The Issue This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County). Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County. Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County. In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR. The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology. Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application. MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH. Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone. Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue. Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria? Ultimately, the issue in the case is which if any of the four applications should be approved?
Findings Of Fact The Parties "[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes." § 408.034(1), Fla. Stat. Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states. The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON 9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida. Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH District 9. The District and its LTCHs Miami-Dade and Monroe Counties comprise AHCA District The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County. The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County. Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue. While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge. At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami. The three existing LTCHs in the District are utilized at high occupancy levels. Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent. Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent. Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in 2005. Kindred's Broward County LTCHs Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood. From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent. Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively. Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents. Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables. LTCHs A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42 C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004, statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time. The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition: The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management. (Kindred Ex. 8 at 10-11). Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs"). The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers. Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers. The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007. Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government. One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH. Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida. AHCA's Concerns Regarding LTCHs In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004. AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide. In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years. In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11. There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23). To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs. In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs. AHCA'S Denial of the Four Applications and Change of Position with regard to MJH On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11. In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings. Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject. (Tr. 2486). The June 2004 MedPAC report states the following about LTCHs: Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs. Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service. Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services. Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology. The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology. By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25. MJH MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893: [MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services. MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community. MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.” A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH. A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population. Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO. MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association. An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities. MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH. MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research. MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH. Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program. There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005. Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff. MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed. A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services. The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007. The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital. Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program. Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories: Respiratory disorders care (including mechanical ventilation or tracheostomy care) Surgical wound or skin ulcer care Cardiac Care Renal disease care Cancer care Infectious diseases care Stroke care The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians. MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day. The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application. The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry. Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services. MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH. MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH. Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH. Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients. On-site radiology services are already available to MJH patients. MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved. MJH's Ventilator Unit By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units. With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home. MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were 24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day. Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs. Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU. The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH. MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application. MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time. Promise Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons. Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885. As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients. Select Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants. Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area"). To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area. Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent. Kindred Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10 semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy. Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement. Kindred does not provide hospice or custodial care. In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients. Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team. Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion of the County. Stipulated Facts As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties): Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA. Each CON application was timely filed with AHCA. Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications. Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat. In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of $26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing 4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients. Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA. The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these long-term patients are better served in a LTCH than in a traditional acute care hospital. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers. The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Joint Pre-hearing Stipulation at 4, 6-7, 9-10. Applicable Statutory and Rule Criteria The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding. Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute. The Agency does not have a need methodology for LTCHs. Nor has it provided any of the applicants in this proceeding with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a. through d. Subsection (1) of the CON Review Criteria: Need Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2. MJH's Need Methodology Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies. The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012. Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11. A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745. Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate. MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs. MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis. All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example, Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004. Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District. The Need Methodologies of the Other Three Applicants The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn. Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services. The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted. The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation. Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds. One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed. On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11. The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable. Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id. One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies. Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience. Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience. Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable: [W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds. Tr. 1243-44. The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200. These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively. Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to the 25 percent reduction to take into account the effects of new federal regulations, was described there as: Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool. Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200. Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520. Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology. Market Conditions, Population and History The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11. Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration. The current utilization of existing LTCHs in District 11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services. Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH. For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables. The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities. Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement. There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004. Medical Treatment Trends in Post-Acute Service The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care). The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day. CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR are medically stable; the primary focus is on restoration of functional capabilities. Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs. The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion, Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits. LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area. From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122. During the same period, the number of patient days increased from 18,825 to 37,993. Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing. From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000. Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms. As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively. More recently, it has operated at an ADC of 53 patients; 100 percent capacity. Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services." Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year. Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level. Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients. As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy. Select's facility, located in a medical arts building, houses 34 private and six semi-private beds. In 2005, Select's facility operated at an average occupancy of almost 88 percent. Unlike Kindred, Select can add at least seven more beds to its facility by converting offices. As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent. Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds. Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home. Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here. In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities. In 2005 that number fell to 369, or about 22 percent. Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients. The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west. The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest. Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way. These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones. While improvements in the system are planned over the next five years, they will not measurably change the existing travel times. These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply. The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy. Subsection (3): Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care. Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner. The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation. Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission. All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates. None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care. The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years. Each applicant satisfies this criterion. Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and Operating Expenditures, Project Accomplishment and Operation The parties stipulated that all applicants have access to health care and management personnel. Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria. Subsection (5): Access Enhancement The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists. Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access. MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients. Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds. Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement. Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial qualification period. Subsection (6): Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term. MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period. MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations. Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million. The cost to implement the proposed MJH LTCH is $5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand. Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred. In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s Proposed Recommended Order, at 37. Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing. Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital. Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id. Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility: "[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project. It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing. Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing. Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project. In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the short-term. b. Long-Term Financial Feasibility Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation. MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider. Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider, and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year. The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections. MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue. MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH. MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility. MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule 1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses. MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH. John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue. In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted: Projected cost per patient day (CPD) of $1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital. MJH Ex.34, depo Ex. 4, Page 3 of 5. Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals. In its application, Kindred projected a profit of $16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the profit at the end of year two of operation would be roughly $1 million. Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions. The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable. Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients. To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2. AHCA concluded Promise's project would be financially feasible in the long term. Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits 12 and 14, was composed of a numbered of arguments, considered below: The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year. In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit. The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy. In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select. The analysis is based on Revenue Per Patient Day (RPPD). Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of $2,521.327. Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable. At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility. Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500. As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day. A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable. While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so. Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent. The ALOS projected by Promise was too long. In projecting need, Select projected an ALOS similar to Promise's projection. Compared with the statewide ALOS of 35 days, Select's is about 28 days. This is the result of a combination of managing patients and their acuity. Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients. There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so. Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors. The CMI projected by Promise was too high. The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received. Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients. The term for this average is Case Mix Index (CMI). Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs. Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent. While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0. However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23. Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano. Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida. In 2004, the statewide average CMI was 1.231. Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher. Other Florida facilities have experienced an average CMI at or above 1.59. Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility. While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4. Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs. Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted. There is a direct correlation between CMI and ALOS. If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS. Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05. Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic. Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government. The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided. Whether the average CMI at Promise's facility reaches 1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future. Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement. The interest rate on the loaned funds was 9 percent, rather than 7 percent. The estimated expenses did not include sufficient funds to pay the following: the necessary ad valorem taxes the required PMATF assessment the premiums to obtain premises insurance physician fees housekeeping expenses in Year 1 Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable. Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations. Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and $902,361 of year 2. Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select. The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453. Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible. Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill"). While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients. In reality, if revenues are less than expected a facility reduces expenses to generate profits. Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit. The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million. Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility. With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami. Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term. In sum, all four applicants demonstrated long-term financial feasibility. Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations. Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness. Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness. Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development. In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent. MJH's application is most favored under Subsection (7) of the Statutory Review Criteria. Subsection (8): Costs and Methods of Proposed Construction The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule 10 of the application. Those additional costs items on Schedule 1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing. Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time. Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications. Subsection (9): Past and Proposed Provision of Services to Medicaid and Indigent Patients A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider. As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria. Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients. MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively. Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County. Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review. MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria. Subsection (10) Designation as a Gold Seal Program None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law it is RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894. DONE AND ENTERED this 17th day of May, 2007, 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 17th day of May, 2007. COPIES FURNISHED: Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A. 3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
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 Whether the Agency for Health Care Administration has a policy regarding the determination of the need for long term care beds which constitutes a rule and, if so, whether rulemaking is feasible and practicable.
Findings Of Fact Vencor Hospitals South, Inc. (Vencor), applied for a certificate of need (CON No. 8614) to establish a 60-bed long term care hospital in Agency for Health Care Administration (AHCA) District 8, for Fort Myers, Lee County, Florida. AHCA is the state agency authorized to administer the CON program for health care services and facilities in Florida. AHCA reviewed and preliminarily denied Vencor's application for CON No. 8614. The reasons for AHCA's actions on this or any other CON application are memorialized in documents called State Agency Action Reports (SAARs). Vencor alleges that the following statement generally describes AHCA's policy in regard to the review of CON applications for long term care hospitals: Long term care is not a separate category of health service, but is instead merely an allowable form of reimbursement pursuant to Medicare regulations. The care provided in acute care hospitals, hospital based skilled nursing beds, "subacute" care in nursing homes, and care at rehabilitation facilities, are all equivalent to the care provided at long term care hospitals. Therefore, in evaluating the need for long term care hospital beds, AHCA will assess the availability of other categories of beds and services to meet the need for the services proposed by the applicant for long term care hospital beds. Need for long term care beds is determined on a regional basis. Prior to 1994, long term care hospitals were not regulated separately and were considered comparable to general acute care hospitals. In 1994, AHCA amended the CON rules to establish long term care beds and hospitals as separate categories of health care providers. In 1994, AHCA defined and continues to the present to define long term care hospital as follows: "Long term care hospital" means a hospital licensed under Chapter 395, Part I, F.S., which meets the requirements of Part 412, subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Rule 59C-1.002(29), Florida Administrative Code. In the federal regulations referenced by the AHCA rule, long term care hospital is more specifically defined as a hospital with an independent governing structure, an average length of stay greater than 25 days, referral of at least 75 percent of total patients from separate hospitals, and which meets the requirements for Medicare participation. 42 CFR Ch. IV, Subch. B, Pt. 412, Subpt. B, s. 412.23. AHCA also distinguishes long term care in its rules governing the conversions from one type of health care provider to another. The applicable conversion rules provide: "Conversion from one type of health care facility to another" means the reclassification of one licensed facility type to another licensed facility type, including reclassification from a general acute care hospital to a long term care hospital or specialty hospital or from a long term care hospital or specialty hospital to a general acute care hospital. Rule 59C-1.002(14), Florida Administrative Code (emphasis added); and "Conversion of beds" means the reclassification of licensed beds from one category to another including, for facilities licensed under Chapter 395, F.S., conversion to or from acute care beds, neonatal intensive care beds, hospital inpatient psychiatric beds, comprehensive medical rehabilitation beds, hospital inpatient substance abuse beds, distinct part skilled nursing facility beds, or beds in a long term care hospital; and, for facilities licensed under Chapter 400, Part I, F.S., conversion to or from skilled beds and intermediate care beds in a facility that is not certified for both skilled and intermediate nursing care if such conversion effects a change in the level of care of 10 beds or 10 percent of the total bed capacity of the facility within a 2-year period, or conversion to or from sheltered beds and community beds. Rule 59C-1.002 (15), Florida Administrative Code (emphasis added). AHCA also defined "substantial change in health services" to include: The conversion of a general acute care or specialty hospital licensed under Chapter 395, Part I, F.S., to a long term care hospital. Rule 59C-1.002(41)(c), Florida Administrative Code. Taken together AHCA's rules recognize long term care hospitals or beds as a separate and distinct category. Elfie Stamm was responsible for the development of the rules and is currently the chief of the CON and Budget Review Office at AHCA. Ms. Stamm testified in a 1994 rule challenge case, when AHCA was drafting a rule with a numeric need methodology for long term care beds, that: long term care hospitals serve patients who cannot be cost effectively treated in an acute care hospital, who do not have the same needs for the same types of service; it would not be fair for an applicant for the new construction of a long term care hospital to be compared to an acute care hospital; comprehensive medical rehabilitation (CMR) services are different than services in a long term care hospital; a long term care hospital with an average length of stay of 25 days or more is different from an acute care hospital that generally has a length of stay of 5 to 6 days but provides a full range of services; the patient populations in long term care hospitals are different from those in an acute care hospital in terms of overall patient characteristics, including older than average age, higher percentage of patients with particular diagnoses, such as ventilator dependency, higher overall mortality rates than acute care hospitals, and a much higher percentage of admissions by referrals from acute care hospitals. [T. 262-283]. See also Tarpon Springs Hospital Foundation, etc. v. AHCA, et al., DOAH Case No. 94-0958RU (R.O. 8/2/94). On behalf of AHCA, Ms. Stamm testified in this proceeding that: AHCA has changed its mind on whether or not it is appropriate to leave a patient in an acute care setting rather than transfer to long term care, specifically with regard to cost-effectiveness. [T. 373]. AHCA has not changed its mind and still says acute care hospitals and long term care hospitals should be reviewed separately, because if they would be reviewed comparatively, . . . there would be no chance for any [long term] beds ever because we don't show any need for acute care beds anywhere in the state. [T. 376]. But in evaluating Vencor's application for long term care hospitals in District 8 that would be located in Lee County, the Agency viewed hospital-based skilled nursing units, community nursing home subacute beds and comprehensive medical rehab beds throughout the entire district as existing and like potential alternatives to the proposed project. [T. 389]. AHCA does not necessarily agree that CMR services are different from long term care hospital services. [T. 265]. AHCA does not have a clearly identified population group for whom long term care would be more cost-effective, or to determine a numeric need methodology. [TR. 324]. Although there is a population that does need services that exceed 25 days or prolonged ventilator service, AHCA is not sure what is the most appropriate setting for their care because of inadequate data on comparative costs and outcomes. [TR. 327-8]. AHCA attributes its change in position to the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Lewin-VHI, Inc. The document is commonly referred to as the Lewin Report. The Lewin Report concludes that long term care hospitals serve patients who are also served in other subacute settings, including CMR beds and hospitals, acute care hospital skilled nursing units, and skilled nursing units in freestanding nursing homes. As a result of the conclusions in the Lewin Report, AHCA maintains that it is unable to develop a numeric need methodology without an identifiable patient population. AHCA has not, however, repealed the rules establishing long term care as a separate type of health care service. Rather, the agency intends to wait for additional studies, including one being conducted for Vencor. The Medicare prospective payment system (PPS) for acute care hospitals created the market for subacute and long term care. Under the PPS, acute care hospitals receive a fixed payment based on the patient's diagnosis or diagnostic related group (DRG). Upon discharge to a subacute or long term setting, the patient's care is no longer reimbursed on a fixed basis, but at actual, reasonable costs. AHCA maintains that financial pressures created the current system, but without cost/benefit or outcomes analyses to demonstrate the appropriateness of using long term care hospitals. Therefore, AHCA considered the occupancy levels of acute care hospitals and available nursing home beds in determining the need for Vencor's project. AHCA has no rule defining subacute care, no inventory of subacute care units in nursing homes, and no reporting requirements from which it can determine the level of care or services provided in hospital based skilled nursing units. AHCA has no reports on specific levels or types of services provided in CMR beds. AHCA, nevertheless, presumed that the services are like those provided in long term care beds based on the Lewin Report. In rejecting Vencor's attempts to distinguish itself from other types of health care providers, AHCA relied, in part, on its finding that 1995 District 8 acute care hospital occupancy averaged 47.69 percent and peaked at 60.26 percent. By not adopting rules for determining the numeric need for long term care, AHCA also failed to establish the appropriate service area for determining need. AHCA considers the need for long term care services on a regional basis. In support of AHCA's decision to deny a long term care hospital application in District 9, Ms. Stamm's predecessor, Elizabeth Dudek, testified that long term care is a regional service. As further evidence of AHCA's position, the SAARs issued by AHCA on long term care hospital applications, have examined available services beyond the limits of the district. AHCA contends that long term care is regional, but determines its need by comparison to available hospital based skilled nursing units and subacute beds in community nursing homes, which are evaluated on a subdistrict basis, and CMR services which are tertiary but evaluated on a district-wide basis. See Finding of Fact 22. Since November 1995, AHCA has preliminarily denied all CON applications for long term care hospitals. Its policy of comparing the need for long term care to available beds in nursing homes and other types of hospitals is consistently repeated in the portions of the SAARs which address need. In analyzing the need for long term care hospitals in AHCA District 1, the SAAR dated January 10, 1997, includes the following statements: Vencor Hospitals South, Inc. defines its patient population as those currently being treated in ICUs and belonging to roughly 10 DRGs (which account for approximately 83% of Vencor patients. . . .) However these DRGs could also [be] appropriate for acute care, hospital based freestanding skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to residents of District 1. and The applicant [Baptist Health Affiliates Inc.] also discusses the differences between its proposed patient population and that of an acute care hospital, nursing home and those treated at home. However, there is no documentation provided which demonstrates the applicant's potential patients could not receive appropriate care in the District's existing rehabilitation facility, hospital based or nursing home skilled subacute nursing units. . . . Vencor Exhibit 12, pages 3-4 and 8. AHCA reviewed a CON application filed by Columbia of Pinellas County, Inc., to convert acute care beds to a long term care hospital in District 5, and concluded: The patient population represented by the DRGs listed above (by the applicant) are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 13, page 8. The SAAR issued on the Columbia of Pinellas County CON application continued with an extensive discussion of the Lewin Report. The SAAR reported AHCA's finding that CMR hospitals are alternatives since they admit patients who do not fit federal guidelines for CMR admissions (being able to tolerate three hours of therapy a day), and who might otherwise be in long term care hospitals. In the SAAR issued after the review of long term care applications for District 7, the same statement appears: The patient population represented by the DRGs listed above [by Orlando Regional Hospital] are typical of freestanding nursing home with subacute units and hospital based SNUs in the state. There appear to be strong similarities between the subacute patient population of nursing homes/units and those of a long term care hospital. Vencor Exhibit 14, page 11. Finally, in reviewing applications from Palm Beach County in District 9, AHCA concluded again: The applicant states that generally speaking the long term care hospital patients have respiratory complications, . . . tracheostomies, . . . chronic diseases, an infectious process requiring antibiotic therapy, . . . skin complications . . . need a combination of rehabilitation and complex medical treatment or are technology dependent individuals requiring high levels of nursing care. However, these patients could also [be] appropriate for acute care, hospital based skilled nursing care, skilled nursing facility care and comprehensive medical rehabilitation care and the applicant does not demonstrate that these services are not available to the residents of District IX. Vencor Exhibit 15, page 4. AHCA relies on the statutory review criteria in Subsection 408.035(1)(b), Florida Statutes, as authority for its consideration of all beds and facilities which may serve the same patients. That provision requires consideration of: (b) The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care facilities and health services in the service district of the applicant. The expert witness for AHCA, however, distinguished between "like and existing" services for purposes of determining numeric need and the statutory criteria. She noted that once numeric need is established and published for nursing beds or CMR beds, for example, that same category of beds outside the appropriate health service planning subdistrict or district is not considered "like and existing." Similarly, within the district or subdistrict, there is a factual issue in each case but no presumption that beds of a different category are "like and existing." AHCA contends that it has no policy related to long term care and any comparable services. Since 1995, long term care CON applicants, according to AHCA, have failed to meet the requirements of Rule 59C-1.008(e), which provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. (Emphasis added). AHCA's argument ignores the fact that its expert witness provided competent, substantial evidence that it has redefined and expanded the meaning of "like services" for purposes of demonstrating need through a needs assessment methodology. It also ignores the fact that AHCA has expanded the comparison of need beyond the geographical limits of the district. AHCA's argument that it is waiting for additional data before adopting a need methodology, including data from a Vencor study, is to no avail since AHCA has already changed its policy. After reviewing a total of eighteen CON applications for long term care hospitals, AHCA has issued two CONs, one as part of a settlement agreement and the other approving an application filed by St. Petersburg Health Care Management, Inc. (St. Petersburg), for CON 8213. The St. Petersburg application demonstrated need using an identical methodology prepared by the same health planner as Vencor in this case. Referring to CON 8213, AHCA's expert witness candidly admitted . . . "I want to make clear that particular application was actually submitted and approved prior to the Lewin study." (T. 393). Subsequent to the Lewin study, AHCA has consistently denied applications for long term care beds or hospitals.
The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER 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 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
The Issue The issue is whether HRMC's Certificate of Need Application No. 9881 to establish an 84-bed acute care hospital in the Viera area, Brevard County, Florida, AHCA Subdistrict 7-1, should be approved.
Findings Of Fact THE PARTIES The Agency AHCA is the single state agency responsible for administering the certificate of need ("CON") program, and is authorized to evaluate and make final determinations on CON applications pursuant to the Health Facilities and Services Development Act, Sections 408.031-408.045, Florida Statutes. HRMC and Affiliates The applicant is HRMC, a not-for-profit Florida corporation, holding tax exempt status pursuant to Section 501(c)(3) of the Internal Revenue Code. HRMC is a subsidiary of Health First, Inc. ("Health First"), an Internal Revenue Code Section 501(c)(3) holding company having no shareholders. It is managed by a 13-member board of directors, 11 of whom are outside directors representing a cross section of community leaders. As a 501(c)(3) organization, Health First pays no dividends to shareholders. It has no shareholders so it pays no dividends. Its earnings are reinvested in the community to support existing health programs, to offer new or expanded services, and to provide new medical facilities in areas of need. Health First's overall mission in Brevard County is to enhance the health status of the citizens by providing direct health care services, education, outreach, and prevention. For the first six years of its operation, Health First was headquartered in Viera, but in 2003 it relocated to larger corporate offices in South Rockledge. Through its subsidiaries, Health First operates three hospitals in Brevard County: Holmes Regional Medical Center ("Holmes") in Melbourne, Palm Bay Community Hospital ("PBCH") in Palm Bay, and Cape Canaveral Hospital ("CCH") in Cocoa Beach. All three hospitals are Joint Commission on Accreditation of Healthcare Organizations (JCAHO) accredited. HRMC is the license holder for Holmes and PBCH. Holmes is a 514-bed acute care hospital. It has 504 acute care and 10 Level II neonatal intensive care unit beds. It also provides adult open-heart surgery services, is a designated Level II Trauma Center, and is the only trauma center serving Brevard and Indian River Counties. Holmes sits on approximately 18 acres of land. Health First has acquired an extensive amount of property surrounding the hospital that is available for future growth and development. PBCH, a 60-bed acute care hospital, is located south of Holmes. It opened in 1992, sits on 30-40 acres of land about a mile from an I-95 interchange, and offers neither obstetrical nor tertiary services. CCH is a 150-bed acute care hospital. Health First Health Plans, Inc., is a health maintenance organization and subsidiary of Health First, operating in Brevard County. Wuesthoff Wuesthoff Health System, founded in 1941, is a not- for-profit health care system. In addition to its two acute care hospitals, Wuesthoff Health System owns and operates a nursing home, an assisted living facility, a hospice, a home health agency, a diagnostic imaging center, and other health care related services. Wuesthoff Health System also operates a foundation whose role is to identify and raise capital to support the organization's mission. Wuesthoff-Rockledge is a not-for-profit 267-bed acute care hospital comprised of 240 acute care beds, 17 psychiatric beds, and 10 Level II Neonatal Intensive Care Unit beds. Wuesthoff-Rockledge also provides tertiary care services, including adult open-heart surgery and angioplasty. It is currently constructing a 24-bed Intensive Care Unit expansion that is due to come online in October 2006, bringing the licensed bed complement of that facility to 291. Wuesthoff-Melbourne, which opened in December 2002 as a 65-bed acute care hospital, is located approximately five miles north of Holmes. It is a not-for-profit hospital with a current acute care bed complement of 115. Both Wuesthoff hospitals are JCAHO accredited. HRMC's CON APPLICATION The letter of intent and CON application at issue were timely and properly filed, and satisfy the requirements of Section 408.039, Florida Statutes. The signatures on Schedules C and D-1 of the application are authentic. The application satisfies the content requirements of Section 408.037, Florida Statutes. HRMC has sufficient availability of funds for capital and operating expenditures for the proposed project in accordance with Subsection 408.035(4), Florida Statutes. The proposed project demonstrates immediate financial feasibility in that HRMC has sufficient availability of funds for capital and operating expenses for the proposed project in accordance with Subsection 408.035(6), Florida Statutes. The criterion set forth in Subsection 408.035(10), Florida Statutes, is not applicable to this project. The projected staffing patterns (i.e., the numbers of full time equivalents ["FTEs"] needed by position) and the projected salaries in Schedule 6A of the CON application filed by HRMC are reasonable with regard to the census levels projected in the application. HRMC's CON application adequately documents the reasonableness of the costs (including equipment), methods of construction, and energy provision for its project as proposed in its application, in accordance with Subsection 408.035(8), Florida Statutes. Further, the architectural drawings submitted by HRMC with its application satisfy applicable code requirements. Schedules 1, 2, 3, 9, and 12 of the application are accurate. The time intervals contained in the project completion forecast depicted in Schedule 10 of the HRMC application are reasonable. This proceeding involves the third application by HRMC for this proposed hospital. The first application, CON No. 9759, was preliminarily denied by AHCA. Following an extensive final hearing, a Recommended and Final Order of denial were entered. Official recognition was taken of that in Holmes I. The second application, CON No. 9836, was filed in the first batching cycle of 2005. The head of the CON program, Jeff Gregg, recommended, and AHCA preliminarily denied, that application. The denial was initially challenged by HRMC, but the Petition was later dismissed voluntarily. By the time HRMC filed its second CON application for this project, the CON law had been amended to allow existing hospitals to increase their bed capacity at existing facilities without a CON. The third Application, CON No. 9881, was filed in the second batching cycle of 2005, and was followed by a preliminary decision in December of that year. Following staff review of the application at issue here, Mr. Gregg went to then-AHCA Secretary Alan Levine without a recommendation to either approve or deny the application. At that brief meeting (five minutes or so), Secretary Levine seemed interested in approving the application and appeared to be aware of the conditions proposed by the applicant. Wuesthoff attempted to tie the meeting with Secretary Levine, and his desire to approve the HRMC application, to Health First's support of a Medicaid reform bill then pending before the Florida Legislature that Secretary Levine strongly supported. While it is not uncommon for hospitals to communicate their views on particular CON proposals to AHCA officials, including the secretary, Wuesthoff alleges that the timing of this meeting, along with the fact that AHCA had recently denied the same CON application filed by HRMC, makes this a coincidence that cannot be ignored. Moreover, it is not uncommon for CON applicants to apply more than once in separate batching cycles for AHCA approval of a proposed hospital in a particular area. The circumstances relating to the need for a hospital in a particular area change over time due to numerous factors such as population increases, high utilization of existing providers, and the needs of underserved segments of the population. For example, Wuesthoff-Melbourne filed three CON applications with AHCA before it was finally approved. HRMC's application proposes to establish an 84-bed acute care hospital in the unincorporated area of Viera in Brevard County. AHCA reviews each application filed in a separate batching cycle independent of the reviews it conducted on previous applications filed for the same project. On December 16, 2005, AHCA issued its State Agency action report ("SAAR"), summarizing its findings and conclusions based upon its review of HRMC's application, and recommended approval of CON No. 9881. AHCA reaffirmed its support of HRMC's CON application through the final hearing testimony of Jeff Gregg. The Proposed Site Viera is an unincorporated area in south-central Brevard County being developed by The Viera Company ("TVC"), a for-profit land development company. TVC is a wholly-owned subsidiary of A. Duda & Sons, Inc. The initial Viera Development of Regional Impact ("DRI") contained approximately 3,200 acres east of I-95. Its residential area was planned for 4,200 units, and is currently 98 percent built out. The DRI development order was later amended to add 6,000 acres west of I-95, bringing the size of the DRI to over 9,000 acres. The current DRI entitlements include approximately 19,000 residential units, 2.9 million square feet of commercial space, and 3.7 million square feet of office space. The DRI also includes a 7,500 seat stadium and spring training facility for the Washington Nationals, a Major League baseball team. Six public schools are planned for the area west of I-95 as part of the DRI. Three elementary schools and a high school have already opened. A 107,000-square-foot Veterans' Administration clinic is located on the Viera DRI, just north of the proposed Viera Medical Center ("VMC") site. Authority to construct a 150-bed hospital within the confines of the Viera DRI has already been approved as part of the Master Development Plan. Viera has experienced tremendous growth in the past 10 years. As of June 1, 2006, over 7,200 homes were built. Nearly one million square feet of commercial space and another million square feet of office space have been completed. Demand for home-sites in the Viera area has been strong. According to testimony, people have camped overnight to wait in line to purchase certain properties. A. Duda & Sons owns another 11,500 acres adjacent to Viera, and it has applied to add that land to the current DRI. The proposed addition to the DRI would bring the residential entitlements to almost 30,000 units, the commercial entitlements to over 3.4 million square feet, and the office entitlements to over 3.5 million square feet. By 2010, the greatest growth in population will occur in the 45-64 age cohort, followed by the 65+ age cohort--the age cohort with the highest utilization of acute care inpatient services. At build out, Viera will have approximately 30,000 residential units and a population expected to exceed 40,000. The Proposed Viera Medical Center Health First began to seriously evaluate the opportunity to establish a new hospital in the Viera area in 2002. Based upon the significant growth in the area, Health First purchased 50 acres from TVC, located just west of I-95, at the intersection of Wickham Road and Lake Andrew Drive. VMC will initially offer a full array of acute care services, not including obstetric services, but including a larger than average emergency department. It will occupy 20 acres of the 50-acre site and will be part of an integrated health care campus (Viera Health Park) that will offer a continuum of services to the community, emphasizing health, wellness, and outpatient care, while also meeting the needs of the more acute patients. The remaining 30 acres will be used for related health care functions that are not CON reviewable. Health First also has an option to purchase additional land at the same location, if needed for future expansion. The purchase price allotted to the 20-acre portion of the site is approximately $3.4 million, which is reasonable. In determining the scope of the initial services, HRMC analyzed the population, demographics, service area, and needs of the community. The land purchase contract contained an exclusivity provision, not uncommon for large commercial projects such as this. The provision prevents the sale by TVC of any property to be used to construct another acute care hospital in Viera. TVC had a similar contractual provision with Wuesthoff relating to property it purchased in Viera in the 1990s. Prior to the hearing, the exclusivity provision in HRMC's contract covering hospital beds and services was amended to apply to a period of seven years from the opening of VMC. This reduced term of exclusivity is considered reasonable when examining the circumstances in this case. All planning and zoning approvals to develop the site as a health care center are already in place. Viera is the central seat of Brevard County government. The Moore Justice Center and the school board headquarters are located a short distance from the proposed site. The site is located within the Viera DRI. As a condition of the DRI, the developer was required to spend $8 million to make road improvements throughout the county to address traffic congestion. VMC will share management and administrative support services with HRMC rather than duplicating those services. Health First's goal is to operate all of its hospitals in a similar fashion to share overhead expenses, consolidating where practical to provide a more efficient operating model. The proposed total project cost for VMC is approximately $105 million. This cost was not challenged and is reasonable. Outside the proposed project, Health First anticipates developing the proposed site in several phases. Phase I will consist of a medical office building and a large health and fitness center. Health First has already been awarded a disturbance permit for this phase, allowing it to move sod and dirt on the site. Phase II will consist of the proposed hospital (VMC) and, potentially, additional office space. Health First has set a system-wide goal and adopted a formal policy to convert its inpatient facilities to private rooms. Accordingly, all of the beds at VMC will be in private rooms. This is consistent with the recent trend for hospitals to be designed with all private rooms. The American Institute of Architects ("AIA") recently adopted a draft guideline requiring 100 percent private rooms, with semi-private only by exception. The AIA guidelines form the basis for hospital design regulations in most states, including Florida. Private rooms are important not just as a means of enhancing patient comfort, but also to protect patient privacy, to achieve operational efficiencies, and to provide an optimal clinical environment. They provide a quieter, more restful environment, lessen the risk of infection, and better protect the patient's confidential clinical information under the Health Insurance Portability and Accountability Act ("HIPAA"). Mr. Jeff Leitner, Wuesthoff's Director of Plant Operations, acknowledged that HIPAA now imposes stringent privacy requirements on hospitals. The standard of care has evolved over the years to where patients now prefer private rooms. Due to changing hospital environments, the Health First Board of Directors is troubled that patients at their most sick and most vulnerable time are required to share a room with a stranger and the stranger's family. Wuesthoff agrees that private rooms should be offered to patients. It implemented a local marketing campaign to promote the fact that all of the rooms at its Melbourne facility are private. Both of Wuesthoff's architect witnesses acknowledged that private rooms are now the standard in the industry. The evidence strongly demonstrates that private rooms are no longer just an amenity; they offer substantial benefits to patients. Prior to undertaking this project, HRMC considered a number of alternatives to ensure that VMC was the best option. One alternative was to expand Holmes. This option was dismissed for several reasons: the cost of expansion; the traffic congestion that would result from further enlargement of that facility; and the need to decompress the Holmes campus rather than expand its patient volume. Holmes is a regional tertiary referral center, with a comprehensive open-heart program, a Level II trauma center, helicopter medical transport, and a Level II Neonatal Intensive Care Unit (NICU). It also provides comprehensive high-level cancer services. In its most recent fiscal year, Holmes received approximately 1,200 trauma visits, and almost 70,000 total visits to its emergency department ("ED")--almost twice that of other hospitals in the county. Approximately 3,300 births were recorded at Holmes during that same period. Holmes is a very large, busy, and congested hospital. Occupancy tends to remain above 80 percent and has, on occasion, exceeded 100 percent. For example, on the Thursday night before the final hearing, 15 patients admitted to the hospital had to wait on gurneys in the ED hallways before rooms became available. VMC will help decompress Holmes' high occupancy. Holmes is already seeking to address its high occupancy concerns by adding a new patient tower that is called the "North Expansion." This additional space will allow Holmes to consolidate its cardiac services into a new heart center. The North Expansion will also include a new ED and trauma center. The North Expansion will include 108 progressive care beds to provide care for cardiac patients. "Shelled-in" space is available to add 36 more progressive care beds in the future. Holmes does not intend to increase its licensed bed capacity with the new beds in the North Expansion, but will convert semi-private rooms in the older part of its facility to private rooms, keeping the total number of licensed beds the same. This will allow it to move to its all private beds platform and relieve congestion in the hospital. Given Holmes' persistent high utilization rates and the strong regulatory preference (from the new AIA guideline) for all private rooms, this approach is reasonable. Wuesthoff argues that increasing the number of licensed beds at Holmes is preferable to approving VMC. Moreover, it argues, the North Expansion and the footprint of the hospital will support as many as 144 licensed beds. Finally, states Wuesthoff, Holmes has significant land holdings adjacent to the existing facility. Each of these reasons, states Wuesthoff, supports Holmes' ability to add the additional beds it requires at the existing location rather than expanding into Viera. Holmes' campus is only 18 acres, which is relatively small for a large regional hospital. The facility has been expanded in piecemeal fashion over the years. That approach is not the optimal way to go. Even after completion of the North Expansion, over 50 percent of the existing facility is more than 25 years old. The useful life for a modern hospital is 25 to 30 years. Because of the hospital's age, many of the spaces used to support patient care are undersized by current standards, particularly for the level of care provided. Further increasing Holmes' licensed beds will strain its already overburdened support services. Holmes admittedly has acquired a number of parcels adjacent to its campus, but will use these to ease its chronic parking shortage. Holmes currently provides a substantial amount of employee parking at an off-site location. It shuttles employees back and forth by bus. Wuesthoff's efforts to show that these adjacent properties could be used to expand Holmes' existing facility were not persuasive. Any new construction must comply with current development regulations. No credible evidence was produced to demonstrate that the major development proposed for Holmes by Wuesthoff could be undertaken consistent with storm water, parking, and other local zoning and development regulations. Expanding PBCH beyond the currently planned expansion from 60 to 100 beds was also considered by HRMC as an alternative to developing a new hospital in Viera. That facility, however, is located at the far southern end of Brevard County, which is too distant to adequately and efficiently serve the needs of the Viera residents. Adding beds at CCH is not an option, given its land- locked location and the access difficulties concerning its existing beds, which are located about 17 miles from Viera. Because the actual facility is owned by a special taxing district and is leased to Health First, its beds cannot be transferred to Viera. In preparing and filing its CON application in this case, HRMC chose to begin its analysis regarding the size and scope of its services anew. HRMC cites several major factors in support of its project: a) a large population base, significant population growth, and a high percentage of elderly residents; b) improving access without an adverse impact on other providers; c) enhancing quality of care; d) enhancing access to cost- effective, quality care for all residents of the service area, including the uninsured and Medicaid patients; and overwhelming community support for the project. HRMC also proposed the following conditions for approval: a) To demonstrate its commitment to addressing the health care needs of the greater Brevard County community, Health First agrees to provide not less than 19.5 percent of all inpatient admissions and births across the entire Health First System for patients in "safety net" categories, including Medicaid, Medicaid HMO, self-pay, uninsured, KidCare, and charity. By the year 2010, VMC's first full year of operation, these categories are projected to represent approximately 10,000 annual admissions and $380 million in hospital charges. This commitment will remain in effect for no less than five years; Health First will continue to provide a majority of local support for the Brevard Health Alliance, a federally qualified health clinic whose mission is to provide care to the poor and uninsured. This commitment will represent a minimum of $4 million commencing in 2005 and continuing through 2007; Recognizing that Health First must work together with other social service organizations in its community, Health First commits to provide support in the form of cash, goods, and services not less than annually for the next 10 years. This support represents a total commitment of $1 million to support organizations such as the American Cancer Society, Brevard Alzheimer's Association, Habitat for Humanity, United Way, and many more health and social service organizations; Health First has created a Special Needs Plan (SNP) for low-income seniors, which provides enriched health and drug benefits for poor citizens. This program is administered by Health First Health Plans and is approved by the Centers for Medicare and Medicaid Services (CMS). Their goal is to ensure that all low income seniors in the community have access to essential medical services through this program. Health First commits to provide this essential community service for no less than four years; HRMC, the tertiary flagship hospital of Health First and the CON applicant, commits to continue to operate the region's only Level II Trauma Center and air ambulance for those patients requiring the highest level of care, through at least 2015; Mindful of the need to promote tomorrow's health care work force, HRMC commits to provide half of the instructional costs associated with the expansion of the nursing program at Brevard Community College. HRMC will provide $2 million by 2014 for a grand total of over $3 million after matching funds from the Florida Legislature; and Finally, responding to concerns surrounding the continued growth and success of existing hospital facilities in the community, HRMC agrees not to seek to expand the number of licensed acute care beds at VMC for its first five years of operation, unless the average occupancy rate of VMC, based on inpatient utilization of all licensed acute care beds, exceeds 80 percent for at least a 12-month period. AHCA's Review of HRMC's Application AHCA reviews CON applications under the criteria set forth in Section 408.035, Florida Statutes. AHCA does not give equal weight to each criterion. It has a standard procedure it follows each time it reviews a CON application, which was followed by AHCA in its review and consideration of CON No. 9881. Each CON application is reviewed by a staff analyst assigned to the project (assisted by the Agency accountant and architect) who makes a report of his or her analysis. This is called the State Agency Action Report ("SAAR"). The draft SAAR is then reviewed by the analyst's supervisor, who edits and forwards the SAAR to the CON Bureau Chief. The chief typically confers with the deputy secretary of AHCA. A final draft SAAR is prepared, and a meeting is scheduled with the secretary of AHCA to review the proposed decisions and obtain the secretary's input. In 2004, the Florida Legislature significantly amended the CON law. Bed additions to hospitals were deregulated, and the requirement to publish a fixed need pool was eliminated. Existing providers now have opportunities they never had before to make their own decisions. AHCA no longer considers individual beds to be the building blocks of a hospital proposal. Rather, it looks more holistically at a proposal for a new hospital. Each CON applicant is now encouraged to frame the issues they deem most important. In approving HRMC's application, AHCA determined that a number of key circumstances significantly differed from the first CON application. First, this application was considered after the 2004 changes to the CON application were fully implemented. Second, significant population growth had occurred in Viera during the two years since HRMC's first application. In fact, the time this application was filed, the projected population growth in Viera exceeded what had earlier been projected for this period in HRMC's first application. Further, the overall occupancy rate of acute care beds within the county continued to increase, despite the opening of Wuesthoff-Melbourne in late 2002, and the net addition of 94 acute care beds in the county between 1999 and 2004. Admissions, average length of stay, and patient days are all higher, and the average daily census grew faster than the beds that have been added. The proposed opening date of the VMC facility is nearly two years later than the first proposed date, which accounts not only for two more years of population growth, but two more years that Wuesthoff-Melbourne will have been open. Wuesthoff-Melbourne now will have seven years of operations, and ample opportunity to become fully established before the Viera facility opens. HRMC made adjustments in response to previous AHCA criticisms relating to financing and ability to staff the proposed facility, which AHCA considered significant. Finally, HRMC significantly changed the proposed conditions to the project, from what was a typical Medicaid and charity care utilization proposal, to a much broader, health system-wide commitment. APPLICATION OF STATUTORY CRITERIA Subsection 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed. Service Area The primary service area ("PSA") for VMC consists of Zip Codes 32904, 32934, 32935, 32940, and 32955. The proposed PSA contains one zip code not contained in HRMC's first application--32904. This change was made to increase the proposed PSA from 69 percent of total hospital discharges to 75 percent of total discharges which follows a more traditional definition of a PSA. HRMC's health care planning expert, Dr. Finarelli, also re-examined the area, which revealed that the market shares of the existing hospitals had changed over time. As a result, VMC's market share was increased in some zip codes and reduced in others. The fact that VMC's market share increased in Zip Code 32904 from 8 percent to 10 percent caused that zip code to be shifted from the secondary service area to the PSA. Even if, as Wuesthoff asserts, the 32904 Zip Code is in the secondary service area rather than the PSA, this would result in only 100 fewer patient admissions per year, an insignificant amount. Wuesthoff asserted that VMC's proposed PSA is too large, yet it approximates the size and same number of zip codes of the PSA proposed by Wuesthoff in the CON application for its Melbourne facility. Wuesthoff also argued that the proposed VMC PSA includes two existing hospitals. While true, the two existing facilities are located about 10 miles from the proposed site. They are on the extreme outer fringes of the PSA. 2. Population Growth Population is a fundamental aspect of virtually every proposal for a new hospital. The proposed project will be located in Zip Code 32940, which is projected to grow by more than 12,000 persons between 2005 and 2012. It is easily the zip code with the largest projected growth in Brevard County. Two other zip codes in the PSA, 32955 and 32904, are projected as the second and third fastest growing zip codes in the county between 2005 and 2012. The projected population growth in the proposed PSA compares favorably with the population growth for nine previous hospital projects approved by AHCA. It falls within the mid- range of those other projects. AHCA recognized that the VMC proposal is in a rapidly growing suburban community. Brevard County has experienced explosive growth in population, construction, and services. Area physicians testified that their practices have grown significantly in the past five years, requiring additional hiring to handle the increase. The population of the VMC PSA alone is projected to increase by almost 30,000 people between the filing of the application in 2005 and 2012, VMC's projected third year of operation. This increase represents half of the entire county's growth during that time period. Such market conditions fit well within the type of conditions that have led AHCA to approve other CONs for new hospitals. The projected population in the greater Viera community and the absolute number of new people, as well as the annual growth rates, support the proposed hospital. Just as population growth drives the need for new schools, roads, and utilities, the health care infrastructure must be increased to meet the rise. The healthcare infrastructure is a key component of the Viera DRI. Sound health planning creates capacity where it is needed. Hospital discharges involving residents of the VMC PSA are projected to grow by 41 percent between 2004 and 2012, reflecting strong growth in the PSA. Physicians who practice in Brevard County and support the proposed Viera project overwhelmingly agreed that the area population is growing rapidly. That population growth results in an increase in patients seeking health care services. The average age of the PSA's population is also increasing as older people move into the PSA. The population in the PSA over 65 is projected to grow three times as fast as the rest of the county. This is significant because people over 65 utilize hospital services at the greatest level. Wuesthoff claims that the tremendous increase in population in Viera does not create a need for a hospital there. In July 2003, however, Mr. Emil Miller, Wuesthoff's CEO, expressly acknowledged in a letter to The Viera Company the significant growth of Viera, and sought to purchase land in Viera upon which to build a hospital, specifically recognizing that such a hospital was necessary to "meet the health care needs of that growing population." He sought, at that time, the exclusive right to be the only hospital in Viera. This letter was written after the opening of Wuesthoff-Melbourne. From a health planning perspective, new capacity should be created where population growth is occurring, as opposed to expanding existing hospitals that are site- constrained, short on space, poorly configured, aged, and far removed from the area experiencing high population growth. HRMC has demonstrated that the tremendous population growth in Viera requires the creation of new capacity. 3. Need Analysis AHCA no longer has a numeric methodology for calculating need for short-term acute care beds or services. Therefore, HRMC presented its own analysis of need for a new acute care hospital in this case. Although no longer in rule form, AHCA considers a five-year planning horizon for short-term acute care facilities to be appropriate. The amended CON law allows hospital providers to add beds at existing facilities without prior CON approval, but that fact does not control whether a hospital should be built in Viera. If that were the case, AHCA would never approve another hospital because existing hospitals would always argue that they can meet need over time by adding beds at existing facilities--a plainly inappropriate way to meet future health care needs. Instead, new capacity should be created where population growth is occurring. HRMC sufficiently demonstrated short term need. HRMC also demonstrated a long term need. An underlying premise of HRMC's application is that sound long- range planning requires consideration of where the needs are today and where they are projected to be in the future. Dr. Finarelli testified as an expert on the need for VMC. His role was twofold: (1) to determine whether there is a population-based need for a new hospital in Viera; and (2) to judge the impact such a hospital would have on existing hospitals in south and central Brevard County. Dr. Finarelli prepared a need analysis for this project. He examined the past five years of utilization and noted strong and steady growth in the sub-district. He then projected future growth to 2012, the third year of operation for VMC. He projected a steady growth in demand, and he determined that the acute care bed need would extend beyond the capacity available and planned to be added in Brevard County. In the last five years, a significant number of acute care beds have been added to the county's bed inventory: Holmes added 76 beds, Wuesthoff-Rockledge added 22 beds, and Wuesthoff- Melbourne opened with 65 beds in late 2002 and now has 115 beds. Wuesthoff-Rockledge will open a 24-bed ICU within the next year. PBCH is planning a 40-bed expansion, bringing its total to 100 beds. PBCH will also shell-in an additional 40 beds for future expansion at that campus. Even if these additional beds come online earlier than anticipated, the effect on the proposed VMC will be minimal because PBCH is located more than 20 miles from Viera. Mr. Mark Richardson, Wuesthoff's health planner, acknowledged that PBCH does not really serve the residents of Viera. Although these planned expansions will help meet the increased demand for acute care services, they are not a long- term solution for future growth or the demand for acute care services in Brevard County. The health care industry generally recognizes an optimum occupancy level of 75 percent. Annual occupancy rates at this level mean that a hospital sometimes runs in excess of 90 percent at peak times. When this is combined with the fact that the midday census typically runs 10 percent higher than the reported midnight census, the conclusion is that hospitals with an optimum occupancy level of 75 percent actually run at greater than 100 percent occupancy at times. Table 21 of HRMC's application demonstrates that if the proposed VMC is denied, Holmes' occupancy rates will escalate from 83 percent in 2010 to 86 percent in 2012; PBCH's occupancy rates will increase from 77 percent to 80 percent in 2012; and Wuesthoff-Rockledge's occupancy rates will increase from 74 percent to 77 percent in 2012, even after the currently planned bed increase at PBCH and Wuesthoff-Rockledge. Dr. Finarelli noted that the two fastest growing segments of the population in VMC's PSA are the over 65, and 45 to 64 age groups, who demand the most acute care. The over- 65-age demographic is two percent higher than the county as a whole, and nearly three percent higher than the statewide average. Demand for inpatient services in Brevard County has increased by approximately seven percent per year from 2000 to 2005. In the Viera PSA alone, however, the demand for inpatient services has grown by 40 percent between 2000 and 2004, twice the 19 percent growth for the rest of the county. Dr. Finarelli determined that the VMC project is appropriately sized and is expected to be well utilized. He based this upon the fact that the VMC PSA alone had 4,000 more discharges from 2000 to 2004. Total discharges in Brevard County during that time period increased by 10,000 during that same period. The rate of increase in discharges for the VMC PSA was twice that of the county as a whole. The VMC PSA is expected to have 20,400 discharges by 2012, compared with 14,400 in 2004, a substantial increase. Dr. Finarelli's assumption that VMC will capture 20 percent of the PSA's market is conservative and reasonable. In preparing his need analysis, Dr. Finarelli analyzed the appropriate change in age-specific discharge rates in Central and South Brevard County. Decisions about how to project future use rates is a market-based analysis that varies from market to market. Historical trends and comparative use rates must be examined to determine the most appropriate growth factor to use. Although historical use rates had increased an average of four percent per year from 2000 to 2004, Dr. Finarelli chose to use a more conservative admission rate increase of approximately 1.5 percent per year from 2005 and 2010, less than half the most recent historical experience. Mr. Richardson, Wuesthoff's health planner, acknowledged that he would employ a forecast model in basically the same form as Dr. Finarelli's. However, he differed as to the appropriate change in use rates and how the VMC market share should be allocated. Dr. Finarelli assumed a 1.5 percent annual increase in use rate through 2010, and a flat rate thereafter in his analysis. Mr. Richardson argued that the 1.5 percent annual increase was too optimistic, but he acknowledged that the average increase in use rate is one to two percent. When undertaking his analysis, Mr. Richardson testified that he had not examined the District VII Health Council's quarterly reports, whose numbers differed from its annual reports. When shown the quarterly figures, he acknowledged that utilization, on average, had trended upward. Using the revised data, the growth rate in admissions from 2002 to 2003 was 6.8 percent, with a six percent increase in patient days for the same time period. Mr. Richardson agreed that no authoritative literature exists stating that use rates should be kept flat for this type of analysis. He acknowledged he had previously used a variable use rate trend when he prepared the CON application for Wuesthoff's Melbourne facility. The use rate analysis employed by Dr. Finarelli is more persuasive. Another material factor that must be considered in this analysis is that between 2003 and 2005, all Brevard County hospitals experienced a significant increase in average length of stay ("ALOS") of a quarter day or more. This caused the average daily census to increase steadily even as admission growth slowed to some extent. The most likely explanation is that patient acuity increased in the county. As a result of the upward trend in ALOS, Dr. Finarelli used an estimated 4.27 days as the projected length of stay in this case. This figure is consistent with Wuesthoff-Melbourne's current 4.29-day ALOS and PBCH's projected 4.27-day ALOS in 2010. Wuesthoff does not oppose the 4.27-day ALOS projection. The projection is reasonable in this case. Dr. Finarelli projected growth in demand for adult medical-surgical and total acute care, using both admissions and average daily census ("ADC"). According to his calculations, residents of the VMC PSA will account for a cumulative increase in ADC of 75 patients by 2012, while ADC will increase by 188 patients in the county overall. The county-wide increase translates to a need for an additional 250 beds in Brevard County by 2012. Table 15 of the CON application shows hospital utilization of just above the 75 percent optimum level by the end of the third year of operation. Even using a flat admission rate, as proposed by Wuesthoff, the average annual occupancy would still be 74 percent by 2012. Dr. Finarelli's analysis took into account the current addition of 24 ICU beds at Wuesthoff-Rockledge, the shelled-in space for 19 beds at Wuesthoff-Melbourne, and the planned 40-bed expansion at PBCH. Even Mr. Richardson acknowledged the need for more than 126 additional beds by 2010. In allocating market share to VMC, Dr. Finarelli relied on his experience that patients are more likely to shift from one hospital to another within the same system than they are to change systems altogether. For that reason, for the four zip codes of the PSA that are in South Brevard County, Dr. Finarelli assumed that 75 percent of the patients admitted to VMC would be patients who would otherwise use a Health First facility, while 25 percent of the patients admitted would otherwise use a Wuesthoff facility. Mr. Richardson agreed with Dr. Finarelli's volume forecast, but opined that the patients should be allocated 50/50 between Wuesthoff and Holmes. It is more persuasive that patients will keep their physicians and remain within a known health system than they are to change health care providers. The utilization and market shares projected for VMC are reasonable and attainable. VMC's application projects that it will capture the majority of its patients from HRMC, but it will also capture some patients from Wuesthoff-Rockledge and Wuesthoff-Melbourne. In spite of this, Dr. Finarelli projects that the Wuesthoff hospitals will gain in excess of 5,000 admissions (a 34 percent increase) from 2004 to 2012. Admissions at Health First would increase by 29 percent during the same period. In addition to projected in-patient admissions, VMC is expected to have more than 26,000 ED admissions by 2012. This projection is reasonable and attainable. The evidence in this case demonstrates that the most appropriate response to address the demonstrated bed need is through the construction of a new hospital in Viera. The population growth in Viera will more than adequately support a new facility, and the new hospital will foster enhanced access for the community. Wuesthoff raised questions as to whether HRMC's application meets the traditional "not normal" circumstances required in the absence of a numerical bed need. Since the repeal of the numeric bed need methodology, however, the concept of "not normal" does not apply, as each applicant may present its own argument for need. HRMC has done so here. 4. Overwhelming Community Support VMC enjoys strong support from the local community. It received hundreds of letters of support from a broad cross- section of the community, including health care and law enforcement officials, physicians, business and civic leaders, and members of the general public. HRMC's application also included petitions containing over 10,000 resident signatures supporting a new hospital for Viera. It developed a website devoted to this project. Prior to the hearing, over 5,000 e-mails were received by the website in support of the new hospital. Samples of these were included in HRMC's application. 5. Disaster Preparedness During the planning process for the proposed hospital, HRMC sought input from a number of county officials as to how the hospital could be designed to improve the county's capability to respond to a large-scale emergency or catastrophic event. HRMC met with Mr. Robert Lay, Director of the county's Emergency Management Office, and several representatives of local law enforcement agencies. The proposed hospital design incorporates a number of their suggestions and has received strong support from local officials. As director of the Brevard County Emergency Management Office, Mr. Lay is responsible for developing emergency management plans to ensure public safety in the event of an emergency or disaster. He considers the site of the proposed VMC to be a significant benefit because of its inland location and proximity to I-95. The hospital would be further inland than any existing hospital in Brevard County, making it less susceptible to damage from hurricanes and other severe storms. Moreover, its close proximity to I-95 provides easy access to hospital services in the event of a hurricane or mass casualty. The proposed VMC would exceed minimum hurricane standards, allowing it to withstand higher wind speeds and projectile impacts of a hurricane or other major storm. The proposed hospital would offer additional "surge capacity" in Brevard County, that is, the ability to expand treatment facilities to accommodate a large influx of patients in a short period of time. Existing hospitals in Brevard County do not have adequate surge capacity. The proposed hospital would be located near the county health department which would provide additional support for the public clinic located there. The hospital could potentially be used to provide Disaster Medical Assistance Team ("DMAT") support. This is a mobile medical team that can provide emergency medical services in the event of a disaster. The proposed hospital would include facilities specifically designed to support a DMAT in the event of a disaster or other catastrophe. This includes a site that is stabilized and equipped with all necessary utility connections, including potable water, power, data, and sanitary sewer. The proposed facility plans to include isolation rooms, negative pressure beds, and special air handling equipment that may be used in responding to a bioterrorism event. Expert meteorologists testified for both HRMC and Wuesthoff at hearing concerning the potential for hurricanes striking Brevard County. Their testimony differed as to the probability of a catastrophic storm hitting the county, based upon historical precedent and the laws of probability. Clearly, CCH is particularly vulnerable to storms because of its location on a causeway nearly surrounded by water. The remaining hospitals in Brevard County, while slightly more vulnerable to storm damage than the proposed VMC due to their locations, appear to be safe from all but the most catastrophic storms. While building the proposed hospital to the latest Florida Building Code requirements will make it more hurricane resistant than the existing hospitals in Brevard County, this fact alone does not render the existing hospitals in the county unsafe or not suitable to withstand the infrequent storms projected to strike Brevard County. The proposed hospital design includes other elements to assist in the event of a disaster. These include multiple- site entrances that can be controlled and used for specific emergency operations; enlarged ambulance access and discharge areas to facilitate efficient flow of multiple emergency vehicles; a ground helipad designed to handle military aircraft; and a large area near the ED that could be used for decontamination purposes. The proposed hospital will improve Brevard County's capability to respond to emergency or mass casualty events. While this finding, in and of itself, does not justify approval of the CON application, it reflects positively in HRMC's favor. Subsection 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. The parties stipulated that the Health First and Wuesthoff hospitals are all JCAHO accredited. The evidence at hearing demonstrates that good quality care is provided at the Health First and Wuesthoff hospitals. Holmes is at or near capacity at times. When full, patients have to be cared for in hallways until appropriate rooms are available. The County Emergency Office has been aware of various occasions when hospitals must be called to determine space availability. Many of the county's hospitals, especially in the winter months, experience extremely high occupancy and limited availability of space for handling emergency patients. A number of area physicians testified regarding the frequent difficulty in getting patients admitted to Holmes due to overcrowding. The proposed VMC offers an opportunity to provide additional capacity for emergency and acute care patients in Brevard County. Continued high occupancy rates can lead to a deterioration of quality of care if patients are forced to wait for available beds. The evidence concerning demand supports the existing hospitals as well as the proposed facility in Viera. HRMC sufficiently demonstrated the availability, quality of care, accessibility, and extent of utilization of existing health care facilities in the district. Subsection 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care. AHCA is well aware of HRMC's excellent quality of care record. The quality of care offered by HRMC is excellent. The general consensus of those testifying at hearing was that HRMC has an excellent reputation and provides excellent quality care. A number of Wuesthoff's witnesses acknowledged that Health First has a good reputation for providing quality care. Only one physician testified, on behalf of Wuesthoff, that he believed the care offered at Holmes did not meet his standards. All three Health First hospitals are JCAHO accredited. Both Holmes and PBCH have received Magnet Designation, the highest award given by the American Nurses credentialing Center ("ANCC") for excellence in nursing. Less than two percent of hospitals in the country receive such designation, and no other Brevard County hospitals are so designated. In awarding Magnet Designation to a hospital, the ANCC takes into consideration a number of factors, including nursing management, best practices, quality of care, and the supportive environment for nurses to grow both personally and professionally. Holmes was recently ranked the number one cardiac hospital in Florida. In the past year, Holmes was recognized by the Florida Health Care Coalition for high quality service. Health Grades, a national consumer provider website, recognized Holmes as being in the top five to ten percent rankings in cardiac, vascular, pulmonary, and orthopedic services during the past year. Health First has instituted a hospitalist program at its three existing hospitals. This program provides for inpatient specialty care. Health First has made significant strides in the past several years towards its electronic medical model, which helps the system achieve superior quality in patient safety. All clinical applications are now accessible on the Web to allow physicians access to a patient's records from an off-site location. Health First operates an e-ICU system to improve clinical care management. The e-ICU program covers all six units of critical care patients at the Health First hospitals. Health First has implemented a PACS (picture archive communication system) to provide a digital environment for radiology management. Each of these programs will be implemented at VMC. Holmes has been recognized the past two years as one of the "100 Most Wired" hospitals in the country. The evidence was not persuasive that approving VMC would exacerbate any nursing or physician shortages in Brevard County, thereby having a negative impact on quality of care in the county. HRMC clearly demonstrated its ability to provide quality care. Subsection 408.035(4), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment, and operation The parties stipulated that HRMC has sufficient funds available for capital and operating expenditures for the proposed project. The parties further stipulated that the proposed staffing patterns and the projected salaries contained in Schedule 6A are reasonable for the census levels projected in the application. AHCA, as part of its review, determined that HRMC's application met this criterion. HRMC is confident it can recruit and hire the necessary staff to operate the proposed hospital. HRMC has made the development of leadership and management programs a priority. It has focused heavily on recruitment, especially of nurses. Health First proactively approaches staffing. It had a successful recruiting campaign in the past year and was able to recruit and hire "one hundred nurses in one hundred days." Health First is committed to working with educational organizations to enlarge area nursing programs. With the addition of two new nursing programs in Brevard County, the capacity within the county itself to produce qualified nursing graduates has grown. The most recent data from the Florida Hospital Association shows that both nursing turnover and nursing vacancies have decreased from their reported high in 2001. Human resources for Health First hospitals is a corporate function, and services such as recruitment and retention are provided consistently throughout the health system. In addition to staffing, HRMC and Health First have the ability to provide management resources to establish and operate the proposed hospital. The proposed hospital will benefit from the shared resources and efficiencies gained by its affiliation with Holmes and Health First. Corporate functions, such as human resources, finance, marketing, and information technology are provided throughout the organization. Health First operates on a matrix management system under which one person serves as the matrix director for all three current labs, as well as physical therapy, pharmacy, environmental services, and health information management. Although a shortage of nurses and specialty physicians exists in the county, as well as in the rest of the country, the situation is improving. The shortage has improved over the last three to four years. Today, Health First is able to staff its hospitals with competent, skilled nurses. HRMC and Health First demonstrated that they are able to successfully recruit competent staff for certain specialty staff positions, such as radiology technicians. Health First recently recruited more than 15 new physicians in Brevard County, including specialists in neurology, neurosurgery, gynecology, cardiology, internal medicine, family practice, general surgery, and gastroenterology. HRMC's recruiting success complements the more than 180 physicians with offices in the Viera/Suntree area. The number of physicians in this area continues to grow. Moreover, Wuesthoff is able to attract competent, qualified nurses who meet the community standards in terms of education and experience. HRMC was initially concerned that the opening of the Wuesthoff-Melbourne hospital in late 2002 would have an adverse impact on its ability to retain and recruit necessary staff. The impact Health First has experienced, however, has been slight. Also, Wuesthoff publicly claimed that it had no problems in staffing its new Melbourne facility. Wuesthoff-Melbourne opened in December 2002, and staffed its entire facility. The hospital was able to meet the quality standards for the community. Wuesthoff-Melbourne has continued to improve the quality and availability of services. Dr. Williams, whose group practice has an exclusive provider contract with Wuesthoff to provide emergency physicians, testified that Wuesthoff-Melbourne has a full complement of ED physicians and that the quality of care provided by Wuesthoff's EDs is acceptable and within the standard of care for the community. Within months of opening, Wuesthoff-Melbourne had over 300 physicians on staff. Additionally, Wuesthoff-Melbourne has continued to attract better specialist coverage over the past three years. Disapproving the VMC project will not favorably affect the staffing challenges in the county. The core staff needed to care for patients at the new hospital would be needed to staff increased bed capacities at any of the existing Brevard County hospitals. ED call coverage tends to be a problem in Brevard County. The evidence was not persuasive, however, the problems experienced in Brevard County are as significant as they are in other parts of the state, or that approving VMC would materially exacerbate the problem. The evidence did not demonstrate that physicians would be on call at more than one hospital if VMC were approved. The evidence did not prove that physicians would give up their privileges at other Brevard County hospitals to accept privileges at VMC in such significant numbers that other hospitals would be unable to staff their EDs. The VMC project has drawn considerable support (over 78 letters) from physicians in the community. Many of these physicians are interested in joining the VMC medical staff. HRMC has demonstrated that it has ample resources available and funds for capital and operating expenditures to accomplish its proposed project. Subsection 408.035(5), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The extent to which the proposed services will enhance access to health care for residents is a significant criterion when considering a proposal to establish a new hospital. The VMC project demonstrates compliance with this factor as it emphasizes access to emergency services, as well as basic hospital services, in a rapidly-growing suburban market. AHCA has favored projects similar to what HRMC proposes, recognizing a national trend to approve projects that propose smaller, suburban hospitals rather than adding beds at existing urban hospitals. Such applications emphasize access to emergency care and basic hospital services. In terms of traffic, the proposed site is approximately 10 miles from the nearest Wuesthoff hospital, and 15 miles from the nearest Health First hospital. As the population continues to grow, traffic access will diminish. Wuesthoff presented a travel time study analyzing the time it takes to travel from the proposed Viera hospital location to Wuesthoff-Rockledge and Wuesthoff-Melbourne during morning and afternoon peak traffic hours. The report concluded that a driver could reach either Wuesthoff-Rockledge or Wuesthoff-Melbourne from the propose Viera site within 20 minutes during both the morning and afternoon peak hours. The results of the study are not entirely persuasive for several reasons. The study claimed to use three test runs for each of the routes examined, yet the I-95 route result was based upon one run only. Next, the peak times used for the traffic runs were defined as 7:00 a.m. to 9:00 a.m. and 4:00 p.m. to 6:00 p.m. The actual runs, however, were made almost exactly at the beginning of the peak hours as so defined (all between 7:00 and 7:10 a.m. for the morning runs, and between 4:00 and 4:07 p.m. for the afternoon runs). This study failed to take into account any possible variations during both the morning and afternoon rush hours. Moreover, Dr. Finton, a physician who lives in Suntree (near Viera) testified that the same runs take him 30-45 minutes to reach any of the three hospitals, Wuesthoff-Rockledge, Wuesthoff-Melbourne, or Holmes. The travel time study was incomplete and, therefore, unpersuasive that the existing hospitals can be reached within 20 minutes during peak travel times. Diversion The Brevard County EMS system controls which hospital can go on diversion, and works based upon the hospital's good faith assumption that it will act in the patient's best interest. In 2005, the EMS policy on diversion for south Brevard County changed. If any one of the three existing hospitals in that part of the county can take patients, the diversion request is granted. The factors that typically trigger a hospital to diversion status are a sudden influx of critical patients or the lack of available beds in the ED. When a hospital goes on diversion, its emergency room is, in effect, closed. This strains and compromises the delivery of medical services. In 2005, diversion status was granted 53 times. In 2006, approximately 40 diversion requests had been granted as of the date of hearing. Although the number of diversion requests in 2006 was down from the 2005 level, the number of hours the hospitals remained on diversion status increased. In some instances, Holmes' diversion request has been denied because PBCH was at capacity and could not take more patients. A week before final hearing in this case, Holmes was operating at capacity with as many as 36 patients in the ED waiting for beds, and was forced to go on diversion status. Even when a hospital is denied diversion status, the EMS system feels the impact because patients taken to the ED cannot be accepted due to lack of a bed. This forces the paramedic to wait with the patient for an hour or more, which takes the emergency vehicle and the paramedic out of service. Approval of VMC would improve emergency medical care for the residents of Brevard County. Adding more beds in Viera would decompress the high census problems at Holmes and PBCH. The EMS transport times in Midwest Brevard County would decrease, especially in the areas served by the Viera and Suntree stations. The Viera project will enhance access to a rapidly growing community as recognized by the testimony of Brevard County health officials and health care providers. 2. Financial Access HRMC's proposed CON conditions will improve financial access for low income residents of Brevard County. This access is assured through Health First's commitment to approval of VMC on the conditions it proposed. Wuesthoff acknowledged that patients making up the payor class addressed by HRMC's 19.5 percent condition, including Medicaid, Medicaid HMO, self-pay, the uninsured, KidCare, and charity care could be deemed "safety net" patients. Wuesthoff has no system-wide condition concerning safety net care, and Wuesthoff-Rockledge has no hospital-wide condition regarding Medicaid or charity care. HRMC demonstrated that its proposed services will enhance access to health care for residents of the service district. Subsection 408.035(6), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate or short-term financial feasibility The parties stipulated that the proposed project demonstrates immediate financial feasibility, since HRMC has sufficient funds for capital and operating expenses available for the proposed project. 2. Long-tern financial feasibility AHCA tests the reasonableness of an applicant's financial projection by comparing them with their peer group experience. In this case, AHCA concluded that HRMC's financial ratios were within the reasonable range. Generally, a CON project is financially feasible if it will at least break even in the second year of operation. However, a project is not financially feasible in the long-term if it continues to show a loss in the second year of operation, unless it is nearing break-even and can demonstrate that it will break even within a reasonable period of time. New hospitals are not developed for a two- to three-year projection. The life of a hospital is measured in decades, not years. The net operating revenue projected on Schedule 7A of the HRMC application, the starting point for the net income/loss projected on Schedule 8A, is reasonable. Holmes projects it will generate a net loss of just over $1 million in its first year of operation, but will generate net profits of $5.6 million and $11.7 million in its second and third years of operation. On a stand-alone basis, the proposed VMC project is financially feasible in the long term. When viewed on a consolidated basis with the other two HRMC hospitals, Holmes and PBCH, as well as on a health system-wide basis (Health First), VMC is also feasible in the long term. Wuesthoff argued that HRMC would be better served by investing its money in some high yield instrument rather than building a new hospital. Since the hospitals involved in this proceeding are not-for-profit corporations, and involved in the health care business, maximizing profits and returns on investment are not of primary concern. Wuesthoff's health planner, Rick Knapp, acknowledged that the primary mission of both Wuesthoff and Health First is to provide medical facilities and services in their communities. The manner in which HRMC accounted for the management fee line item in the VMC pro forma is consistent with how it is treated for PBCH, and is reasonable. The criticisms leveled by Wuesthoff against HRMC's application concerning financial feasibility focused on alleged differences between the Wuesthoff and Health First case mix adjusted prices; the outpatient competition from Phase I of Viera; the "lost" investment opportunity for the funds spent in developing VMC; and the effect the opening of VMC will have by stealing patients from Wuesthoff. The evidence supported HRMC's contention that its case mix adjusted prices were well within, if not below, the parameters for other counties of similar size. Wuesthoff did not quantify the alleged impact the outpatient services in Viera would have on VMC's outpatient revenues. The project is financially feasible with the funds being spent for the delivery of health care services, not for seeking potential "lost" income on investments, which is clearly not a goal of Health First. No provider is guaranteed a particular share of the market. Health First and Wuesthoff must compete with all providers for their patients. Dr. Eisenstadt's challenge to VMC's financial assumptions is not persuasive. He sought to compare the facilities' financial feasibility based upon data from Holmes. The percent to gross revenue, the percent payor mix, the gross charges per case, the gross charges per patient day, and the case mix index are all different, and not comparable. HRMC demonstrated that the proposed VMC project is financially feasible in both the short and long term. Subsection 408.035(7), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Generally, competition for hospital services benefits consumers because it leads to lower prices, creates incentives for hospitals to lower costs, and leads to improved quality of care. The proposed Viera facility will add bed capacity which will permit increased supply to serve the growing demand for health care services. The proposal will add not only beds, but the proposed site is in an area in which demand is demonstrating particularly strong growth. The Viera facility is well-positioned for convenient or lower cost access for patients requiring hospitalization. AHCA believes that a CON applicant can overcome the potential adverse impact associated with a proposed new hospital project on an existing provider by offering to extend access to lower income persons. HRMC and Health First have agreed to do this through the conditions set forth in the application. Table 13 of HRMC's application provided a market share analysis to show what share the new hospital is expected to capture in each of the five zip codes in the PSA by the third year of operation. HRMC projects that it will take three years for it to achieve its market share of just under 21 percent of the PSA. These projections are reasonable and accurate. Table 16 of the application indicates sufficient demand and population growth in the VMC PSA to support the proposed Viera hospital as well as the existing providers. Figure 18 of the application represents the change in adult medical/surgical discharges by hospital between 2004 and 2012, assuming VMC is opened. It demonstrates that, with the exception of Holmes, every other hospital in Brevard County will see a significant increase in adult medical/surgical discharges over that eight-year period, even if VMC is built. As stated previously, the decline in discharges at Holmes is a desirable effect of building the new hospital because it will allow Holmes to decompress its currently over-utilized state. The decision to establish Wuesthoff-Melbourne was a centerpiece in the Wuesthoff Health Systems strategy to be more attractive to managed care providers by having a presence in south Brevard County. Wuesthoff's CEO acknowledged that it is now competitive with Holmes from a pricing perspective. No managed care organization has refused to negotiate with Wuesthoff since it opened its Melbourne facility in late 2002. Wuesthoff hospitals now have managed care contracts with four of the five major managed care organizations. It does not have a managed care contract with Health First Health Plans (HFHP). Wuesthoff has never attempted to contract with HFHP. Candidly, Wuesthoff conceded that it would not be in its best interest to attempt to contract with a competitor (Health First) and therefore promote the competitor's growth. Wuesthoff-Melbourne has attempted in the past to expand its current bed capacity. In 2004, it filed a CON application to expand to 134 licensed beds, a 19-bed addition. Although the 2004 amendments to the CON law eliminated the need to request regulatory approval to add beds, and despite having the space for the additional beds shelled-in, Wuesthoff has yet to expand beyond 155 beds at its Melbourne facility. Wuesthoff argues that its Melbourne campus needs a more complete array of services, including open-heart surgery and Level II NICU, in order to better compete with Holmes. Wuesthoff-Melbourne, however, has not committed to expanding its bed capacity at any time over the next 10 years, nor does it have a current written plan for the timing of any future expansion. Further, Wuesthoff-Rockledge has made no public plans to expand its facility at any particular time in the future. Approval of HRMC's application is pro-competitive. Dr. Lynk's testimony in this regard is persuasive. Dr. Lynk, an industrial organization economist, has testified in CON matters for over 20 years and employs generally accepted data and economic regression methods and variables that are generally accepted in the field of industrial economics. Based upon Dr. Lynk's testimony, it is found that HRMC's prices are within the observed range of hospital prices for inpatient services in competitive Florida markets, and are at competitive levels, as measured by reliable objective data and generally accepted econometric methods. Wuesthoff's prices, on average, are currently lower than HRMC's. This comparison, however, does not determine whether the prices are competitive, because in a comparison of two hospitals, one must necessarily be lower than the other. A comparison of pricing alone does not lead to the conclusion that one hospital is pricing below, at, or above competitive levels. The price difference between HRMC and Wuesthoff hospitals is within the observed range of price differences between hospital providers observed in a large number of other Florida markets with multiple competing hospitals. HRMC provided extensive data to support this finding. Wuesthoff's claim that HRMC's prices are above competitive levels is not supported by the evidence. Construction of the new Viera facility will expand capacity in a market that is experiencing growing demand, particularly in the PSA. Because it will expand bed capacity in Brevard County, especially in the fastest growing area of the county, the new facility will competitively benefit Brevard County residents in need of hospital services. Dr. David Eisenstadt testified on certain competition issues in this case. Dr. Eisenstadt is an experienced and respected economist. However, the opinions he offered concerning the anti-competitive effects of approving HRMC's CON application are not persuasive. Dr. Eisenstadt's testified that the Viera project will harm hospital competition in southern Brevard County if VMC prevents Wuesthoff-Melbourne from expanding to 200 beds from its current size. Further, he opines, the new hospital will increase hospital costs to the managed care industry in Brevard County by approximately $189 million in 2004 dollars. Dr. Eisenstadt's opinion in this regard is not found to be persuasive. Dr. Eisenstadt's opinion on the competitive impact of the new Viera hospital was based upon his regression analysis. In conducting this analysis, Dr. Eisenstadt relies upon his measure of hospital "dominance" in a particular market. The dominance measure used by Dr. Eisenstadt is new and not generally accepted in the economic community. He concludes that managed care prices in Brevard County will decrease by a total of $189 million if the Wuesthoff-Melbourne hospital increases in size from 115 to 200 beds. Of course, Wuesthoff-Melbourne has neither attempted to increase its bed complement to 200 nor to produce evidence of a written long-term plan setting forth a timetable for increasing the hospital's bed capacity. Dr. Eisenstadt's dominance variable regression technique is not found to be persuasive for several reasons. First, it has not been shown to be generally accepted by the economic community. He has never used the particular theory in the past nor can he point to another expert who has employed the theory. The technique he has chosen to use in this case has not been critically reviewed by the community of economists and is, therefore, not persuasive. Dr. Eisenstadt's cost savings analysis is driven entirely by bed numbers. He testified that so long as Wuesthoff-Melbourne increased in size from 115 to 200 beds, while Holmes remained the same size, HRMC's dominance would drop along with the prices leading to his estimated cost savings. In short, a change in number of beds drives a change in dominance. This theory is not borne out when examining all hospitals in Florida. Such an examination reveals no link between bed numbers and a particular hospital's dominance in a market. Dr. Eisenstadt's dominance measure is not consistent with testimony from other managed care representatives about what makes a hospital dominant. The evidence supports that it is not just the size of the hospital, but the availability of complex services that makes one hospital dominant over another. In this case, Holmes provides a far more complex mix of services than Wuesthoff-Melbourne, which should support a more dominant position for Holmes based upon the services offered, not the relative size of the two facilities. Yet, a comparison of the supposed "dominance" of hospitals throughout Florida, as measured by Dr. Eisenstadt, with the acuity of patients (as measured by case mix), shows no correlation. Dr. Eisenstadt's methodology did not accurately predict actual pricing behavior by Holmes when it was applied historically. Dr. Eisenstadt's model predicts that as Wuesthoff-Melbourne grows compared to HRMC, HRMC's prices should decrease. However, Dr. Eisenstadt conceded that the data from December 2002 (when Wuesthoff opened its new 65-bed campus in Melbourne and Holmes added no new beds) through December 2004 showed that Holmes' prices did not decrease relative to Wuesthoff's. This directly contradicts Dr. Eisenstadt's methodology. Dr. Eisenstadt's measure of dominance in his regression study classifies a number of hospitals commonly regarded as prominent and desirable facilities (and therefore expected to have substantial market power), such as the University of Florida Shands teaching hospital, as not being "dominant." Conversely, he classifies several relatively small hospitals as "dominant," such as St. Cloud Hospital, when they do not possess the size and characteristics of traditionally strong hospitals in the marketplace. These classification aberrations, when viewed in the context of a methodology that has not been generally accepted in the economics community renders the reliability of this regression analysis suspect. Dr. Eisenstadt did not testify that building the Viera facility would prevent expansion of Wuesthoff-Melbourne, nor could he testify that Wuesthoff-Melbourne would be expanded at any specific time in the future. His dominance-based pricing analysis also assumed that neither Holmes nor PBCH added beds. His estimate of an increase of $189 million in managed care costs to the market is based upon two unsubstantiated assumptions: 1) that Wuesthoff-Melbourne would not and could not expand if Viera is built; and 2) that Wuesthoff-Melbourne would expand to 200 beds if VMC is not built. The evidence at hearing supports neither of these assumptions. Dr. Eisenstadt also testified that building VMC will be anti-competitive, regardless of whether Wuesthoff-Melbourne's expansion is affected by VMC's construction, because he concludes that VMC's charges will be higher than Wuesthoff's. The result, he opines, will be that VMC will cost managed care organizations and employers $75 million more than if the patients were treated at a Wuesthoff facility. His opinion in this regard is also not persuasive. Dr. Eisenstadt assumes, for purposes of this opinion, managed care organizations cannot direct their patients to less costly hospitals if they perceive prices to be above competitive levels. This is not so as evidenced by the fact that the Harris Corporation, one of Brevard County's largest employers, is self- insured, and it steers its plan members to Wuesthoff because of Wuesthoff's lower prices. Interestingly enough, the Harris Corporation supports the Viera facility proposed here which argues against a perception that VMC will not be competitively priced. The substantial growth in Brevard County, especially in the VMC PSA, supports the establishment of a new hospital. Based upon this fact, and the fact that the new facility proposed by HRMC will not be anti-competitive, the proposed facility will not have a material adverse impact on any existing provider. Subsection 408.035(8), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that HRMC's application demonstrated the reasonableness of the costs (including equipment), methods of construction, and energy provision for the project as proposed. The architectural drawings submitted by HRMC with its application satisfy all applicable code requirements. The parties also stipulated that the time intervals contained in the project completion forecast depicted in Schedule 10 of the application are reasonable and require no further proof. Subsection 408.035(9), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent HRMC provides its fair share of health care services to Medicaid patients and the medically indigent population of Brevard County. Holmes provides the greatest percentage of charity care as well as the largest volume in terms of total dollars of charity care in the subdistrict. It is also the largest provider of Medicaid services in the subdistrict. HRMC is the largest provider of safety net services in the county. It is larger than all other providers combined. Health First and its member hospitals serve everyone, regardless of insurance or ability to pay. It is fully committed to meeting the needs of the citizens of Brevard County, and does so without receiving tax dollars. In the early 1990s, HRMC established HOPE, a Health Outreach, Prevention, and Education project to serve the health care needs of Brevard County. Since that time, HRMC and Health First have created a series of fixed-site medical clinics to serve the medically needy, in addition to providing a mobile health care delivery clinic that travels to various sites within the county. HRMC has a strong record of providing health care services to Medicaid patients and the medically indigent. Subsection 408.035(10), Florida Statutes: The applicant's designation as a Gold Seal Program nursing facility pursuant to §400.235, Fla. Stat., when the applicant is requesting additional nursing home beds The parties stipulated that this criterion is not applicable. CONFORMANCE WITH RULE CRITERIA When no Agency methodology exists to determine need, an applicant is responsible for demonstrating need through a needs assessment methodology which includes: 1) population, demographics, and dynamics; 2) availability, utilization, and quality of like services in the district, subdistrict, or both; 3) medical treatment trends; and 4) market conditions. Fla. Admin. Code R. 59C-1.008(2)(e). HRMC's application conforms with the preferences contained in Florida Administrative Code Rules 59C-1.008(2)(e) and 59C-1.030. To the extent population growth and utilization outpace hospital expansion, the result creates an access issue. Access to inpatient hospital services affects not only convenience, but also matters of life and death. Access is improved by the distribution of health care facilities where the population needs them most, not by concentrating services in one or two areas. The proposed Viera site is in a rapidly growing suburban community, where the projected population growth in the immediate service area is greater than in the planning area as a whole. Additionally, for the VMC PSA, the elderly population and its growth rate are both projected to increase in the future. The HRMC proposal addresses issues of financial access, based upon HRMC and Health First's system-wide condition of 19.5 percent of admissions for Medicaid and charity care patients. Such a substantial commitment to the underserved mitigates Wuesthoff's contention that approval of VMC will force it to take on a greater share of the indigent patient care. AHCA has a CON condition review process in place which requires an annual report as to the provider's performance in meeting its CON conditions, authorizing it by statute to impose a fine of up to $1,000 per day, and up to $365,000 per year, for any violations. AHCA has utilized its enforcement power in the past, imposing fines of as much as $1.5 million in cases of multi-year violations of CON conditions. IMPACT OF VMC ON WUESTHOFF VMC is projected to capture approximately 30 percent of its patient volume from patients who would otherwise seek care at one of the two Wuesthoff hospitals. At the same time, however, based upon the projected growth in Brevard County, especially in the Viera/Suntree area, inpatient admissions to Wuesthoff are expected to grow by more than 30 percent between 2004 and 2012. Therefore, any impact on Wuesthoff from the new VMC will be short term. While some competitive effect will occur due to the establishment of the new facility in Viera, it will not rise to the level of a substantial adverse impact since the income levels of both Wuesthoff-Rockledge and Wuesthoff- Melbourne are reasonably expected to be at higher levels in 2012 than they were in 2006. According to Dr. Finarelli's projections, Health First, even with VMC coming online, will actually lose market share in certain zip codes as the utilization of Wuesthoff- Melbourne increases. Based upon projections, at a system-wide level, the market shares of Health First and Wuesthoff should remain at the same level in 2012 as they were in 2004, 55 percent and 40 percent, respectively. Wuesthoff argues that approval of VMC would have a significant adverse impact on its two hospitals by jeopardizing its ability to meet bond covenants and by inhibiting its ability to implement its expansion projects. In order to quantify the magnitude of the adverse impact, Wuesthoff offered a sensitivity analysis based in part upon an internal template that Wuesthoff had been using for three to four years. A sensitivity analysis is a type of financial analysis. Normally, revenues and expenses would be projected separately in a financial analysis. In this case, Mr. John Van Gorp, Wuesthoff's expert in health planning and financial analysis, made some assumptions that are contrary to the evidence presented at hearing. First, the growth utilization projections for Wuesthoff for the period 2010 to 2012 are the same for each scenario, with or without VMC. Second, Mr. Van Gorp assumed an annual three percent growth in admissions for the internal projections provided for planning purposes at Wuesthoff-Rockledge, yet assumed only a four percent annual increase combined for growth in admission and price increases. Third, Mr. Van Gorp failed to forecast a specific increase in managed care reimbursement rates for the period 2007 to 2012. Next, his analysis accounts for $1.75 million in additional expenses for hypothetical construction projects of $35 million in 2010, but showed no increasing revenues resulting from these expansion projects at either Wuesthoff facility. Finally, he assumes $35 to $40 million of capital expansion projects at a time when its borrowing capacity, as reflected in its own calculations, shows its borrowing ceiling to be below $35 million. The Van Gorp sensitivity analysis is done at too broad a level to predict detailed information such as cash on hand projected out to 2012. The analysis is too general to predict how the specific bond covenants will or will not be met five to six years in the future. Further, Mr. Van Gorp relies heavily on projections made by the same Wuesthoff financial analysts who projected in two previous Wuesthoff-Melbourne CON applications that the project would be financially feasible within two years. AHCA found both those projects not to be financially feasible and denied them. The sensitivity analysis presented by Wuesthoff has too many weaknesses to serve as a basis for denying HRMC's CON application. Armand Balsano, HRMC's expert in health care finance and planning, prepared an analysis of the impact the approval of VMC would have on both Wuesthoff hospitals. Assuming a 2010 opening date for VMC, by 2012 both Wuesthoff-Rockledge and Wuesthoff-Melbourne are projected to be at their pre-VMC admission levels. Whenever a new hospital enters the market, some effect on existing providers will occur. In this case, the entry of VMC will not create a long-term adverse impact on the Wuesthoff Health System, and will not jeopardize its long-term financial feasibility. Since 2000, Wuesthoff-Rockledge has a net worth of $67.5 million. Wuesthoff-Rockledge is the main economic engine of the Wuesthoff Health system, and continues to show strong growth and improvement in net revenues and cash flows, demonstrating a positive operating income. It experienced more than $24 million in cash flow in its most recent fiscal year. In the most recent fiscal year, Wuesthoff-Melbourne generated a cash flow of approximately $2.5 million, a significant improvement over the previous two years. Furthermore, the operations at Wuesthoff-Melbourne have continued to improve in the current fiscal year, reflecting a positive EBIDA (earnings before interest, depreciation, and amortization) of $6.7 million, evidence of a strong financial improvement. Overall, Wuesthoff-Melbourne has made strong financial headway, despite being a new hospital. Although not in line with its projections in previous CON applications, Mr. Fayer testified that it typically takes four to five years for a new hospital to generate a positive operating income. Wuesthoff-Melbourne is in its fourth year of operation and is nearly there. Mr. Fayer acknowledged that Wuesthoff Health System projects to further improve its financial viability in the next three years. Interestingly, Wuesthoff has developed a master plan to add 40 beds at a cost of more than $80 million at the same time stating that it can barely maintain its bond covenants. Wuesthoff has already spent more than $100,000 on developing expansion plans for its Rockledge campus. If built as now proposed in its master plan, Wuesthoff-Rockledge would expand to 410 beds at a cost of at least $123 million, not including equipment. Since the opening of Wuesthoff-Melbourne, Mr. Fayer has not been turned down by any managed care organization he sought to contract with on behalf of Wuesthoff. He has not contacted Health First Health Plan to determine whether that organization would contract with Wuesthoff. Since its opening in December 2002, Wuesthoff- Melbourne has met or exceeded its projected patient volumes. Wuesthoff-Melbourne cannot argue that it has not yet made a profit due to not meeting its patient volumes. Patient volumes continue to rise at the hospital and it is moving toward a positive bottom line. Wuesthoff-Rockledge has enjoyed an excess of revenues over expenses in every year between 1998 and 2005, except in 1999, that year, Wuesthoff lost $11 million, at least a portion of which was due to mismanagement, lack of overall leadership within the system, and volume variances. Wuesthoff took the necessary and appropriate steps to correct the management issues and quickly returned to a positive bottom line. The adverse impact analysis prepared by Mr. Knapp, based upon patient volume information received from Mr. Richardson, did not present an accurate picture of the alleged adverse impact of VMC on the existing Wuesthoff hospitals. It, therefore, is not persuasive.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency issue a final order approving HRMC's CON Application No. 9881. DONE AND ENTERED this 26th day of January, 2007, in Tallahassee, Leon County, Florida. S ROBERT S. COHEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 26th day of January, 2007. COPIES FURNISHED: Michael J. Glazer, Esquire E. Dylan Rivers, Esquire Martin B. Sipple, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 R. Terry Rigsby, Esquire Daniel C. Brown, Esquire W.Douglas Hall, Esquire Carlton, Fields, P.A. Post Office Drawer 190 Tallahassee, Florida 32302 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 William G. Kopit, Esquire Lee Calligaro, Esquire Patricia M. Wagner, Esquire Epstein, Becker and Green, P.C. 1227 Twenty Fifth Street, Northwest Washington, District of Columbia 20037 Jerome W. Hoffman, Esquire Holland & Knight, LLP Post Office Drawer 810 Tallahassee, Florida 32302 David E. Mathias, Esquire Health First, Incorporated 6450 United States Highway 1 Rockledge, Florida 32955 Richard Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Andrew C. Agwunobi, M.D., Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issues in these cases are whether Certificate of Need (CON) Application No. 10432 filed by East Florida-DMC, Inc. (DMC), to build an 80-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, or CON Application No. 10433 filed by The Public Health Trust of Miami-Dade County, Florida d/b/a Jackson Hospital West (JW), to build a 100-bed acute care hospital in Miami-Dade County, Florida, AHCA District 11, on balance, satisfy the applicable criteria; and, if so, whether either or both should be approved.
Findings Of Fact Based upon the parties’ stipulations, the demeanor and credibility of the witnesses, other evidence presented at the final hearing, and on the entire record of this proceeding, the following Findings of Fact are made: The Parties The Public Health Trust of Miami-Dade County d/b/a Jackson Hospital West and Jackson Health System (JHS) JHS is a taxpayer-funded health system located in and owned by Miami-Dade County. It is governed by The Public Health Trust of Miami Dade-County, Florida (PHT), a seven-member board. JHS owns and operates three acute care hospitals in Miami-Dade County--Jackson Memorial Hospital (JMH); Jackson North Medical Center (JN); and Jackson South Medical Center (JS)--as well as three specialty hospitals: Holtz Children’s Hospital (Holtz); Jackson Rehabilitation Hospital; and Jackson Behavioral Health Hospital. JHS also owns and operates numerous other non- hospital healthcare facilities within Miami-Dade County. JHS’s applicant in this proceeding is JW which, if approved, will be another acute care hospital in JHS. JHS is an academic teaching institution, and the University of Miami (UM) is JHS’s affiliated medical school. Over 1,000 UM residents staff JMH pursuant to an operating agreement with JHS. JN and JS are not academic medical centers. JHS annually receives sales tax and ad valorem tax revenues from Miami-Dade County in order to help fund its operations. JS and JN are community hospitals operated as part of JHS. JS was acquired in 2001. JS is licensed for 226 beds and is also home to a verified Level II trauma center. The JN facility was acquired by JHS in 2006. The facility is licensed for 382 beds. East Florida (DMC) DMC is an affiliate of HCA Healthcare, Inc. (HCA), the largest provider of acute care hospital services in the world. DMC will operate within HCA’s East Florida Division (EFD), which is comprised of 15 hospitals, 12 surgery centers, two diagnostic imaging centers, four freestanding emergency departments, nine behavioral health facilities, and one regional laboratory, along with other related services. There are three HCA-affiliated hospitals in Miami-Dade County: KRMC; Aventura Hospital and Medical Center (Aventura); and Mercy Hospital, a campus of Plantation General Hospital (Mercy). Kendall Regional (KRMC) KRMC, which is located at the intersection of the Florida Turnpike and Southwest 40th Street in Miami-Dade County, is a 417-bed tertiary provider comprised of 380 acute care beds, 23 inpatient adult psychiatric beds, eight Level II neonatal intensive care unit (NICU) beds, and five Level III NICU beds. It is a Baker Act receiving facility. KRMC is a verified Level I trauma center. It also has a burn program. KRMC is also an academic teaching facility, receiving freestanding institutional accreditation from the Accrediting Council for Graduate Medical Education (ACGME) in 2013. KRMC currently has six residency programs including, among others, surgery, internal medicine, podiatry, anesthesia, and surgical critical care. Its teaching programs are affiliated with the University of South Florida, Nova Southeastern University, and Florida International University. KRMC also participates in scholarly and clinical research. In 2017, KRMC had over 82,000 Emergency Department (ED) visits. It treated over 115,000 total inpatients and outpatients that year. There are 850 physicians on KRMC’s medical staff. It offers a full range of medical surgery services, interventional procedures, obstetrics (OB), pediatric, and neonatal care, among many other service lines. KRMC primarily serves southern and western portions of Miami-Dade County but also receives referrals from the Florida Keys up through Broward County, Palm Beach County, and the Treasure Coast. Its main competitors include, but are not limited to: Baptist Hospital; Baptist West; South Miami Hospital; PGH; Hialeah; CGH; JS, and Palm Springs General Hospital. The Tenet Hospitals PGH, Hialeah, and CGH are wholly-owned subsidiaries of Tenet South Florida. These are all for-profit hospitals. PGH is a 368-bed tertiary facility that opened in the early 1970s. It has 297 licensed acute care beds, 48 adult psychiatric beds, 52 ICU beds, and 15 Level II NICU beds. It is located at the Palmetto Expressway and Northwest 122nd Street in Hialeah, Florida. The hospital employs about 1,700 people and has over 600 physicians on its medical staff. PGH is a tertiary-level facility offering a variety of specialty services, including adult open heart surgery, a comprehensive stroke center, and robotic surgery. It has inpatient mental health beds and serves the community as a Baker Act receiving facility. It also offers OB and Level II NICU services with approximately 1,500 births a year. It has approximately 70,000 ED visits and between 17,000 and 18,000 inpatient admissions per year. In addition to its licensed inpatient beds, PGH operates 31 observation beds. PGH is ACGME accredited and serves a significant teaching function in the community. It has approximately 89 residents and fellows. The hospital provides fellowships in cardiology, critical care and interventional cardiology, and also has rotations in neurology and gastroenterology. Residents from Larkin General Hospital also rotate through PGH. PGH generally serves the communities of Opa Locka, Hialeah, Miami Lakes, Hialeah Gardens, Doral, and Miami Springs. In reality, all of the hospitals in the county are competitors, but more direct competition comes from Palm Springs Hospital, Memorial in Miramar, Mount Sinai, Kendall, and even its sister hospital, Hialeah. Hialeah first opened in 1951 and is a 378-bed acute care facility. It has 356 acute care beds, 12 adult psychiatric beds, and 10 Level II NICU beds. The ED has 25 beds and about 40,000 visits per year. It has approximately 14,000 inpatient admissions and 1,400 babies delivered annually. It offers services including cardiac, stroke, robotic surgery, colorectal surgery, and OB services. The hospital has a Level II NICU with 12 beds. CGH is located in the City of Coral Gables and is near the border between Coral Gables and the City of Miami on Douglas Road. It first opened in 1926. Portions of the original structure are still in use. CGH has 245 licensed beds, over 725 employees, 367 physicians, and over 100 additional allied providers on its medical staff. The hospital has a full-service ED. Its service lines include general surgery, geriatrics, urology, treatment of cardiovascular and pulmonary disease, and others. The hospital has eight operating rooms and offers robotic surgery. The ED has 28 beds divided into the main area and a geriatric emergency room. It had about 25,000 ED visits last year, which is lower than prior years, due in part to the presence of over a dozen nearby urgent care centers. CGH has over 8,500 inpatient admissions per year and is not at capacity. While patient days have grown slightly, the average occupancy is still just a little over 40%, meaning, on average, it has over 140 empty inpatient beds on any given day. The hospital is licensed for 245 beds, but typically there are only 180 beds immediately available for use. Agency for Healthcare Administration (AHCA) AHCA is the state health-planning agency charged with administration of the CON program as set forth in sections 408.31-408.0455, Florida Statutes. The Proposals Doral Medical Center (DMC) DMC proposes to build an 80-bed community hospital situated within the residential district of Doral. The hospital will be located in southwestern Doral in zip code 33126 and will serve the growing population of Doral, along with residential areas to the north and south of Doral. The hospital will be located in the City of Doral’s residential district on Northwest 41st Street between Northwest 109th Avenue to the east, and Northwest 112th Avenue to the west. Doral has seen significant growth in the past 15 years and has been consistently included on the list of the fastest growing cities in Florida. The new facility will have a bed complement of 80 licensed acute care beds, including 72 medical/surgical and eight OB beds. The proposed acute care hospital will be fully accredited by the Joint Commission for the Accreditation of Healthcare Facilities and licensed by the State of Florida. No public funds will be utilized in construction of the hospital and it will contribute to the state, county, and municipal tax base as a proprietary corporation. DMC will offer a full range of non-tertiary services, including emergency services, imaging, surgery, intensive care, cardiac catheterization, and women's services, including an OB unit, and pediatric care. DMC will be a general medical facility that will include a general medical component and a surgery component. Although DMC will operate an OB unit, NICU services will not be offered at DMC. If DMC’s patients need more advanced services, including NICU, the EFD hopes they will receive them from KRMC. The open medical staff will be largely community-based, but University of Miami physicians would be welcome at DMC. Before the hospital is built, KRMC will construct and operate a freestanding emergency department (FSED) at the location that will eventually become the ED of DMC. Construction of the FSED is now underway, and Brandon Haushalter, chief executive officer (CEO) of KRMC, estimated that it will open in March or April of 2019. Jackson West JHS proposes to build a community hospital to be known as “Jackson West” near the eastern edge of Doral. The proposed 100-bed general acute care hospital would have medical surgical and obstetrical beds and offer basic acute care services. JHS is a public health system owned by Miami-Dade County. All of JHS’s assets, as well as its debts, belong to the county. JHS is a not-for-profit entity, and therefore does not pay taxes, though it receives hundreds of millions of dollars from property taxes and sales taxes in Miami-Dade County. JHS’s main campus is a large health campus located near the Midtown Miami area in between Allapattah (to the north) and Little Havana (to the south). In addition to JMH, the campus includes Holtz Children’s Hospital, a behavioral health hospital, an inpatient rehabilitation hospital, and several specialty clinics. Bascom-Palmer Eye Institute, a Veterans Administration hospital, and University of Miami Hospital are also located adjacent to Jackson West’s main campus. JMH is a 1,500-bed hospital with a wide array of programs and services, including tertiary and quaternary care, and a Level I trauma program, the Ryder Trauma Center. JMH receives patients from throughout Miami-Dade County, elsewhere in Florida, and internationally. JMH is a teaching hospital and has a large number of residents, as well as professors from the University of Miami, on staff. UM and JMH have had a relationship for many years, and in addition to research and teaching, UM provides physician staffing to JMH. JN is a 342-bed community hospital located in between Miami Gardens and North Miami Beach, just off of I-95 and the Turnpike. JS is a 252-bed community hospital located in the Palmetto Bay area just south of Kendall. It has stroke certification and interventional cardiology, and was recently approved for a trauma program, which began in May 2016. Both JN and JS were existing hospitals that were acquired by JHS. JHS has never built a hospital from the ground up. In 2014, JHS leadership directed its internal planning team to review the healthcare needs of county residents. JHS’s analysis identified a need for outpatient services in western Miami-Dade, the only remaining quadrant of the county in which JHS did not have a hospital or healthcare program at the time. As part of its due diligence, JHS then consulted healthcare firm Kurt Salmon & Associates (KSA) to independently evaluate the data. KSA’s investigation validated a need in the west county for adult and pediatric outpatient services, including need for an FSED. This prompted JHS to explore opportunities for expansion of outpatient services where needed: in the western corridor of Miami-Dade. This was also the genesis of JHS’s long-range plan to first build an FSED in the Doral area, to be followed ultimately by the addition of a general acute care hospital at the site. The JW site is a 27-acre parcel of land located just west of the Palmetto Expressway and north of 25th Street. The site is in an industrial area only a short distance from the western end of the runways at Miami International Airport. The site is located in zip code 33122, which is very sparsely populated. JW proposed a primary service area (PSA) consisting of zip codes 33126, 33144, 33166, 33172/33122, 33174, 33178, and 33182, and a secondary service area (SSA) of zip codes 33155, 33165, 33175, and 33184. JW intends to serve general, acute care non-tertiary patients and OB patients. Detailed below, trends in the JW service area do not demonstrate need for its proposed hospital. The location of the JW site will not contribute to the viability of the proposed hospital. According to 2010 census data, only 328 people live within a one-mile radius of the JW site. Since 2000, only 32 total people have moved into that same area around the JW site--an average of three per year. There are virtually no residences within a one-mile radius of the JW site. From 2000 to 2010, the population within a two- mile radius of the JW site decreased by a rate of 9.4%. The JW health planner projects JW’s home zip code of 33122 will have a total population of only eight (8) people in 2022. From 2012 to 2014, the use rate in the JW service area for non-tertiary patients decreased by 3.9%. That decline continued at a steeper pace of 4.2% from 2014 to 2017. This was largely due to the 65+ age cohort, the demographic of patients that utilize inpatient services the most. The 65+ age cohort is growing at a slower pace in the JW service area than in Miami- Dade or Florida as a whole. Non-tertiary discharges in the JW service area are declining at a greater pace than that of Miami- Dade County--negative 4.2% compared to negative 1.9%. The rate of projected population growth in the JW PSA is decreasing. The projected rate of growth for the JW service area is lower than that of Miami-Dade County and Florida as a whole. The OB patient base JW intends to rely on is projected to remain flat. The inpatient discharges for all ages in the JW service area have declined from 2014 to 2017. For ages 0-17, discharges in the JW service area declined 21.4% during that time period. The discharges for ages 18-44 declined by 4.8%, and the discharges for ages 45-64 declined by 8.9%. The discharges for the important 65+ age cohort declined by 0.1%. Specifically, the discharges for ages 65-74 declined by 6.5%, and the discharges for ages 75-84 declined by 3.3%. The discharges for ages 85+ are the only age cohort that has not declined from 2012 to 2017. Overall, the non-tertiary discharges per 1,000 population (i.e., use rate) for all ages in the JW service area declined from 2012 to 2014 by 6%, and from 2014 to 2017 by 7.8%. Despite these declines in discharges in the JW service area, the health planners who crafted the JW projections used a constant use rate for the 0-17, 18-44, and 45-64 age cohorts. The JW health planners used a declining use rate for the 65+ age cohort. These use rates were applied uniformly across all zip codes, despite wide variance in actual use rates in each zip code. Applying the zip code specific use rates in conjunction with the other assumptions used by the JW health planner demonstrates that the JW projections are unreasonable. For instance, JW’s reliance on a uniform use rate over-projects the number of discharges in JW PSA zip code 33178 by nearly 1,000 patients. This occurs because the population is only growing at a 2% rate in the zip code, but JW’s reliance on service area-wide projections cause the discharges to grow at an extraordinary rate of 8.9% per year. Applying actual use rates across all zip codes causes a drastic change in the JW PSA and SSA definition. Section 408.037(2) requires a CON applicant to identify its PSA and SSA by listing zip codes in which it will receive discharges in descending order, beginning with the zip code with the highest amount of discharges, then proceeding in diminishing order to the zip code with the lowest amount of discharges. The zip codes, which comprise 75% of discharges, constitute the PSA; and the remaining zip codes, which consist of the remaining 25% of discharges, makes up the SSA. However, JW did not project its utilization in this manner. In its application, JW did not define its service area, PSA, and SSA zip codes in descending order by number or percentage of discharges. When this correct adjustment is made, its PSA consists of zip codes 33126, 33172, 33178, 33174, 33144, and 33165; and its SSA consists of zip codes 33175, 33166, 33155, 33182, and 33184. Zip codes 33166 and 33182 were in the original JW PSA, and zip code 33165 was in the original JW SSA. As such, JW’s home zip code should actually be in its SSA. JW health planners call this illogical, but it demonstrates that the JW site is located within a zip code that has almost no population of potential patients. JHS is developing an FSED and outpatient/ambulatory facilities on the JW site regardless of whether its CON application for a hospital is approved. Construction has begun on the JW site, and JHS is actually building a “shelled in” structure intended to house a future hospital, notwithstanding lack of CON approval for the hospital. There is no contingency plan for use of the shelled-in hospital space if CON approval is not obtained. JHS executives unequivocally stated that they intend to continue pursuing CON approval for the JW hospital, even if the proposed DMC hospital is approved. Indeed, JHS has filed third and fourth CON applications for its proposed JW hospital. The budget for the JW campus is $252 million. Sixty to $70 million is being funded from a bond issuance approved by voters in Miami-Dade County. Notably, the bond referendum approved by voters made no mention of a new hospital. The remaining $180 to $190 million is being funded by JHS, which has chosen to only keep 50 days cash-on-hand, and put any surplus toward capital projects. This is well below the number of days cash-on-hand ws advisable for a system like JHS. The specific programs and services to be offered at JW have not been finalized, but it is clear that JW will be a small community hospital that will not offer anything unique or different from any of the existing hospitals in the area, nor will it operate NICU beds. Patients presenting to JW in need of specialized or tertiary services will need to be transferred to another hospital with the capability of serving them, most likely JMH. The Applicants’ Arguments Doral Medical Center (DMC) DMC’s arguments in support of its proposed hospital may be summarized as follows: Geographic features surrounding Doral create transportation access barriers for the residents of the area; Doral is a densely-populated community that is growing quickly and lacks a readily accessible hospital; KRMC, which is the provider of choice for Doral residents, is a growing tertiary facility that cannot sufficiently expand to meet its future demands. DMC will serve much of the same patient population currently served by KRMC and help decompress KRMC’s acute care load so KRMC can focus on its tertiary service lines; From a geographic standpoint, the Doral community and its patients are isolated from much of Miami-Dade County to the north, west, and east, and the nearest hospitals. East Florida-DMC is a subsidiary of HCA and would be a part of the HCA EFD. Michael Joseph is the president of the EFD, which includes 15 hospitals and other facilities from Miami north through the Treasure Coast. Mr. Joseph authorized the filing of the DMC CON application, which proposes an 80-bed basic acute care hospital that includes 72 medical surgical and eight OB beds. As noted, there will be neither unique services at DMC nor any tertiary services, such as a NICU. HCA anticipates that DMC patients needing tertiary services would be referred and treated at KRMC. The proposed hospital would be built on 41st Street, between Northwest 109th Avenue and Northwest 112th Avenue. This site is located on the western edge of Doral, just east of the Everglades. When the consultants were retained to write the first DMC CON application, HCA had already made the decision to go forward with the project. Mr. Joseph described Miami-Dade County as one of the most competitive markets in the country for hospital services. There is robust competition in the Miami-Dade market from the standpoints of payors, physicians, and the many hospitals located in the county, including Jackson, HCA, Tenet, Baptist and others. HCA is not proposing this project because any of the existing hospitals in the area do not provide good quality care. HCA is currently building an FSED on the DMC site that will open regardless of whether the DMC hospital is approved. Mr. Joseph acknowledged that there is a trend toward outpatient rather than inpatient care. Inpatient occupancy of acute care hospitals in Miami-Dade County has been declining in recent years. Managed care has added further pressure on reducing inpatient admissions. Surgical advances have also resulted in fewer inpatient admissions. Surgeries that formerly required an inpatient stay are now often done on an outpatient basis. Mr. Joseph agreed that 30 minutes is a reasonable travel time to access an acute care hospital. The home zip code for the proposed DMC hospital is 33178. KRMC’s market share for that zip code is 20%. Individuals in that zip code are currently accessing a wide variety of hospitals. PGH is only 6.7 miles away and has the fourth highest market share in that zip code. HCA’s healthcare planning expert, Dan Sullivan, acknowledged that, if approved, DMC would likely have an adverse financial impact on KRMC and other area hospitals. Several witnesses testified that the travel time from the DMC site to KRMC is about 10 minutes, and that an ambulance could do it in as little as five minutes. As to the argument that the residents of Doral face geographic access barriers, the evidence did not indicate that there is anything unique about Doral from a traffic standpoint compared to other parts of Miami-Dade County. People come in and out of Doral on a daily basis in significant numbers for work and other reasons via various access points. Witnesses agreed that 25 to 30 minutes is a reasonable drive time for non-tertiary acute care services, and the evidence showed that residents of Doral, and the DMC service area, are well within 30 minutes of multiple hospitals providing more intensive services than are proposed by DMC. Indeed, many residents of DMC’s service area are closer to other hospitals than to the DMC site. None of the DMC witnesses were able to identify any patient in Doral who had been unable to access acute care services, or had suffered a bad outcome because of travel from Doral to an area hospital. The evidence did not establish that there currently exists either geographic or financial access barriers within the service area proposed to be served by DMC. Jackson West As in its Batch One application, JW advances six arguments as to why its proposed hospital should be approved. They are: It will serve a significant amount of indigent and Medicaid patients. JHS already serves residents of the proposed service area, which JW characterizes as “fragmented,” in that residents go to a number of different hospitals to receive services. Development of the freestanding ED and ambulatory center is under way. JW would provide an additional opportunity to partner with UM and FIU. There is physician and community support for the project. JW will add to the financial viability of JHS and its ability to continue its mission. JW presented very little analysis of the types of factors typically considered in evaluating need for a new hospital. JW did not discuss existing providers and their programs and services, the utilization of existing hospitals, and whether they have excess capacity, or other important considerations. Instead, JW advanced the six arguments noted above, for approval of its proposed hospital, none of which truly relate to the issue of need. First, JW states that its proposed hospital will serve a significant level of Medicaid and indigent patients. While it is true that JHS serves a significant amount of Medicaid and indigent patients, there are a number of reasons why this is not a basis to approve its proposed hospital. As an initial matter, JW treads a fine line in touting its service to Medicaid and indigent patients, while also targeting Doral for its better payer mix and financial benefit to JHS. JHS also receives an enormous amount of tax dollars to provide care to indigent and underserved patients. While other hospitals in Miami-Dade County provide care to such patients, they do not receive taxpayer dollars, as does JHS, although they pay taxes, unlike JHS. Also, Medicaid is a good payer for JHS. With its substantial supplement, JHS actually makes money from Medicaid patients, and it costs the system more for a Medicaid patient to be treated at a JHS hospital than elsewhere. More significantly, there is not a large Medicaid or indigent population in Doral, nor evidence of financial access issues in Doral. Second, JW argues that its CON application should be approved because JHS already serves patients from the Doral area, which JW characterizes as “fragmented” because area residents go to several different hospitals for care. This so- called “fragmentation” is not unique to Doral, and is not unusual in a densely-populated urban market with several existing hospitals. The same phenomenon occurs in other areas of Miami-Dade County, some of which actually have a hospital in the localized area. The fact that Doral residents are accessing several different hospitals demonstrates that there are a number of existing providers that are accessible to them. As discussed in greater detail below, residents of the Doral area have choices in every direction (other than to the west, which is the Everglades). JHS itself already serves patients from the Doral area. If anything, this tells us that patients from Doral currently have access to the JHS hospitals. Third, JW argues that its CON application should be approved because development of the JW campus is under way. This is irrelevant to the determination of need, and is simply a statement of JHS’s intent to build an FSED and outpatient facilities on a piece of land that was acquired for that purpose, regardless of CON approval. Fourth, JW argues for approval of its proposed hospital because it would provide an additional opportunity to partner with UM and Florida International University (FIU). However, the statutory criteria no longer addresses research and teaching concerns, and JHS’s relationship with UM or FIU has no bearing on whether there is a need for a new hospital in the Doral area. Moreover, JW did not present any evidence of how it would partner with UM or FIU at JW, and there does not seem to be any set plans in this regard. Fifth, JW claims that there is physician and community support for its proposed hospital, but it is very common for CON applicants to obtain letters in support for applications. Indeed, the DMC application was also accompanied by letters of support. Sixth and finally, JW argues that its proposed hospital will add to the financial viability of HSA and allow it to continue its mission. However, JW provided no analysis of the projected financial performance of its proposed hospital to substantiate this. The only financial analysis in the record is from KSA, a consulting firm that JHS hired to analyze the programs and services to be developed at JW. The KSA analysis posits that the JW FSED project will lose millions of dollars and not achieve break-even unless there is an inpatient hospital co-located there so that JW can take advantage of the more lucrative hospital-based billing and reimbursement. The sixth “need” argument relates to the issue of JHS’s historical financial struggles, which bear discussion. Only a handful of years ago, the entire JHS was in dire financial trouble, so much so that selling all or parts of it was considered. Days cash-on-hand was in the single digits, and JHS fell out of compliance with bond covenants. JHS’s financial difficulties prompted the appointment of an outside monitor to oversee JHS’s finances. Price Waterhouse served in that role, and made several recommendations for JHS to improve its revenue cycle, make accounting adjustments, and improve its staffing and efficiency. As a result of these recommendations, JHS went through a large reduction in force, and began to more closely screen the income and residency of its patients. As a result of these measures, overall financial performance has since improved. Despite its improved financial position, JHS still consistently loses money on operations, including a $362,000,915 loss as of June 30, 2018. JHS clearly depends upon the hundreds of millions of non-operating tax-based revenues it receives annually. JHS’s CEO expressed concerns over decreases in the system’s non-operating revenue sources, and claimed that JHS needs to find ways to increase its operating revenue to offset this. JW is being proposed as part of this strategy. However, JHS’s chief financial officer testified that “the non-operating revenues are a fairly stable source of income.” In fact, JHS’s tax revenues have gone up in the last few years. JHS sees the more affluent Doral area as a source of better paying patients that will enhance the profitability of its new hospital. Beyond this aspiration however, there is no meaningful analysis of the anticipated financial performance of its proposed hospital. This is a glaring omission given that a significant impetus for spending millions of public dollars on a new hospital is to improve JHS’s overall financial position. The KSA analysis referenced above determined that changes to the Hospital Outpatient Prospective Payment System rule would result in the JW campus losing hundreds of millions of dollars and never reaching “break even,” absent an inpatient hospital on the campus for “hospital based” billing and reimbursement. Though a financial benefit to the system, the increased reimbursement JHS would receive by having an inpatient hospital on the JW campus would be a financial burden on the healthcare delivery system since it would cost more for the same patient to receive the same outpatient services in a hospital- based facility. Reports by KSA also state that a strategic purpose of JW is to attract patients that would otherwise go to nearby facilities like PGH and Hialeah, and to capture tertiary or higher complexity cases which would then be sent to JMH. JW’s witnesses and healthcare planning experts fully expect this to happen. In 2015, and again in 2017, JHS conducted a “Community Health Needs Assessment,” which is required by law to be performed by public safety net hospitals. The assessments were conducted by gathering responses to various questions from a wide array of community leaders and stakeholders, including the CEOs of JHS’s hospitals, about the healthcare needs of the community. The final Community Health Needs Assessment documents are lengthy and cover a variety of health-related topics, but most notable for this case is that: (1) nowhere in either the 2015 or 2017 assessment is the development of a new hospital recommended; and (2) expansion into western Miami-Dade County scored by far the lowest on a list of priorities for JHS. In its application and at hearing, JW took the position that JW can enter the Doral area market without impacting existing providers to any meaningful extent. While JW acknowledges that its proposed hospital would impact the Tenet Hospitals, it argues that the impact is not significant. The evidence established that the financial impact to the Tenet Hospitals (calculated based upon lost contribution margin) would total roughly $3 million for lost inpatients, and $5.2 million including lost outpatients. While these losses will not put the Tenet Hospitals in financial peril, they are nonetheless significant and material. The Existing Healthcare Delivery System Miami-Dade County is home to 18 freestanding acute care hospitals, comprising a total of 7,585 licensed and approved acute care beds. With an average annual occupancy of 53.8% in calendar year 2017, there were, on average, approximately 3,500 unoccupied acute care beds in the county on any given day. While the countywide occupancy rate fluctuates from year to year, it has been on a downward trend in the past several years. As pointed out by several witnesses, the lack of a hospital in Doral is not itself an indication of need. In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. The population of Doral currently is only about 59,000 people. It is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. As set forth in JW’s CON application, the better payer mix in Doral was a significant factor behind its decision to file its CON application. Although there is not a hospital within the Doral city limits, there are a number of healthcare providers in Doral and several hospitals nearby. PGH and Palm Springs Hospital are just north of Doral. KRMC is just south of Doral. Hialeah is northeast of Doral. CGH, Westchester General, and NCH are southeast of Doral. JMH and all of its facilities are east of Doral. And there are others within reasonable distance. KRMC is only six miles due south of the proposed DMC site, and PGH is just eight miles north of the DMC site. As to the JW site, PGH is 6.9 miles distant, CGH is 8.6 miles distant, and Hialeah is 7.4 miles distant. Residents of the Doral area have many choices in hospitals with a wide array of services, and they are accessing them. The parties to this case, as well as other existing hospitals, all have a share of the Doral area market. JW calls this “fragmentation” of the market and casts it in a negative light, but the evidence showed this to be a normal phenomenon in an urban area like Miami, with several hospitals in healthy competition with each other. Among the experts testifying at the hearing, it was undisputed that inpatient acute care hospital use rates are on the decline. There are different reasons for this, but it was uniformly recognized that decreasing use rates for inpatient services, and a shift toward outpatient services, are ongoing trends in the market. Recognizing the need for outpatient services in the Doral area, both JW and DMC (or, more accurately, their related entities) have proposed outpatient facilities and services to be located in Doral. Kendall Regional Medical Center KRMC is currently the dominant hospital provider in the Doral area. Regarding his motivation for filing the DMC application, Mr. Joseph readily admitted “it’s as much about protecting what I already currently provide, number one.” KRMC treats Medicaid and indigent patients. KRMC has never turned away a patient because it did not have a contract with a Medicaid-managed care company. The CEO agreed that there is no access problem for Medicaid or charity patients justifying a new hospital. It was argued that KRMC is crowded, and the DMC hospital would help “decompress” KRMC, but the evidence showed that KRMC has a number of licensed beds that are not being used for inpatients. In addition, its ED has never gone on diversion, and no patient has ever been turned away due to the lack of a bed. Moreover, the census at KRMC has been declining. It had 25,324 inpatient admissions in 2015, 24,649 admissions in 2016, and 23,301 in 2017. The most recent data available at the time of hearing reflected that KRMC has been running at a little less than 75% occupancy, before its planned bed additions. KRMC is between an eight to 10 minute drive from Doral, and currently has the largest market share within the applicants’ defined service areas. KRMC is readily available and accessible to the residents of Doral. KRMC currently has a $90 million dollar expansion project under way. It involves adding beds and two new floors to the West Tower--a new fifth floor which will add 24 ICU beds and 24 step-down beds, and a new sixth floor which will house the relocated pediatric unit and 12 new medical-surgical beds. KRMC is also adding a new nine-story, 765 parking space garage and other ancillary space. This expansion will reduce the occupancy rate of KRMC’s inpatient units, and in particular its ICUs. These bed additions, in conjunction with increasing emphasis on outpatient services and the resultant declining inpatient admissions, will alleviate any historical capacity constraints KRMC may have had. There are also a number of ways KRMC could be further expanded in the future if needed. The West Tower is designed so it could accommodate a seventh floor, and the East Tower is also designed so that an additional floor could also be added to it. In addition, KRMC recently completed construction of a new OR area that is built on pillars. The new construction includes a third floor of shelled-in space that could house an additional 12 acute care beds. Moreover, this new OR tower was designed to go up an additional two to three floors beyond the existing shelled-in third floor. It is clear that KRMC has implemented reasonable strategies for addressing any bed capacity issues it may have experienced in the past. Decompression of KRMC is not a reason to approve DMC. Palmetto General Hospital Evidence regarding PGH was provided by its CEO Ana Mederos. Ms. Mederos is a registered nurse and has lived in Miami-Dade County for many years. She has a master of business education from Nova University and has worked in several different hospitals in the county. Specifically, she was the chief operating officer (COO) at Cedars Medical Center, the CEO at North Shore Medical Center, the CEO at Hialeah Hospital, and has been the CEO at PGH since August of 2006. Ms. Mederos is one of the few witnesses that actually lives in Doral. She travels in and out of the area on a daily basis. Her average commute is only about 15 minutes, and she has multiple convenient options in and out of Doral. PGH is located just off the Palmetto Expressway at 68th Street. It opened in the early 1970s and has 368 licensed beds, including 52 ICU beds. The hospital employs about 1,800 people and has over 600 physicians on its medical staff. PGH’s occupancy has declined from 79.8% in 2015 to 64% in 2016, and even further to 56.7% in 2017. There are many reasons for this decline, including pressure from managed care organizations, the continued increase in the use of outpatient procedures, improvements in technology, and increased competition in the Miami-Dade County market. Ms. Mederos expects that inpatient demand will continue to decline into the foreseeable future. PGH recently activated 31 observation beds to help improve throughput and better accommodate the increasing number of observation patients. PGH offers high-quality care and uses various metrics and indicators to measure and monitor what is going on in the hospital. The hospital has also been recognized with numerous awards. Through its parent, Tenet, PGH has contracts with just about every insurance and managed care company that serves the community. The hospital treats Medicaid and indigent patients. PGH’s Medicaid rate of $3,580 per patient is significantly lower than the rate paid to JMH. PGH has an office dedicated to helping patients get qualified for Medicaid or other financial resources, which not only helps the hospital get paid for its services, it also assists patients and families to make sure that they have benefits on an ongoing basis. Roughly 9-10% of PGH’s patients annually are completely unfunded. PGH only transfers patients if there is a need for a service not provided at the hospital, or upon the patient’s request. PGH does not transfer patients just because they cannot pay. PGH pays physicians to take calls in the ED which also obligates those physicians to provide care to patients that are seen at the hospital. PGH is a for-profit hospital that pays income taxes and property taxes, and does not receive any taxpayer subsidies like those received by JHS. Ms. Mederos reviewed the applications of JW and DMC, and articulated a number of reasons why, in her opinion, neither application should be approved. She sees no delays in providing care to anyone in the area, as there are hospitals serving Doral in every direction. There are a multitude of FSEDs available and additional FSEDs are being built in Doral by both applicants. There is another FSED being built close to PGH by Mount Sinai Medical Center. NCH has also opened an FSED that has negatively affected the volume of pediatric patients seen at PGH. There are also multiple urgent care centers. It was Ms. Mederos’ firm belief that persons living in Doral have reasonable geographic access to both inpatient and outpatient medical services. Ms. Mederos’ testimony in this regard is credited. There are no programs or services being proposed by either applicant that are not already available in the area. Ms. Mederos also noted that there is currently no problem with access to OB services in the area. However, she has a particular concern in that both applicants propose to offer OB services, but neither is proposing to offer NICU services. The evidence showed that most all of the hospitals that provide OB services to the Doral area offer at least Level II and some Level III NICU services. Thus, in terms of OB care, both proposed hospitals would be a step below what has developed as the standard of care for OB patients in the county. Ms. Mederos acknowledged that PGH does not have a huge market share in the zip codes that the applicants are proposing to serve, but that does not mean that the impact from either would not be real and significant. If a hospital is built by either applicant, it will need physicians, with some specialists in short supply. There are tremendous shortages in certain medical fields, such as orthopedics and neurology. In addition, there will be additional competition for nurses and other staff, which will increase the cost of healthcare. The loss of $1.3 to $2 million in contribution margin, as projected by Tenet’s healthcare planner, is a negative impact on PGH as hospital margins become thinner, and those numbers do not include costs like those needed to recruit and retain staff. PGH is again experiencing a nursing shortage, and losing nurses, incurring the higher cost for contract labor, paying overtime, and essentially not having the staff to provide the required services is a serious potential adverse impact from either proposed new hospital. JHS also tends to provide more lucrative benefits than PGH, and a nearby JW hospital is a threat in that regard. As a final note, Ms. Mederos stated that her conviction that there is no need for either proposed hospital in Doral is even more resolute than when she testified in the Batch One Case. With continued declines in admissions, length of stay and patient days, the development of more services for the residents of Doral, the shortages of doctors and nurses, the ever increasing role of managed care that depresses the demand for inpatient hospital services and other factors, she persuasively explained why no new hospitals are needed in the Doral area. Coral Gables Hospital (CGH) Maria Cristina Jimenez testified on behalf of CGH, where she has worked in a variety of different capacities since 1985. She was promoted to CEO in March 2017. She has lived in Miami her entire life. Ms. Jimenez has been involved in initiatives to make her hospital more efficient. She is supportive of efforts to reduce inpatient hospitalizations and length of stay, as this is what is best for patients. Overall, the hospital length of stay is dropping, which adds to the decreasing demand for inpatient services. CGH is accredited by the Joint Commission, has received multiple awards, and provides high-quality care to its patients. It also has contracts with a broad array of managed care companies as do the other Tenet hospitals. CGH treats Medicaid patients, and its total Medicaid rate is less than $3,500 per inpatient. The hospital has a program similar to PGH to help patients get qualified for Medicaid and other resources. CGH also provides services to indigent patients, and self-pay/charity is about 6% of the hospital’s total admissions. The hospital does not transfer patients just because they are indigent. Physicians are compensated to provide care in the emergency room and are expected to continue with that care if the patients are admitted to the hospital, even if they do not have financial resources. CGH also pays income and property taxes, but does not receive any taxpayer support. CGH generally serves the Little Havana, Flagami, Miami, and Coral Gables communities, and its service area overlaps with those of the applicants. In order to better serve its patients and to help it compete in the highly competitive Miami-Dade County marketplace, CGH is developing a freestanding ED at the corner of Bird Road and Southwest 87th Avenue, which is scheduled to open in January 2020. This will provide another resource for patients in the proposed service areas. Ms. Jimenez had reviewed the CON applications at issue in this case. She does not believe that either hospital should be approved because it will drain resources from CGH, not only from a financial standpoint, but also physician and nurse staffing. CGH experiences physician shortages. Urologists are in short supply, as are gastrointestinal physicians that perform certain procedures. Hematology, oncology, and endocrinology are also specialty areas with shortages. The addition of another hospital will exacerbate those shortages at CGH. While CGH does not have a large market share in the proposed PSA of either applicant, anticipated impact from approval of either is real and substantial. A contribution margin loss of $1.2 to $2.2 million per year, as projected by Tenet’s healthcare planner, would be significant. The drain on resources, including staff and physicians, is also of significant concern. Hialeah Hospital Dr. Jorge Perez testified on behalf of Hialeah. Dr. Perez is a pathologist and medical director of laboratory at the hospital. More significantly, Dr. Perez has been on the hospital’s staff since 2001 and has served in multiple leadership roles, including chair of the Performance Improvement Council, chief of staff; and since 2015, chair of the Hialeah Hospital Governing Board. Hialeah offers obstetrics services and a Level II NICU with 12 beds. Approximately 1,400 babies a year are born there. Hialeah’s occupancy has been essentially flat for the past three years, at below 40%, and it clearly has ample excess capacity. On an average day, over 200 of Hialeah’s beds are unoccupied. Like other hospitals in the county, Hialeah has a number of competitors. The growth of managed care has affected the demand for inpatient beds and services at Hialeah. Hialeah treats Medicaid and indigent patients. Approximately 15% of Hialeah’s admissions are unfunded. As with its sister Tenet hospitals, Hialeah is a for- profit hospital that pays taxes and does not receive tax dollars for providing care to the indigent. Dr. Perez succinctly and persuasively identified a variety of reasons why no new hospital is needed in Doral. First and foremost, there is plenty of capacity at the existing hospitals in the area, including Hialeah. Second, both inpatient admissions and length of stay continue trending downward. Care continues to shift toward outpatient services, thereby reducing the demand for inpatient care. According to Dr. Perez, if a new hospital is approved in Doral it will bring with it adverse impacts on existing hospitals, including Hialeah. A new hospital in Doral will attract patients, some of which would have otherwise gone to Hialeah. Moreover, Doral has more insured patients, meaning the patients that would be lost would be good payors. There would also be a significant risk of loss of staff to a new hospital. Dr. Perez’s testimony in this regard is credible. Statutory and Rule Review Criteria In 2008, the Florida Legislature streamlined the review criteria applicable for evaluating new hospital applications. Mem’l Healthcare Grp. v. AHCA, Case No. 12- 0429CON, RO at 32 (Fla. DOAH Dec. 7, 2012). The criteria specifically eliminated included quality of care, availability of resources, financial feasibility, and the costs and methods of proposed construction. Lee Mem’l Health System v. AHCA, Case No. 13-2508CON, RO at 135 (Fla. DOAH Mar. 28, 2014). The remaining criteria applicable to new hospital projects are set forth at section 408.035(1), Florida Statutes. Section 408.035(1)(a): The need for the healthcare facilities and health services being proposed. Generally, CON applicants are responsible for demonstrating need for new acute care hospitals, typically in the context of a numeric need methodology adopted by AHCA. However, AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. Florida Administrative Code Rule 59C-1.008(2)(e) provides that if no agency need methodology exists, the applicant is responsible for demonstrating need through a needs assessment methodology, which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Both applicants propose to build small community hospitals providing basic acute care and OB services in the Doral area of western Miami-Dade County. Both applicants point to the increasing population and the lack of an acute care hospital in Doral as evidence of need for a hospital. The DMC application focuses largely on geographic access concerns, while the JW application is premised upon six arguments as to why JHS contends its proposed JW hospital should be approved. The lack of a hospital in Doral is not itself an indication of need.3/ In addition, population growth, and the demands of the population for inpatient hospital beds, cannot be considered in a vacuum. Sound healthcare planning requires an analysis of existing area hospitals, including the services they offer and their respective locations; how area residents travel to existing hospitals, and any barriers to access; the utilization of existing hospitals and amount of capacity they have; and other factors which may be relevant in a given case. Doral is in the west/northwest part of Miami-Dade County, in between the Miami International Airport (to the east) and the Everglades (to the west). It is surrounded by major roadways, with US Highway 27/Okeechobee Road running diagonally to the north, US Highway 836/Dolphin Expressway running along its southern edge, US Highway 826/Palmetto Expressway running north-south to the east, and the Florida Turnpike running north- south along the western edge of Doral. To the west of the Turnpike is the Everglades, where there is minimal population and very limited development possible in the future. The City of Doral itself has an area of about 15 square miles, and is only two or three times the size of the Miami International Airport, which sits just east of Doral. Much of Doral is commercial and industrial, with the largest concentration of residential areas being in the northwest part of the city. While there is unquestionably residential growth in Doral, the population of Doral is currently only about 59,000 people. Doral is not as densely populated as many areas of Miami-Dade County, has a number of golf course communities, and is generally a more affluent area with a higher average household income than much of Miami-Dade County. JW proposes to locate its hospital on the eastern side of Doral, just west of Miami International Airport, while the DMC site is on the western side of Doral, just east of the Everglades. JW’s site is located in an industrial area with few residents, while the DMC site is located in an area where future growth is likely to be limited. Both sites have downsides for development of a hospital, with both applicants spending considerable time at hearing pointing out the flaws of each other’s chosen location. Both applicants define their service areas to include the City of Doral, but also areas outside of Doral. Notably, the entire DMC service area is contained within KRMC’s existing service area, with the exception of one small area. While the population of Doral itself is only 59,000 people, there are more concentrated populations in areas outside of Doral (except to the west). However, the people in these areas are closer to existing hospitals like PGH, Hialeah, KRMC, and others. For the population inside Doral, there are several major roadways in and out of Doral, and area residents can access several existing hospitals with plenty of capacity within a 20-minute drive time, many closer than that. It was undisputed that inpatient acute care hospital use rates continue to decline. There are different reasons for this, but it was uniformly recognized that decreasing inpatient use rates, and a shift toward outpatient services, are ongoing trends in the market. These trends existed at the time of the Batch One Case. As observed by Tenet’s healthcare planner at hearing: “The occupancy is lower today than it was two years ago, the use rates are lower, and the actual utilization is lower.” Both applicants failed to establish a compelling case of need. While there is growth in the Doral area, it remains a relatively small population, and there was no evidence of community needs being unmet. Sound healthcare planning, and the statutory criteria, require consideration of existing hospitals, their availability, accessibility, and extent of utilization. These considerations weigh heavily against approval of either CON application, even more so than in the prior case. Section 408.035(1)(b): The availability, accessibility, and extent of utilization of existing healthcare facilities and health services in the service district of the applicant; and Section 408.035(1)(e): The extent to which the proposed services will enhance access to healthcare for residents of the service district. As stated above, there are several existing hospitals in close proximity to Doral. Thus, the question is whether they are accessible and have capacity to serve the needs of patients from the Doral area. The evidence overwhelmingly answers these questions in the affirmative. Geographic access was a focal point of the DMC application, which argued that there are various barriers to access in and around Doral, such as a canal that runs parallel to US Highway 27/Okeechobee Road, train tracks and a rail yard, industrial plants, and the airport. While the presence of these things is undeniable, as is the fact that there is traffic in Miami, based upon the evidence presented, they do not present the barriers that DMC alleges. Rather, the evidence was undisputed that numerous hospitals are accessible within 20 minutes of the proposed hospital sites, and some within 10 to 15 minutes. All of Doral is within 30 minutes of multiple hospitals. These are reasonable travel times and are not indicative of a geographic access problem, regardless of any alleged “barriers.” In addition, existing hospitals clearly have the capacity to serve the Doral community, and they are doing so. Without question, there is excess capacity in the Miami-Dade County market. With approximately 7,500 hospital beds in the county running at an average occupancy just over 50%, there are around 3,500 beds available at any given time. Focusing on the hospitals closest to Doral (those accessible within 20 minutes), there are hundreds of beds that are available and accessible from the proposed service areas of the applicants. KRMC is particularly noteworthy because of its proximity to, and market share in, the Doral area. The most recent utilization and occupancy data for KRMC indicate that it has, on average, 100 vacant beds. This is more than the entire 80-bed hospital proposed in the DMC application (for a service area that is already served and subsumed by KRMC). Moreover, KRMC is expanding, and will soon have even more capacity at its location less than a 10-minute drive from the DMC site. From a programmatic standpoint, neither applicant is proposing any programs or services that are not already available at numerous existing hospitals, and, in fact, both would offer fewer programs and services than other area hospitals. As such, patients in need of tertiary or specialized services will still have to travel to other hospitals like PGH, KRMC, or JMH. Alternatively, if they present to a small hospital in Doral in need of specialized services, they will then have to be transferred to an appropriate hospital that can treat them. The same would be true for babies born at either DMC or JW in need of a NICU. Similarly, there are bypass protocols for EMS to take cardiac, stroke, and trauma patients to the closest hospital equipped to treat them, even if it means bypassing other hospitals not so equipped, like JW and DMC. Less acute patients can be transported to the closest ED. And since both applicants are building FSEDs in Doral, there will be ample access to emergency services for residents of Doral. This criterion does not weigh in favor of approval of either hospital. To the contrary, the evidence overwhelmingly established that existing hospitals are available and accessible to Doral area residents. Section 408.035(1)(e), (g) and (i): The extent to which the proposed services will enhance access to healthcare, the extent to which the proposal will foster competition that promotes quality and cost-effectiveness, and the applicant’s past and proposed provision of healthcare services to Medicaid patients and the medically indigent. It goes without saying that any new hospital is going to enhance access to the people closest to its location; but as explained above, there is no evidence of an access problem, or any pressing need for enhanced access to acute care hospital services. Rather, the evidence showed that Doral area residents are within very reasonable travel times to existing hospitals, most of which have far more extensive programs and services than either applicant is proposing to offer. Indeed, the proposed DMC service area is contained within KRMC’s existing service area, and KRMC is only 10 minutes from the DMC site. Neither applicant would enhance access to tertiary or specialized services, and patients in need of those services will still have to travel to other hospitals, or worse, be transferred after presenting to a Doral hospital with more limited programs and services. Although it was not shown to be an issue, access to emergency services is going to be enhanced by the FSEDs being built by both applicants. Thus, to the extent that a new hospital would enhance access, it would be only for non-emergent patients in need of basic, non-tertiary level care. Existing hospitals are available and easily accessible to these patients. In addition, healthy competition exists between several existing providers serving the Doral area market. That healthy competition would be substantially eroded by approval of the DMC application, as HCA would likely capture a dominant share of the market. While approval of the JW application might not create a dominant market share for one provider, it would certainly not promote cost-effectiveness given the fact that it costs the system more for the same patient to receive services at a JHS hospital than other facilities. Indeed, approval of JW’s application would mean that the JW campus will have the more expensive hospital-based billing rates. Florida Medicaid diagnosis related group (DRG) payment comparisons among hospitals are relevant because both DMC and JW propose that at least 22% of their patients will be Medicaid patients. Data from the 2017-18 DRG calculator provided by the Medicaid program office was used to compare JHS to the three Tenet hospitals, KRMC, and Aventura Hospital, another EFD hospital in Miami-Dade County. The data shows that JHS receives the highest Medicaid rate enhancement per discharge for the same Medicaid patients ($2,820.06) among these six hospitals in the county. KRMC receives a modest enhancement of $147.27. Comparison of Medicaid Managed Care Reimbursement over the period of fiscal years 2014-2016 show that JHS receives substantially more Medicaid reimbursement per adjusted patient day than any of the hospitals in this proceeding, with the other hospitals receiving between one-third and one-half of JHS reimbursement. In contrast, among all of these hospitals, KRMC had the lowest rate for each of the three years covered by the data, which means KRMC (and by extension DMC) would cost the Medicaid program substantially less money for care of Medicaid patients. Under the new prospective payment system instituted by the State of Florida for Medicaid reimbursement of acute care hospital providers, for service between July 1, 2018, and March 31, 2019, JHS is the beneficiary of an automatic rate enhancement of more than $8 million. In contrast, KRMC’s rate enhancement is only between $16,000 and $17,000. Thus, it will cost the Medicaid program substantially more to treat a patient using the same services at JW than at DMC. Furthermore, rather than enhance the financial viability of the JHS system, the evidence indicates that the JW proposal will be a financial drain on the JHS system. Finally, JHS’s past and proposed provision of care to Medicaid and indigent patients is noteworthy, but not a reason to approve its proposed hospital. JW is proposing this hospital to penetrate a more affluent market, not an indigent or underserved area, and it proposes to provide Medicaid and indigent care at a level that is consistent with the existing hospitals. JHS also receives the highest Low Income Pool (LIP) payments per charity care of any system in the state, and is one of only a handful of hospital systems that made money after receipt of the LIP payments. HCA-affiliated hospitals, by comparison, incur the second greatest cost in the state for charity care taking LIP payments into consideration. Analysis of standardized net revenues per adjusted admission (NRAA) among Miami-Dade County acute care hospitals, a group of 16 hospitals, shows JHS to be either the second or the third highest hospital in terms of NRAA. KRMC, in contrast, part of the EFD/HCA hospitals, is about 3% below the average of the 16 hospitals for NRAA. DMC’s analysis of standardized NRAA using data from 2014, 2015, and 2016, among acute care hospitals receiving local government tax revenues, shows JHS receives more net revenue than any of the other hospitals in this grouping. Using data from FY 2014 to FY 2016, DMC compared hospital costs among the four existing providers that are parties to this proceeding and JMH as a representative of JHS. Standardizing for case mix, fiscal year end, and location, an analysis of costs per adjusted admission shows that the hospitals other than JMH have an average cost of between a half and a third of JMH’s average cost. The same type of analysis of costs among a peer group of eight statutory teaching hospitals shows JHS’s costs to be the highest. It should also be noted that if JW were to fail or experience significant losses from operations, the taxpayers of Miami-Dade County will be at risk. In contrast, if DMC were to fail financially, EFD/HCA will shoulder the losses. When the two applications are evaluated in the context of the above criteria, the greater weight of the evidence does not mitigate in favor of approval of either. However, should AHCA decide to approve one of the applicants in its final order, preference should be given to DMC because of its lower costs per admission for all categories of payors, and in particular, the lower cost to the Florida Medicaid Program. In addition, the risk of financial failure would fall upon EFD/HCA, rather than the taxpayers of Miami-Dade County. Rule 59C-1.008(2)(e): Need considerations. Many of the considerations enumerated in rule 59C- 1.008(2)(e) overlap with the statutory criteria, but there are certain notable trends and market conditions that warrant mention. Specifically, while the population of Doral is growing, it remains relatively small, and does not itself justify a new hospital. And while there are some more densely populated areas outside of the city of Doral, they are much closer to existing hospitals having robust services and excess capacity. Doral is a more affluent area, and there was no evidence of any financial or cultural access issues supporting approval of either CON application. The availability, utilization, and quality of existing hospitals are clearly not issues, as there are several existing hospitals with plenty of capacity accessible to Doral area residents. In terms of medical treatment trends, it was undisputed that use rates for inpatient hospital services continue trending downward, and that trend is expected to continue. Concomitantly, there is a marked shift toward outpatient services in Miami-Dade County and elsewhere. Finally, both applicants are proposing to provide OB services without a NICU, which is below the standard in the market. While not required for the provision of obstetrics, NICU backup is clearly the most desirable and best practice. For the foregoing reasons, the considerations in rule 59C-1.008(2)(e) do not weigh in favor of approval of either hospital.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Healthcare Administration enter a final order denying East Florida-DMC, Inc.’s CON Application No. 10432 and denying The Public Health Trust of Miami-Dade County, Florida, d/b/a Jackson Hospital West’s CON Application No. 10433. DONE AND ENTERED this 30th day of April, 2019, in Tallahassee, Leon County, Florida. S W. DAVID WATKINS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of April, 2019.
Conclusions THIS CAUSE comes before the State of Florida, Agency for Health Care Administration (“the Agency") concerning the preliminary approval of Certificate of Need (“CON”) Application No. 10199 submitted by Select Specialty Hospital-Daytona Beach, Inc., (“Select-Daytona”), to establish a 34-bed Long Term Acute Care Hospital (“LTCH”) in District 4. 1. The Agency preliminarily approved Application No. 10199 submitted by Select- Daytona to establish a 34-bed LTCH in District 4. 2. In response to the Agency’s decision, Kindred Hospitals East, LLC (“Kindred”) filed a petition for formal hearing, challenging the preliminary approval. The matter was referred to the Division of Administrative Hearings (“DOAH”) where it was assigned Case No. 14-0121CON for hearing. Select-Daytona filed a Motion to Intervene in the DOAH and the case was styled with Select-Daytona being treated as an intervenor. Filed March 17, 2014 2:04 PM Division of Administrative Hearings 3. Subsequently, Kindred filed a corrected notice of voluntary dismissal of its petition in the DOAH, which closed the case. It is therefore ORDERED: 4. The preliminary approval of CON No. 10199 is upheld and will be issued subject to the conditions noted in the State Agency Action Report. ORDERED in Tallahassee, Florida, on this IE day of far ch. Elizabeth Dudelj, Secretary Agency for Health Care Administration 2014,
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review, which shall be instituted by filing one copy of a notice of appeal with the Agency Clerk of AHCA, and a second copy, along with filing fee as prescribed by law, with the District Court of Appeal in the appellate district where the Agency maintains its headquarters or where a party resides. Review of proceedings shall be conducted in accordance with the Florida appellate rules, The Notice of Appeal must be filed within 30 days of rendition of the order to be reviewed. CERTIFICATE OF SERVICE I CERTIFY that a true and correct copy of this Final Order was served on the below- —_— named persons by the method designated on this SL ‘a day of LS ere 4 , 2014. Shoop, Agency Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308 (850) 412-3630 Facilities Intake Unit Agency for Health Care Administration (Electronic Mail) Lorraine M. Novak, Esquire Office of the General Counsel Agency for Health Care Administration (Electronic Mail) R. Bruce McKibben Administrative Law Judge Division of Administrative Hearings www.doah.state. fl.us M. Christopher Bryant, Esquire Oertel, Fernandez, Cole cbryant@ohfe.com amooney@ohfc.com (Electronic Mail) (Electronic Mail) Michael J. Glazer, Esquire James McLemore, Supervisor Ausley and McMullen Certificate of Need Unit mglazer@ausley.com Agency for Health Care Administration (Electronic Mail) (Electronic Mail)
