paragraph 7 is accepted. Cardiac catheterization is rejected as irrelevant. Paragraph 8 is accepted. The second sentence of paragraph 9 is rejected as contrary to the weight of credible evidence or an error of law, otherwise, the paragraph is accepted. Paragraph 10 is accepted. Paragraphs 11 through 17 are accepted. Paragraph 18 is rejected as conclusion of law, not fact. Paragraphs 19 and 20 are accepted. The first two sentences of paragraph 21 are accepted; the remainder rejected as conclusion of law, not fact. Paragraph 22 is rejected as comment or argument. Paragraph 23 is accepted. Paragraph 24 is rejected as argument, speculation, or irrelevant. Paragraph 25 is accepted. Rulings on the proposed findings of fact submitted by the Respondent, Miami Heart: Paragraphs 1 through 13 are accepted. The first sentence of paragraph 14 is accepted; the remainder is rejected as contrary to law or irrelevant since MS did not file in the batch when it could have. Paragraph 15 is accepted. Paragraph 16 is accepted as the Agency's statement of its authority or policy in this case, not fact. Paragraphs 17 through 20 are accepted. Paragraph 21 is rejected as irrelevant. Paragraph 22 is rejected as irrelevant. Paragraphs 23 through 35 are accepted. Paragraph 36 is rejected as repetitive. Paragraphs 37 through 40 are accepted. Paragraph 41 is rejected as contrary to the weight of the credible evidence to the extent that it concludes the distance to be one mile; evidence deemed credible placed the distance at two miles. Paragraphs 42 through 47 are accepted. Paragraph 48 is rejected as comment. Paragraphs 49 through 57 are accepted. COPIES FURNISHED: Tom Wallace, Assistant Director Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 R. Terry Rigsby Geoffrey D. Smith Wendy Delvecchio Blank, Rigsby & Meenan, P.A. 204 S. Monroe Street Tallahassee, Florida 32302 Lesley Mendelson Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Stephen Ecenia Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. 215 South Monroe Street Suite 420 Tallahassee, Florida 32302-0551
The Issue The issue presented is whether the applications for certificates of need filed by Petitioners Beverly Enterprises-Florida, Inc. d/b/a Beverly Gulf Coast- Florida, Inc.; JFK Medical Center, Inc.; and Manor Care of Boynton Beach, Inc., should be granted.
Findings Of Fact Petitioner Beverly Enterprises-Florida, Inc., d/b/a Beverly Gulf Coast- Florida, Inc. (hereinafter "Beverly"), is a wholly-owned subsidiary of Beverly- California Corporation which is a wholly-owned subsidiary of Beverly Enterprises, Inc., one of the largest providers of long-term care services in the country. Beverly operates 41 nursing homes in the state of Florida, with all of these facilities receiving substantial financial, managerial, operational, and program support from Beverly's Florida regional office. Three of those nursing homes are located in Palm Beach County, Florida. Beverly proposes in its certificate of need (hereinafter "CON") application #7372 to construct a 120-bed community nursing home in zip code 33414, which is the Wellington area of Palm Beach County, to be known as Wellington Terrace. The facility would provide high acuity nursing services with an emphasis on rehabilitation. The proposed special programs include an adult day care program, respite care services, and an Alzheimer's unit, and the facility will accept patients with AIDS. The proposed facility will encompass 53,348 square feet and will have a total project cost of approximately $5.6 million. The facility is designed to minimize institutional effects and emphasize a home-like atmosphere for residents, featuring such amenities as a large day room with an aquarium and wide-screen television and VCR, a screened gazebo, and a greenhouse. Quality of life enhancements will be a consideration in all aspects of the facility. The building will meet or exceed all licensure requirements for construction and safety codes. Beverly's goal is to achieve a superior-rated facility. Beverly has agreed, if it is awarded a CON in this proceeding, that its CON for this facility will be conditioned upon the facility having a 25-bed Medicare-certified sub-acute unit which will include 4 beds dedicated to ventilator-dependent care. Wellington Terrace's CON will also be conditioned upon the provision of 56 percent of its annual patient days to Medicaid patients, and Beverly will give Florida State University's Institute on Aging a grant in the amount of $10,000 to be used for gerontological research. Petitioner Manor Care of Boynton Beach, Inc. (hereinafter "Manor Care"), is a Florida-based operating subsidiary of Manor Care Healthcare Corporation, one of the largest operators of nursing homes in the country. Manor Care Healthcare Corporation is a wholly-owned subsidiary of Manor Care, Inc., a publicly-traded company listed on the New York Stock Exchange. Through its corporate structure, Manor Care, Inc., devotes substantial financial, manpower, and other resources to its individual nursing homes. The individual facilities are directed by corporate policies in the areas of finance, quality of care, quality assurance, prototype services, structural design, and all areas of nursing home operations. Manor Care's parent owns 10 nursing homes and 4 adult congregate living facilities in Florida. Two additional nursing homes are under construction in Florida, including one in Palm Beach County. In the last 4 years, Manor Care has constructed and opened 2 nursing homes in Florida, and both received superior-rated licenses as soon as they were eligible. Manor Care seeks in its CON application #7375 to construct a 120-bed community nursing home in the Lake Worth area of Palm Beach County. The facility is a one-story fully equipped nursing center, using a design which conforms with all federal, state, and local regulations. It incorporates residential features to meet the physical, social, and psychological needs of the residents and promote independence. The space-efficient design emphasizes a home-like atmosphere which ensures quality of care and quality of life. The design is patterned after Manor Care's "prototype" facility and is very similar to Manor Care's two newest Florida nursing centers in Hillsborough and Pinellas Counties. The facility encompasses approximately 49,500 square feet and has a total project cost of approximately $6.8 million. The facility will contain 16 private rooms and 52 semi-private rooms. The proposed facility includes a 30-bed self-contained unit for residents with Alzheimer's disease and a 15-bed self-contained sub-acute unit. The sub-acute unit will be adjacent to speech, physical and occupational therapy/rehabilitation/dining spaces to facilitate patient recovery. The therapy spaces are 50 percent larger than Manor Care's standard therapy spaces to better accommodate the sub-acute patients. Like Beverly's, the proposed facility will offer skilled care, intermediate care, rehabilitative care, respite care, restorative care, sub- acute care, and specialized care for Alzheimer's disease and related dementia. It will also provide the following support services: pre-admission screening, appropriateness review, resident care plans, discharge plans, quality assurance, pharmacy, consulting (for physician visits, and dental, radiology, podiatry, and other diagnostic evaluations), community outreach, family programs, and chaplaincy. Beverly offers similar support services. Manor Care has agreed, if it is awarded a CON in this proceeding, to condition its CON on its 30-bed dedicated, secured Alzheimer's unit and its 15- bed sub-acute unit. Manor Care has also agreed to condition its project on providing a minimum of 55.5 percent of its total patient days to Medicaid residents, and on providing an adult Alzheimer's day-care program, a respite care program, and 2.8 nursing hours per patient day for the Alzheimer's unit. Petitioner JFK Medical Center, Inc. (hereinafter "JFK"), is a general acute care hospital located in the Atlantis/Lake Worth area, in central Palm Beach County. It is licensed to operate 369 beds. JFK enjoys tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. JFK provides services to patients of high acuity. Its overall case mix index, which serves to measure acuity, is 1.56. The normal case mix for acute care hospitals is 1.0. JFK's case mix index places it among the top five percent of all hospitals in the state. JFK focuses its acute care services in three specific areas. It serves as a regional referral center for cardiovascular services. It serves as a regional referral center for oncology and is the only hospital in Palm Beach County accredited by the American College of Surgeons as a comprehensive cancer center. JFK also has a large orthopedic surgery program. JFK serves predominantly an elderly patient population. Approximately 75 percent of its patients exceed 65 years of age. JFK's patient population includes many patients with multiple system medical problems. Such patients are more difficult to care for than patients with single system problems. In addition to acute care services, JFK provides a full range of outpatient and ambulatory services. JFK operates a diagnostic breast institute, an ambulatory surgery center, an outpatient cancer center, and a home health agency. JFK also employs twenty-three primary care physicians. JFK's outpatient and physician services constitute a portion of JFK's continuum of care, as do its acute care services. Sub-acute services are the only link missing from JFK's continuum of care. By its CON application #7374, JFK seeks authority to convert 26 existing adult psychiatric and substance abuse beds to establish a 20-bed sub- acute skilled nursing unit. JFK proposes to treat patients: (1) who have experienced an episode of acute care; (2) who no longer have need for acute care; and, (3) whose medical needs require higher intensity of care than is provided in a community nursing home. These "sub-acute care" patients fit somewhere in the continuum between acute care and nursing home care. The project involves 14,100 square feet of renovated space, a capital expenditure of $633,285 to be funded from internal sources, and the conversion of underutilized beds to a highly-utilized service. Sub-acute care is a comprehensive inpatient care program designed for patients who have experienced an acute illness or injury. Sub-acute care is designed to treat complex medical conditions through coordinated complex medical treatments. The rendition of sub-acute care requires an interdisciplinary team of professionals and paraprofessionals. In order to render sub-acute care to its patient population, the JFK program will provide the following staffing and service components: 24-hour registered nurse coverage; 5-6 hours of hands-on nursing care daily per patient, which is twice the care required of a community nursing home; and, 7 day/week, 24-hour access to all of JFK's ancillary services, including laboratory, pharmacy, respiratory therapy, blood transfu- sions, emergency services, and physician services. The JFK program will provide a full range of rehabilitative, restorative, and therapeutic services to patients, including radiation therapy, intravenous therapy, chemotherapy, complex tracheotomy, ventilator, and hyperalimentation care. JFK will provide services to the following patient groups: orthopaedic patients including joint replacement, fracture or amputation patients, cerebrovascular patients including stroke and other CVA accident patients, post-operative open-heart surgery patients requiring transitional care, oncology/radiation therapy patients requiring high level sub-acute care, pulmonary disorder patients including respiratory/ventilator dependent or other chronic pulmonary disease patients, patients with drug resistant infections including MRSA or tuberculosis patients, HIV-infected patients, patients with severe decubitus ulcers, and psychiatric patients with skilled medical care requirements. The JFK program is not designed to compete with community nursing homes. JFK proposes in its application a condition that 90 percent of the patients served in the sub-acute unit will originate from within JFK. JFK also proposes a condition that 90 percent of the patient days provided in the unit be provided to Medicare patients, or non-Medicare patients requiring physician certified rehabilitative or restorative care. JFK also proposes a condition that it serve high acuity or "heavy care" patients. In order to be awarded a CON, an application must be evaluated to determine compliance with the priorities or preferences stated in the appropriate District or Local Health Plan and in the State Health Plan. The District 9 Local Health Plan includes 3 allocation factors to be used in evaluating nursing home applications. The first states that priority should be given to applicants for new nursing homes or expansion of existing homes who agree to provide a minimum of 30 percent Medicaid days to their patients. Both Manor Care and Beverly comply with this priority in that they have committed to a minimum of 55.5 percent and 56 percent, respectively. The slight difference in their commitments does not give Beverly an advantage. JFK is not specifically proposing to provide care to Medicaid patients in its sub-acute unit. JFK's proposal is to serve primarily Medicare patients with the remaining patients being without resources or having other insurance. Medicaid-eligible patients occasionally need sub-acute services, and Medicaid does reimburse currently for nursing services provided in hospital-based skilled nursing beds. However, at the time that JFK filed its CON application, Medicaid did not reimburse hospitals for such services. More importantly, the allocation factor does not apply to JFK's application since it only applies to applicants for new nursing homes or expansion of existing homes, and JFK is neither. The second allocation factor in the District 9 Local Health Plan provides that priority shall be given to applicants who demonstrate (a) a documented history of providing good residential care; (b) staffing ratios, particularly for registered nurses and aides, that exceed the minimum requirements; (c) provision for the treatment of residents with mental health problems; and (d) the inclusion of intensive rehabilitation services for those short-stay patients who require rehabilitation below the level of an acute care hospital. Manor Care meets this allocation factor better than Beverly. As to the first criterion in the second allocation factor, during some of the 36 months prior to the filing of its application, two of Manor Care's ten Florida nursing homes held a conditional license. Currently, nine of those ten nursing homes hold superior licenses, and the other holds a standard license. Manor Care's two nursing homes opened most recently received superior licenses as soon as they were eligible. On the other hand, during some of the 36 months prior to the filing of its application, 17 of Beverly's 41 Florida facilities held a conditional license. Beverly's most recent composite shows that 31 of its 41 Florida facilities are superior-rated, with three of those 41 facilities rated conditional. Hospitals do not provide residential care, and JFK, therefore, has no history of "residential care" to evaluate; however, JFK has met stringent quality of care requirements by obtaining accreditation by the Joint Commission on Accreditation of Healthcare Organizations. The second criterion in the second allocation factor is met by the staffing ratios of all three applicants. Similarly, all three applicants will treat residents with mental health problems, the third criterion. The last criterion of the second allocation factor seeks applicants offering intensive rehabilitation services below the level of an acute care hospital. All three applicants comply with this criterion since JFK's application is for a sub-acute unit including intensive rehabilitation services, and Manor Care and Beverly each include such a unit within their proposed nursing home facilities. The Local Health Plan's third allocation factor seeks applicants proposing to serve a distinct population that is currently not being served within the subdistrict, Palm Beach County. As written, none of the applicants meets the third allocation factor since none has identified a distinct patient population that is not being served. However, the Agency interprets this allocation factor as being fulfilled by an applicant who addresses a distinct population which is being underserved rather than unserved. As interpreted by the Agency, all three applicants meet this allocation factor, Manor Care and Beverly with their Alzheimer's units, and all three applicants with their sub- acute units. Both services are greatly needed by Palm Beach County residents. Beverly suggests that it meets the third allocation factor as it is written because it will provide Jewish services, Kosher food, care to AIDS patients, and bi-lingual services. However, there are facilities with bi- lingual and multi-lingual employees, and patients with AIDS are receiving services. Further, there are dedicated Jewish nursing homes in Palm Beach County, and Beverly's project design does not include a Kosher kitchen. Beverly also suggests that its application is more consistent with the Local Health Plan than Manor Care's. Beverly relies on language within the Plan which states an interest in increasing access to nursing home services to the westernmost region of Palm Beach County. First, that language is not contained in any of the allocation factors utilized by the Agency in reviewing CON applications. Second, Beverly does not include the westernmost regions of the county in its primary service area for the proposed facility. Third, Beverly's Royal Manor facility is already serving the area which Beverly proposes as the primary service area for its Wellington Terrace facility. The State Health Plan contains 12 allocation factors. The first states that preference shall be given to applicants proposing to locate a nursing home in areas within the subdistrict with occupancy rates exceeding 90 percent. Palm Beach County has an occupancy rate in excess of 90 percent, and all applicants meet this preference. The second allocation factor states that preference shall be given to an applicant who proposes to serve Medicaid residents in proportion to the average subdistrict-wide percentage of the nursing homes in the same subdistrict. It further provides that exceptions shall be considered for applicants who propose to exclusively serve persons with similar ethnic and cultural backgrounds, or who propose the development of multi-level care systems. The average percentage of nursing home Medicaid patients in the Palm Beach County subdistrict is 55.44 percent. Since Manor Care proposes a minimum of 55.5 percent and Beverly proposes a minimum of 56 percent, they both meet this preference. Beverly's reliance on a higher state-wide average to obtain an advantage over Manor Care as to this factor is misplaced since the factor does not call for any statewide average but rather speaks to the Medicaid commitment of the specific facility being proposed. Although JFK, as a hospital, does not meet the average subdistrict-wide percentage of Medicaid usage, JFK is still entitled to preference under this allocation factor since its proposal is specifically for the development of a multi-level care system. JFK specifically proposes its sub-acute unit to fill in the only gap in its vertical continuum of care. The third allocation factor in the State Health Plan gives preference to an applicant proposing to provide specialized services to special care residents, including AIDS residents, Alzheimer's residents, and the mentally ill. All applicants meet this allocation factor. JFK meets this factor with its unique hospital-based sub-acute unit proposal. Manor Care meets this factor with its dedicated, secured Alzheimer's unit, sub-acute unit, and comprehensive rehabilitation program. Beverly meets this factor with its sub-acute unit and comprehensive rehabilitation program and its Alzheimer's unit. Further, all three applicants will provide services to AIDS patients and to the mentally ill. Factor four gives preference to applicants proposing a continuum of services to community residents including, but not limited to, respite care and adult day care. Manor Care will provide Alzheimer's adult day care, respite care, a 30-bed Alzheimer's unit, and a 15-bed sub-acute unit. It will provide skilled and intermediate care, rehabilitative care, hospice care, restorative care, telephone re-assurance, referral and counseling services, and various community outreach programs. Manor Care meets this allocation factor. Beverly proposes a continuum of services, including its sub-acute unit, Alzheimer's unit, adult day care, and respite care. Beverly proposes an outpatient adult day care program for up to eight guests, with services available five days a week. The Wellington Terrace design allocates 735 square feet to multi-purpose space for adult day care. Direct care staff, consisting of a nursing assistant and a part-time activity aide along with volunteer programs staff, meals, and snacks will be offered in conjunction with the full array of recreational, personal care, therapeutic, and social services activities available at the facility. Manor Care also offers a full array of services to the participants in its Alzheimer's day care program. Although Manor Care has fewer slots available, its program will operate seven days a week. The respite care programs offered by both Beverly and Manor Care provide short-term nursing and therapeutic care for elderly adults who require care currently provided by family and other caretakers but whose caretakers require relief from their care-giving activities. All of the services available to in-patients will be available to respite residents. Although JFK's proposal does not include respite care or day care, its proposal would result in a continuum of services to community residents ranging from acute care services through home health care services. JFK, accordingly, also meets this preference. The fifth allocation factor gives preference to applicants proposing to construct facilities which provide maximum residents' comfort and quality of care. The factor states that the special features may include, but are not limited to, larger rooms, individual rooms, temperature control, visitors' rooms, recreation rooms, outside landscaped recreation areas, physical therapy rooms and equipment, and staff lounges. This allocation factor envisions services offered in a traditional community nursing home rather than services provided in a hospital-based skilled nursing unit. JFK, like any hospital, cannot meet the portion of this preference which evaluates the level of comfort in a residential, custodial setting, but it does meet the portion relating to quality of care. Beverly's facility seeks to minimize the effects of institutionalization on residents through patient rooms which exceed state requirements, private toilets in each room, a physical therapy suite with a physical therapy gym and hydrotherapy area, an outdoor ambulation court, outside courtyard with screened gazebo, and a solarium/greenhouse. Private dining space and separate areas for visitation are provided, and thermostat controls are placed in every room. Its Wellington Terrace facility will feature 50 semi- private rooms and 20 private resident rooms in a single-story structure. Manor Care's facility would have many of these amenities. Its design incorporates residential features that support the physical, social, and psychological needs of the residents and which emphasizes a comfortable atmosphere that ensures quality of care and quality of life for the residents. Both Beverly and Manor Care meet this factor. The sixth allocation factor in the State Health Plan gives preference to applicants proposing to provide innovative therapeutic programs which have been proven effective in enhancing the residents' physical and mental functional level and which emphasize restorative care. All three applicants meet this preference. Beverly's comprehensive rehabilitation program at Wellington Terrace will encompass physical therapy, occupational therapy, and speech/language pathology. Rehabilitation programs will be offered seven days per week in order to provide continuity, decrease the time associated with recovery and rehabilitation, and serve the increased needs for rehabilitation services attendant to the sub-acute patient. Upon admission, every resident will be screened by all therapies to assess the need for specific services with periodic screenings during all stays. Out-patient rehabilitation services will be offered to the community in a physical therapy suite with a separate entrance. Manor Care envisions a similar comprehensive rehabilitation program offering the same therapies with the same intended results. Its rehabilitation program for its sub-acute unit offers one advantage not proposed by Beverly, i.e., the patients in the sub-acute unit will receive care under the supervision of a physiatrist. Manor Care's physical and occupational therapy will be designed to increase tolerance and maximize function in relation to the disease process. The frequency and duration of therapy will increase as the patient's tolerance, skill level, and confidence improve. Manor Care will provide a restorative and normalizing program to enable each resident to achieve maximum functioning and independence. An inter- disciplinary team of specialists will develop an individualized resident care plan. Restorative care for sub-acute patients will incorporate the same approach and will focus on achieving medical stability and discharging patients to their homes. Beverly's Wellington Terrace will provide therapeutic programs which enhance the residents' physical and mental functioning and emphasize restorative care. Specialized rehabilitation programs, a restorative nursing program, and normalizing activities are three main components of Beverly's approach. Its therapists work as a team to develop a treatment program designed to improve the residents' ability. Training is provided in the use of prostheses, pain management, rehabilitative dining, and other restorative therapies. Allocation factor number seven gives preference to applicants proposing charges which do not exceed the highest Medicaid per diem rate in the subdistrict. Exceptions shall be considered for facilities proposing to serve upper income residents. Both Manor Care and Beverly meet this preference. JFK has not proposed a specific charge for Medicaid patients since it expects to serve few of them, and it is anticipated that its Medicaid charges would be higher than those in a community nursing home. JFK does not meet this factor in that it will be serving Medicare patients, and the cost of providing care to Medicare skilled patients is higher than the cost of providing services to Medicaid patients. Allocation factor number eight gives preference to applicants with a record of providing superior resident care programs in existing facilities in Florida or other states and calls for consideration of the current licensure ratings of Florida facilities. Nine of the ten Manor Care facilities in Florida are rated superior, and its two newest facilities received superior ratings as soon as they were eligible. Accordingly, Manor Care has a documented history of providing superior resident care programs to its residents in Florida. On the other hand, Beverly has a superior rating for 31 of its 41 Florida facilities, and three of the facilities are rated conditional. Manor Care better meets this allocation factor than Beverly. JFK does not have a record of providing residential nursing home care, but JFK does provide a high quality of patient care as evidenced by its accreditation by the Joint Commission on Accreditation of Healthcare Organizations. The ninth allocation factor gives a preference to applicants proposing staffing levels which exceed the minimum staffing standards contained in licensure administrative rules and further provides that applicants proposing higher ratios of RNs and LPNs to residents than other applicants shall be given preference. All three applicants propose staffing levels exceeding state minimum standards. As to the higher ratios, Manor Care's Schedule 6 for Year 2 shows 8.4 RNs and 14.9 LPNs. In comparison, Beverly's schedule 6 for Year 2 shows 8 RNs and 10 LPNs. Thus, Manor Care has a greater number of RNs and LPNs even though Beverly projects more utilization than Manor Care, and Manor Care is entitled to preference over Beverly on this factor. Allocation factor number ten gives preference to applicants who will use professionals from a variety of disciplines to meet the resident needs for social services, specialized therapies, nutrition, recreation activities, and spiritual guidance. It provides that the professionals used shall include physical therapists, mental health nurses, and social workers. All three applicants propose an interdisciplinary approach to meet the residents' needs in nursing, all therapies, nutrition, social services, and spiritual guidance, and JFK is likely to have a wider variety of professionals available than the two community nursing home applicants. The eleventh allocation factor of the State Health Plan states that preference shall be given to an applicant who provides documentation as to how it will ensure residents' rights and privacy, use resident councils, and implement a well-designed quality assurance and discharge planning program. All three applicants ensure residents' rights and privacy, and all have a well- designed quality assurance program in addition to a detailed discharge planning program. All three applicants meet this preference. The twelfth allocation factor gives preference to an applicant proposing lower administrative costs and higher resident care costs compared to the average nursing home in the district. This factor is difficult to accurately assess because the terms "administrative costs" and "resident care costs" are not defined, and there is no uniformity in reporting by county nursing homes. For example, some facilities such as Manor Care include salary benefits as an administrative cost, while others such as Beverly include that considerable expense as a resident care cost. Although it is also unknown how those costs are reported by the "average nursing home" or even what an average nursing home is, it is apparent that this factor seeks to encourage nursing homes to devote resources for direct delivery of care. Manor Care and Beverly comply with this preference. However, their applications in Schedule 6 reflect that Manor Care will have more staff for nursing, ancillary, and dietary services than Beverly and that Manor Care will have overall more full-time employees than Beverly. JFK will have higher resident care costs than the average nursing home, but any hospital-based program will have higher administrative costs than a free-standing nursing home because of the infrastructure required to operate a hospital. To the extent that this factor is intended to apply to a hospital-based skilled nursing unit, JFK cannot meet this factor. There is a need for the proposed Manor Care facility in Palm Beach County. First, Manor Care proposes to locate its facility in the west Lake Worth area of Palm Beach County. This area has a very high concentration of elderly people. In zip code 33467 (the western Lake Worth area), 14.7 percent of the projected 1997 population will be 75 years of age or older. It is good health planning to locate a new facility there. Second, there is a great need for additional Alzheimer's nursing home beds in a dedicated, secured unit. While the demand for Alzheimer's beds is substantially increasing, there are only a few dedicated Alzheimer's units in the entire county. Manor Care's 30- bed unit would help meet this need. Third, there is a need for additional sub- acute beds. Manor Care's proposed 15-bed unit will help meet this need particularly where Manor Care proposes to locate its facility. Fourth, Manor Care's commitment to provide a minimum of 55.5 percent Medicaid will enhance access to nursing home services. Fifth, Manor Care's application includes many letters of support from health care providers and practitioners, which substantiate the need and demand for another Manor Care nursing home in the county. It is not required for a CON applicant to propose a specific site for its facility. However, Beverly's application asserts that its proposed facility, Wellington Terrace, will be located in zip code 33414, which is the zip code for Wellington, a planned unit development. Beverly's witnesses also asserted that the facility would be built in Wellington, and Beverly's vice president in charge of nursing home development offered in his testimony to add as a condition for the award of a CON in this proceeding that Beverly would build its facility in Wellington. Beverly's proposed facility is not needed in the Wellington area of Palm Beach County. First, Beverly's proposed facility would not promote Medicaid access. Zip code 33414 has the highest income per elderly resident in Palm Beach County. Locating nursing home beds in the wealthiest elderly section of the county does not promote Medicaid access. Second, the small elderly population in Wellington does not show need for a new nursing home. The 75+ age cohort is that population group which truly demands nursing home services. Only 2.5 percent of the zip code 33414 residents are 75+. In comparison, the Palm Beach County average is 10.8 percent and the Lake Worth area where Manor Care proposes to locate is 14.7 percent. The other four zip codes in Beverly's primary service area (33414, 33411, 33470, 33467, and 33413) do not show need for the facility in Wellington. Zip codes 33470 and 33413 are scantly populated. Zip code 33411 is where Beverly's Royal Manor facility is located. Zip code 33467 is where Manor Care proposes to locate. Third, the closest nursing home to the proposed Beverly facility is Beverly's Royal Manor facility, which is only five miles from the proposed facility. Royal Manor already serves the Wellington area. The two Beverly facilities would be inappropriately competing with each other and duplicating each other's services, which is not logical given the limited elderly population in that area of the county. Fourth, Beverly is currently developing a sub- acute unit at Royal Manor and has indicated that unit might include ventilator- dependent beds. Royal Manor, therefore, already serves the limited sub-acute care and ventilator-dependent needs of elderly patients in that area. There is no need for an additional 25-bed sub-acute unit just five miles from Royal Manor. Also, Royal Manor currently has in place the same rehabilitative program proposed by Beverly in its new facility. Fifth, maximizing the resources at Royal Manor is a better alternative than building a new facility in zip code 33414. Notably, Beverly's application includes letters of support for a bed addition at Royal Manor, not the new proposed facility at Wellington. Beverly proposes a condition of a 25-bed Medicare-certified sub-acute level unit as a integral part of its project, following a company-wide focus which began in 1991. The goal for sub-acute residents is functional improvement rather than wellness. The majority of sub-acute patients will be discharged home or into an assisted living center. Beverly describes its sub-acute program as a level of medical/rehabilitative health services rendered to individuals who have completed the acute phase of recovery. The individual is medically stable, but continues to require complex medical intervention from nurses and therapists. Frequent diagnoses/conditions include post-operative fractured hip, renal failure (dialysis), cardiac rehabilitation, spinal cord injury, and respiratory conditions. Many patients will need IV therapy, parenteral nutrition and chemotherapy. A physician specializing in pulmonary medicine serves as medical director of the unit. That physician supervises a unit staff consisting of an RN, clinical coordinator, licensed nurses with critical care experience, and respiratory services contractual staff. As a condition to the award of a CON in this proceeding, Beverly will dedicate four of its sub-acute beds to a respiratory recovery program for ventilator-dependent patients. An RN with critical care/ventilator experience and a respiratory therapist will be on duty at the facility seven days per week, 24 hours per day. The ventilator-dependent residents will be those with a strong potential for being weaned from the respirator, with an average length of stay from four to six months. The goal is to discharge these patients to their homes or to a setting offering a lower level of care. The four rooms in the sub-acute unit closest to the nursing station will be equipped with headwall units, containing oxygen, vacuum, and compressed air systems. Four beds for ventilator-dependent patients is a good aspect of Beverly's application but does not approach the need of Palm Beach County residents for ventilator beds. The proposed 15-bed sub-acute unit at Manor Care is patterned on its "prototype" sub-acute program. This prototype provides a progressive therapeutic environment for patients who require medical monitoring along with an aggressive rehabilitation program. The interdisciplinary approach establishes measurable functional outcomes while avoiding re-hospitalization. The program is individualized and geared toward assisting patients and their families in coping with traumatic injury and disease to assist them in their return home. There are six primary features to Manor Care's prototype. First is a special physical layout of the unit, including a separate entrance, which creates an atmosphere for short-term stay. The second is a separate unit director who has both clinical and administrative experience. The third feature is the staffing model of the unit, which provides a minimum of 5.0 nursing hours per patient day. Most of the nursing hours are provided by licensed staff. The fourth feature is a case manager who is assigned to insure individualized treatment for each resident. The fifth feature is a dedicated staff for the unit, who have specific education and background in sub-acute care. The sixth feature is a physiatrist who oversees the operation of the unit. Manor Care's clinical profile of diagnoses to be treated in its sub- acute include: cardiac disorders, wound/skin care, renal disorders, general rehabilitation needs, pulmonary disease, brain injury, neurological disorder, medical, post-surgical, and orthopedic. Manor Care's prototype has been very successful; 83 percent of all sub-acute residents are discharged directly home. Many of Manor Care's sub- acute units are accredited by the Commission for Accreditation of Rehabilitation Facilities. On the other hand, Beverly's witnesses did not even know that CARF accreditation was available for comprehensive rehabilitation services in nursing homes. Further, while Beverly is still in the development stages of its sub- acute program, Manor Care has an established prototype with measured outcome. Lastly, Beverly's prototype does not include a physiatrist, and Manor Care's does. Alzheimer's disease affects the ability to remember, to communicate properly, and to perform activities of daily living. The needs of Alzheimer's patients are distinct from other nursing home residents. Their special needs require them to be treated in specialized units. Beverly will offer Alzheimer's services in an 18-bed area specifically designed for Alzheimer's patients. The unit includes separate dining and activity areas with an enclosed courtyard. This design allows for controlled wandering, with Wanderguard alarms placed on all exit doors throughout the facility. The goal of the program is to maintain the resident's sense of dignity and improve his or her quality of life. Mealtimes and therapeutic activities will be focused in small groups and will allow for individual assistance and partialization of activities. The program will have its own dedicated staff, trained to understand the symptoms and manifestations of Alzheimer's residents. Beverly currently operates similar Alzheimer's programs in Florida. Manor Care created a task force which lead to the development of Manor Care's prototype Alzheimer's unit. Currently, the Manor Care group operates over 90 dedicated units throughout the country. Manor Care's prototype encompasses five components: environment, staffing and training, programming, specialized medical services, and family support. The proposed 30-bed unit is self-contained, with its own dining room, activities room, lounge, quiet/privacy room, nurses' sub-station, director's office, day care lounge, and outdoor courtyard. A separate lounge area is provided for family visits. The enclosed, outdoor courtyard allows residents to walk outside freely. The unit is especially designed to reduce environmental stress. Manor Care's Alzheimer's unit has specialized staff including a unit director, activities director, and nursing staff. The unit is staffed with a high "nurse to resident" ratio. The staffing patterns emphasize continuity to ensure that residents receive individualized care. The goal of programming and activities is to improve quality of life. This specialized programming results in reducing the use of medications and restraints necessary to manage these residents. The activity program is success-oriented. The use of consultant medical specialists is an integral part of Manor Care's program. Specialists provide diagnostic treatment services for the Alzheimer's resident upon admission to the unit and thereafter when deemed medically appropriate. Families are very supportive of the unit programming and have benefited from the understanding and support available to them. The benefits of Manor Care's prototype Alzheimer's unit include: minimizing the use of physical restraints, decreasing the use of medications, improvement in residents' nutrition, reduction in agitation and combative behavior, a freer and safer living environment, an increase in independence and functional abilities, enhancement of family involvement, and better guarantor satisfaction. The uncontroverted medical evidence is that Manor Care's Alzheimer's unit is state-of-the-art and Beverly's is not. In addition to being dedicated and self-contained, Manor Care's unit is secured, i.e., the doors are locked, preventing the Alzheimer's patients from leaving that unit unaccompanied. On the other hand, Beverly proposes to use the Wanderguard system which sounds an alarm when an Alzheimer's patient leaves the unit or facility. The alarm alerts staff that they must stop what they are doing and go after the Alzheimer's resident to return the patient to the proper location. Although other nursing homes use the Wanderguard system, such is done only when Alzheimer's patients are distributed throughout the facility. It is not used in conjunction with a dedicated unit where all the Alzheimer's residents are located in one area. Accordingly, Manor Care's Alzheimer's unit is superior to Beverly's. Manor Care establishes links with state and local health care providers to maintain a continuum of care for admissions, treatment, referral, and discharge coordination. In addition to building upon the linkages already established by Manor Care's two facilities in Palm Beach County, Manor Care will pursue working relationships, referral arrangements, and transfer agreements with advocacy groups, adult day care groups, home health services, hospitals, recreational and senior citizen organizations, and respite care centers. Beverly establishes similar links and can utilize the linkages already established by its nearby Royal Manor facility. Manor Care will affiliate with local nursing schools, such as the South County Vocational Technical Center, Palm Beach County Community College, and the North County Vocational Technical Center to promote clinical rotations and internship programs at its facility. Through working relationships with health professional training programs, students will benefit from the training and practical experience gained within an operating facility. The proposed facility will offer the advantage of training in specialty Alzheimer's care and sub-acute care programs. Additionally, the research programs at Manor Care's parent company will assist the proposed facility in its provision of nursing home services, particularly in the areas of Alzheimer's care and sub-acute care, by developing new programs and services for its nursing centers. Manor Care has a team of staff, outside consultants, and other research entities conducting studies of health care needs, including studies on rehabilitation programs, sub-acute programs, diabetes programs, wound care management, adult day care, and Alzheimer's disease. This multi-disciplinary task force researches new technologies, with the ultimate goal of providing the highest quality of care. Beverly will also use Wellington Terrace as a clinical rotation training site for long-term care nursing students. Arrangements for training rotations have been made with the Institute on Aging and School of Nursing at Florida State University. Further, if Beverly is awarded a CON in this proceeding, it will establish a research fund of $10,000 allocated to a long- term care issue to be determined in conjunction with the Institute on Aging. Manor Care's project cost of $6,835,130 is reasonable. The costs and methods of construction, including energy provision, are reasonable and appropriate. There are no less costly or more effective methods of construction available. Its project cost is similar to the cost of a 120-bed facility that Manor Care currently has under construction in Palm Beach County, which gives Manor Care a credible benchmark for estimating its project cost. The estimated project cost is broken out by cost items, which, in turn, are reasonable. Manor Care estimates a total land cost of $1.42 million. Of this, $900,000 is for the purchase of land, and $520,000 is for land improvement costs. In evaluating land, Manor Care considers the distribution of other Manor Care nursing homes in the county, whether there are utilities available to service the land, and whether there is sufficient zoning and land use approval to develop the land for a nursing home. There are several available 5-acre sites in the west Lake Worth area that meet these land eligibility requirements, all in the range of $900,000. The estimate of $520,000 for land improvement is based on Manor Care's experience in Palm Beach County. These improvement costs include water and sewer hook-up. Manor Care estimates approximately $3.87 million for the building cost and $840,000 for total equipment costs: $150,000 for fixed equipment and $690,000 for movable equipment. These costs are reasonable and based on Manor Care's experience in Florida, including the facility under construction in Palm Beach County. Equipping a sub-acute unit is more expensive than regular residents' rooms. It requires more expensive beds, diagnostic machines, special support tables, and expensive nurse station equipment. Manor Care's total equipment cost includes appropriate equipment for its 15-bed sub-acute unit. Manor Care reasonably projects $67,000 for development costs and $339,000 for construction interest. It estimates $300,000 in start-up costs: $125,000 for pre-opening salaries and recruitment, $125,000 for marketing, and $50,000 for pre-opening inventories and miscellaneous costs. The expenses are reasonable and consistent with Manor Care's recent experience in opening two nursing homes in Florida. To the contrary, Beverly's projected project cost is likely understated due to the questionable reasonableness of several components. First, Beverly commits to locating its facility in zip code 33414. There is no land available in that zip code with the necessary zoning and the necessary land use designation for nursing home development. Beverly would have to obtain a change in zoning and may also have to obtain a change in the land use designation which requires a modification of the Palm Beach County Comprehensive Land Use Plan, which requires approval of both the county and the state. Beverly's chances for success are speculative. Further, of the four sites which Beverly has considered for locating its facility, one of those sites is smaller than the five acres which Beverly requires to develop its facility. Another of those sites does not have utilities in place to service the site, an expense Beverly has not included in its projected costs. Two of the sites are not located in zip code 33414. Even if land is available in Beverly's selected zip codes, Beverly's estimate of $350,000 for the purchase of land is unreasonably low. Second, Beverly underestimated its land development costs. For example, Beverly included no monies for water, sewer, or utility hook-up. In comparison, Manor Care assumed $165,000 for such hook-ups. Third, Beverly's total equipment cost appears understated. Equipping a sub-acute room is substantially more expensive than a normal room. Beverly proposed ten more sub- acute beds than Manor Care, yet its total equipment cost is almost $200,000 less. Fourth, Beverly's building cost per square foot is significantly less than Manor Care's. In three applications for a CON filed six months later than the one involved in this proceeding, Beverly estimates its construction cost as being $400,000 greater than the instant project for the same nursing home design. In explanation of this disparity, Beverly presented evidence that the subsequent applications were for an improved facility which would have a steel frame instead of the wood frame to be utilized at Wellington Terrace, and the HVAC system would be enhanced. Constructing its intended facility at Wellington rather than using the improved construction materials Beverly will use elsewhere is not a reason to approve Beverly's CON application in this proceeding. Fifth, Beverly's start-up cost of $75,000 is unreasonably low. That figure does not represent a calculation of specific items; rather, it is simply an aggregate figure which Beverly used. Beverly did not adequately explain the disparity between its start-up cost and Manor Care's $300,000 start-up cost, which is a reasonable figure. Finally, Beverly's construction period interest has not been shown to be reasonable and its application is not consistent with regard to financing and equity contribution. Although the Agency can authorize a cost overrun of up to 10 percent of an applicant's project cost, it is uncertain that Beverly has underestimated its project cost by only 10 percent. It is not good health planning to approve a project which will, in turn, require further Agency approval to implement. Further, this proceeding is a comparative review of the applications filed and the representations made therein. It would be inappropriate to approve an application containing projections which are suspect. Since both Manor Care and Beverly are able to secure the financing necessary for project accomplishment, both of their proposals have immediate financial feasibility. Manor Care's proposal also has long-term financial feasibility. The financial projections for Years 1 and 2 are based on reasonable utilization, revenue, and expense assumptions. Manor Care reasonably projects that it will be profitable in Year 2 of operation. Beverly is a large corporation with substantial resources. Because of this, it can be expected that Beverly's project, which will likely cost substantially more than Beverly projected, will be financially feasible in the long term although perhaps not as early as Year 2. Either Manor Care's or Beverly's project would enhance the existing long-term care system in Palm Beach County by providing needed skilled nursing services, services for Alzheimer's and related dementia disorders, sub-acute services, respite care, and adult day care. Both applicants have a corporate quality assurance program which is utilized and implemented at all nursing homes operated by that applicant. Those programs are intended to promote quality of life and quality of care for the residents. Both facilities would enjoy high utilization, and both proposed charges which are reasonable. Both projects will utilize corporate resources in a cost-efficient and cost-effective manner. Both Manor Care and Beverly have committed as a condition to the award of a CON to provide more Medicaid patient days than the nursing home average for Palm Beach County. Thus, both proposals promote access to Medicaid residents for nursing home services. Although Beverly's county-wide and statewide Medicaid averages are higher than Manor Care's, each facility of either applicant has met its CON condition regarding its Medicaid commitment. As required, JFK's application has been reviewed against the state and local health plan allocation factors as set forth in this Recommended Order. Its application meets the majority of those allocation factors. Moreover, some of those factors require that preference be given to programs which are of the specific nature proposed by JFK. Patients with a documented need for sub-acute skilled nursing services of the type proposed by JFK have been denied access to licensed but unoccupied skilled community nursing home beds in Palm Beach County. Those patients' needs for sub-acute skilled nursing services are documented in physician orders and plans of care contained in the patients' medical records. Generally, patients requiring a high level of nursing and restorative care have been denied access. Further, there are several specific categories of patients who have been unable to obtain timely discharges to skilled nursing facilities in Palm Beach County. These categories include: patients with chronic illness; patients who are ventilator dependent; diabetic patients; terminally ill patients; patients who require chemotherapy; AIDS patients; and patients with chronic obstructive lung disease. The difficulty in discharging these patients is a "daily to weekly" issue at JFK. Ventilator-dependent patients requiring skilled nursing care are routinely denied access to licensed but unoccupied skilled nursing beds in Palm Beach County. There are no long-term care beds in Palm Beach County that provide ventilator services, although some purport to do so. Palm Beach County patients who require long-term ventilator care must seek admission to Vencor Hospital in Fort Lauderdale, which is approximately forty-five miles from JFK. During peak season, Vencor generally does not have beds readily available. Patients who require long-term ventilator care often remain in acute care beds at JFK longer than warranted by their medical condition because there are not available appropriate facilities in Palm Beach County for their post-acute care. Patients discharged from JFK to Vencor for long-term ventilator care lose contact with their attending physicians, which impairs the continuity of care rendered to those patients. Patients placed at Vencor are further compromised by their family and friends' inability to travel to Fort Lauderdale to visit them. The support of family and friends is important in helping ventilator-dependent patients to wean themselves from the ventilator. JFK has experienced and anticipates it will continue to experience a significant increase in the number of its patients whose care is reimbursed under managed care plans. JFK's 1995 budget projects that 33 percent of the hospital's patient days will be attributable to managed care patients. Managed care plans have exerted pressure on JFK physicians to discharge patients as quickly as possible. Accordingly, patients discharged from JFK are often in a more acute phase of illness or injury than were comparable patients in past years. Patients discharged from JFK who require a heavier level of care have not, as a rule, been adequately served by Palm Beach County skilled nursing facilities. Community nursing homes in Palm Beach County do not offer sub-acute care of the nature proposed by JFK. As a result of patients being discharged "quicker and sicker" from JFK to community nursing facilities, JFK has experienced an increase in the rate of readmissions from community nursing facilities to JFK. The number of readmissions has grown from 115 in JFK's fiscal year 1991 to greater than 200 during its fiscal year 1993. This evidence confirms that existing community nursing home facilities do not serve as adequate or appropriate discharge alternatives for many JFK patients who require sub-acute care. JFK has the ability to provide a high quality of care to patients requiring sub-acute services. The Agency has determined JFK's quality assurance, utilization review, and resident care plans to be acceptable. JFK proposes a substantially higher number of nursing hours than required by licensure rules. Moreover, JFK proposes to provide RNs on a 24-hour basis, and to make available on a 24-hour basis to sub-acute patients its full panoply of ancillary and support services. The development of JFK's sub-acute unit will enhance the post-acute care provided to patients discharged from JFK's acute care beds. JFK has available the financial resources necessary to implement its sub-acute program and will be able to recruit the nursing and technical staff necessary. There is sufficient demand for the JFK program to assure that the program will be highly utilized. JFK's project will be financially feasible in the immediate and in the long-term. JFK's program will result in several cost related benefits, both to JFK and to the community it serves. First, because JFK will be able to discharge certain patients more rapidly to the sub-acute unit, it will avoid substantial operational expenses associated with caring for those patients in acute care beds. Based solely on the sample of patients referenced in JFK Exhibit 5, JFK would have avoided approximately $600,000 in annual operational expenses had a sub-acute unit been available at the hospital during 1992 and 1993. A contractual adjustment is the difference between the amount a hospital charges for a service and the amount it actually receives in payment for the service. The contractual adjustment is exacerbated where a patient's acute care length of stay extends beyond the number of days necessary to care for the acute needs of the patient. During the period March 1992-March 1994, JFK experienced a contractual adjustment of approximately $3,000,000 relative to the sample of 287 patients reflected in JFK Exhibit 5. That contractual adjustment is significant from a health care reimbursement perspective. JFK's contractual adjustments relative to patients who require post-discharge sub- acute care would be reduced if JFK were to establish a sub-acute unit, which would ameliorate JFK's financial losses associated with that category of patients. The development of a sub-acute program at JFK will benefit the Palm Beach County health care delivery system. The marginal or operational cost per day of providing acute care services at JFK is $350-$400 higher than the projected marginal cost per day of providing sub-acute care services. For every day that a JFK patient receives services in JFK's sub-acute unit, rather than in an acute care unit, the health care delivery system will save money. As JFK will incur significantly less expense in providing services to patients in a sub-acute unit, JFK will not have to subsidize the care it currently provides to sub-acute patients in the acute care setting. Accordingly, the development of JFK's sub-acute unit will have a downward pressure on future JFK rate increases, promoting cost containment, and will lower the cost of providing the sub-acute care services proposed by JFK. The development of JFK's sub-acute unit will allow the hospital to allocate its resources more efficiently, which further promotes cost containment. Further, the development of JFK's sub-acute unit constitutes an innovation in the delivery of health care services, which innovation will have a positive effect on competition. JFK is a not-for-profit hospital. It is JFK's policy to care for all persons regardless of financial condition, and JFK has outreach programs for persons with limited financial resources. While JFK's general admissions policy will apply to the sub-acute unit, JFK does not propose to serve a large number of Medicaid and indigent patients in that unit. JFK anticipates that Medicare will be the primary payor for approximately 90 percent of the patients served in the unit, given the unit's emphasis on restorative and rehabilitative care. Beverly or Manor Care will provide a majority of its services to Medicaid patients, thereby complementing JFK's proposal. JFK provides a full array of inpatient and outpatient health care services, including a diagnostic breast institute, an ambulatory surgery center, an outpatient comprehensive cancer center, primary care physician services, and home health services. Each of those services constitutes part of JFK's continuum of care. Sub-acute care services are the only link missing. The approval of its application will allow JFK to achieve full "vertical integration" i.e., a multi-level health care system, in that JFK will be able to provide its patients with services appropriate to their needs from pre-admission to JFK through post-discharge. Achieving vertical integration will enhance JFK's ability to contract with managed care companies, who endeavor to contract with organizations that offer a full continuum of care. JFK's establishment of a sub-acute unit will allow it to meet managed care companies' demand for capitated relationships, wherein the insurer pays an organization a flat amount, per covered life, to provide complete health care to its insured. The establishment of a sub-acute unit at JFK will allow the organization to reduce the cost of providing health care services to patients throughout its multi-level health care system and allow it to respond to the growing capitation market. Placing patients in the sub-acute environment, where they will consume fewer resources, will enable JFK to decrease the cost of providing health care to managed care companies and their subscribers. Finally, approval of JFK's application will allow JFK's patients to be followed by the same physicians who attended to them during their acute care hospitalization. Those patients who are capable of being transported elsewhere and are transferred to a sub-acute unit at a nursing home will seldom receive follow-up care from the physicians who performed their surgeries and otherwise attended to them during their acute episode. The overwhelming support of JFK's proposed sub-acute unit by the primary care and other specialized physicians at JFK, as evidenced by their testimony during the final hearing or by deposition admitted in evidence, is based upon their concern for their inability to follow up on their patient's care if those patients are elsewhere than in JFK. Those doctors who run office practices and work at JFK cannot spend a great deal of their day traveling around Palm Beach County from nursing home to nursing home to assure that their patients' recovery is progressing in addition to the time they spend visiting patients in the hospital and performing surgery and otherwise treating patients. Those physicians do not favor retaining the patients in acute care beds longer than is necessary, and that concern is not a result of concern for their personal incomes as was suggested by the Agency. Physicians are reimbursed at a higher rate for hospital visits than for visits to patients in skilled nursing units. Both continuity of care and successful outcome for the patient relate to continued care by the same physician.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered Granting Manor Care's CON application # 7375; Denying Beverly's CON application # 7372; and Granting JFK's CON application # 7374. DONE and ENTERED this 7th day of March, 1995, at Tallahassee, Florida. LINDA M. RIGOT 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 7th day of March, 1995. APPENDIX TO RECOMMENDED ORDER Beverly's proposed findings of fact numbered 5, 6, 8, 9, 13-19, 21, 23, 25-27, 31, 32, 34-43, 45-47, 51-54, 57, 60, 61, and 81 have been adopted either verbatim or in substance in this Recommended Order. Beverly's proposed findings of fact numbered 1, 3, 4, 63, and 67 have been rejected as not constituting findings of fact. Beverly's proposed findings of fact numbered 2, 24, 28, and 80 have been rejected as being irrelevant. Beverly's proposed findings of fact numbered 7, 22, 44, 48, 59, 64-66, 69-72, 75, 76, 82, and 84 have been rejected as not being supported by the weight of the evidence. Beverly's proposed findings of fact numbered 10, 11, 20, 29, 30, 33, 49, 50, 55, 56, 58, 62, 68, 73, 74, 77, and 78 have been rejected as being subordinate to the issues to be determined. Beverly's proposed findings of fact numbered 12, 79, and 83 have been rejected as being unnecessary. JFK's proposed findings of fact numbered 14-59 have been adopted either verbatim or in substance in this Recommended Order. JFK's proposed findings of fact numbered 1-13 have been rejected as being unnecessary. Manor Care's proposed findings of fact numbered 1-6, 13-42, 44-57, 59- 78, 82, 83, 89-114, 116, 118-120, 122-125, and 128-131 have been adopted either verbatim or in substance in this Recommended Order. Manor Care's proposed findings of fact numbered 8-12, 43, 115, and 117 have been rejected as not constituting findings of fact. Manor Care's proposed findings of fact numbered 7, 79, 80, 87, and 88 have been rejected as being unnecessary. Manor Care's proposed finding of fact numbered 58 has been rejected as not being supported by the weight of the evidence. Manor Care's proposed findings of fact numbered 81, 84-86, 121, 126, and 127 have been rejected as being subordinate to the issues to be determined. The Agency's proposed findings of fact numbered 1-6, 9-26, 28, 34, 38, 39, 53, 54, 57-61, and 65-69 have been adopted either verbatim or in substance in this Recommended Order. The Agency's proposed findings of fact numbered 7, 41, 55, 62, and 63 have been rejected as being subordinate to the issues to be determined. The Agency's proposed finding of fact numbered 8 has been rejected as being unnecessary. The Agency's proposed findings of fact numbered 27, 29-33, 35-37, 40, 42-46, 48-52, 56, and 70 have been rejected as not being supported by the weight of the evidence. The Agency's proposed finding of fact numbered 47 has been rejected as not constituting a finding of fact. The Agency's proposed finding of fact numbered 64 has been rejected as being irrelevant. COPIES FURNISHED: James C. Hauser, Esquire Parker, Skelding, Labasky, Corry, Eastman & Hauser, P.A. 318 North Monroe Street Tallahassee, Florida 32301 Douglas L. Mannheimer, Esquire Broad & Cassel 215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302 Robert A. Weiss, Esquire 118 North Gadsden Street, Suite 200 The Perkins House Tallahassee, Florida 32301 Lesley Mendelson, Esquire Agency for Health Care Administration The Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303-4131 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium Building, Suite 301 325 John Knox Road Tallahassee, Florida 32303-4131
The Issue The issue is whether the Agency for Health Care Administration should approve Petitioner's application for a Certificate of Need to establish a freestanding 44-bed long-term acute care hospital in Sarasota County.
Findings Of Fact Based upon the testimony and evidence received at the hearing and the parties' stipulations, the following findings are made: Parties Petitioner is a wholly-owned subsidiary of Select Medical Corporation (Select), which owns and operates 79 LTACHs in 24 states including a 40-bed LTACH in Miami-Dade County that was licensed in December 2002. The Agency is the state agency responsible for administering the CON process and licensing LTACHs and other hospital facilities. Petitioner’s Proposed LTACH In the first batching cycle of 2003 for “other beds and programs,” Petitioner timely filed an application for a CON to establish a freestanding 44-bed LTACH in Sarasota County. Sarasota County is located in District 8 for health planning purposes. The other counties in District 8 are DeSoto, Charlotte, Lee, Glades, Hendry, and Collier. Petitioner's proposed LTACH will be located in the city of Sarasota, which is in northern Sarasota County, close to the boundary between Sarasota and Manatee Counties. Petitioner projected in the application that its proposed LTACH would be operational by June 2005. The utilization projections in the application focused on the facility's third year of operation, which is the 12-month period ending June 2008. The specific mix of services to be provided at Petitioner’s proposed LTACH has not yet been determined; however, it is expected that the services will include the same "core" services found at other Select LTACHs. Those services are the treatment of pulmonary and ventilator patients, neuro- trauma and stroke patients, medically complex patients, and wound care. Petitioner’s facility will include a four-bed “high observation” unit in which the most unstable and highest acuity patients will be located. The nurse-to-patient ratio in that unit will be two-to-one, and the level of monitoring will be similar to that of an intensive care unit (ICU) in a general acute care hospital. Application Review and Denial Petitioner's application was designated CON 9657, and was reviewed along with the CON application filed by Petitioner for a 60-bed LTACH in Lee County. The Lee County application, CON 9656, is not at issue in this proceeding. On June 11, 2003, the Agency issued its State Agency Action Report (SAAR), which recommended denial of both CON applications filed by Petitioner. The primary basis for denial of the Sarasota County application described in the SAAR was Petitioner's failure to demonstrate a need for its proposed 44- bed LTACH. The parties stipulated that Petitioner's CON application satisfied all of the applicable statutory and rule criteria except those related to "need," and that the only issue to be determined in this proceeding is whether Petitioner established a need for its proposed facility.1 LTACHs, Generally LTACHs are health care facilities that provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions. To qualify as an LTACH, the facility must serve a patient population whose average length of stay exceeds 25 days. LTACH services are most highly utilized by persons in the 65 and older (“65+”) age cohort because those persons are more likely to have complex and/or co-morbid medical conditions that require long-term acute care. The typical LTACH patient is still in need of considerable acute care, but a traditional acute care hospital is no longer the most appropriate or lowest cost setting for that care. Most LTACH admissions are patients transferred from a traditional acute care hospital. It is not uncommon for an LTACH patient to be transferred directly from the hospital's critical care unit or ICU after the patient has been diagnosed and stabilized. Traditional post-acute care settings -- nursing homes, skilled nursing facilities (SNFs), skilled nursing units (SNUs), comprehensive medical rehabilitation (CMR) hospitals, and home health care -- are not appropriate for the typical LTACH patient because the patient's acuity level and medical/therapeutic needs are higher than those generally treated in those settings. Indeed, unlike traditional post-acute care settings which typically do not admit patients who still require acute care, the core patient-group served by LTACHs are patients who require considerable acute care through daily physician visits and intensive nursing care which can average as much as nine hours per day. LTACH patients are often discharged to a traditional post-acute care setting such as a nursing home, SNF, SNU, CMR, or home health care. Thus, those facilities cannot be considered as "substitutes" for LTACHs, even though there is overlap between the diagnoses and services provided to lower acuity LTACH patients and higher acuity patients in those traditional post-acute care settings. The federal government has recently developed a Medicare payment system specifically for LTACHs. That system recognizes the LTACH patient population as being distinct from the patient populations treated by traditional acute care hospitals and post-acute care providers such as nursing homes, SNFs, SNUs, and CMRs, even though there may be some overlap between the patient populations served by LTACHs and those other types of facilities. LTACH services are reimbursed by Medicare at a predetermined rate that is weighted based upon the patient's diagnosis and acuity, regardless of the cost of care. This reimbursement system is similar to, but uses Diagnosis Related Groups (DRGs) that are different than the DRGs used in the traditional acute care hospital setting. LTACHs fit into the continuum of care between traditional acute care hospitals and traditional post-acute care facilities. LTACHs are designed to serve patients that would otherwise have to be maintained in a traditional acute care hospital, where the standard reimbursement rates may be insufficient to cover the costs associated with a lengthy stay, or be moved to an alternative setting such as a nursing home, SNF, SNU, or CMR, where the patient may not receive the level of curative care needed. The recently-adopted, LTACH-specific system for Medicare reimbursements is expected to enhance the status of LTACHs as part of the continuum of care. LTACHs in Florida Currently, there are only nine LTACHs operating in Florida with a total of 683 licensed beds. The facilities are concentrated in six counties, Dade, Broward, Hillsborough, Pinellas, Duval, and Clay. There are an additional 182 beds which have been approved by the Agency but which are not yet operational. Those beds include a new 40-bed facility in Sarasota County (discussed below) and an additional 22 beds at the existing 60-bed Pinellas County facility, which is in the health planning district (District 5) immediately to the north of District 8. The Pinellas County facility is located in St. Petersburg, which is approximately 25 to 30 miles north of Petitioner’s proposed facility. The Florida LTACH facilities are well utilized. The occupancy rates at the facilities range from 54.6 percent to 99.2 percent. Four of the nine facilities have occupancy rates higher than 80 percent, and the average occupancy rate for all of the facilities is 76.6 percent. The average length of stay for all patients discharged from Florida LTACHs between July 2001 and June 2002 was 42.2 days. The 65+ age cohort accounted for approximately 77 percent of the LTACH discharges in Florida for that period. Relevant Demographics of Sarasota County The 2003 population of Sarasota County was 343,966, which was 25.8 percent of the total District 8 population. In 2008, which is the third year of operation for Petitioner's proposed LTACH, the population of Sarasota County is projected to increase by 6.2 percent to 365,439. Over that same period, the population of District 8 as a whole is projected to increase by 10.4 percent. The 65+ age cohort, which is the group most likely to utilize LTACH services and the group that utilizes LTACH services at the highest rate, represents 31.2 percent of Sarasota County's 2003 population and 31.5 percent of the county's projected 2008 population. By contrast, in 2003 the District 8 average for the 65+ age cohort was 26.9 percent and the statewide average was 17.5 percent. Sarasota County has a higher percentage of persons in the 65+ age cohort than do any of the counties that currently have an LTACH facility. Pinellas County, with 22 percent of its population in the 65+ age cohort (and 82 licensed and approved LTACH beds), has the highest rate of the counties with LTACHs. There are four acute care hospitals in Sarasota County, two of which -- Sarasota Memorial Hospital and Doctors Hospital of Sarasota -- are located in the city of Sarasota in close proximity to the proposed location of Petitioner's LTACH. The other two hospitals in Sarasota County -- Bon Secours Venice Hospital and Englewood Community Hospital -- are located in the southern part of the county and are 16 miles and 28 miles, respectively, from the proposed location of Petitioner's LTACH. In the CON application, Petitioner stated that the four hospitals in Sarasota County would "provide a solid base of patients" for the proposed LTACH. The application further stated that patients would also likely come from three hospitals in Charlotte County -- Charlotte Regional Medical Center, Fawcett Memorial Hospital, and Bon Secours St. Joseph Hospital - - and one hospital in DeSoto County -- Desoto Memorial Hospital -- even though the Charlotte County hospitals are almost 40 miles from the proposed site of Petitioner's LTACH and the DeSoto County hospital is more than 40 miles from the proposed site. The record does not reflect how many total acute care beds are in these hospitals, nor does it reflect whether any of the hospitals are trauma centers or whether they have any specialty programs that might impact (either positively or negatively) the potential LTACH patient pool for Petitioner's proposed facility. Approved LTACH in District 8 There are no LTACHs currently operating in Sarasota County or District 8. HealthSouth received a CON in October 2002 to establish a freestanding 40-bed LTACH in Sarasota County, but that facility has not yet opened. HealthSouth is behind schedule in the development of its LTACH. If HealthSouth does not "break ground" on its LTACH by April 2004, its CON will expire; however, as of the date of the hearing, HealthSouth's CON was still valid. The Agency expressed a concern in the SAAR that "the ultimate development of the HealthSouth LTCH [sic] in District 8 is uncertain" based upon legal and financial problems at HealthSouth. However, as of the date of the hearing, the Agency had not received any formal indication from HealthSouth that it is not going forward with the development of its Sarasota County LTACH. HealthSouth did not seek to intervene in this proceeding. Numeric Need for Petitioner’s Proposed LTACH Petitioner has the burden to demonstrate "need" for its proposed LTACH. The Agency does not publish a fixed-need pool for LTACHs, nor is there an Agency rule which provides a specific formula or methodology for determining numeric need for an LTACH.2 HealthSouth's 40 approved, but not yet operational LTACH beds must be factored into the analysis of need for any additional LTACH beds in District 8. Accordingly, it is necessary for Petitioner to demonstrate a numeric need for at least 84 LTACH beds for its application to be granted. The application states that “the primary service area [for Petitioner’s proposed LTACH] is Sarasota County and the broader service area includes portions of Charlotte County and DeSoto County . . . .” This service area encompasses an approximately 40-mile radius around the site of the proposed facility, and includes the eight acute care hospitals referenced above. In contrast to the application’s description of the service area, Petitioner’s expert witness in the area of LTACH development, Greg Sasserman, testified that the “actual” service area for Petitioner’s proposed LTACH would be a 10 to 20-mile radius around the facility. That distance is a more reasonable estimate of the distance that patients would likely travel for LTACH services. In its application, Petitioner attempted to demonstrate numerical need for the proposed facility under two distinct methodologies, one based upon "use rate" and another based upon "length of stay." “Use Rate” Methodology Petitioner’s "use rate" methodology projected the number of LTACH patient days that will likely be generated by Sarasota County residents based upon the utilization rates of LTACH services by the residents of the counties in which LTACH facilities are currently located. The utilization rates for the existing facilities were calculated by age cohort and were shown as a number of patient days per 1,000 persons in each age cohort. Those rates were then applied to the projected population of Sarasota County in 2008 in each age cohort in order to calculate a projected number of patient days that will be generated by Sarasota County residents in that year. Those patient days were then "grossed up” by an occupancy standard of 80 percent and then "grossed up" by an additional 44.5 percent to account for patients coming to the facility from outside of Sarasota County. The utilization rate calculated under this methodology is not a true “statewide” rate. The existing LTACHs are concentrated in only six of the states 67 counties, and more significantly, Petitioner excluded the facilities in Miami-Dade and Pinellas Counties from its calculations because their utilization rates were, according to Petitioner, “misleadingly conservative.” The 44.5 percent out-of-county rate was purportedly derived from the experience of the other LTACHs operating in Florida. However, the record does not include the raw data upon which that rate was calculated, and it does not reflect whether the rate includes the two facilities excluded from the calculation of the “statewide” utilization rate or the distances from which out-of-county patients are drawn to the facilities. Nor can the 44.5 percent rate be squared with the calculations of potential LTACH discharges from the eight area hospitals as part of the “length of stay” methodology (discussed below), which reflect only 24.7 to 26.8 percent of the patients coming from hospitals outside of Sarasota County.3 Petitioner's calculations produced an estimate of 29,654 LTACH patient days generated by Sarasota County residents in 2008, which translated into an average daily census (ADC) of 81 patients and a need for 101 LTACH beds; and an estimate of 53,431 LTACH patient days, which translated into an ADC of 146 patients and a need for 182 LTACH beds when the out-of-county residents were taken into consideration. Use rate methodologies are commonly used by health planners to project need for acute care beds and other types of services. However, in the LTACH context, a use rate methodology is not necessarily a reliable indicator of bed need because the existing LTACHs are not evenly distributed statewide and the utilization rates for the existing LTACHs vary significantly. The unreliability of Petitioner’s “use rate” analysis is further demonstrated by the fact that Petitioner excluded two of the existing facilities in the calculation of its “statewide” utilization rate. If the utilization rates of those facilities were included, the number of patient days and bed need projected by Petitioner would have been lower. “Length of Stay” Methodology Petitioner’s "length of stay" methodology projected bed need based upon an analysis of the discharges from the eight District 8 hospitals identified above. More specifically, the analysis focused on the discharges that Petitioner considered to be “appropriate” LTACH admissions based upon the nature of the patient’s diagnosis and the length of the patient’s stay at the hospital. Open heart surgery DRGs were included in the analysis, and DRGs “for people age 0 to 17, obstetric and gynecological care, newborns, alcohol and drug abuse, rehabilitation and psychoses” were excluded from the analysis. The application also makes various references to LTACH-appropriate diagnoses by Major Diagnostic Category (MDC) and "program area"; however, the specific discharges identified by Petitioner as being potential LTACH patients from the eight hospitals are not broken down by DRG in the application. Petitioner used two approaches to determine whether the patient is an “appropriate” LTACH patient from a length of stay perspective. Both approaches estimate the number of days that patients who otherwise would have remained in and been discharged from an acute care hospital would have likely spent at an LTACH, if one was available The first approach, which was characterized in the application and at hearing as the more “conservative” measure, only considered patients whose length of stay at the acute care hospital was at least 15 days longer than the geometric mean length of stay (GMLOS) for the patient's DRG (hereafter “the GMLOS plus 15 methodology.)” The estimated number of patient days produced by the GMLOS plus 15 methodology is the sum of the patients' actual lengths of stay less the GMLOS, which represents the number of days that the patients would likely stay in the LTACH facility. The second approach, which was characterized in the application as the more “aggressive” measure, considered all patients whose length of stay was more than 15 days (hereafter “the LOS plus 15 methodology”). The estimated number of patient days produced by the LOS plus 15 methodology is the sum of the patients' actual lengths of stay less 15 days, which again reflects the number of days that the patients would likely stay in an LTACH facility. The GMLOS is a statistically-adjusted value for all cases within a DRG that takes into account “outlier” cases,4 transfer cases, and other cases that could skew an arithmetic average length of stay. The GMLOS is calculated by the federal government. The only difference in the two approaches is that the GMLOS plus 15 methodology includes only those patients with considerably longer lengths of stay than expected for their diagnoses (i.e., 15 days in excess of the GMLOS for the applicable DRG), whereas the LOS plus 15 methodology includes all patients with long lengths of stay (i.e., in excess of 15 days) irrespective of their diagnoses. Patients who, because of co-morbidities, otherwise complex medical conditions, or frailties due to age, have lengths of stay in excess of the GMLOS plus 15 days are generally appropriate LTACH patients, particularly if the patient would otherwise remain in the ICU of the acute care hospital. In such circumstances, an LTACH would likely be the more appropriate setting for the patient from both a financial and patient-care standpoint. The GMLOS plus 15 methodology resulted in an estimated 13,263 LTACH patient days, which translates into an ADC of 36.3 patients and a need of 45 LTACH beds based upon an 80 percent occupancy standard. The LOS plus 15 methodology resulted in an estimated 21,753 LTACH patient days, which translates into an ADC of 59.6 patients and a need for 74 LTACH beds based upon an 80 percent occupancy standard. The patient days computed through the GMLOS plus 15 methodology and the LOS plus 15 methodology were characterized in the application and at the hearing as the lower and upper ends, respectively, of the projected LTACH patient days in the area to be served by Petitioner’s proposed LTACH. The mid-point of that range, 17,508 patient days, was then broken out by age cohort and was used to compute “hospital specific” utilization rates by age cohort. Those “hospital-specific” utilization rates were then multiplied by the projected future population of the respective age cohorts in the area to be served by Petitioner’s LTACH – Sarasota County and one-half of the population of Charlotte County – to project the total number of LTACH beds needed in 2008. No adjustment was made for out-of-county admissions because the hospitals included in both of the length-of-stay methodologies already included projected admissions from out-of- county hospitals. The end-result of the mid-point analysis and, hence, the end-result of Petitioner’s “length of stay” methodology was a projected need for 67 LTACH beds in 2008. Under the circumstances of this case, the GMLOS plus 15 methodology provides a more reasonable projection of LTACH patient days than does the LOS plus 15 methodology or the mid- point analysis. Specifically, the LOS plus 15 methodology is based upon the premise that physicians would be more likely to transfer their patients who would otherwise require long hospital lengths of stays to an LTACH “as soon as possible in their treatment regiment when LTAC [sic] beds are available,” but the record is devoid of competent evidence, such as letters or testimony from local physicians, that would provide support for that premise. Both of the “length of stay” methodologies appear to assume a 100 percent capture rate of the LTACH-appropriate patients by Petitioner’s proposed facility. The record is devoid of competent evidence demonstrating the reasonableness of that assumption, either with or without the HealthSouth facility in place. For example, the record does not include any tentative transfer agreements or other documentation that demonstrates a willingness of the local hospitals to transfer patients to Petitioner’s LTACH if it is constructed.5 Furthermore, based upon Mr. Sasserman’s definition of the service area of Petitioner’s proposed LTACH, it was not reasonable to include the patient days generated by discharges from five of the eight hospitals used by Petitioner in its “length of stay” methodologies, since those hospitals are outside of the 10 to 20-mile radius identified by Mr. Sasserman. Finally, there is no basis in the record to conclude that any overstatement of the bed need resulting from the inclusion of hospitals outside of the service area as defined by Mr. Sasserman would be offset by referrals from Manatee Memorial Hospital, which is located in District 5 approximately 10 miles north of the proposed site for Petitioner’s LTACH. The testimony on this point by Mr. Sasserman and Petitioner's Health Planner is pure speculation. Ultimate Findings Regarding Numeric “Need” The bed need projected by Petitioner through its “use rate” methodology is not reliable because of the significant shortcomings in that methodology described above. Of the two measures used by Petitioner as part of its “length of stay” methodology, the GMLOS plus 15 methodology is more reasonable than the LOS plus 15 methodology; however, neither methodology resulted in a projected bed need that is sufficient to account for HealthSouth’s 40 approved beds and Petitioner’s 44 proposed beds.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency for Health Care Administration issue a final order denying Petitioner’s application for a Certificate of Need to establish a 44-bed LTACH in Sarasota County. DONE AND ENTERED this 15th day of March, 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 15th day of March, 2004.
The Issue The issue is whether BayCare Long Term Acute Care Hospital, Inc.'s Certificate of Need Application No. 9753 and University Community Hospital's Certificate of Need Application No. 9754, both submitted to the Agency for Health Care Administration, should be approved.
Findings Of Fact LTCHs defined An LTCH is a medical facility which provides extended medical and rehabilitation care to patients with multiple, chronic, or clinically complex acute medical conditions. These conditions include, but are not limited to, ventilator dependency, tracheotomy care, total parenteral nutrition, long- term intravenous anti-biotic treatment, complex wound care, dialysis at bedside, and multiple systems failure. LTCHs provide an interdisciplinary team approach to the complex medical needs of the patient. LTCHs provide a continuum of care between short-term acute care hospitals and nursing homes, skilled nursing facilities (SNFs), or comprehensive medical rehabilitation facilities. Patients who have been treated in an intensive acute care unit at a short-term acute care hospital and who continue to require intensive care once stabilized, are excellent candidates for care at an LTCH. Included in the interdisciplinary approach is the desired involvement of the patient's family. A substantial number of the patients suitable for treatment in an LTCH are in excess of 65 years of age, and are eligible for Medicare. Licensure and Medicare requirements dictate that an LTCH have an average length of stay (ALOS) of 25 days. The Center for Medicare and Medicaid Services (CMS) reimburses for care received through the prospective payment system (PPS). Through this system, CMS reimburses the services of LTCHs separately from short-term acute care providers and other post acute care providers. The reimbursement rate for an LTCH under PPS exceeds that of other providers. The reimbursement rate for an LTCH is about twice that of a rehabilitation facility. The increased reimbursement rate indicates the increased cost due to the more intensive care required in an LTCH. The Agency The Agency is a state agency created pursuant to Section 20.42. It is the chief health policy and planning entity for the State of Florida. The Agency administers the Health Facility and Services Development Act found at Sections 408.031-408.045. Pursuant to Section 408.034, the Agency is designated as the single state Agency to issue, revoke, or deny certificates of need. The Agency has established 11 health service planning districts. The applications in this case are for facilities in District 5, which comprises Pinellas and Pasco counties. UCH UCH is a not-for-profit organization that owns and operates a 431-bed tertiary level general acute care hospital and a 120-bed acute care general hospital. Both are located in Hillsborough County. UCH also has management responsibilities and affiliations to operate Helen Ellis Hospital, a 300-bed hospital located in Tarpon Springs, and manages the 300-bed Suncoast Hospital. Both of these facilities are in Pinellas County. UCH also has an affiliation to manage the open heart surgery program at East Pasco Medical Center, a general acute care hospital located in Pasco County. As a not-for-profit organization, the mission of UCH is to provide quality health care services to meet the needs of the communities where it operates regardless of their patients' ability to pay. Baycare BayCare is a wholly-owned subsidiary of BayCare Healthsystems, Inc. (BayCare Systems). BayCare Systems is a not-for-profit entity comprising three members that operate Catholic Health East, Morton Plant Mease Healthcare, and South Florida Baptist. The facilities owned by these organizations are operated pursuant to a Joint Operating Agreement (JOA) entered into by each of the participants. BayCare Systems hospitals include Morton Plant Hospital, a 687-bed tertiary level facility located in Clearwater, Pinellas County; St. Joseph's Hospital, an 887-bed tertiary level general acute care hospital located in Tampa, Hillsborough County; St. Anthony's Hospital, a 407-bed general acute care hospital located in St. Petersburg, Pinellas County; and Morton Plant North Bay, a 120-bed hospital located in New Port Richey, Pasco County. Morton Plant Mease Health Care is a partnership between Morton Plant Hospital and Mease Hospital. Although Morton Plant Mease Healthcare is a part of the BayCare System, the hospitals that are owned by the Trustees of Mease Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside, are not directly members of the BayCare System and are not signatories to the JOA. HealthSouth HealthSouth is a national company with the largest market share in inpatient rehabilitation. It is also a large provider of ambulatory services. HealthSouth has about 1,380 facilities across the nation. HealthSouth operates nine LTCHs. The facility that is the Intervenor in this case is a CMR located in Largo, Pinellas County. Kindred Kindred, through its parent company, operates LTCH facilities throughout Florida and is the predominant provider of LTCH services in the state. In the Tampa Bay area, Kindred operates three LTCHs. Two are located in Tampa and one is located in St. Petersburg, Pinellas County. The currently operating LTCH in District 5 that may be affected by the CON applications at issue is Kindred-St. Petersburg. Kindred-St. Petersburg is a licensed 82-bed LTCH with 52 private beds, 22 semi-private beds, and an 8-bed intensive care unit. It operates the array of services normally offered by an LTCH. It is important to note that Kindred-St. Petersburg is located in the far south of heavily populated District 5. The Applications UCH proposes a new freestanding LTCH which will consist of 50 private rooms and which will be located in Connerton, a new town being developed in Pasco County. UCH's proposal will cost approximately $16,982,715. By agreement of the parties, this cost is deemed reasonable. BayCare proposes a "hospital within a hospital" LTCH that will be located within Mease Hospital-Dunedin. The LTCH will be located in an area of the hospital currently used for obstetrics and women's services. The services currently provided in this area will be relocated to Mease Hospital- Countryside. BayCare proposes the establishment of 48 beds in private and semi-private rooms. Review criteria which was stipulated as satisfied by all parties Section 408.035(1)-(9) sets forth the standards for granting certificates of need. The parties stipulated to satisfying the requirements of subsections (3) through (9) as follows. With regard to subsection (3), 'The ability of the applicant to provide quality of care and the applicant's record of providing quality of care,' all parties stipulated that this statutory criterion is not in dispute and that both applicants may be deemed to have satisfied such criteria. With regard to subsection (4), 'The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation,' it was stipulated that both applicants have all resources necessary in terms of both capital and staff to accomplish the proposed projects, and therefore, both applicants satisfy this requirement. With regard to subsection (5), 'The extent to which the proposed services will enhance access to health care for residents of the service district,' it was stipulated that both proposals will increase access. Currently there are geographic, financial and programmatic barriers to access in District 5. The only extant LTCH is located in the southernmost part of District 5. With regard to subsection (6), 'The immediate and long-term financial feasibility of the proposal,' the parties stipulated that UCH satisfied the criterion. With regard to BayCare, it was stipulated that its proposal satisfied the criterion so long as BayCare can achieve its utilization projections and obtain Medicare certification as an LTCH and thus demonstrate short-term and long-term feasibility. This issue will be addressed below. With regard to subsection (7), 'The extent to which the proposal will foster competition that promotes quality and cost- effectiveness,' the parties stipulated that approval of both applications will foster competition that will promote quality and cost effectiveness. The only currently available LTCH in District 5, unlike BayCare and UCH, is a for-profit establishment. With regard to subsection (8), 'The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction,' the parties stipulated that the costs and methods of construction for both proposals are reasonable. With regard to subsection (9), 'the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent,' it was stipulated that both UCH and BayCare have a demonstrated history and a commitment to providing services to Medicaid, Medicaid HMO, self-pay, and underinsured payments. Technically, of course, BayCare has no history at all. However, its sponsors do, and it is they that will shape the mission for BayCare. BayCare's Medicare certification as an LTCH The evidence of record demonstrates that BayCare can comply with Medicare reimbursement regulations and therefore can achieve its utilization projections and obtain Medicare certification as an LTCH. Thus short-term and long-term feasibility is proven. Because BayCare will be situated as a hospital within a hospital, in Mease Hospital Dunedin, and because there is a relationship between that hospital and BayCare Systems, Medicare reimbursement regulations limit to 25 percent the number of patients that may be acquired from Mease Hospital Dunedin or from an organization that controls directly or indirectly the Mease Hospital Dunedin. Because of this limitation, it is, therefore, theoretically possible that the regulator of Medicare payments, CMS, would not allow payment where more than 25 percent of admissions were from the entire BayCare System. Should that occur it would present a serious but not insurmountable problem to BayCare. BayCare projects that 21 percent of its admissions will come from Mease Hospital Dunedin and the rest will come from other sources. BayCare is structured as an independent entity with an independent board of directors and has its own chief executive officer. The medical director and the medical staff will be employed by the independent board of directors. Upon the greater weight of the evidence, under this structure, BayCare is a separate corporate entity that neither controls, nor is controlled by, BayCare Systems or any of its entities or affiliates. One must bear in mind that because of the shifting paradigms of federal medical regulation, predictability in this regard is less than perfect. However, the evidence indicates that CMS will apply the 25 percent rule only in the case of patients transferring to BayCare from Mease Hospital Dunedin. Most of the Medicare-certified LTCHs in the United States operate as hospitals within hospitals. It is apparent, therefore, that adjusting to the CMS limitations is something that is typically accomplished. BayCare will lease space in Mease Hospital Dunedin which will be vacated by it current program. BayCare will contract with Mease Hospital Dunedin for services such as laboratory analysis and radiology. This arrangement will result in lower costs, both in the short term and in the long term, than would be experienced in a free-standing facility, and contributes to the likelihood that BayCare is feasible in the short term and long term. Criteria related to need The contested subsections of Section 408.035 not heretofore addressed, are (1) and (2). These subsections are illuminated by Florida Administrative Code Rule 59C- 1.008(2)(e)2., which provides standards when, as in this case, there is no fixed-need pool. Florida Administrative Code Rule 59C-1.008(2)(e)2., provides as follows: 2. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, sub district or both; Medical treatment trends; and Market conditions. Population Demographics and Dynamics The applicants presented an analysis of the population demographics and dynamics in support of their applications in District 5. The evidence demonstrated that the population of District 5 was 1,335,021 in 2004. It is anticipated that it will grow to 1,406,990 by 2009. The projected growth rate is 5.4 percent. The elderly population in the district, which is defined as persons over the age of 65, is expected to grow from 314,623 in 2004, to 340,676, in 2009, which represents an 8.3 percent increase. BayCare BayCare's service area is defined generally by the geographic locations of Morton Plant Hospital, Morton Plant North Bay Hospital, St. Anthony's Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside. These hospitals are geographically distributed throughout Pinellas County and southwest Pasco County and are expected to provide a base for referrals to BayCare. There is only one extant LTCH in Pinellas County, Kindred, and it is located in the very southernmost part of this densely populated county. Persons who become patients in an LTCH are almost always moved to the LTCH by ambulance, so their movement over a long distance through heavy traffic generates little or no problem for the patient. Accordingly, if patient transportation were the only consideration, movement from the north end of the county to Kindred in the far south, would present no problem. However, family involvement is a substantial factor in an interdisciplinary approach to addressing the needs of LTCH patients. The requirement of frequent movement of family members from northern Pinellas to Kindred through congested traffic will often result in the denial of LTCH services to patients residing in northern Pinellas County or, in the alternative, deny family involvement in the interdisciplinary treatment of LTCH patients. Approximately 70 letters requesting the establishment of an LTCH in northern Pinellas County were provided in BayCare's application. These letters were written by medical personnel, case managers and social workers, business persons, and government officials. The thread common to these letters was, with regard to LTCH services, that the population in northern Pinellas County is underserved. UCH Pasco County has experienced a rapid population growth. It is anticipated that the population will swell to 426,273, in 2009, which represents a 10.1 percent increase over the population in 2004. The elderly population accounts for 28 percent of the population. This is about 50 percent higher than Florida as a whole. Rapid population growth in Pasco County, and expected future growth, has resulted in numerous new housing developments including Developments of Regional Impact (DRI). Among the approved DRI's is the planned community of Connerton, which has been designated a "new town" in Pasco County's Comprehensive Plan. Connerton is a planned community of 8,600 residential units. The plan includes space for a hospital and UCH has negotiated for the purchase of a parcel for that purpose within Connerton. The rate of growth, and the elderly population percentages, will support the proposed UCH LTCH and this is so even if BayCare establishes an LTCH in northern Pinellas County. Availability, utilization, and quality of like services in the district, sub-district, or both The Agency has not established sub-districts for LTCHs. As previously noted, Kindred is the only LTCH extant in District 5. It is a for-profit facility. Kindred was well utilized when it had its pediatric unit and added 22 additional beds. Subsequently, in October 2002, some changes in Medicare reimbursement rules resulted in a reduction of the reimbursement rate. This affected Kindred's income because over 70 percent of its patients are Medicare recipients. Kindred now uses admission criteria that have resulted in a decline in patient admissions. From 1998, the year after Kindred was established, until 2002, annual utilization was in excess of 90 percent. Thereafter, utilization has declined, the 22-bed addition has been shut down, and Kindred projects an occupancy of 55 percent in 2005. Kindred must make a profit. Therefore, it denies access to a significant number of patients in District 5. It denies the admission of patients who have too few "Medicare- reimbursable days" or "Medicaid-reimbursable days" remaining. The record indicates that Kindred only incurs charity care or Medicaid patient days when a patient admitted to Kindred with seemingly adequate funding unexpectedly exhausts his or her funding prior to discharge. Because of the constraints of PPS, Kindred has established admission criteria that excludes certain patients with conditions whose prognosis is so uncertain that it cannot adequately predict how long they will require treatment. Kindred's availability to potential patients is thus constrained. HealthSouth, a licensed CMR, is not a substitute for an LTCH. Although it is clear that there is some overlap between a CMR and an LTCH, HealthSouth, for instance, does not provide inpatient dialysis, will not accept ventilator patients, and does not treat complex wound patients. The nurse staffing level at HealthSouth is inadequate to provide for the type of patient that is eligible for treatment in an LTCH. The fact that LTCHs are reimbursed by Medicare at approximately twice the rate that a CMR is reimbursed, demonstrates the higher acuity level of LTCH services when compared to a CMR. HealthSouth is a facility which consistently operates at high occupancy levels and even if it were capable of providing the services typical of an LTCH, it would not have sufficient capacity to provide for the need. A CMR is a facility to which persons who make progress in an LTCH might repair so that they can return to the activities of daily living. SNFs are not substitutes for LTCHs although there could be some limited overlap. SNFs are generally not appropriate for patients otherwise eligible for the type of care provided by an LTCH. They do not provide the range of services typically provided by an LTCH and do not maintain the registered nurse staffing levels required for delivering the types of services needed for patients appropriate for an LTCH. LTCHs are a stage in the continuum of care. Short- term acute care hospitals take in very sick or injured patients and treat them. Thereafter, the survivors are discharged to home, or to a CMR, or to a SNF, or, if the patients are still acutely ill but stable, and if an LTCH is available, to an LTCH. As noted above, currently in northern Pinellas County and in Pasco County, there is no reasonable access to an LTCH. An intensive care unit (ICU) is, ideally, a treatment phase that is short. If treatment has been provided in an ICU and the patient remains acutely ill but stable, and is required to remain in the ICU because there is no alternative, greater than necessary costs are incurred. Staff in an ICU are not trained or disposed to provide the extensive therapy and nursing required by patients suitable for an LTCH and are not trained to provide support and training to members of the patient's family in preparation for the patient's return home. The majority of patients suitable for an LTCH have some potential for recovery. This potential is not realized in an ICU, which is often counterproductive for patients who are stabilized but who require specialized long-term acute care. Patients who remain in an ICU beyond five to seven days have an increased morbidity/mortality rate. Maintaining patients suitable for an LTCH in an ICU also results in over-utilization of ICU services and can cause congestion when ICU beds are fully occupied. UCH in Pasco County, and to a lesser extent BayCare in northern Pinellas County, will bring to the northern part of District 5 services which heretofore have not been available in the district, or, at least, have not been readily available. Persons in Pasco County and northern Pinellas County, who would benefit from a stay in an LTCH, have often had to settle for some less appropriate care situation. Medical Treatment Trends LTCHs are relatively new cogs in the continuum of care and the evidence indicates that they will play an important role in that continuum in the future. The evidence of record demonstrates that the current trend in medical treatment is to find appropriate post acute placements in an LTCH setting for those patients in need of long-term acute care beyond the stay normally experienced in a short-term acute care hospital. Market conditions The federal government's development of the distinctive PPS for LTCHs has created a market condition which is favorable for the development of LTCH facilities. Although the Agency has not formally adopted by rule a need methodology specifically for LTCHs, by final order it has recently relied upon the "geometric mean length of stay + 7" (GMLOS +7) need methodology. The GMLOS +7 is a statistical calculation used by CMS in administering the PPS reimbursement system in determining an appropriate reimbursement for a particular "diagnostic related group" (DRG). Other need methodologies have been found to be unsatisfactory because they do not accurately reflect the need for LTCH services in areas where LTCH services are not available, or where the market for LTCH services is not competitive. GMLOS +7 is the best analysis the Agency has at this point. Because the population for whom an LTCH might be appropriate is unique, and because it overlaps with other populations, finding an algebraic need expression is difficult. An acuity measure would be the best marker of patient appropriateness, but insufficient data are available to calculate that. BayCare's proposal will provide beneficial competition for LTCH services in District 5 for the first time and will promote geographic, financial, and programmatic access to LTCH services. BayCare, in conducting its need calculations used a data pool from Morton Plant Hospital, Mease Dunedin Hospital, Mease Countryside Hospital, Morton Plant North Bay Hospital, and St. Anthony's Hospital for the 12 months ending September 2003. The hospitals included in the establishment of the pool are hospitals that would be important referral sources for BayCare. BayCare then identified 160 specific DRGs historically served by existing Florida LTCHs, or which could have been served by Florida LTCHs, and lengths of stay greater than the GMLOS for acute care patients, and compared them to the data pool. This resulted in a pool of 871 potential patients. The calculation did not factor in the certain growth in the population of the geographic area, and therefore the growth of potential LTCH patients. BayCare then applied assumptions based on the proximity of the referring hospitals to the proposed LTCH to project how many of the patients eligible for LTCH services would actually be referred and admitted to the proposed LTCH. That exercise resulted in a projected potential volume of 20,265 LTCH patient days originating just from the three District 5 BayCare hospitals and the two Mease hospitals. BayCare assumes, and the assumption is found to be reasonable, that 25 percent of their LTCH volume will originate from facilities other than BayCare or Mease hospitals. Adding this factor resulted in a total of 27,020 patient days for a total net need of 82 beds at 90 percent occupancy. BayCare's GMLOS +7 bed need methodology reasonably projects a bed need of 82 beds based on BayCare's analysis of the demand arising from the three District 5 BayCare hospitals and the two Mease hospitals. UCH provided both a GMLOS +7 and a use rate analysis. The use rate analysis is suspect in a noncompetitive environment and, obviously, in an environment where LTCHs do not exist. UCH's GMLOS +7 analyses resulted in the identification of a need for 159 additional LTCH beds in District 5. This was broken down into a need of 60 beds in Pasco County and 99 additional beds in Pinellas County. There is no not-for-profit LTCH provider in District The addition of BayCare and UCH LTCHs to the district will meet a need in the case of Medicaid, indigent, and underinsured patients. Both BayCare and UCH have agreed in their applications to address the needs of patients who depend on Medicaid, or who are indigent, or who have private insurance that is inadequate to cover the cost of their treatment. The statistical analyses provided by both applicants support the proposed projects of both applicants. Testimony from doctors who treat patients of the type who might benefit from an LTCH testified that those types of facilities would be utilized. Numerous letters from physicians, nurses, and case managers support the need for these facilities. Adverse impacts HealthSouth and Kindred failed to persuade that BayCare's proposal will adversely impact them. HealthSouth provides little of the type of care normally provided at an LTCH. Moreover, HealthSouth is currently operating near capacity. Kindred is geographically remote from BayCare's proposed facility, and, more importantly, remote in terms of travel time, which is a major consideration for the families of patients. Kindred did not demonstrate that it was currently receiving a large number of patients from the geographic vicinity of the proposed BayCare facility, although it did receive some patients from BayCare Systems facilities and would likely lose some admissions if BayCare's application is approved. The evidence did not establish that Kindred would suffer a material adverse impact should BayCare establish an LTCH in Mease Dunedin Hospital. HealthSouth and Kindred conceded that UCH's program would not adversely impact them. The Agency's Position The Agency denied the applications of BayCare and UCH in the SAARs. At the time of the hearing the Agency continued to maintain that granting the proposals was inappropriate. The Agency's basic concern with these proposals, and in fact, the establishments of LTCHs throughout the state, according to the Agency's representative Jeffrey N. Gregg, is the oversupply of beds. The Agency believes it will be a long time before it can see any measure of clinical efficiency and whether the LTCH route is the appropriate way to go. The Agency has approved a number of LTCHs in recent years and is studying them in order to get a better understanding of what the future might hold. The Agency noted that the establishment of an LTCH by ongoing providers, BayCare Systems and UCH, where there are extant built-in referring facilities, were more likely to be successful than an out-of-state provider having no prior relationships with short-term acute care hospitals in the geographic vicinity of the LTCH. The Agency noted that both a referring hospital and an LTCH could benefit financially by decompressing its intensive care unit, and thus maximizing their efficiency. The Agency did not explain how, if these LTCHs are established, a subsequent failure would negatively affect the delivery of health services in District 5. The Agency, when it issued its SAAR, did not have the additional information which became available during the hearing process.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that UCH Certificate of Need Application No. 9754 and BayCare Certificate of Need Application No. 9753 satisfy the applicable criteria and both applications should be approved. DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2005. COPIES FURNISHED: Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 J. Robert Griffin, Esquire J. Robert Griffin, P.A. 1342 Timberlane Road, Suite 102-A Tallahassee, Florida 32312-1762 Patricia A. Renovitch, Esquire Oertel, Hoffman, Fernandez, Cole, & Bryant P.A. Post Office Box 1110 Tallahassee, Florida 32302-1110 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Timothy Elliott, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Mail Station 3 Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issue is whether the Agency for Health Care Administration should approve Petitioner’s application for a Certificate of Need to establish a 54-bed freestanding long-term care hospital in Escambia County.
Findings Of Fact Parties Select-Escambia is a subsidiary of Select Medical Corporation (Select), which has been in the business of operating LTCHs since the 1980’s. Select currently operates 99 LTCHs in 27 states, including three in Florida. Select’s Florida LTCHs are located in Orlando, Miami, and Panama City. The Orlando and Panama City LTCHs were formerly operated by SemperCare, Inc. (SemperCare), which Select acquired in January 2005. Three other Select LTCHs –- in Tallahassee, Orlando, and Alachua County -- have been approved by the Agency, but are not yet operational. The Tallahassee LTCH, which was also formerly a SemperCare facility, was originally projected to open in 2006, but that date is no longer certain. The Agency is the state agency responsible for administering the CON program and for licensing LTCHs and other health care facilities. Application Submittal and Review and Preliminary Agency Action In the second batching cycle of 2004 for hospital beds and facilities, Select-Escambia filed with the Agency an application for a CON to establish a 54-bed freestanding LTCH in Escambia County. There were no co-batched applications comparatively reviewed by the Agency with Select-Escambia's application, CON 9800. Select-Escambia’s application was complete, and it satisfied the applicable submittal requirements in the statutes and the Agency's rules. The Agency’s review of Select-Escambia’s application complied with the applicable statutory and rule requirements. The Agency’s review culminated in a SAAR issued on December 10, 2004. The SAAR recommended denial of CON 9800, primarily based upon Select-Escambia’s failure to demonstrate to the Agency’s satisfaction that there is a need for the proposed Escambia County LTCH. The determination in the SAAR that Select-Escambia failed to adequately demonstrate need for its proposed LTCH was largely based upon a 2004 report by MedPAC, which is an organization that advises Congress on issues related to Medicare. The MedPAC report concluded that LTCH patients need to be better defined so as to ensure that the patients treated at LTCHs are of the highest severity and cannot be more cost- effectively treated in other care settings. The Agency formally published notice of its intent to deny CON 9800 in the Florida Administrative Weekly, and Select- Escambia thereafter timely filed a petition challenging the Agency’s denial of its application. The Agency reaffirmed its opposition to Select- Escambia’s application at the hearing through the testimony of Jeffrey Gregg, the bureau chief over the Agency’s CON program. LTCHs Generally An LTCH is defined by statute and Agency rule as “a hospital licensed under chapter 395 which meets the requirements of 42 C.F.R. s. 412.23(e) and seeks exclusion from the Medicare prospective payment system for inpatient hospital services.” LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions. They serve a patient population whose average length of stay (ALOS) exceeds 25 days. There are two types of LTCHs: hospital-within-a- hospital (HIH) and freestanding. Both types are accepted in the industry, and both types are found in Florida and nationwide. HIH LTCHs are located in the same building or on the same campus as a traditional acute care hospital, which is referred to as the “host hospital.” HIH LTCHs contract with the host hospital for ancillary services such as laboratory and radiology services. HIH LTCHs get the vast majority of their admissions from the host hospital, whereas freestanding LTCHs tend to get their admissions from a number of different hospitals. LTCHs fit into the continuum of care between traditional acute care hospitals and traditional post-acute care facilities such as nursing homes, skilled nursing facilities (SNFs), hospital-based skilled nursing units (SNUs), and comprehensive medical rehabilitation (CMR) facilities. LTCHs are designed to serve patients that would otherwise have to be maintained in a traditional acute care hospital (often in the ICU) where the reimbursement rates may be insufficient to cover the costs associated with a lengthy stay, or be moved to a traditional post-acute care facility where the patient may not receive the level of care needed. Patients with co-morbidities, complex medical conditions, or frailties due to age are typically appropriate LTCH patients, particularly if the patient would otherwise remain in the ICU of a traditional acute care hospital. For such patients, an LTCH is likely the most appropriate setting from both a financial and patient-care standpoint. There is a distinct population of patients who, because of the complexity or severity of their medical condition, are best served in an LTCH. However, there is an overlap between the population of patients that can be served in an LTCH and the population of patients that could also be well- served in the ICU of an acute care hospital or a traditional post acute care setting with ventilator capability. Indeed, as noted in the MedPAC report, “[i]n the absence of LTCHs, clinically similar patients are principally treated in acute hospitals or in freestanding SNFs that are equipped to handle patients requiring a high level of care.” Because of the overlap in patients, it is important for LTCHs to adopt detailed admission criteria to ensure that the LTCH (rather than a SNF, SNU, or CMR) is the most appropriate care setting for the patient. InterQual, which is a private organization that establishes standards for quality of care for a variety of health care settings, has developed model admission criteria for LTCHs. The Interqual criteria are designed to ensure that the LTCH is the most appropriate care setting for the patient, and they are referenced in the MedPAC report as an example of the type of admission criteria that LTCHs should adopt to ensure that they are not treating patients that should be treated in another setting. Mr. Gregg and Karen Rivera, the supervisor of the CON program, acknowledged in their deposition testimony that an LTCH’s use of the InterQual criteria would, at least to some degree, address the Agency’s concern that LTCHs might be serving patients that should be served in a more traditional, less- intensive (and/or less-costly), post-acute care setting. Select utilizes the InterQual criteria as part of its admission process at its existing LTCHs, and it intends to utilize those criteria at its proposed Escambia County LTCH. Specifically, Select’s nurses screen patients prior to admission and, again, shortly after admission to ensure they are LTCH- appropriate patients. Additionally, Select’s nurses and care teams periodically evaluate each patient to ensure that the LTCH is still the most appropriate care setting for the patient and to determine whether the patient is ready for discharge, either to a traditional post-acute care setting or to home. Select also utilizes a third-party organization to review and assess the patient-outcomes achieved at each of its LTCHs. This is a quality assurance/improvement tool because it allows Select to compare and “benchmark” the performance of its LTCHs against each other and against other LTCHs nationwide and it helps to identify functions or services that need improvement. LTCH services are most highly utilized by persons in the 65 and older (65+) age cohort because those persons are more likely to have complex and/or co-morbid medical conditions that require long-term acute care. In calendar year 2003, for example, approximately 77 percent of LTCH patients in Florida were in the 65+ age cohort and approximately 51 percent were in the 75 and older (75+) age cohort. The typical LTCH patient is still in need of considerable acute care, but a traditional acute care hospital may no longer be the most appropriate or lowest cost setting for that care. The vast majority of LTCH admissions are patients transferred directly from a traditional acute care hospital. It is not uncommon for an LTCH patient to be transferred on life support from a critical care unit or ICU after the patient has been diagnosed and stabilized. Nursing homes, SNFs, SNUs, CMR facilities, and home health care are not appropriate for the typical LTCH patient because the patient's acuity level and medical/therapeutic needs are higher than those generally treated in those settings. Indeed, unlike traditional post-acute care settings, which typically do not admit patients who still require acute care, the core patient-group served by LTCHs are patients who require considerable acute care through daily physician visits and intensive nursing care in excess of eight hours of direct patient care per day. LTCH patients are often discharged to a traditional post-acute care facility such as a nursing home, SNF, CMR facility, or home health care. Thus, those facilities cannot be considered as "substitutes" for LTCHs, even though there is some overlap between the services provided to lower acuity LTCH patients and higher acuity patients in those traditional post- acute care facilities. The family of a patient in an LTCH is generally encouraged to be more involved in the patient’s care than it would be if the patient was in the ICU of a traditional acute care hospital. For example, the visiting hours at LTCHs are typically more liberal than the visiting hours of the ICU at a traditional acute care hospital. Medicare reimbursements are the primary source of revenue for LTCHs because, on average, 75 to 85 percent of LTCH patients are covered by Medicare. In this case, Select-Escambia projected that approximately 77 percent of the patient days at its proposed Escambia County LTCH would be generated by Medicare patients. In 2002, the federal government adopted a Medicare prospective payment system (PPS) specifically for LTCHs. That system recognizes the LTCH patient population as being distinct from the patient populations treated by traditional acute care hospitals and post-acute care facilities such as nursing homes, SNFs, SNUs, and CMR facilities, even though there may be some overlap between the patient populations served by LTCHs and those other types of facilities. Under the LTCH PPS, services are reimbursed by Medicare at a predetermined rate that is weighted based upon the patient's diagnosis and acuity, regardless of the cost of care. This reimbursement system is similar to, but uses Diagnosis Related Groups (DRGs) that are different than the DRGs used in the PPS for traditional acute care hospitals. The Medicare reimbursement rates for services to long- stay patients in an LTCH are generally higher than the reimbursement rates for the same services to long-stay patients at a traditional acute care hospital. As a result, there is a financial incentive for hospitals to transfer their long-stay patients to an LTCH. In August 2004, the federal regulations governing Medicare reimbursements for LTCHs were substantially amended. One significant change in the regulations is that the number of admissions that an HIH LTCH can receive from its host hospital and still qualify for reimbursement under the LTCH PPS is generally capped at 25 percent. The effect of that change is that new HIH LTCHs will not be viable in most instances. LTCHs in Florida At the time CON 9800 was filed, there were 12 LTCHs operating in Florida with a total of 799 licensed beds. There were an additional four approved but not yet licensed LTCHs, including the three Select facilities referenced above. There are no licensed or approved LTCHs in District 1, which consists of Escambia, Santa Rosa, Okaloosa, and Walton Counties. There is at least one licensed or approved LTCH in each health planning district, except for Districts 1 and 9.2 The closest Florida LTCH to Escambia County is the former SemperCare (now Select) facility in Panama City, which is in District 2. That facility, which opened in early 2003, is a 30-bed HIH LTCH, and is approximately 100 miles and a two-hour drive from Pensacola. There is or soon will be an LTCH in Mobile, Alabama, which is approximately 60 miles from Pensacola. There was no evidence presented regarding the type, size, utilization, or quality of care at that facility. The existing Florida LTCHs are well-utilized. According to the SAAR, the overall occupancy rate for the Florida LTCH beds was approximately 68 percent in 2003, and several of the facilities had occupancy rates in excess of 80 percent. The newer facilities -– Select’s Miami LTCH, which opened in December 2002, and the former SemperCare (now Select) LTCH in Orlando, which opened in June 2003 -- had considerably lower occupancy rates, which as discussed in the Select-Marion Recommended Order (page 23), is to be expected. If the beds and patient days for those facilities are excluded from the calculation in the SAAR, the overall occupancy rate for the Florida LTCH beds in 2003 would have been slightly above 71 percent. The existing Florida LTCHs receive a majority of their admissions from the county in which they are located, which is consistent with the comment in the MedPAC Report that proximity to an LTCH “quadruples the likelihood that a [patient] will use a long-term care hospital.” Florida LTCHs served patients in 174 of the 527 DRGs in calendar year 2003, but 50 of the DRGs accounted for 91 percent of the cases and 93 percent of the patient days. By far, the most commonly treated DRG is No. 475, which is “respiratory system diagnosis with ventilator support.” Select-Escambia’s Proposed LTCH Select-Escambia’s proposed LTCH will be a 54-bed freestanding facility in 54,090 square feet of new construction. The precise location of the proposed LTCH is not yet known. However, Select-Escambia conditioned approval of its CON application on the facility being located in Escambia County, and the application states that the facility will be located "proximate to the area acute care hospitals." The service area for the proposed LTCH is Escambia County and a 40-mile radius around Pensacola. The service area extends into Alabama on the west and into Santa Rosa and Okaloosa Counties on the east. It excludes Walton County. The service area is reasonable based upon the facts discussed in Part D(2)(a) below, particularly the concentration of the population and the acute care beds in Escambia County, the large elderly population in Escambia County, and the large in-migration to (and small out-migration from) Escambia County for acute care services. The bed complement at the proposed LTCH will be 35 private rooms (five of which are ICU-level), 8 semi-private rooms, and three isolation rooms (one of which is ICU-level). The facility will also include a surgical suite, a gym for physical and occupational therapy, a pharmacy, and laboratory and x-ray facilities. The total project cost is approximately $17.1 million. That cost will be funded by Select from its net cash flow from operations and through borrowings from Select’s bank. The services at the proposed LTCH will include the same “core” services found at other Select LTCHs. Those services are the treatment of pulmonary and ventilator patients, neuro-trauma and stroke patients, medically complex patients, and wound care. Select-Escambia has not negotiated patient transfer agreements with any of the area hospitals, but the CON application does include letters of support from Sacred Heart Hospital-Pensacola in Escambia County and North Okaloosa Medical Center in Okaloosa County. It is not unusual for patient transfer agreements not to have been negotiated at the CON-stage of the development of a new LTCH. The proposed LTCH was projected to open approximately two years after approval of the CON, or in November 2006. That date has been delayed as a result of this proceeding, but the two-year construction period is reasonable. The need projections in the application focus on the first two years of the facility’s operation, 2007 and 2008, as do the utilization and financial projections. Select-Escambia projects that its proposed LTCH will have 8,819 patient days in its first year of operation, and 14,054 patient days in its second year of operation. Those patient days equate to utilization rates of 45 percent in the first year and 71 percent in the second year. Those projections are reasonable and attainable. Select-Escambia projects that its proposed LTCH will generate a net loss of approximately $2.18 million in the first year of operation, and a net profit of approximately $1.19 million. Those projections are reasonable and attainable based upon the utilization projected. In addition to the letter of support from the two hospitals referenced above, the CON application includes letters of support from physicians, local politicians and businesses, the operator of rehabilitation clinics in Pensacola, and the medical director of several nursing homes in Pensacola. The letters of support attest to the general unavailability of LTCH services in Escambia County and, as discussed below, several of the letters specifically state that the traditional post-acute care settings in the area are inadequate for patients in need of long-term acute care. Statutory and Rule Criteria The statutory criteria applicable to the review of Select-Escambia’s application are in the 2004 version of Section 408.035, Florida Statutes.3 The Agency’s rules do not contain any specific criteria relating to LTCHs. The general criteria in Florida Administrative Code Rule 59C-1.008(2)(e)2. are applicable because the Agency does not publish a fixed need pool or a need methodology for LTCHs. That rule requires the applicant to demonstrate that there is a need for its proposed facility or service. Stipulated Criteria The parties’ Joint Pre-hearing Stipulation includes the following stipulations relating to the statutory criteria4: With respect to compliance with Section 408.035(3), Florida Statutes, it is agreed that Select-Escambia has the ability to provide quality programs based on the description of their programs in their CON application and based on the operational facilities of the applicant and/or of the applicant's parent facilities which are JCAHO certified. With respect to compliance with Section 408.035(4), Florida Statutes, it is agreed that Select-Escambia has the ability to provide the necessary resources including health personnel, management personnel and funds for capital operating expenditures, for project accomplishment and operation. With respect to compliance with Section 408.035(6), Florida Statutes, it is agreed that the immediate financial feasibility of the Select-Escambia project is not in dispute. It is further agreed by all parties that the long term financial feasibility of Select-Escambia is not in dispute. The parties agree that, if the projected levels are realized (i.e., need) with respect to compliance there is no disputed issue with respect to compliance with Section 408.035(7), Florida Statutes, in that the project will foster competition that promotes quality and cost effectiveness. The parties agree there are no disputed issues with respect to compliance with Section 408.035(8), Florida Statutes, which relates to an applicant's proposed costs and methods of proposed construction for the type of project proposed. The parties agree there is no disputed issues with respect to compliance with 408.035(9), Florida Statutes, as it relates to Medicaid patients in that Select's Medicaid provision (conditions - Schedule C) exceeds the state average. Section 408.035(10), Florida Statutes, is not at issue with respect to a review of the CON application filed by Select-Escambia. In light of those stipulations, the only statutory criteria still at issue are those relating to “need” –- Section 408.035(1),5 (2), and (5), Florida Statutes -- and the charity care component of Section 408.035(9), Florida Statutes. The issue of “need” was identified as the dispositive issue in this case. Mr. Gregg acknowledged in his testimony at the hearing and in his deposition that other than the issue of “need” there is no basis to deny Select-Escambia’s application. Criteria Related to “Need” The statutory criteria in Section 408.035(1), (2), and (5), Florida Statutes –- i.e., need for the proposed service; availability, quality of care, accessibility, and extent of utilization of the service in the district; and the extent to which the proposed service will enhance access in the district - encompass essentially the same factors that are enumerated in Florida Administrative Code Rule 59C-1.008(2)(e)2. Mr. Gregg testified at the hearing that where there is no LTCH in a district (as is the case in District 1), the Agency presumes that there is some amount of need for LTCH services in the district. However, Select-Escambia has the burden to demonstrate the extent of that need. Demographic, Market, etc. Factors Showing Need Each of the four counties in District 1 is relatively long and narrow. The counties extend from the Gulf of Mexico to the south and the Florida-Alabama line to the north. Escambia County is the westernmost county in District 1, and Walton County is the easternmost county in the district. Santa Rosa County is immediately to the east of Escambia County, and Okaloosa County is between Santa Rosa and Walton Counties. A 40-mile radius around Pensacola, which is the largest city in Escambia County, encompasses all of Santa Rosa County and almost all of Okaloosa County. Although much of Walton County is outside of that radius, it (and all of District 1) is within an hour and a half drive of Pensacola. Walton County is bordered on the east by Washington and Bay Counties, which are in District 2. Panama City, which currently has an LTCH, is in southern Bay County. District 1 had a population of 670,283 in July 2004, with approximately 45.6 percent of that population located in Escambia County. Approximately 13.4 percent of the July 2004 population in District 1 was in the 65+ age cohort, and 5.98 percent of that population was in the 75+ age cohort. Those percentages were lower than the statewide averages of 17.8 percent in the 65+ age cohort and nine percent in the 75+ age cohort. The population of District 1 and the percentages of the population in the 65+ and 75+ age cohorts are almost the same as the population and percentages in District 2, which has one operational (Panama City) and one approved (Tallahassee) LTCH. The population of District 1 is projected to grow approximately 6.91 percent to 716,585 by July 2009, which is five-year planning horizon applicable to this case. The five-year growth rate in District 1 is lower than the 7.93 percent rate that the state as a whole is projected to grow over the same period. However, the projected five-year growth rate in the 65+ and 75+ age cohorts, which most heavily utilize LTCH services, are higher than the statewide growth rates in those age cohorts. Specifically, the 75+ age cohort in District 1 is projected to grow 13.85 percent by July 2009, which is a higher percentage than any other health planning district in the state and nearly twice the statewide rate of 6.33 percent. The 65+ age cohort in District 1 is projected to grow 11.36 percent by July 2009, which is higher than the 9.94 percent statewide rate and higher than all but three of the other health planning districts. Walton County is projected to grow at a higher rate, both as a whole and in the 65+ and 75+ age cohorts, over the applicable five-year planning horizon than any of the other counties in District 1. The higher growth rate is due in large part to the fact that Walton County is considerably smaller than the other District 1 counties. From a raw population perspective, there will be considerably more growth in Escambia and Santa Rosa Counties than in Walton County over the applicable five-year planning horizon. The population of Walton County is expected to increase by only 7,400 persons over that period, while the population of Escambia and Santa Rosa Counties are expected to increase by almost 27,000 persons. As of December 2003, there were approximately 1,800 acute care beds in District 1 at 11 hospitals. For calendar year 2003, the district-wide average occupancy of those beds was 52.4 percent. The three largest hospitals in District 1 are located in Escambia County. Those hospitals -- Baptist Hospital, Sacred Heart Hospital-Pensacola, and West Florida Regional Medical Center -- are all similar in size and account for approximately 1,135 (or 62.6 percent) of the acute care beds in District 1. Sacred Heart Hospital-Pensacola provided a letter of support for Select-Escambia's proposed LTCH, as did two hospitals in Okaloosa County (i.e., Sacred Heart Hospital of the Emerald Coast and North Okaloosa Medical Center). The data presented in the CON application (at pages 000118 to 000121) shows that between 62.4 and 68.4 percent of the “long-stay patients” in District 1 were in the three Escambia County hospitals; that those hospitals had a relatively high (28.8 to 31.6 percent) in-migration rate of long-stay patients from outside of Escambia County; and that there is very little (1.3 to 3.6 percent) out-migration of Escambia County long-stay patients to other District 1 hospitals. Only one District 1 resident was admitted to a Florida LTCH in calendar year 2003, which is a strong indication that LTCH services are not reasonably accessible to District 1 residents even with the establishment of the Panama City LTCH in early 2003. The Panama City LTCH, which is approximately 100 miles from Pensacola, is too far away from Escambia County to be a reasonable alternative for residents of that county. The same is true for the other counties in District 1, except for Walton County which is geographically closer to Panama City than it is to Pensacola. The Panama City LTCH was not expected to serve District 1. According to the SAAR that recommended approval of that LTCH, the facility was projected to get 60 percent of its admissions from its host hospital, Bay Medical Center, and only two of the potential LTCH referrals were projected to come from a District 1 hospital. Those referrals were projected to come from Santa Rosa Medical Center in Santa Rose County, and none of the referrals to the Panama City LTCH were projected to come from Escambia County. Those projections are consistent with the experience of the Panama City LTCH since it opened in early 2003. Only five or six patients from Escambia County have been referred to the Panama City LTCH, and none have chosen to be admitted to the facility. There are no LTCHs or “like services” in District 1 because, as more fully discussed in Part C(1) above, the traditional post-acute care settings such as SNFs, CMRs, and hospital-based SNUs are not substitutes for LTCHs. The data presented in the CON application shows that in calendar year 2003 there were 500 patients treated in District 1 hospitals with LTCH-appropriate DRGs who were in the hospital for a collective 13,942 days beyond the geometric mean length of stay (GMLOS),6 which corresponds to an average of 27.9 days beyond the GMLOS. It is reasonable to expect that that those patients would have been discharged to a post-acute care setting if they no longer needed acute care, and because there were available CMR, SNU, and SNF beds in the district,7 it is reasonable to infer that the patients were still in need of long-term acute care and/or that the available post-acute care facilities did not offer the requisite level of intensive care. This inference is corroborated by the letters of support from local physicians that were included in the CON application. For example, the October 7, 2003, letter to Mr. Gregg from Dr. Donna Jacobi states that: Our skilled nursing facilities and subacute units have had difficulty in managing complex, more unstable patients One facility was equipped and staffed for ventilator patients when it opened; now that ward is for routine SNF care. Our rehabilitation institute is not the place for these patients either – they may be too ill for three hours of therapy daily. Currently some of these patients remain in acute care much longer than necessary and are subjected to iatrogenic [sic] risks, depression, and possible further decline in functional status while becoming more medically stable. Others bounce back and forth between nursing home and hospital, and a few leave our area of the state to find care elsewhere – far from their family and friends who are very important to their recovery. A LTACH [sic] would provide the opportunity for them to remain here in a supportive environment.[8] Letters of support such as Dr. Jacobi’s and those quoted in Endnote 8, with detailed information about the inability to place patients in existing facilities, are the type that the Mr. Gregg identified in Select-Marion (page 60, endnote 5) as being the most useful to the Agency in “validating” the applicant’s numeric need projections. In sum, the demographic and market conditions described above, coupled with the letters of support from local physicians and two of the acute care hospitals in District 1, support the establishment of an LTCH in the district, and more specifically, in Escambia County. Quantification of the Need / Numeric Need Select-Escambia presented two different methodologies in its application to quantify the need for LTCH beds in District 1. The methodologies are similar, but not identical to the methodology recently accepted by the Agency in Select- Marion.9 The methodologies presented in the application each define the potential patients for Select-Escambia’s proposed LTCH as the “long-stay patients” in the existing District 1 acute care hospitals with “LTCH-appropriate DRGs.” That approach is reasonable from a health planning perspective because, as discussed in Part C(1) above, an LTCH is likely the most appropriate setting for such patients from a financial and patient-care standpoint. The methodologies differ in their definition of what constitutes a “long-stay patient,” but they both use the GMLOS as the starting point, which is reasonable from a health planning perspective. Both methodologies define the “LTCH-appropriate DRGs” as the 50 DRGs that are most commonly treated in the existing Florida LTCHs. The focus on the “top 50” DRGs was reasonable from a health planning perspective because those DRGs account for more than 91 percent of the cases and 93 percent of the patient days at the existing Florida LTCHs. GMLOS+15 Methodology The first methodology presented in the application –- “the GMLOS+15 methodology” –- identified all of the patients treated in the District 1 hospitals with LTCH-appropriate DRGs whose length of stay was at least 15 days longer than the GMLOS for the DRG. A similar definition of long-stay patients was accepted by the Agency in Select-Marion. There were a total of 500 potential LTCH patients identified through Select-Escambia’s GMLOS+15 methodology. According to the data included in the CON application (at page 000120), 30 of those patients were Walton County residents and 55 resided outside of District 1. Select-Escambia calculated a total of 19,409 potential LTCH patient days that would be generated by the 500 identified long-stay patients, which equates to an average daily census (ADC) of 53. According to Select-Escambia's health planner (Transcript, at 131), the 19,409 patient-days included all of the days in the patient’s hospital stay as potential LTCH patient days, and not just that portion of the stay that exceeded the GMLOS. The inclusion of all of the days in the patient’s hospital stay as potential LTCH patient days is not reasonable because the vast majority of LTCH patients are transferred from an acute care hospital at some point during the patient’s hospital stay, typically at or after the GMLOS. The effect of including all of the days in the patient’s hospital stay as potential LTCH patient days rather than just the days after the GMLOS is an overstatement of the potential LTCH patient days and the ADC calculated under the GMLOS+15 methodology in Select-Escambia’s application. If only the days beyond the GMLOS were included (as was done in Select-Marion), the result would be 13,941 potential LTCH patient days. If the 875 days attributable to Walton County residents and the 1,596 days attributable to non-District 1 residents were excluded (see Exhibit P2, at 000121), then the total would be 11,471 potential LTCH patient days. The ADC of 53 calculated by Select-Marion under the GMLOS+15 methodology is not reliable because it was based upon the 19,409 patient days. Using the 13,941 or 11,471 patient days referenced above would result in an ADC of 38.2 or 31.4, respectively. Based upon an 80 occupancy standard, those ADCs would translate into a projected need for 40 to 48 LTCH beds in District 1. If a 75 percent occupancy standard was used, the projected LTCH bed need would be 42 to 51 beds. The lower numbers in each of those ranges reflect the exclusion of the patient days attributable to Walton County residents and non- District 1 residents; the higher numbers in those ranges reflect the inclusion of those residents. An 80 percent occupancy standard was accepted by the Agency in Select-Marion and was also used by Select in Select- Sarasota. As stated in the Recommended Order in Select-Marion (at page 37), the 80 percent occupancy standard “better reflects the lower bed turn-over by LTCH patients than does the 75 percent occupancy standard typically applied to traditional, ‘short-term’ acute care hospitals.” GMLOS+7 Methodology The second methodology presented in the application - – “the GMLOS+7 methodology” –- uses a broader definition to identify the potential LTCH patients in District 1. It includes all of the patients with LTCH-appropriate DRGs who were treated in the District 1 hospitals and whose lengths of stay were at least seven days longer than the GMLOS. The broader definition of long-stay patients in the GMLOS+7 methodology resulted in 1,498 potential LTCH patients (see Exhibit P2, at 000117 (Table 1-16(b)), 000120), as compared to the 500 potential LTCH patients identified through the GMLOS+15 methodology. The Agency did not expressly take issue with the broader definition used in the GMLOS+7 methodology to identify the potential LTCH patients, and it cannot be said based upon the record evidence in this case that the definition is inherently unreasonable. In calculating the potential LTCH patient days under the GMLOS+7 methodology, Select-Escambia only included the days that the patient stayed in the hospital beyond the GMLOS, which are referred to in the application as “excess days.” See Transcript, at 132. A similar approach was used in the methodology accepted by the Agency in Select-Marion. The following table, which is derived from the data in Table 1-16(a) in the CON application, summarizes the number of excess days generated by patients in the District 1 hospitals based upon the patient’s county of residence: Escambia County 11,434 Okaloosa County 5,634 Santa Rosa County 3,194 Subtotal: District 1 Residents except for Walton County 20,262 Walton County 1,410 Subtotal: All District 1 residents 21,672 Outside of District 1 2,340 Total 24,012 Select-Escambia then converted the excess days into “forecasted LTCH cases” by dividing the most conservative figure –- the 20,262 days, which excluded Walton County residents and non-District 1 residents -- by the 33.6 ALOS at Select’s existing freestanding LTCHs. The result –- 603 cases –- was then inflated based upon the projected growth rate in District 1 to determine the number of forecasted LTCH cases in 2007 and 2008, which were projected to be the first two years of operation for Select-Escambia’s proposed LTCH. The forecasted cases were then converted into “forecasted LTCH days” by multiplying the number of cases by the same 33.6 ALOS. The conversion of the excess days into forecasted LTCH cases and then back into forecasted LTCH days based upon a 33.6 ALOS is not reasonable because, according to the CON application,10 the initial calculation of the excess days is intended to reflect the number of days that patients would likely spend in the LTCH rather than the short-term acute care hospitals in District 1 if an LTCH was available in the area. The ALOS experienced by Select at its other facilities is irrelevant to that issue. The effect of the conversion step in Select- Escambia’s GMLOS+7 methodology is an overstatment of the forecasted LTCH patient days, as can be seen through a comparison of the data in Tables 1-16(a) and 1-16(b) in the CON application. Table 1-16(b) shows the number of cases associated with the excess days calculated in Table 1-16(a). The 1,498 total cases identified on Table 1-16(b) correlate to the 24,012 total excess days identified on Table 1-16(a). As a result, there is an average of only 16.03 excess days per case. Stated another way, the long-stay patients identified through the GMLOS+7 methodology are staying in the hospital an average of 16.03 days longer than the GMLOS. It is those 16.03 days/case that make up the potential LTCH patient days, but the conversion described above appears to assume that those same patients would stay in Select-Escambia’s proposed LTCH for 33.6 days. There is no logic or reason to that assumption, and as a result, the patient days, ADC, and bed need reflected in Table 1-17 of the application are not reliable. The most reliable projection of bed need that can be calculated based upon the data presented in connection with the GMLOS+7 methodology is derived from the Excess Table 1-16(a), to wit: Bed Need Days ADC (at 80%) Escambia only 11,434 31.3 40 District 1 excluding Walton and non-District 1 20,262 55.5 70 District 1 including Walton; excluding non- District 1 21,672 59.4 75 Accordingly, the GMLOS+7 methodology projects a need for 70 to 75 LTCH beds, depending upon whether Walton County residents are included in the calculation, with 40 of the beds attributable to the excess days generated by Escambia County residents alone. Ultimate Findings Regarding Numeric Need Using the most conservative figures produced by the respective need methodologies presented in the application, there is a need for between 40 (see Finding of Fact 107) and 70 (see Findings of Fact 119 and 120) LTCH beds in District 1. It is reasonable to expect that the “actual” bed need is towards the mid-point of that range -- 55 beds -- because Select-Escambia’s proposed LTCH will likely get some of the potential LTCH admissions from Walton County, as well as some of the potential LTCH admissions from outside of District 1; because as many as seven percent of the facility's patient days will be attributable to patients whose diagnoses are not within the “top 50” DRGs used in the methodologies to identify the potential LTCH patients; and because the methodologies and the fiqures reflected in the preceeding paragraphs do not take into account the growth in admissions and patient days between 2003 (the period used in the methodologies) and 2007 (when Select- Escambia's proposed LTCH is projected to open) that is expected as the population of District 1 grows, particularly in the 65+ and 75+ age cohorts. Accordingly, the preponderance of the evidence establishes that there is a numeric need for the 54 LTCH beds proposed by Select-Escambia. Other Disputed Criteria Section 408.035(9), Florida Statutes, requires consideration of the “applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent.” The statutory reference to “the medically indigent” encompasses what are typically referred to as charity patients. Select-Escambia conditioned the approval of its CON application on the provision of two percent of the patient days at its proposed LTCH to Medicaid patients and 0.8 percent of the patient days to charity patients. It was stipulated that Select-Escambia’s commitment to Medicaid patients exceeds the statewide average for LTCHs, which according to the SAAR is 1.24 percent of patient days. Select-Escambia’s commitment to charity patients is slightly lower than the statewide average for LTCHs, which is 0.94 percent of patient days.11 When viewed collectively, Select-Escambia’s commitment to Medicaid and charity patients -- 2.8 percent of patient days -- exceeds the statewide average for LTCHs of 2.18 percent of patient days. The commitments to Medicaid and charity patients in Select-Escambia’s CON application were based upon Select’s experience at its other LTCHs, and they are reasonable and attainable in District 1. The fact that Select-Escambia’s commitment to charity patients is slightly lower than the statewide average for LTCHs is not significant under the circumstances of this case. Indeed, Mr. Gregg conceded at the hearing that it is not an independent basis to deny Select-Escambia’s application, and that the Agency will accept Select-Escambia’s proposed charity commitment of 0.8 percent of patient days if the CON is ultimately approved.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order approving Select-Escambia’s application, CON 9800. DONE AND ENTERED this 17th day of June, 2005, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2005.
The Issue Kindred Hospitals East, LLC ("Kindred") and Select Specialty Hospital-Palm Beach, Inc. ("Select-Palm Beach"), filed applications for Certificates of Need ("CONs") with the Agency for Health Care Administration ("AHCA" or the "Agency") seeking approval for the establishment of long-term care hospitals ("LTCHs") in Palm Beach County, AHCA District 9. Select-Palm Beach's application, CON No. 9661, seeks approval for the establishment of a 60-bed freestanding LTCH in "east central" Palm Beach County about 20 miles south of Kindred's planned location. Kindred's application, CON No. 9662, seeks approval for the establishment of a 70-bed LTCH in the "north central" portion of the county. The ultimate issue in this case is whether either or both applications should be approved by the Agency.
Findings Of Fact Long Term Care Hospitals Of the four classes of facilities licensed as hospitals by the Agency, "Class I or general hospitals," includes: General acute care hospitals with an average length of stay of 25 days or less for all beds; Long term care hospitals, which meet the provisions of subsection 59A-3.065(27), F.A.C.; and, Rural hospitals designated under Section 395, Part III, F.S. Fla. Admin. Code R. 59A-3.252(1)(a). This proceeding concerns CON applications for the second of Florida's Class I or general hospitals: LTCHs. A critically ill patient may be admitted and treated in a general acute care hospital, but, if the patient cannot be stabilized or discharged to a lower level of care on the continuum of care within a relatively short time, the patient may be discharged to an LTCH. An LTCH patient is almost always "critically catastrophically ill or ha[s] been." (Tr. 23). Typically, an LTCH patient is medically unstable, requires extensive nursing care with physician oversight, and often requires extensive technological support. The LTCH patient usually fits into one or more of four categories. One category is patients in need of pulmonary/respiratory services. Usually ventilator dependent, these types of LTCH patients have other needs as well that requires "complex comprehensive ventilator weaning in addition to meeting ... other needs." (Tr. 26). A second category is patients in need of wound care whose wound is life-threatening. Frequently compromised by inadequate nutrition, these types of LTCH patients are often diabetic. There are a number of typical factors that may account for the seriousness of the wound patient's condition. The job of the staff at the LTCH in such a case is to attend to the wound and all the other medical problems of the patient that have extended the time required for care of the wound. A third category is patients with some sort of neuro-trauma. These patients may have had a stroke and are often elderly; if younger, they may be victims of a car accident or some other serious trauma. They typically have multiple body systems that require medical treatment, broken bones and a closed head injury for example, that have made them "very sick and complex." (Tr. 27). The fourth category is referred to by the broad nomenclature of "medically complex" although it is a subset of the population of LTCH patients all of whom are medically complex. The condition of the patients in this fourth category involves two or more body systems. The patients usually present at the LTCH with "renal failure ... [and] with another medical condition ... that requires a ventilator ..." Id. In short, LTCHs provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions that usually require care for a relatively extended period of time. To meet the definition of an LTCH a facility must have an average length of inpatient stay ("ALOS") greater than 25 days for all hospital beds. See Fla. Admin. Code R. 59A-3.065(34). The staffs at general acute care hospitals and LTCHs have different orientations. With a staff oriented toward a patient population with a much shorter ALOS, the general acute care hospital setting may not be appropriate for a patient who qualifies for LTCH services. The staff at a general acute care hospital frequently judges success by a patient getting well in a relatively short time. It is often difficult for general acute care hospital staff to sustain the interest and effort necessary to serve the LTCH patient well precisely because of the staff's expectation that the patient will improve is not met in a timely fashion. As time goes by, that expectation continues to be frustrated, a discouragement to staff. The LTCH is unlike other specialized health care settings. The complex, medical, nursing, and therapeutic requirements necessary to serve the LTCH patient may be beyond the capability of the traditional comprehensive medical rehabilitation ("CMR") hospital, nursing home, skilled nursing facility ("SNF"), or, the skilled nursing unit ("SNU"). CMR units and hospitals are rarely, if ever, appropriate for the LTCH patient. Almost invariably, LTCH patients are not able to tolerate the minimum three (3) hours of therapy per day associated with CMR. The primary focus of LTCHs, moreover, is to provide continued acute medical treatment to the patient that may not yet be stable, with the ultimate goal of getting the patient on the road to recovery. In comparison, the CMR hospital treats medically stable patients consistent with its primary focus of restoring functional capabilities, a more advanced step in the continuum of care. Services provided in LTCHs are distinct from those provided in SNFs or SNUs. The latter are not oriented generally to patients who need daily physician visits or the intense nursing services or observations needed by an LTCH patient. Most nursing and clinical personnel in SNFs and SNUs are not experienced with the unique psychosocial needs of long-term acute care patients and their families. An LTCH is distinguished within the healthcare continuum by the high level of care the patient requires, the interdisciplinary treatment model it follows, and the duration of the patient's hospitalization. Within the continuum of care, LTCHs occupy a niche between traditional acute care hospitals that provide initial hospitalization care on a short-term basis and post-acute care facilities such as nursing homes, SNFs, SNUs, and comprehensive medical rehabilitation facilities. Medicare has long recognized LTCHs as a distinct level of care within the health care continuum. The federal government's prospective payment system ("PPS") now treats the LTCH level of service as distinct with its "own DRG system and ... [its] own case rate reimbursement." (Tr. 108). Under the LTCH PPS, each patient is assigned an LTC- DRG (different than the DRG under the general hospital DRG system) with a corresponding payment rate that is weighted based on the patient diagnosis and acuity. The Parties The Agency is the state agency responsible for administering the CON Program and licensing LTCHs and other hospital facilities pursuant to the authority of Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. Select-Palm Beach is the applicant for a free-standing 60-bed LTCH in "east Central Palm Beach County," Select Ex. 1, stamped page 12, near JFK Medical Center in AHCA District 9. Its application, CON No. 9661, was denied by the Agency. Select-Palm Beach is a wholly owned subsidiary of Select Medical Corporation, which provides long term acute care services at 83 LTCHs in 24 states, four of which are freestanding hospitals. The other 79 are each "hospitals-in-a- hospital" ("HIH" or "LTCH HIH"). Kindred is the applicant for a 70-bed LTCH to be located in the north central portion of Palm Beach County in AHCA District 9. Its application, CON No. 9662, was denied by the Agency. Kindred is a wholly owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 73 LTCHs, 59 of which are freestanding, according to the testimony of Mr. Novak. See Tr. 56-57. Kindred Healthcare has been operating LTCHs since 1985 and has operated them in Florida for more than 15 years. At the time of the submission of Kindred's application, Kindred Healthcare's six LTCHs in Florida were Kindred-North Florida, a 60-bed LTCH in Pinellas County, AHCA District 5; Kindred-Central Tampa, with 102 beds, and Kindred-Bay Area- Tampa, with 73 beds, both in Hillsborough County, in AHCA District 6; Kindred-Ft. Lauderdale with 64 beds and Kindred- Hollywood with 124 beds, both in Broward County, ACHA District 10; and Kindred-Coral Gables, with 53 beds, in Dade County, AHCA District 11. The Applications and AHCA's Review The applications were submitted in the first application cycle of 2003. Select-Palm Beach's application is CON No. 9661; Kindred's is CON No. 9662. Select-Palm Beach estimates its total project costs to be $12,856,139. Select-Palm Beach has not yet acquired the site for its proposed LTCH, but did include in its application a map showing three priority site locations, with its preferred site, designated "Site 1," located near JFK Medical Center. At $12,937,419, Kindred's estimate of its project cost is slightly more than Select-Palm Beach's. The exact site of Kindred's proposed LTCH had not been determined at the time of hearing. Kindred's preference, however, is to locate in the West Palm Beach area in the general vicinity of St. Mary's Hospital, in the northern portion of Palm Beach County along the I-95 corridor. This is approximately 15 to 20 miles north of Select's preferred location for its LTCH. There is no LTCH in the five-county service area that comprises District 9: Indian River, Okeechobee, St. Lucie, Martin, and Palm Beach Counties. There are two LTCHs in adjacent District 10 (to the south). They have a total of 188 beds and an average occupancy of 80 percent. The Agency views LTCH care as a district-wide service primarily for Medicare patients. At the time of the filing of the applications, the population in District 9 was over 1.6 million, including about 400,000 in the age cohort 65 and over. About 70 percent of the District 9 population lives in Palm Beach County. More than 70 percent of the District's general acute care hospitals are located in that county. Kindred's preferred location for its LTCH is approximately 40 to 50 miles from the closest District 10 LTCH; Select-Palm Beach is approximately 25 to 35 miles from the closest District 10 LTCH. The locations of Select Palm-Beach's and Kindred's proposed LTCHs are complementary. The SAAR Following its review of the two applications, AHCA issued its State Agency Action Report ("SAAR"). Section G., of the report, entitled "RECOMMENDATION," states: "Deny Con #9661 and CON #9662." Agency Ex. 2, p. 43. On June 11, 2003, the report was signed by Karen Rivera, Health Services and Facilities Consultant Supervisor Certificate of Need, and Mr. Gregg as the Chief of the Bureau of Health Facility Regulation. It contained a section entitled "Authorization for Agency Action" that states, "[a]uthorized representatives of the Agency for Health Care Administration adopted the recommendations contained herein and released the State Agency Action Report." Agency Ex. 2, p. 44. The adoption of the recommendations is the functional equivalent of preliminary denial of the applications. In Section F. of the SAAR under the heading of "Need," (Agency Ex. 2, p. 40), the Agency explained its primary bases for denial; it concluded that the applicants had not shown need for an LTCH in AHCA District 9. The discussions for the two, although not precisely identical, are quite similar: Select Specialty Hospital-Palm Beach, Inc.(CON #9661): The applicant's two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need. The applicant also failed to provide any supporting documentation from area physicians or other providers regarding potential referrals. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Kindred Hospitals East, L.L.C. (CON #9662): The various methodological approaches presented are not supported by any specific DRG admission criteria from area hospitals suggesting potential need. The applicant provided numerous letters of support for the project from area hospitals, physicians and case managers. However, the number of potential referrals of patients needing LTCH services was not quantified. It was further not demonstrated that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 9. Id. At hearing, the Agency's witness professed no disagreement with the SAAR and continued to maintain the same bases contained in the SAAR for the denials of the two applications The SAAR took no issue with either applicant's ability to provide quality care. It concluded that funding for each applicant was likely to be available and that each project appeared to be financially feasible once operating. The SAAR further stated that there were no major architectural concerns regarding Kindred's proposed facility design, but noted reservations regarding the need for further study and revision of Select Palm-Beach's proposed surgery/procedure wing, as well as cost uncertainties for Select Palm Beach because of such potential revisions. By the time of final hearing, however, the parties had stipulated to the reasonableness of each applicant's proposed costs and methods of construction. The parties stipulated to the satisfaction of a number of the statutory CON criteria by the two applicants. The parties agreed that the applications complied with the content and review process requirements of sections 408.037 and 409.039, Florida Statutes, with one exception. Select reserved the issue of the lack of a Year 2 of Schedule 6, (Staffing) in Kindred's application. The form of Schedule 6 provided by AHCA to Kindred (unlike other schedules of the application) does not clearly indicate that a second year of staffing data must be provided. The remainder of the criteria stipulated and the positions of the parties as articulated in testimony at hearing and in the proposed orders that were submitted leave need as the sole issue of consequence with one exception: whether Kindred has demonstrated that its project is financially feasible in the long term. Kindred's Long Term Financial Feasibility Select-Palm Beach contends that Kindred's project is not financially feasible in the long term for two reasons. They relate to Kindred's application and are stated in Select Palm Beach's proposed order: Kindred understated property taxes[;] Kindred completely fails to include in its expenses on Schedule 8, patient medical assistance trust fund (PMATF) taxes [citation omitted]. Proposed Recommended Order of Select-Palm Beach, Inc., p. 32, Finding of Fact 97. Raised after the proceeding began at DOAH by Select- Palm Beach, these two issues were not considered by AHCA when it conducted its review of Kindred's application because the issues were not apparent from the face of the application. AHCA's Review of Kindred's Application Kindred emerged from a Chapter 11 bankruptcy proceedings on April 20, 2001, under a plan of reorganization. With respect to the events that led to the bankruptcy proceeding and the need to review prior financial statements, AHCA made the following finding in the SAAR: Under the plan [of reorganization], the applicant [Kindred] adopted the fresh start accounting provision of SOP 90-7. Under fresh start accounting, a new reporting entity is created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values. Accordingly, the prior period financial statements are not comparable to the current period statements and will not be considered in this analysis. Agency Ex. 2, p. 30. The financial statements provided by Kindred as part of its application show that Kindred Healthcare, Kindred's parent, is a financially strong company. The information contained in Kindred's CON application filed in 2003 included Kindred Healthcare's financial statements from the preceding calendar year. Kindred Healthcare's Consolidated Statement of Operations for the year ended December 31, 2002, showed "Income from Operations" to be more than $33 million, and net cash provided by operating activities (cash flow) of over $248 million for the period. Its Consolidated Balance Sheet as of December 31, 2002, showed cash and cash equivalents of over $244 million and total assets of over $1.6 billion. In light of the information contained in Kindred's CON application, the SAAR concluded with regard to short term financial feasibility: Based on the audited financial statements of the applicant, cash on hand and cash flows, if they continue at the current level, would be sufficient to fund this project as proposed. Funding for all capital projects, with the support of its parent, is likely to be available as needed. Agency Ex. 2, p. 30 (emphasis supplied). The SAAR recognized that Kindred projected a "year two operating loss for the hospital of $287,215." Agency Ex. 2, p. Nonetheless, the SAAR concludes on the issue of financial feasibility, "[w]ith continued operational support from the parent company, this project [Kindred's] is considered financially feasible." Id. The Agency did not have the information, however, at the time it reviewed Kindred's application that Kindred understated property taxes and omitted the Public Medicaid Trust Fund and Medical Assistance Trust Fund ("PMATF") "provider tax" of 1.5 percent that would be imposed on Kindred's anticipated revenues of $11,635,919 as contended by Select-Palm Beach. Consistent with Select Palm-Beach's general contentions about property taxes and PMATF taxes, "Kindred acknowledges that it likely understated taxes to be incurred in the operation of its facility." Kindred's Proposed Recommended Order, paragraph 50, p. 19. The parties agree, moreover, that the omitted PMATF tax is reasonably projected to be $175,000. They do not agree, however, as to the impact of the PMATF tax on year two operating loss. The difference between the two (approximately $43,000) is attributable to a corporate income tax benefit deduction claimed by Kindred so that the combination of the application's projected loss, the omitted PMATF tax, and the deduction yields a year two operating loss of approximately $419,000. Without taking into consideration the income tax benefit, Select-Palm Beach contends that adding in the PMATF tax produces a loss of $462,000. Kindred and Select-Palm Beach also disagree over the projection of property taxes by approximately $50,000. Kindred projects that the property taxes in year two of operation will be approximately $225,000 instead of the $49,400 listed in the application. Select-Palm Beach projects that they will be $50,000 higher at approximately $275,000. Whether Kindred's or Select-Palm Beach's figures are right, Kindred makes two points. First, if year two revenues and expenses, adjusted for underestimated and omitted taxes, are examined on a quarterly basis, the fourth quarter of year two has a better bottom line than the earlier quarters. Not only will the fourth quarter bottom line be better, but, using Kindred's figures, the fourth quarter of year two of operations is profitable. Second, and most importantly given the Agency's willingness to credit Kindred with financial support from its parent, Kindred's application included in its application an interest figure of $1.2 million for year one of operation and $1.03 million for year two. Kindred claims in its proposed recommended order that "[i]n reality ... this project will incur no interest expense as Kindred intends to fund the project out of cash on hand, or operating capital, and would not have to borrow money to construct the project." Id., at paragraph 54, p. 20. Through the testimony of John Grant, Director of Planning and Development for Kindred's parent, Kindred Healthcare, Kindred indicated at hearing that its parent might, indeed, fund the project: A ... Kindred [Healthcare] would likely fund this project out of operating capital. Like I said, in the first nine months of this year Kindred had operating cash flow of approximately $180 million. So it's not as if we would have to actually borrow money to complete a project like this. Q And what was the interest expense that you had budgeted in Year Two for this facility? A $1,032,000. Q ... so is it your statement then that this facility would not owe any interest back to the parent company? A That's correct. Tr. 221-222 (emphasis supplied). If the "financing interest" expense is excluded from Kindred's statement of projected expenses in Schedule 8 of the CON application, using Kindred's revised projections, the project shows a profit of approximately $612,0002 for the second year of operation. If Select-Palm Beach's figures and bottom line loss excludes the "finances interest" expense, the elimination of the expense yields of profit for year two of operations in excess of $500,000. If the support of Kindred's parent is considered as the Agency has signaled its willingness to do and provided that the project is, in fact, funded by Kindred Healthcare rather than financed through some other means that would cause Kindred to incur interest expense, Kindred's project is financially feasible in the long term. With the exception of the issue regarding Kindred's long term financial feasibility, as stated above, taken together, the stipulation and agreements of the parties, the Agency's preliminary review contained in the SAAR, and the evidence at hearing, all distill the issues in this case to one overarching issue left to be resolved by this Recommended Order: need for long term care hospital beds in District 9. Need for the Proposals From AHCA's perspective prior to the hearing, the only issue in dispute with respect to the two applications is need. This point was made clear by Mr. Gregg's testimony at hearing in answer to a question posed by counsel for Select-Palm Beach: Q. ... Assuming there was sufficient need for 130 beds in the district is there any reason why both applicants shouldn't be approved in this case, assuming that need? A. No. (Tr. 398). Both applicants contend that the application each submitted is superior to the other. Neither, however, at this point in the proceeding, has any objection to approval of the other application provided its own application is approved. Consistent with its position that both applications may be approved, Select-Palm Beach presented testimony through its health care planner Patricia Greenberg3 that there was need in District 9 for both applicants' projects. Her testimony, moreover, rehabilitated the single Kindred methodology of three that yielded numeric need less than the 130 beds proposed by both applications: Q ... you do believe that there is a need for both in the district. A I believe there's a need for two facilities in the district. Q It could support two facilities? A Oh, absolutely. Q And the disagreement primarily relates to the conservative approach of Kindred in terms of not factoring in out-migration and the narrowing the DRG categories? A Correct. ... Kindred actually had three models. Two of them support both facilities, but it's the GMLOS model that I typically rely on, and it didn't on the surface support both facilities. That's why I reconciled the two, and I believe that's the difference, is just the 50 DRGs and not including the out-migration. That would boost their need above the 130, and two facilities would give people alternatives, it would foster competition, and it would really improve access in that market. Tr. 150-51. Need for the applications, therefore, is the paramount issue in this case. Since both applicants are qualified to operate an LTCH in Florida, if need is proven for the 130 beds, then with the exception of Kindred's long term financial feasibility, all parties agree that there is no further issue: both applications should be granted. No Agency Numeric Need Methodology The Agency has not established a numeric need methodology for LTCH services. Consequently, it does not publish a fixed-need pool for LTCHs. Nor does the Agency have "any policy upon which to determine need for the proposed beds or service." See Fla. Admin. Code R. 59C-1.008(2)(e)1. Florida Administrative Code Rule 59C-1.008(2), which governs "Fixed Need Pools" (the "Fixed Need Pools Rule") states that if "no agency policy exist" with regard to a needs assessment methodology: [T]he 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. Fla. Admin. Code R. 59C-1.008(2)(e)2. The Fixed Need Pools Rule goes on to elaborate in subparagraph (e)3 that "[t]he 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." Population, Demographics and Dynamics The first of the four topics to be addressed when an applicant is responsible for demonstrating need through a needs assessment methodology is "population, demographics and dynamics." The Agency has not defined service areas for LTCHs. Nonetheless, from a health planning perspective, it views LTCH services as being provided district-wide primarily for Medicare patients. Consistent with the Agency's view, Select-Palm Beach identified the entire district, that is, all of AHCA District 9, as its service area. It identified Palm Beach County, one of the five counties in AHCA District 9, as its primary service area. In identifying the service area for Select-Palm Beach, Ms. Greenberg drew data from various sources: population estimates for Palm Beach County and surrounding areas; the number of acute care hospital beds in the area; the number of LTCH beds in the area; the types of patients treated at acute care hospitals; and the lengths of stay of the patients treated at those hospitals. AHCA District 9 has more elderly than any other district in the State, and Palm Beach County has more than any other county except for Dade. Palm Beach County residents comprise 71% of the District 9 population. It is reasonably projected that the elderly population (the "65 and over" age cohort) in Palm Beach County is projected to grow at the rate of 8 percent by 2008. The "65 and over" age cohort is significant because the members of that cohort are most likely to utilize hospital services, including LTCH services. Its members are most likely to suffer complications from illness and surgical procedures and more likely to have co-morbidity conditions that require long- term acute care. Persons over 65 years of age comprise approximately 80 percent of the patient population of LTCH facilities. Both Select-Palm Beach and Kindred project that approximately 80 percent of their admissions will come from Medicare patients. Since 90 percent of admissions to an LTCH come from acute care facilities, most of the patient days expected at Select-Palm Beach's proposed LTCH will originate from residents in its primary service area, Palm Beach County. When looking at the migration pattern for patients at acute care facilities within Palm Beach County, the majority (90 percent) come from Palm Beach County residents. Thus, Select- Palm Beach's projected primary service area is reasonable. Just as Select-Palm Beach, Kindred proposes to serve the entire District. Kindred proposes that its facility be based in Palm Beach County because of the percentage of the district's population in the county as well as because more than 70% of the district's general acute care hospitals are in the county. Its selection of the District as its service area, consistent with the Agency's view, is reasonable. Currently there are no LTCHs in District 9. Availability, Utilization and Quality of Like Services The second topic is "availability, utilization and quality of like services." There are no "like" services available to District residents in the District. Select-Palm Beach and Kindred, therefore, contend that they meet the criteria of the second topic. There are like services in other AHCA Districts. For example, AHCA District 10 has at total of 188 beds at two Kindred facilities in Fort Lauderdale and Hollywood. The Agency, however, did not present evidence of their quality, that they were available or to what extent they are utilized by the residents of AHCA District 9. Medical Treatment Trends The third topic is medical treatment trends. Caring for patients with chronic and long term care needs is becoming increasingly more important as the population ages and as medical technology continues to emerge that prolongs life expectancies. Through treatment provided the medically complex and critically ill with state of the art mechanical ventilators, metabolic analyzers, and breathing monitors, LTCHs meet needs beyond the capability of the typical general acute care hospitals. In this way, LTCHs fill a niche in the continuum of care that addresses the needs of a small but growing patient population. Treatment for these patients in an LTCH, who otherwise would be cared for without adequate reimbursement to the general acute care hospital or moved to an alternative setting with staff and services inadequate to meet their needs, is a medical trend. Market Conditions The fourth topic to be addressed by the applicant is market conditions. The federal government's development of a distinctive prospective payment system for LTCHs (LTC-DRG), has created a market condition favorable to LTCHs. General acute care hospitals face substantial losses for the medically complex patient who uses far greater resources than expected on the basis of individual diagnoses. Medicare covers between 80 and 85 percent of LTCH patients. The remaining patients are covered by private insurance, managed care and Medicaid. LTCH programs allow for shorter lengths of stay in a general acute care facility, reduces re-admissions and provide more discharges to home. These benefits are increasingly recognized. Numeric Need Analysis Kindred presented a set of needs assessment methodologies that yielded numeric need for the beds applied for by Kindred. Select-Palm Beach did the same. Unlike Kindred, however, all of the needs assessment methodologies presented by Select-Palm Beach demonstrated numeric need in excess of the 130 beds proposed by both applications. Select-Palm Beach's methodologies, overall, are superior to Kindred's. Select-Palm Beach used two sets of needs assessment methodologies and sensitivity testing of one of the sets that confirmed the methodology's reasonableness. The two sets or needs assessment methodologies are: (1) a use rate methodology and (2) length of stay methodologies. The use rate methodology yielded projected bed need for Palm Beach County alone in excess of the 130 beds proposed by the two applicants. For the year "7/05 - 6/06" the bed need is projected to be 256; for the year "7/06 - 6/07" the bed need is projected to be 261; and, for the year "7/07 - 6/08" the bed need is projected to be 266. See Select Ex. 1, Bates Stamp p. 000036 and the testimony of Ms. Greenberg at tr. 114. If the use rate analysis had been re-computed to include two districts whose data was excluded from the analysis, the bed need yielded for Palm Beach County alone was 175 beds, a numeric need still in excess of the 130 beds proposed by both applicants. The use rate methodology is reasonable.4 The length of stay methodologies are also reasonable. These two methodologies also yielded numeric need for beds in excess of the 130 beds proposed. The two methodologies yielded need for 167 beds and 250 beds. Agency Denial The Agency's general concerns about LTCHs are not without basis. For many years, there were almost no LTCH CON applications filed with the Agency. A change occurred in 2002. The change in the LTCH environment in the last few years put AHCA in the position of having "to adapt to a rapidly changing situation in terms of [Agency] understanding of what has been going on in recent years with long-term care hospitals." (Tr. 358.) "... [I]n the last couple of years long-term care hospital applications have become [AHCA's] most common type of application." (Tr. 359.) At the time of the upsurge in applications, there was "virtually nothing ... in the academic literature about long- term care hospitals ... that could [provide] ... an understanding of what was going on ... [nor was there anything] in the peer reviewed literature that addressed long-term care hospitals" id., and the health care planning issues that affected them. Two MedPAC reports came out, one in 2003 and another in 2004. The 2003 report conveyed the information that the federal government was unable to identify patients appropriate for LTCH services, services that are overwhelmingly Medicare funded, because of overlap of LTCH services with other types of services. The 2004 report gave an account of the federal government decision to change its payment policy for a type of long-term care hospitals that are known as "hospitals-within- hospitals" (tr. 368) so that "hospitals within hospitals as of this past summer [2004] can now only treat 25 percent of their patients from the host hospital." Id. Both reports roused concerns for AHCA. First, if appropriate LTCH patients cannot be identified and other types of services overlap appropriately with LTCH services, AHCA cannot produce a valid needs assessment methodology. The second produces another concern. In the words of Mr. Gregg, The problem ... with oversupply of long-term care hospital beds is that it creates an incentive for providers to seek patient who are less appropriate for the service. What we know now is that only the sickest patient ... with the most severe conditions are truly appropriate for long-term care hospital placement. * * * ... [T]he MedPAC report most recently shows us that the greatest indicator of utilization of long-term care hospital services is the mere availability of those services. Tr. 368-369. The MedPAC reports, themselves, although marked for identification, were not admitted into evidence. Objections to their admission (in particular, Kindred's) were sustained because they had not been listed by AHCA on the stipulation required by the Pre-hearing Order of Instructions.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be issued by the Agency for Health Care Administration that: approves Select-Palm Beach's application, CON 9661; and approves Kindred's application CON 9662 with the condition that financing of the project be provided by Kindred Healthcare. DONE AND ENTERED this 18th day of April, 2005, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of April, 2005.
The Issue Which Certificate of Need (CON) application for a new 120- bed community nursing home in Agency for Health Care Administration, Nursing Home District 1, Subdistrict 1, should be granted: Life Care Health Resources, Inc. (CON No. 8802) or National HealthCare L.P. (CON No. 8799).
Findings Of Fact The NHC Application NHC proposes to build a new 120-bed facility. The project will have approximately 63,104 gross square feet. NHC projects the total project cost to be $8,763,625. NHC agreed to condition its application on the following: (a) a 16-bed subacute unit; (b) a 30-bed Alzheimer/Dementia services unit; (c) provision of adult day care through an existing provider; (d) respite care; and (e) care for HIV/AIDS patients. NHC further agreed to accept as a condition a Medicaid commitment of 74.5 percent of patient days. Finally, NHC offered to condition its application on the acceptance of "patients with HIV/AIDs referred by the public health unit serving the County in which the facility is or is proposed to be located." NHC agrees to be subject to monitoring and fines in the event that any of the above conditions are not met. The late Carl E. Adams, M.D., a Tennessee physician, founded NHC in 1971. From the beginning, NHC adopted innovations in nursing care which are now standard in the care of the elderly, e.g., skilled care programs, 24-hour RN coverage, computerized patient care assessment programs, and physical, occupational, and speech therapy. It is currently adopting other innovative therapies such as pet and music therapy, as well as children's visits. NHC is one of the largest owners/managers of nursing homes and assisted living facilities in the country. It has operations in 107 centers located in ten states. NHC has been operating nursing centers in Florida since 1985. At the time of its application, NCH owned nine nursing homes in the State of Florida, including five that had a superior rating. NHC manages 32 other centers in the State of Florida, the majority of which have superior ratings. NHC manages a facility in Escambia County known as FCC Palm Garden of Pensacola. Palm Garden has 180 beds. NHC does not own any facilities in the health planning District I, Subdistrict 1, which includes Santa Rosa and Escambia Counties. NHC has a well-developed corporate and regional management structure. The management structure places a significant amount of responsibility for decision-making at the facility level. The corporate and regional staff support individual facilities in the delivery of health care services to patients. At the corporate level, the following people are available to assist the local nursing homes and regional personnel in delivering high quality service: Vice President of Patient Services, Corporate Dietitian, and Coordinator of Social Services. Also, there are support service personnel for medical records, accounting and all of the therapy services, including but not limited to physical, occupational, and physical therapy. NCH has separate departments, which support nursing home development, construction, interior design, and human resources, as well as the company's retirement and assisted living facilities. At the regional level, NHC has established the following directorships to provide support personnel for the individual facilities: Regional Administrator, Regional Nurse, Regional Dietitian, Regional Social Worker, Regional Activities Coordinator, Regional Medical Records Director, Regional Accountant, Regional Physical Therapist, Regional Occupational Therapist, and Regional Speech Therapist. In addition to providing support, regional personnel actively monitor the quality of care provided at each of the NHC facilities. Annually, the NHC regional team spends two to three days in each center doing a comprehensive assessment of the delivery of care. Once a year, the Regional Nurse performs a full patient-care survey for each patient in each facility. Quarterly, the Regional Nurse reviews portions of each patient's care, so that twice a year there is a complete review of each case file. The regional team conducts Consumer View Surveys, which were developed by NHS. These surveys determine patient satisfaction with the quality of care, quality of life, and matters of patient rights which extend to family members. All of NHC's patients receive a quality control card to mail back to the home office upon admission, ninety (90) days after admission, and on each anniversary. The regional team reviews all patient care outcomes on a monthly basis. NHC's management philosophy includes a strong commitment to provide quality of care to its patients. Management strives to ensure that NHC employees have the education, training, and experience to deliver that care. Extensive corporate resources and support are provided to enable all the employees in the corporation to educate and improve themselves in the provision of long-term care. NHC has extensive programs in place to train administrators (two-year program), directors of nursing (preceptor program), dietitians, and certified nursing assistants (three levels of in-house education beyond the normal certification requirements.) NHC provides incentives to its employees to encourage their participation in educational and training programs, i.e., tuition reimbursement for college courses, in-house seminars, and annual company seminars as an entire organization and along specialty lines. NHC has developed extensive, state-of-the-art quality assurance, patient assessment and utilization programs. NHC, through its Partners in Excellence (PIE) program, Presidential Excellence Awards and CNA Awards, provides strong financial incentives to staff to maintain and improve quality care. NHC is also directly involved in community education efforts in the area of long-term care research and geriatric education. NHC founded the Foundation for Geriatric Education. This foundation has funded numerous chairs at various colleges and promotes public education on geriatric issues. Also, NHC supports and contributes to the training of LPNs, CNAs, therapists, and dietitians at local vocational schools, junior colleges, and universities. The LCHRI Application LCHRI is a Tennessee corporation, which is wholly owned by Forest L. Preston. It is not a subsidiary or an affiliate of any other corporation. LCHRI is self-described in the application as "a Tennessee corporation whose purpose is to develop and acquire high quality skilled nursing facilities." Mr. Preston is also the sole shareholder of Life Care Centers of America, Inc. (LCCA). LCCA is the largest privately held nursing home company in America. It operates approximately 25,000 nursing home beds in 200-plus facilities in 28 states. It also operates over 2,000 retirement center units. LCCA operates nine nursing homes in Florida. LCHRI intends to enter into a management arrangement with LCCA for the operation of its proposed facility. LCHRI is proposing to construct a 120-bed freestanding nursing home in the north/northeast portion of Escambia County. The facility will have approximately 57,600 gross square feet. LCHRI proposes to construct and equip the facility for the sum of $8,497,000. LCHRI conditions its application on providing at least 75 percent of its patient days to Medicaid patients. LCHRI also conditions its application on providing a 20-bed secured Alzheimer's/dementia unit and a ten-client adult day care center. LCHRI's application states that it will serve Medicare/subacute patients and HIV/AIDS patients. It will provide respite care and care to hospice patients. LCHRI's program will include a wide range of therapies, including occupational therapy, speech therapy, and physical therapy. It will provide intravenous care, wound care, and ventilator/respiratory care. However, care to these patient populations and provision of these services is not a condition of LCHRI's application, which would be subject to subsequent monitoring by the Agency. LCHRI will provide the required and necessary administrative services to its residents, including pre-admission screening services, utilization review, appropriateness review, care planning, and discharge planning services. The effectiveness of those services will be monitored through a Continuous Quality Improvement Program. LCHRI will incorporate into its project all required dietary programs, activities programs, and programs for family and community involvement. It will assure that resident's rights are protected by implementation of a Residents' Rights Policy. Resident security will be assured via use of a security council, a safety committee, and a program designed to prevent accidents. A Resident's Council will provide for the expression of grievances, offer a means of making suggestions to the nursing home, and assist management in understanding the needs and concerns of residents. COMPARATIVE FACTORS BETWEEN NHC'S AND LCHRI'S APPLICATIONS Quality of Care: Level and Extent of Services A significant comparative factor between the applicants is the level, quantity, and quality of care that both propose. The staffing and extent to which each applicant's proposal would serve various residents of the health planning district was left at issue by the parties. Likewise, the comparative quality of care of the applicants was left at issue. The parties' prehearing stipulation states as follows regarding state health plan allocation factors: Allocation Factor VIII regarding history of providing superior resident care programs is at issue, provided, however, the parties shall only introduce evidence of licensure history, JCAHO accreditation, staffing, level of service, programs and architectural matters. Allocation Factor IX regarding proposed staffing levels, all applicants meet minimum staffing levels. However, the parties retain the right to contest whether the applicants have the ability to meet the proposed staffing levels and to use the proposed staffing levels as a comparative factor. Allocation Factor XII relating to the preference for applicants proposing lower administrative costs and higher resident care costs compared to the average nursing home in the district is at issue in this proceeding. The parties' prehearing stipulation regarding the statutory review criteria located in Section 408.035(1)(c), Florida Statutes, states as follows: Subsection (c) relating to quality of care, all parties meet the criteria and it is not at issue as to past quality of care or quality of care proposed in the applications; provided, however, the parties may use this criteria as a comparative factor, but shall only introduce evidence as to licensure history, JCAHO accreditation, level of service, programs, staffing and architectural matters. Both applicants will provide staffing levels which exceed minimum standards. NHC proposes a total of 115.87 full- time equivalent (FTE) positions, with 67.2 total nursing FTEs. LCHRI proposes a total of 109.3 FTE positions, with 62.2 total nursing FTEs. Some of NHC's nursing staff will have administrative duties in addition to their direct patient care duties. The Assistant Director of Nursing, the Subacute Unit Director, and the Alzheimer's Unit Director will serve in dual roles. However, there is no persuasive evidence that serving as an RN and a unit director will detract from a nurse's direct patient care responsibilities. NHC proposes 10.37 FTEs for ancillary care (therapy) using. LCHRI proposes 8.5 FTEs for ancillary care. Both parties presented evidence that they will provide therapists for eight hours a day, five days a week. LCHRI's statement that it will be able to stagger its staff to allow for therapies up to seven days per week is not persuasive. NHC will have six more full-time persons serving its 120 beds than LCHRI will have serving its 120 beds and ten person adult day care. Five of the additional persons who will staff the NHC facility are involved in direct patient nursing care. Both applicants will provide a wide range of therapeutic programs necessary to the successful operation of a nursing home. LCHRI proposes to use in-house therapists to accentuate continuity of care. NCH's application states that it will contract with its wholly-owned subsidiary, National Health Rehab, for the services of therapists. In either case, the applicants will be able to provide patients with high-quality ancillary care. Another method of determining the relative merits of an applicant's commitment to provide patient care services is a comparison of the applicant's expenditure for administrative and patient care costs to the district average. The average administrative cost of the district is $27.91 a day per patient. NHC projects its administrative cost will be $23.37. LCHRI's administrative cost will be $24.32. The average patient care cost of the district is $58.94 a day per patient. NHC's patient care cost will be $86.46 a day per patient. LCHRI will spend $61.97 a day per patient on patient care. NHC will spend $993,115 a year more than LCHRI on patient care. NHC's greater patient care cost will provide more nursing staff, better paid nursing staff, incentives and bonuses to nursing staff for quality service, higher dietary expenditures, and more recreational and social activities. Another indicator of quality is the historical performance of an applicant pursuant to its licensure history. LCHRI has no operating history. Therefore, the operating history of LCCA, the projected operator of the LCHRI facility, must be examined here. There are three (3) types of licensure awarded by the State of Florida: Conditional, Standard, and Superior. The license categories are awarded and/or changed upon the regular bi-annual survey for licensure renewal or after a complaint investigation survey. The survey process involves grading violations as Class I, II, or III. Class I violations are the most serious and require immediate correction. A facility that receives a conditional rating at the time of its re-licensure or other survey has Class I or II deficiencies. Of the nine facilities owned and operated by NHC in Florida, seven had a superior rating and two had a standard ratings at the time of the final hearing. The facility managed by NCH in Escambia County, Palm Garden of Pensacola, was issued a conditional license on May 22, 1997. However, the Palm Garden facility corrected its deficiencies and subsequently received a standard license on June 11, 1997. As of May 5, 1998, the Palm Garden facility had a superior rating. As of July 30, 1998, LCCA had five skilled nursing facilities in the state: two with a superior rating, and three with a standard rating. Additionally, LCCA operates three nursing homes for affiliated owners in the state: one with a superior rating and two with a conditional rating. The licensure history for the ninth nursing home operated by LCCA, Life Care of Orlando, is not included in the record. At the time of the hearing, LCCA operated 60 facilities in the United States that were accredited by the Joint Commission on Accreditation of Health Care Organizations (JCAHO). LCCA operated 34 facilities nationally that had JCAHO applications pending. NHC also has significant experience with JCAHO accreditation. It operates 16 facilities in its north Florida region. One of these facilities, which is owned by NCH, is JCAHO accredited. Five of the facilities, which are managed by NHC, are accredited. One of the latter has a special accreditation for its subacute unit. Both parties have architectural features which promote quality of care. These architectural features are discussed in detail below. As to State Health Plan Allocation Factor VIII, NHC has a comparatively better history of providing superior resident care programs as evidenced by its licensure history, staffing, level of service, and programs. As to State Health Plan Allocation Factor IX, on a comparative basis, staffing levels proposed by NHC compare favorably to LCHRI's proposal. As to State Health Plan Allocation Factor XII, both applicants propose lower administrative costs and higher resident care costs compared to the average nursing home in the District. NHC compares favorably as to LCHRI in all aspects of this review criteria. It is undisputed that NHC will spend $24 per patient per day more than LCHRI on patient care. As to Statutory Review Criteria Section 408.035(1)(c), Florida Statutes, NHC's 120-bed proposal, when compared to LCHRI's 120 proposal, will provide a higher quality of care as to licensing history, level of service, programs, and staffing. Special Programs The type and nature of special programs proposed by a nursing home applicant is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding the state health plan allocation factors: Allocation Factor III relating to specialized services to special care patients is not at issue in this proceeding. All applicants meet this preference, but it can be a basis for comparison. Allocation Factor VI regarding proposals to provide innovative therapeutic programs is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding Section 408.035(1)(b), Florida Statutes: Subsection (b) is at issue to the extent the parties want to argue that their respective proposals better meet the need for health care services within the health planning district and as to any special programs proposed by the applicants. Alzheimer Units NHC proposes to operate a secured Alzheimer's care unit with 30 beds. The implementation of this separate unit is a condition of NHC's application. The unit has numerous amenities such as a very large dining and lounging area for the Alzheimer's patients. The unit is also specially designed to accommodate the wandering characteristics of the Alzheimer's patient. None of the corridors end in a dead end. The design of the unit allows for the circular, wandering motion of the typical Alzheimer's patient, both inside the unit and from the building to the secured courtyard. NHC's application proposes a large outdoor walled courtyard area for the Alzheimer's patients. The courtyard has a well landscaped gazebo area for the patients. NHC's staff in the Alzheimer's unit will receive specialized training for the care of this type of patient. LCHRI's facility will include a 20-bed Alzheimer's and/or dementia unit. LCHRI's Alzheimer's unit has a smaller courtyard than the one proposed by NHC. The LCHRI unit has numerous dead end corridors, which hamper the circular wandering pattern of the typical Alzheimer's patient. The floor coverings (vinyl) have a shine, which is disruptive to the Alzheimer's patient. Over the next few years, the health care planning district will need more beds for Alzheimer's patients than either of the applicants are proposing. Under these circumstances, NHC's 30-bed unit will best meet the growing need for beds that will serve people with dementia and Alzheimer's disease. Subacute Units NHC proposes a comprehensive subacute unit. The subacute unit will handle medically complex patients who require the following services: TPN, dialysis, oncology treatment, cardiac rehabilitation, ventilator use, IV care, and respiratory therapy. NHC's subacute unit will have 16 beds; its implementation is a condition of NHC's application. LCHRI asserts that it also will provide Medicare/subacute care. The LCHRI application describes a 20-bed unit. LCHRI does not condition its application on implementing this unit. NHC's subacute unit will provide a higher level of care than the unit proposed by LCHRI. Adult Day Care Both applicants condition their respective applications on the provision of adult day care. LCHRI offers to condition its CON on a 10-person in-house program which will focus on early stage Alzheimer's patients. NHC proposes to condition its CON on providing adult day care through existing providers. The in-house adult day care program suggested by LCHRI will handle persons with Alzheimer's disease and dementia. The nursing staff from the Alzheimer's unit will make rounds to the adult day care unit and be responsible for the implementation of the program, even though the two units are at the extreme opposite ends of the building. The adult day care area does not appear to be a secured area. The parties disputed whether there is a need for adult day care within the health planning district. NHC conditioned its application on the provision of adult day care services through existing providers to avoid duplication of services already in the district. Rehab and Restorative Nursing NHC has extensive, existing rehabilitative and restorative nursing programs. The goal of NHC's rehabilitative programs is to achieve and maintain the residents' highest level of functioning. NHC uses the innovative recreational and treatment therapies of children contact, music therapy and pet therapy. NHC proposes a total of 10.37 FTEs of therapists for rehabilitation care compared to 8.5 FTEs proposed by LCHRI. NHC proposes 2.8 FTEs for restorative nursing compared to 2.0 FTEs for LCHRI. As discussed above, both applicants will provide a wide range of therapeutic programs. LCHRI's proposal includes several noteworthy features relating to these therapies. They include the following: (1) an outdoor textured walking area that provides different kinds of walking environments, e.g. steps, curbs, inclines, drop ramps for wheelchairs, rough stones, grass, etc; (2) a transitional unit that is akin to a small apartment, including a kitchenette, a dining area, a regular bed (as opposed to a standard nursing home bed), and a regular bathroom; and (3) a therapy suite which allows for individualized therapy treatments and which is equipped with offices for in-house therapy professionals. However, the physical therapy unit and the specialized therapy courtyard are separated by a significant distance. The LCHRI application asserts that its facility will employ in-house therapists. Pursuant to a contract, LCCA will act as a consultant for LCHRI's therapists. However, LCCA will not be responsible for managing the clinical aspects of the LCHRI rehabilitation and restorative programs. LCCA will not be responsible for the results of the outcomes of these programs. LCHRI's claim of competency and proficiency in this area is therefore tentative. On the other hand, NHC and its wholly-owned subsidiary, National Health Rehab, will have a high level of integration in the delivery of rehabilitation services. The close corporate relationship between the two entities will minimize any managerial or clinical territorial conflicts, which might otherwise exist with an outside third party rehabilitation company. Moreover, the rehabilitation staff assigned to NHC's proposed facility will be permanently located there and not rotated among other facilities. As to State Health Plan Allocation Factor III, NHC provides superior specialized programs to residents of the health planning district. Based upon absolute numbers, NHC proposes ten (10) more Alzheimer's beds than LCHRI. NHC proposes to condition its application on the provision of Medicare subacute beds. NHC will provide a higher level in its subacute unit than LCHRI. NHC demonstrated that it has in the past, currently does, and will in the future provide care to HIV/AIDS patients. As to State Health Plan Allocation Factor VI, NHC will provide superior innovative therapeutic programs. As to Statutory Review Criteria Section 408.035(1)(b), Florida Statutes, NHC's specialized programs are superior in satisfying this requirement. ARCHITECTURAL DESIGN Architectural design remains at issue in this proceeding. The parties' prehearing stipulation states as follows regarding one of the state health plan allocation factors: Allocation Factor V regarding proposals to construct facilities which provide maximum resident comfort and quality of care is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding statutory review criteria located in Sections 408.035(1)(c) and 408.035(1)(m), Florida Statutes: Subsection (c) relating to quality of care, all parties meet the criteria and it is not at issue as to past quality of care or quality of care proposed in the applications; provided however the parties may use this criteria as a comparative factor, but shall only introduce evidence as to licensure history, JCAHO accreditation, level of service, programs, and staffing and architectural matters. Subsection (m) relating to the costs and methods of proposed construction is at issue in this proceeding. A miscellaneous section of the parties' prehearing stipulation states as follows: The architectural plans and narrative contained in each application may be accepted into evidence without the need for further authentication, corroboration, or foundation. The feasibility, validity and relative merits of each party's architectural plans is at issue and are a basis of comparison between the parties applications. Architecturally, the proposed bathing facilities for residents distinguish the proposals of the applicants. NHC has 58 bathing areas, a substantial majority of which are "in room" showers. LCHRI's proposed facility has 16 bathing facilities. Two of LCHRI's bathing facilities are centralized for the general population's use. Four of LCHRI's bathing facilities are located in areas designated for special programs or patients, i.e., physical therapy, Alzheimer care, adult day care and isolation room. Ten rooms in LCHRI's Medicare certified unit have showers in individual patient rooms. Except for the bathing facilities located in the isolation room and Medicare certified unit, all of LCHRI's bathing facilities are centralized. NHC will have one bathing area for every two residents. LCHRI's ratio of bathing area per resident ranges from 1:2 to 1:40, depending on the type of unit. One of the most important daily functions performed in a nursing home is daily bathing. Good nursing home design incorporates design features that allows residents to retain their dignity while bathing. Private showers in individual rooms are a superior design alternative to enhance patient dignity and quality of life in the nursing home. A comparison of other architectural features between the two applicants is as follows: (a) NHC's total square footage for the entire facility is greater than LCHRI's total square footage; (b) NHC will have more square footage per resident than LCHRI, including LCHRI's adult day care clients; (c) NHC will have 22 private rooms compared to LCHRI's 11 private rooms; (d) NHC will have 49 semi-private rooms compared to LCHRI's 54 semi- private rooms; (e) NHC's resident rooms will be equal in size or larger than any of LCHRI's resident rooms; (f) NHC will have six dining areas compared to LCHRI's four dining areas; (g) LCHRI will have three courtyards compared to NHC's two courtyards; (h) NHC will have two screened porches compared to no screened porches for LCHRI; (i) LCHRI will have six dayrooms, activity rooms and/or lounges for residents compared to three for NCH; and (j) LCHRI will have four lounges, classrooms and/or conference rooms for staff compared to three for NHC. NHC's facility provides for carpeting in the hallways, patient rooms, dining and other common areas. NHC uses wallpaper in patient rooms and ceramic tile in the bathrooms. NHC's corridors are 9 feet wide and have cart alcoves. For heating and air conditioning, NHC uses a water source heat pump, with individual controls in the rooms. NHC's two isolation rooms have a work area between the rooms and the corridors for more separation. NHC's facility is designed to accommodate a future expansion of 120 beds. Therefore, its ancillary areas are on one side of the facility rather than in the middle. Some of NHC's resident rooms are up to 300 feet from the dining area. LCHRI's facility also provides for carpets in the corridors, patient rooms, and many of the common areas. LCHRI uses vinyl in the bathroom. LCHRI has only one isolation room, which is a standard room, not specifically designed for this function. The walls in the patient rooms are painted, except for the patient room headwall and corridors. LCHRI's hallways do not have cart alcoves. For air conditioning, LCHRI uses through-wall heat pump units. LCHRI's facility is not designed for future expansion. Therefore, its ancillary areas are located in the center of the complex, with a service corridor at the rear of the building. The total square footage devoted to dining, recreation, activities, sun porches, ice cream parlors, living rooms for NHC is 7,489 square feet. LCHRI has 7,050 square feet devoted to such spaces. The therapy areas in both plans are essentially the same size. Both facilities have an in-house classroom and training room. NHC's classroom is 888 square feet. LCHRI's classroom is 388 square feet. NHC is proposing a Type 4 construction. LCHRI will use a Type 5 construction. Type 4 construction has a higher rating for fire safety. As to State Health Plan Allocation Factor V, the NHC proposal will provide maximum resident comfort and, on a comparative basis, a better quality of care than LCHRI's proposal. The in-room showers in the NHC center are the superior alternative to the centralized bathing proposed by LCHRI. The same is true in regards to Statutory Review Criteria Section 408.035(1)(c), Florida Statutes. NHC's proposal of in-room showers provides a better quality of care as compared to the LCHRI proposal for centralized bathing. As to Statutory Review Criteria Section 408.035(1)(m), Florida Statutes, NHC's method of construction provides more resident comfort and superior amenities. SERVICE TO RESIDENTS OF THE DISTRICT (ACCESS) The extent to which the services and beds provided by each applicant are available to residents of the district is at issue in this proceeding. The parties' prehearing stipulation states as follows regarding the district health plan allocation factors: Preference should be given to a CON applicant who has a history of providing care, or who will commit to provide care for patients with HIV/AIDS . . . . [This preference, District Health Plan Allocation Factor IV is at issue.] Preference should be given to a CON applicant who agrees to accept patients with HIV/AIDS referred by the public health unit serving the county in which the facility is or is proposed to be located [This preference, District Health Plan Allocation Factor VI is at issue.] The parties prehearing stipulation states as follows regarding statutory review criteria located in Sections 408.035(1)(b), 408.035(1)(h), 408.035(1)(j), 408.035(1)(l), and 408.035(1)(n), Florida Statutes. Subsection (b) is at issue to the extent the parties want to argue that their respective proposals better meet the need for health care services within the health planning district and as to any special programs proposed by the applicants. Subsection (h) relating [to] the effects [that] the project will have on clinical needs of health professional training programs in the service district; and the extent to which the services will be accessible to schools for health professions in the service district for training purposes if such services are available in a limited number of facilities; [and] the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service district, are at issue in this proceeding. Subsection (j) relating to the special needs of and circumstances of health maintenance organizations is at issue. Subsection (l) relating to the probable impact of the proposed project on the costs of providing health care services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and cost effectiveness, is at issue in this proceeding. Subsection (n) relating to the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent, is at issue in this proceeding. HIV/AIDS The local health plan includes two preferences which seek to foster the commitment of nursing homes to admit and care for HIV/AIDS patients. LCHRI relies upon the LCCA's history of providing care to patients with HIV/AIDS. LCCA provides approximately 1400 patient days of care per year to HIV/AIDS patients in its Orange Grove Rehabilitation Hospital. LCCA also has a facility in Tennessee that cares for HIV/AIDS patients. In contrast, NHC offers to condition its application on the acceptance of HIV/AIDS patients which are referred by the public health unit serving the Escambia County. In addition, NHC has served at least four HIV/AIDS patients in its Florida nursing homes over the past three years. At the time of the Final Hearing, NHC was providing nursing home care to one HIV/AIDS patient. Medicaid In its Florida facilities, NHC provides 47.84 percent of its patient days to Medicaid patients. Most of NHC's facilities provide more patient days of care to Medicaid patients than is required as a condition of their respective CONs. One of its facilities provides a significant number of Medicaid patient days of care even though there is no such condition on its CON. NHC conditions its application on the provision of 74.5 percent of patient days for care of Medicaid patients. LCCA has Medicaid conditions at other facilities it operates. Only one of the facilities that it is currently operating does not meet the Medicaid condition on its CON. LCHRI conditions its application on the provision of 75 percent of patient days for care of Medicaid patients. Medicare Pursuant to Schedule 7 of the respective applications, NHC proposes to provide 6,058 Medicare days in its second year of operation. LCHRI will provide 4,654 Medicare days in its second year of operation. In addition, NHC proposes to condition its application on implementing a separate subacute unit, which will take care of higher acuity patients. LCHRI's subacute and Medicare patients will be served in a combined unit. Private Pay LCHRI raised concerns over NHC's lack of semi-private rooms for private pay patients. NHC's proformas do not reflect any semi-private room revenue for private pay patients because these patients generally require private rooms. Nevertheless, NHC will make semi-private rooms available to private pay patients. HMO/Insurance NHC proposes to charge health maintenance organizations (HMOs) and insurance companies a rate of $315 a day in the second year of operation. During the same period of time, LCHRI proposes to charge HMOs and insurance companies at the rate of $372.69 per day. NHC has specialized regional case managers to handle HMO patients. Location LCHRI asserts that its facility will be located in north/northeast Escambia County to better serve the whole district. However, LCHRI does not offer to condition its application upon locating in this area. The north/northeast section of Escambia County is already well served with other nursing homes. Many of the nursing homes currently located in the county are clustered in this area. NHC may elect to locate its facility in the same geographic area as proposed by LCHRI if the market and demand conditions continue to justify such a location. As an applicant which is not bound to a site, NHC has the greater ability to respond to existing market demand at construction time. Corporate Resources and Personnel Both applicants have corporate resources to recruit and train personnel to insure quality of patient care. NHC has experience in recruiting personnel in the district through its operation of the Palm Garden of Pensacola facility. LCHRI will utilize its experience at a recently opened Florida facility to recruit personnel. In summary, District Health Plan Factors IV and VI indicate a strong preference for the applicant which indicates a commitment to HIV/AIDS patients. NHC agreed to condition its CON on the provision of care for HIV/AIDS patients. Therefore, NHC is entitled to credit for these preferences. As to Section 408.035(1)(b), Florida Statutes, NHC better meets this statutory review criteria. NHC is proposing to provide two new special programs to residents of the health planning district, a subacute care unit for medically complex patients and a dedicated Alzheimer's care unit. With respect to Section 408.035(1)(h), Florida Statutes, both applicants rely on extensive corporate resources to meet this criterion. They both have well-developed programs for the recruitment and training of qualified associates. However, NHC better meets the statutory review criteria because it will provide the residents of the district with a broader range of accessible service. With respect to Statutory Review Criteria Section 408.035(1)(j), Florida Statutes, NHC demonstrated that it will better meet the needs of HMOs because it will charge the lowest rate. With respect to Statutory Review Criteria Section 408.035(1)(l), Florida Statutes, an award of a CON to either applicant will foster competition in the district by establishing the presence of a new nursing home provider. NHC has a presence in the district through its operation of the Palm Garden of Pensacola facility, but not as an owner. With respect to Statutory Review Criteria Section 408.035(1)(n), Florida Statutes, the parties are essentially equal on this point. Both have comparable past histories in providing Medicaid and charity care. Furthermore, both propose to provide Medicaid care at essentially the subdistrict average. ECONOMIC MATTERS A few economic issues as to project costs, long-term financial feasibility, and economies of scale are at issue. These economic issues clearly distinguish the two applicants. Economies of Scale The parties' prehearing stipulation states as follows regarding Section 408.035(1)(e), Florida Statutes: Subsection (e) relating to probable economies and improvements in service that may be derived from operation of joint, cooperative or shared health care resources is at issue in this proceeding. NHC is the superior applicant as to the statutory review criteria located in Section 408.035(1)(e), Florida Statutes. Adding a facility to NHC's strong regional structure will result in economies and improvements in service in the joint operation of all of its facilities. NHC also demonstrated significant economies of scale in the joint and cooperative clinical ventures with third party health care practitioners and providers. LCCA, which will be the manager for LCHRI's project, does not claim to have a centralized or focused regional management team. Its application specifically describes a decentralized management with the focus on the individual center. LCCA's recently formed regional staff is comprised of only six individuals. Project Costs Project costs remain at issue in this proceeding. The parties' stipulation states as follows regarding estimated project costs, Schedule I: The information contained on each Schedule 1 of the applications is deemed to be correct and true and will not require further proof at hearing; provided, however, the parties may contest individual line items. The parties' stipulation regarding Section 408.035(1)(m), Florida Statutes, states as follows: Subsection (m) relating to the costs and methods of proposed construction is at issue in this proceeding. Line 12 of LCHRI's Schedule I indicates that the construction costs for its project is $5,079,000. In the notes which accompany LCHRI's Schedule 1, the cost of construction per square foot is $95.51 and the square footage is 57,576. When one multiplies these numbers, the result is $5,499,083.76, which is approximately $420,083 higher than the number on line 12 in LCHRI's Schedule 1. LCHRI's witnesses gave no explanation or reconciliation of this obvious arithmetical error. LCHRI criticized NHC's costs in Schedule 1: land costs, site preparation, moveable equipment, financing costs, and start-up costs. These criticisms are not persuasive for the following reasons: Historical Cost LCHRI's criticism is based on a comparison with LCCA's historical costs for these items. NHC provided competent evidence to verify that the costs contained in its Schedule 1 are based on NHC's actual historical costs over dozens of projects. Utilizing past cost experience of an organization is a valid technique for estimating project costs. Land Cost LCHRI plans to pay approximately $125,000 per acre for its land. NHC will pay considerable less at $75,000 per acre. LCHRI's claim that NHC's land cost is low is without merit. NHC demonstrated that its land cost is reasonable. They were determined by obtaining cost estimates from a qualified real estate broker from the Pensacola area. Site Preparation LCHRI will spend $420,000 on site preparation. NHC will spend $17,000 for the same expense. NHC included a substantial portion of its site development costs in its construction cost; these costs are reasonable and appropriate. Movable Equipment The cost of NHC's movable equipment is appropriate based upon its historical experience and as delineated in the notes and assumptions. Financing Costs By virtue of its financing affiliate, NHC is able to achieve savings in the financing of its project. The amount it projects is appropriate based upon NHC's historical experience. Start-up Costs NHC demonstrated that its start-up costs are adequately estimated based on its relevant historical experience. NHC is able to manage this cost efficiently because it uses its regional managerial and clinical staff to do many of the start-up functions and work. As to project costs, NHC demonstrated by substantial competent evidence that its project costs were reasonably determined and appropriate. In contrast, LCHRI's costs contained in arithmetic error, which remains unexplained. Long-Term Financial Feasibility The parties' prehearing stipulation states as follows regarding the statutory review criteria located in Section 408.035(1)(I), Florida Statutes: Subsection (i) relating to the long-term financial feasibility (defined as the ability to operate the facility profitably after the start-up period) is at issue. For purposes of comparative review, AHCA defines financial feasibility as having a positive net profit at the end of the second year operations. Schedule 6 (Staffing) LCHRI's proposed salaries on Schedule 6 are significantly lower than the prevailing market conditions in Escambia County. Therefore, LCHRI has underestimated its labor expense by approximately $435,868. In contrast, NHC has based its proposed salaries on its actual operating experience in the county. As stated above, NHC's Alzheimer unit director, subacute unit director and assistant director of nursing (ADON) are essentially dual designations with RNs or LPNs who are found on the staffing schedule. NHC's staff development coordinator and admissions director are included as administrative staff and the activities director. LCHRS's application does not designate any of these positions except for its ADON who will also serve as the subacute unit director. Additionally, LCHRI intends to retain a dietitian pursuant to a contract on an as-needed basis. LCHRI does not include the dietitian's salary on its Schedule 6. NHC's Schedule 6 includes an annual salary for a registered dietitian in the amount of $43,290. Routine Costs Based on the amount that each applicant will spend on nursing, dietary, other patient care, NHC proposes to spend $993,115 more on patient care than LCHRI. At a minimum, this analysis demonstrates that NHC will provide a higher level of patient care. Medicare Prospective Payment System When the parties filed their applications, the Federal Medicare Program was operating under a "cost-based" reimbursement system. On May 12, 1998, Medicare's reimbursement system changed to a Prospective Payment System (PPS). The PPS system became effective for new nursing homes in the country on July 1, 1998. Under the new system, there are 44 resource utilization groupings (RUGs), which are based upon the level of services consumed by different types of patients. Nursing homes will be required to assess their patients under a diagnostic tool containing questions. Responses to the questions will lead to the assignment of a RUG category for each patient. Each of the RUG categories correlate to a level of reimbursement received per day, regardless of the costs actually incurred by the nursing home. It is undisputed that every new project's Medicare reimbursement will be less under PPS than what it would be under the old system. It is also undisputed that the facility at issue will operate under PPS. LCHRI has been monitoring the development of the PPS system for a number of years. It has voluntarily participated in pilot projects, which utilized the PPS system. As of August 11, 1998, LCHRI had 15 facilities operating under PPS, with another 40 facilities scheduled to change over to PPS by October 1998. LCHRI proposes to use in-house therapists as a cost saving measure under PPS. NHC's application proposes to contract with a subsidiary corporation for therapeutic services. Contracting with a third party provider for rehabilitation services is more costly. LCHRI proposes less Medicare and subacute care to reduce the negative impact of PPS. LCHRI projects that 27.1 percent of its revenue will be from Medicare. NHC projects that 41.79 percent of its revenue will be from Medicare. LCHRI asserted that NHC will not achieve its pro forma Medicare rate under PPS. In response to these claims, NHC presented evidence of ways to adjust its practices to meet the requirements of PPS. NHC intends to transfer therapists currently employed by its rehabilitation subsidiary to the individual center's payroll. This change results in the same level of therapy services, yet provides enough cost savings to comply with PPS. NHC estimates the cost savings at $940,000. PPS will result in providers putting more equity into their projects. Under the cost-based reimbursement system, providers had strong incentives to finance projects with debt so that interest costs could be included in their reimbursement. However, under PPS, there is a strong incentive for providers to reduce their interest expense in projects and use more equity. NHC under this method could save $300,000 in interest expense and still achieve very competitive rates of return on the invested equity. NHC has a history of putting the needed levels of equity into its projects. The strategies of switching rehabilitation staff in- house and the funding of project costs by equity are the primary techniques by which all providers, including NHC, will meet the cost containment required by PPS. NHC will also accrue smaller cost savings available in inhalation therapy, medical supplies and other areas. NHC's project has a significant cash flow cushion before its project becomes financially unfeasible. The cushion is $600,000. Under PPS, NHC will still make a total facility profit of $16,630 and have cash flow of $283,000. It would be unreasonable to assume that NHC will do nothing to reduce costs to comply with PPS. Moreover, LCHRI's financial analysis on this point only reduced the revenue for NHC, but did not allow for any corresponding reduction in expenses. PPS is a new reimbursement system, which will have an impact only on Medicare reimbursement. Medicare is only 15 percent of NHC's anticipated patient days and only 11.6 percent of LCHRI's anticipated patient days. NHC is a financially strong company. Furthermore, NHC has been able to consistently operate its facilities profitably for over 20 years in all environments. NHC has never closed a nursing home and has only sold two or three nursing homes. NHC demonstrated here that it has the necessary management expertise and experience to construct, open, and operate its proposed nursing home after the start-up period. NHC management is aware of PPS and its impact. It is preparing a comprehensive financial analysis and response to the new realities of PPS. Regardless of what a nursing home may have assumed or anticipated during the development of PPS, the earliest that any provider could have prepared a response to the impact of PPS with any certainty was not until May of 1998. NHC began making all of its management and operations personnel aware of the potential impact of PPS in the fall of 1997. Over the course of the winter of 1997 and the spring of 1998, NHC provided several seminars to its personnel to begin preparing for PPS. By contrast, LCCA did not begin holding its formal seminars for its management and operations personnel until May of 1998. While it is undeniable that PPS will effect all providers of nursing home services, NCH demonstrated that it has several viable strategies for responding to PPS. NHC, is a financially strong and well-financed nursing home provider, with the managerial, financial ability and talent to successfully respond to PPS. LCHRI raised the issue of financial feasibility with respect to PPS. It claims that the PPS impact on its proposal will only be $4,000 compared to over a $1,000,000 on NHC. However, further examination reveals that LCHRI has underestimated the impact of PPS as to this particular project. The parties agree that bringing rehabilitation staff in-house is the most effective cost-saving technique under PPS. LCHRI has already taken this step in its application, which was filed under the old Medicare reimbursement program. Therefore, this cost-saving measure under PPS is not available to the LCHRI proposal. LCHRI does not have the ability to put more equity into this project. LCHRI is a thinly capitalized corporation with little or no borrowing ability other than reliance upon LCCA. LCCA is highly mortgaged; it engages in a scheme of financing by which it pulls all of its equity out of its facilities as quickly as it can. LCHRI presented evidence it will be able to achieve RUG reimbursement at the highest level for vitually all of its patients over the entire length of stay at the facility. In contrast, NHC reviewed the anticipated average Medicare reimbursement under the RUGs category. NHC utilized a distribution which is currently being experienced in the FCC Palm Garden of Pensacola facility and also compared it against the national distribution under the pilot project. NHC realistically expects to receive an average Medicare reimbursement under PPS of $262.20. LCHRI's expectation of receiving an average reimbursement of $352.66, which is essentially at the highest RUGs category for all patients for the entire length of stay, is not realistic. According to the anticipated national average, not more than 13 percent of the patient days will be at the highest RUGs category. LCHRI's projection does not demonstrate sufficient verification to allow the LCHRI proposal to be feasible under PPS.
Recommendation Based upon the findings of fact and conclusions of law, it is, RECOMMENDED: That the Agency for Health Care Administration issue a Final Order deeming the application of NHC superior based upon a comparative review and awarding CON No. 8799 for 120 community nursing home bed to NHC. DONE AND ENTERED this 5th day of February, 1999, in Tallahassee, Leon County, Florida. SUZANNE F. HOOD 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 5th day of February, 1999. COPIES FURNISHED: Gerald B. Sternstein, Esquire Sternstein, Rainer and Clarke, P.A. 314 North Calhoun Street Tallahassee, Florida 32301 Richard A. Patterson, Esquire Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308-5403 R. Bruce McKibben, Jr., Esquire Post Office Box 1798 Tallahassee, Florida 32302-1798 Sam Power, Agency Clerk Agency for Health Care Administration Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Paul J. Martin, General Counsel Agency for Health Care Administration Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Ruben J. King-Shaw, Jr., Director Agency for Health Care Administration Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issue presented herein is whether or not a CON to construct a 60-bed short-term psychiatric hospital in District XI should be issued to Florida Medical Center (FMC).
Findings Of Fact FMC seeks a CON for a 60-bed free-standing psychiatric facility to be located in the Key Largo area of Monroe County in HRS District XI. FMC intends to provide 6.25 percent of its patient days at no charge to indigent patients. It further intends to provide another 6.25 percent of its patient days to HRS' clients and Baker Act patients at 50 percent of its projected charge, or $200 per day. (FMC Exhibit 2, Table 7). FMC proposes to build this facility at a cost of $6,060,000. Dr. Richard Matthews, Ph.D., has been executive director of the Guidance Clinic of the Upper Keys since 1973 and is a clinical psychologist. He is responsible for the overall administration and supervision of mental health, alcohol, drug abuse and out-patient services provided under contract with HRS. Dr. Matthews was qualified as an expert in clinical psychology and the mental health delivery health system in Monroe County. (FMC Exhibit 13). There are three guidance clinics in Monroe County, one each for the upper, lower and middle Keys. HRS contracts through each of these clinics to provide mental health care for its clients. There are no community mental health centers in Monroe County and the clinics are the sole means of delivering mental health care on behalf of HRS' clients within the county. Currently, the guidance clinic of the upper Keys places its in- patients in Harbor View Hospital in Dade County at a cost of $236 per day. Neither Harbor View nor any other hospital provides free days to any of the guidance clinics for in-patient psychiatric care. (FMC Exhibit 13, P. 9) Jackson Memorial Hospital does not accept indigent or charity psychiatric patients from Monroe County. There have been occasions where patients without resources have been unable to be hospitalized although hospitalization was indicated. The middle Keys has a crisis hospitalization unit with a limited number of beds. Patients needing hospitalization longer than three days must be transferred to Harbor View or some other facility in the District. The 15 beds at Depoo Hospital in Key West are not readily accessible to residents of the upper Keys. Residents needing psychiatric services usually go to hospitals in Dade County. Coral Reef Hospital, the nearest psychiatric facility to Petitioner's proposed facility, has in the past refused to negotiate a discounted rate with the guidance clinic. Dr. Matthews, on one occasion, sent a patient to Coral Reef who was refused treatment. Currently, no psychiatrist practices in Key Largo because there are no psychiatric beds to which a psychiatrist could admit patients. The discounted rate of $200 per day quoted by FMC is some $36 per day less than the guidance clinic currently pays to providers for referrals of its patients for psychiatric care. Additionally, the 6.25 percent of free care that Petitioner proposes is greater than the free care which the guidance clinic currently receives from any facility since no facility presently gives any free care to the clinic. The guidance clinic supports Petitioner's CON application and will contract with Petitioner who provides services for in-patients. Grant Center is a long-term 140-bed psychiatric hospital specializing in the treatment of children and adolescents. It is the nearest facility to Petitioner's proposed facility. Grant Center has agreed to refer adult patients to Petitioner. Grant Center treats 2-3 adults a month who need psychiatric care. (FMC Exhibit 14). There is one hospital providing psychiatric care in Dade County which was surveyed by the Health Care Finance Administration (HCFA) in March, 1988. Currently, a third party insurance carrier no longer utilizes Grant Center because of price. If a facility has prices which carriers consider too expensive, utilization will go down. (FMC Exhibit 14, P. 7). Grant Center currently contracts with HRS to provide its clients care at a rate of approximately $350 per day, a rate one half of Grant Center's normal rate. Jackson Memorial is the only Dade County hospital which will treat an indigent psychiatric patient. Grant Center intends to assist Petitioner with staffing or programmatic needs. It has 80-100 professional staff, most of whom live in close proximity to Key Largo. Robert L. Newman, C.P.A., is the chief financial officer at FMC. He testified, by deposition, as an expert in hospital accounting and finance. Newman analyzed the Hospital Cost Containment Board (HCCB) reports for each hospital in District XI which provides psychiatric care. There is no free standing psychiatric hospital in the District which reports any indigent or uncompensated care. Among area acute care hospitals which have psychiatric units, Miami Jackson rendered 38.89 percent indigent care, Miami Children's rendered 6.5 percent indigent care, and no other facility reported that it rendered more than 1.75 percent indigent care. (FMC see Exhibit 11, disposition exhibit 1). Jackson provides no free care to Monroe County residents and Miami Children's care is limited to treating children while Petitioner is seeking adult beds. Jayne Coraggio testified (by deposition) as an expert in psychiatric staffing and hiring. She is currently Petitioner's director of behavioral sciences. The ideal patient to staff ratio is 4 to 5 patients per day per professional staff member. During the evening shift, the ideal patient ratio per professional staff member is 7 to 8 patients. (FMC Exhibit 12, PP. 6-7). Petitioner's facility is adequately staffed based on the above ratios. FMC is considered overstaffed in the psychiatric unit by some of the other area hospitals since they do not staff as heavily as does Petitioner. Lower staffing ratios can affect quality of care since patients and their families would not receive as much therapy. Family therapy is important because the family needs to know about changes in the patient in order to make corrective adjustments. The family that is required to travel in excess of 45 minutes or more one way is less likely to be involved in family therapy. Islara Souto was the HRS primary reviewer who prepared the state agency action report (SAAR) for Petitioner's CON application. (FMC Exhibit 15). District 11 has subdivided into five subdistricts for psychiatric beds. Florida is deinstitutionalizing patients from its mental hospitals. To the extent that private psychiatric hospitals do not accept nonpaying patients, their existence will not solve the problem of caring for such patients. Souto acknowledged that the local health councils conversion policy discriminates against subdistrict 5 because there are so few acute care beds in the subdistrict. In fact, the conversion policy actually exacerbates the maldistribution of beds in the district. (FMC 15, page 26). The psychiatric facility nearest the proposed site (Coral Reef), had an occupancy of 90.3 percent. Souto utilized a document entitled Florida Primary Health Care Need Indicators, February 1, 1986, and determined that Monroe County has not been designated as a health manpower shortage area, nor a medically underserved area. This information is relied upon by health planners to determine the availability of health manpower in an area. This report refers both to physicians and R.N.'s. The average adult per diem for free-standing hospitals in District 11 range from $430 at Charter to just over $500 at Harbor View. Although districts have established subdistricts for psychiatric beds, no psychiatric bed subdistrict in any district has been promulgated by HRS as a rule. The access standard that is relevant to this proceeding is a 45-minute travel standard contained in Rule 10-5.011(1)(o)5.G. That standard states: G. Access Standard. Short-term inpatient hospital psychiatric services should be available within a maximum travel time of 45 minutes under average travel conditions for at least 90 percent of this service area's population. Here, the standard refers to the service area which is determined to be an area different than a service district. Applying the travel time standard on a service area basis makes the most sense since the subdistrict is established by the local health council and not the applicant. Analyzing this access standard on a sub-district level, 90% of the sub-districts population is not within 45 minutes of any facility anywhere in sub-district V since the sub-district is more than two hours long by ordinary travel and the population is split two-thirds in lower Dade County and one-third in Monroe County, the bulk of which is in Key West. (FMC Exhibit 17). Therefore, a facility located on either end of this sub-district is not readily accessible by the applicable travel standards to citizens at the other end of the sub-district. This access standard must however be measured and considered with the needs for psychiatric services of the kind Petitioner is proposing to provide. Petitioner has not presented any access surveys or assessments of the caliber relied upon by the Department in the past. Petitioner's facility which would be located in the Key Largo area will no doubt provide better geographic accessibility to residents of District XI who live in the Key Largo area. HRS has in the past used a sub-district analysis to determine geographic accessibility for psychiatric beds even though it has not promulgated a rule for sub-districts for psychiatric beds. See, for example, Psychiatric Hospital of Florida vs. Department of Health and Rehabilitative Services and Pasco Psychiatric Center, DOAH Case No. 85-0780. Likewise, the Department has approved the conversion of acute-care beds to psychiatric beds even though it found that there was a surplus of psychiatric beds in the district. (Petitioner's Exhibit 7). The Department has in the past used a geographic access analysis to approve psychiatric beds in District XI and has used the sub- district analysis or a time travel analysis in its review of Cedars, Coral Reef, Depoo (for psychiatric beds) and the Glenbiegh case (for long term substance abuse). The bed need calculations for the January, 1992 planning horizon shows a surplus of 180 short-term in-patient psychiatric beds. (HRS Exhibit 2). The occupancy level for short-term psychiatric beds in the district is below 70%. (HRS Exhibit 2, pages 11-12). Additionally, the occupancy standards of the local and state health plan, of which the department is required to review CON applications, have not been met in this instance. (HRS Exhibit 2, Pages 6-7). Petitioner has not submitted any documentation to HRS regarding special circumstances need. Petitioner's proposal at final hearing for a staff referral agreement with another local hospital was not contained in the CON application filed with HRS. (FMC Exhibit 14, pages 11-12). Although Petitioner has alluded to some unspecified access problem for residents in the Florida Keys, Petitioner has not documented a real access problem and certainly not a demonstration of inaccessibility under the rule access standard. (Florida Administrative Code Rule 10-5.011(1)(o)5.g.)(HRS Exhibit 2, pages 14-15). Although the proposed project would increase availability and access for underserved groups in the district, the percentage of total patient days for "indigents" is not substantial and certainly not to the point to warrant deviation from the usual access criteria. 2/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, IT IS RECOMMENDED THAT: Petitioner's application for a Certificate of Need to build a 60-bed free- standing psychiatric hospital in District XI be DENIED. DONE and ENTERED this 28th day of February, 1989 in Tallahassee, Florida. JAMES E. BRADWELL 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 28th day of January, 1989.
