The Issue The issue is whether Petitioner’s application for a Certificate of Need to establish a new 84-bed acute care hospital in Viera should be approved.
Findings Of Fact Parties Holmes and the Health First System Holmes, the applicant for the CON at issue in this case, is a not-for-profit corporation that operates two acute care hospitals in Brevard County: Holmes Regional Medical Center (HRMC) in Melbourne and Palm Bay Community Hospital (PBCH) in Palm Bay. HRMC opened in 1962. It is a 514-bed acute care hospital, with 504 acute care beds and 10 Level II neonatal intensive care (NICU) beds. HRMC provides tertiary-level services, including adult open-heart surgery, and it is the designated trauma center for Brevard County. HRMC has been recognized as one of the top 100 cardiovascular hospitals in the country, and it has received other recognitions for the high quality of care that it provides. PBCH opened in 1992. It is a 60-bed acute care hospital. PBCH does not provide tertiary-level services, and it does not provide obstetrical (OB) services. Holmes’ parent company is Health First, Inc. (Health First), which is a not-for-profit corporation formed in 1995 upon the merger of Holmes and the organization that operated Cape Canaveral Hospital (Cape Hospital). Cape Hospital is a 150-bed not-for-profit acute care hospital in Cocoa Beach. The range of services that Cape Hospital provides is broader than range of services provided at PBCH, but not as broad as the range of services provided at HRMC. For example, Cape Hospital provides OB services, but it does not have any NICU beds. All of the Health First hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Health First provides a broad range of health care services in Brevard County in addition to the hospital services provided at HRMC, PBCH, and Cape Hospital. For example, it operates a hospice program, surgical center, outpatient facilities, and fitness centers. Health First also administers the Health First Health Plan (HFHP), which is the largest managed care plan in Brevard County. All of the Health First hospitals serve patients without regard to their ability to pay, and as more fully discussed in Part F(1)(g) below, Holmes provides a significant amount of care to Medicaid and charity patients at HRMC and PBCH. Holmes also provides health care services to the medically underserved through a program known as HOPE, which stands for Health, Outreach, Prevention, and Education. HOPE was established in the early 1990’s to provide free health care for at-risk children as well as free clinics (both fixed-site and mobile) for medically underserved patients throughout Brevard County. At the time of the final hearing, the free clinics operated by HOPE were being transitioned into a federally- qualified health center, the Brevard Health Alliance (BHA). After the transition, Holmes will no longer operate the clinics; however, Holmes is obligated to provide $1.3 million per year in funding to BHA and it will continue to provide services to at- risk children through the HOPE program. Health First administers a charitable foundation that raises money to support initiatives such as the cancer center at HRMC, the construction of a hospice house, and an Alzheimer’s support center. The foundation has raised approximately $7 million since its inception in October 2001. Wuesthoff Wuesthoff operates two not-for-profit acute care hospitals in Brevard County: Wuesthoff-Rockledge and Wuesthoff- Melbourne. Like Health First, Wuesthoff provides a broad range of health care services in Brevard County in addition to its acute care hospitals. The services include a nursing home, assisted living facility, clinical laboratory, hospice program, home health agency, diagnostic center, and fitness centers. Wuesthoff-Rockledge opened in 1941. It has 245 beds, including 218 acute care beds, 10 Level II NICU beds, and 17 adult inpatient psychiatric beds. Wuesthoff-Rockledge provides tertiary-level services, including adult open-heart surgery, and it is the only acute care hospital in Brevard County designated as a Baker Act receiving facility. Wuesthoff-Rockledge is in the process of adding 44 more beds, including a new 24-bed intensive care unit (ICU) that is projected to open in 2006 and 20 acute care beds. After those beds are added, Wuesthoff-Rockledge will have 289 beds. Currently, approximately 57 percent of Wuesthoff- Rockledge’s beds are in semi-private rooms and 43 percent of the beds are in private rooms. After the addition of the 44 new beds, the percentages will be 69 percent in semi-private rooms and 31 percent in private rooms. Wuesthoff-Melbourne opened in December 2002. It originally received CON approval for 50 beds in November 2000. Before it opened, it received CON approval for an additional 50 beds, which increased its licensed capacity to 100 beds. Wuesthoff-Melbourne opened with 65 beds, all of which are in private rooms. At the time of the hearing, Wuesthoff- Melbourne had that same number of beds and an occupancy rate of approximately 80 percent. In December 2004, Wuesthoff-Melbourne added an additional 50 beds. Wuesthoff was awaiting final licensure approval from the Agency for those beds at the time of the hearing. The approval will increase Wuesthoff-Melbourne’s licensed capacity to 115 beds, all of which are in private rooms. The additional 15 beds (beyond the 100 previously licensed) were added pursuant to the 2004 amendments to the CON law, which permit bed expansions at existing hospitals without CON approval. Wuesthoff-Melbourne was designed and engineered for approximately 200 beds, and it expects to have 134 beds in service in the near future. The space for the additional 19 beds (to expand from 115 to 134) has been shelled-in, and the bed expansion will likely be completed in late-2005 or early- 2006. All of those beds will be in private rooms. The expansion of Wuesthoff-Melbourne to 134 beds will occur notwithstanding the outcome of this proceeding, but the expansion of the facility to 200 beds depends in large part on the outcome of this proceeding. Wuesthoff-Melbourne provides all of the basic acute care services, including OB services. It does not provide tertiary-level services. The Wuesthoff hospitals are accredited by JCAHO. Wuesthoff has been recognized as one of the “100 Most Wired” hospitals by Hospitals & Health Networks magazine for the comprehensive information technology (IT) systems in place at its hospitals. The Wuesthoff hospitals serve all patients without regard to their ability to pay, and as discussed in Part F(1)(g) below, the Wuesthoff hospitals provide a significant amount of care to Medicaid and charity patients. Wuesthoff also provides health care services to the medically underserved through a free health clinic in Cocoa and a mobile unit that serves patients throughout Brevard County. Like Health First, Wuesthoff administers a charitable foundation that funds initiatives at the Wuesthoff hospitals and in the community. (3) Agency The Agency is the state agency that administers the CON program and is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Preliminary Agency Action Holmes filed a letter of intent and a CON application in the first batching cycle of 2004 for hospital beds and facilities. Holmes’ letter of intent and CON application were timely and properly filed. Holmes application, CON 9759, proposes the establishment of a new 84-bed acute care hospital in the Viera area of Brevard County. The proposed hospital will be known as Viera Medical Center (VMC). The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero new acute care beds in Subdistrict 7-1, which is Brevard County. There were no challenges to the published fixed need pool. The Agency comparatively reviewed Holmes’ application with the CON applications filed by Wuesthoff to add 34 beds at Wuesthoff-Melbourne (CON 9760) and to add 44 beds at Wuesthoff- Rockledge (CON 9761). On June 10, 2004, the Agency issued its State Agency Action Report (SAAR), which summarized the Agency’s findings and conclusions based upon its comparative review of the applications. The SAAR recommended denial of Holmes’ application and both of Wuesthoff's applications. After the Agency published notice of its intent to deny the applications in the Florida Administrative Weekly, Holmes timely petitioned the Agency for an administrative hearing on the denial of its application. Wuesthoff did not pursue an administrative hearing on the denial of its applications as a result of the 2004 amendments to the CON law, which became effective July 1, 2004. Under the new law, a CON is not needed to add acute care beds at an existing hospital and, as indicated above, the Wuesthoff hospitals are already in the process of adding the beds that they were seeking through CON 9760 and CON 9761. The Agency reaffirmed its opposition to Holmes’ application at the hearing through the testimony of Jeffrey Gregg, the Bureau Chief for the Agency’s CON program. Acute Care Subdistrict 7-1 / Brevard County The Agency uses a five-year planning horizon in determining the need for new acute care beds, and it calculates the inventory of acute care beds and considers CON applications for new acute care beds on a subdistrict basis. Brevard County is in Subdistrict 7-1. There are no other counties in the subdistrict. There are six existing acute care hospitals in Brevard County, all of which are not-for-profit hospitals: Parrish Medical Center (Parrish) in Titusville, Cape Hosptial, Wuesthoff-Rockledge, Wuesthoff-Melbourne, HRMC, and PBCH. Brevard County is a long, narrow county. It stretches approximately 70 miles north to south, but averages only 20 miles east to west. The county is bordered on the north by Volusia County, on the west by the St. Johns River and Osceola County, on the south by Indian River County, and on the east by the Atlantic Ocean. The major north-south arterial roads in the county are Interstate 95 (I-95) and U.S. Highway 1 (US 1). The Intracoastal Waterway also runs north and south through the eastern portion of the county. Other arterial roads in the south/central portion of the county are Murrell Road, Eau Gallie Boulevard and Wickham Road. Because of the county’s long and narrow geography, three recognized market areas for hospital services have developed in the county, i.e., northern, central, and southern. The northern area of the county, which includes the Titusville area, had approximately 63,000 residents in 2003. It is primarily served by one hospital: Parrish. The central area of the county, which includes the Rockledge and Cocoa areas, had approximately 163,000 residents in 2003. It is primarily served by two hospitals: Wuesthoff- Rockledge and Cape Hospital. The southern area of the county, which includes the Melbourne and Palm Bay areas, had approximately 276,000 residents in 2003. It is primarily served by three hospitals: HRMC, Wuesthoff-Melbourne, and Palm Bay. The Viera area, discussed below, overlaps the central and southern market areas and is primarily served by Wuesthoff- Rockledge, Wuesthoff-Melbourne, and HRMC. According to the data in Table 28 of the CON application, those hospitals together accounted for 90 percent of the patients from zip code 32940, which is the “main” Viera zip code. The evidence was not persuasive that the three market areas in Brevard County equate to “antitrust markets” from an economist’s standpoint, but it was clear that the hospitals and physicians in the county recognize the existence of the market areas. For example, there is very little overlap in the medical staffs of the hospitals in different market areas, but there is significant overlap in the medical staffs of the hospitals in the same market area, and the opening of Wuesthoff-Melbourne in south Brevard County impacted HRMC and PBCH, but had little impact on the hospitals in central Brevard County. Additionally, there is very little out-migration of patients from one area of the county to hospitals in another area. The data in Tables 18 and 19 of the CON application shows that in 2003, for example, 83.6 percent of south Brevard County adult medical/surgical patients were admitted to one of the three south Brevard County hospitals, and 79.5 percent adult medical/surgical patients in central Brevard County were admitted to one of the two hospitals in that area of the county. Viera Viera is an unincorporated area in south/central Brevard County that is being developed by The Viera Company (TVC). TVC is a for-profit land development company owned by A. Duda & Sons, Inc. (Duda). The Viera DRI Viera is being developed pursuant to a development of regional impact (DRI) development order that was first adopted by Brevard County in 1990. The original DRI included 3,000 acres east of I-95, which was developed primarily as residential subdivisions. In 1995, an additional 6,000 acres were added to the DRI west of I- 95, which is being developed as a mixed-use community. The portion of the DRI east of I-95 has effectively been built-out. The build-out date for the remainder of the DRI is 2020. The master plan for the DRI includes approximately 19,000 residential units, 3.7 million square feet (SF) of office space, 2.9 million SF of commercial space, a governmental center, six schools, parks, open space, and a 7,500-seat baseball stadium and practice facility used by the Florida Marlins. As of October 2004, over 5,800 homes and approximately 2 million SF of commercial and office space have been developed west of I-95 in addition to the governmental center, several schools, and the Florida Marlins’ facilities. There are approximately 12,000 acres of undeveloped, agricultural property adjacent to and to the west of the DRI that are owned by Duda and that, according to the chief operating officer of TVC, will likely be added to the DRI in the near future. The record does not reflect what type of uses will be developed on that property or when that development will begin. The DRI development order includes authorization for up to 470 hospital beds, with vested traffic concurrency for 150 beds. The master site plan for the DRI designates an area west of I-95 on the southwest corner of the Wickham Road/Lake Andrew Drive intersection as the “Proposed Viera Medical Park.” VMC is proposed for that location. The DRI development order provides all of the local government land use approvals, including traffic concurrency, that are necessary for VMC. TVC is developing Viera for and marketing it to retirees and younger persons, including families with children. The DRI includes age-restricted subdivisions, but it also includes amenities such as three elementary schools and a large regional park with ball fields and playgrounds. (2) Negotiations for a Hospital in Viera TVC has long wanted a hospital in Viera. Wuesthoff identified the Viera area as future growth area in the 1990’s and began establishing health care facilities in the area at that time. Wuesthoff has a diagnostic center, a lab facility, and a rehabilitation facility in the Suntree area, which is just to the east of the Viera DRI. Wuesthoff expressed interest in building a hospital in Viera in 1993 and, more recently, in 2003. In August 1993, Wuesthoff and TVC entered into an agreement that gave Wuesthoff a 10-year exclusive right to develop a hospital in Viera if certain conditions were met. However, Wuesthoff ultimately built Wuesthoff-Melborune in Melbourne (rather than in Viera), and the exclusivity provision in the August 1993 contract never went into effect. In July 2003, Wuesthoff sent a letter to TVC expressing its interest in obtaining an option to purchase 25 to acres within the Viera DRI to construct a hospital. In the letter, Wuesthoff stated that it would construct the hospital “within 10 years or when the population of Viera exceeds 40,000, whichever first occurs”; that the hospital would be “constructed similar to Wuesthoff Medical Center-Melbourne which currently encompasses 65 licensed beds in a 150,000 sq. ft. facility”; that it wanted the “sole right to build a hospital or hospital like facility in Viera . . . until 5 years after the opening of the hospital” and that it wanted TVC to “consider selling the desired land to Wuesthoff at a reduced price.” Wuesthoff’s July 2003 offer was not seriously considered by TVC because, by that time, TVC was in the process of finalizing its agreement for the sale of 50 acres to Health First for VMC. Additionally, the Health First agreement was more appealing to TVC because Health First was offering to purchase more property at a higher price than was Wuesthoff, and Health First was committed to building a hospital sooner than was Wuestoff. The contract between Health First and TVC was executed on August 5, 2003, and Health First has since closed on the purchase of the 50 acres at a cost of approximately $9 million. The Health First/TVC contract includes an exclusivity provision that prohibits the development of another hospital within the Viera DRI or on any of the lands owned by Duda until 2029 if Holmes constructs at least 70 percent of Phase I of the Viera Medical Park by August 31, 2006, and begins construction on a hospital with at least 80 beds by August 31, 2010. The contract also includes exclusivity provisions relating to the other uses being developed as part of the Viera Medical Park, but the exclusivity on those uses expires in 2010, at the latest. The exclusivity provision will be included in restrictive covenants that are recorded in the public records of Brevard County. The restrictive covenants will run with the land and will bind future purchasers of property from TVC and Duda. Exclusivity provisions are not uncommon in land- purchase contracts for large commercial projects or new hospitals. The August 1993 agreement between Wuesthoff and TVC included such a provision as did Wuestoff’s July 2003 offer. However, the length of the hospital exclusivity provision in the Health First/TVC contract and the fact that it applies to the land owned by Duda outside of the Viera DRI goes beyond what is reasonably necessary to allow the new hospital to become stabilized and has the potential to stifle competition for acute care hospital services in the Viera area for the next 25 years. Viera Medical Center (1) Generally Holmes conditioned the approval of its CON application on VMC being located at the "[i]ntersection of Lake Andrew Drive and Wickham Road, Viera, Florida." VMC was projected to open in 2008 as part of the Viera Medical Park that Health First is building on the 50 acres that it purchased from TVC at that location. VMC will be located in zip code 32940, which is the “main” Viera zip code. VMC will be built on 20 of the 50 acres purchased by Health First. The remaining 30 acres will be developed with the other health care facilities that will make up the Viera Medical Park. The development of the Viera Medical Park will be done in three phases. Phase I will include a fitness center; a medical office building; and outpatient facilities such as an urgent care center, an ambulatory surgical center, and a diagnostic imaging and rehabilitation center. Phase II will include VMC. Phase III may include a nursing home and/or assisted living facility as well as “multi-family retirement units.” VMC will be a 213,000 SF facility with 84 licensed beds, 16 “observation” beds, and a full emergency room (ER). The 84 licensed beds will consist of 72 acute care beds and a 12-bed critical care unit/ICU. All of the beds will be in private rooms. The total project cost for VMC is approximately $106 million, which will be funded primarily by tax-free bonds issued by Holmes. VMC will have a cardiac catheterization lab, but it will not provide interventional cardiology services such as angioplasty. VMC will not provide any tertiary-level services or OB services, and it will not have a dedicated pediatric unit. VMC will share management and administrative support services with HRMC so as to minimize duplication of those services and to reduce overhead costs. VMC will have an integrated IT system that will utilize electronic medical records and a computerized physician order entry system, as well as an electronic ICU (e-ICU). The e-ICU is an innovative critical care management system based upon a telemedicine platform that is in use at the existing Health First hospitals in Brevard County. Except for the e-ICU, which the Wuesthoff hospitals do not have, the IT systems at VMC will be materially the same as Wuesthoff’s award-winning IT systems. VMC will have a helipad without any weight restrictions and, as discussed in Part F(1)(a)(iv) below, VMC has been designed with hurricanes and other “contingency events” (e.g., bioterrorism) in mind. Demographics of VMC’s Proposed Service Area The primary service area (PSA) for VMC consists of zip codes 32934, 32935/36, 32940, and 32955/56; the secondary service area (SSA) consists of zip codes 32901/02/41, 32904, 32922/23/24, 32926/59, and 32927. Neither Wuesthoff nor the Agency contested the reasonableness of the PSA or the SSA. All of the zip codes targeted by VMC are within the primary service area of one or more of the existing hospitals, and there are three hospitals physically located within those zip codes. Wuesthoff-Melbourne and Wuestoff-Rockledge are located in VMC’s PSA, and HRMC is in VMC’s SSA. The 2003 population of the PSA was 108,436. In 2010, which would be VMC’s third year of operation, the PSA’s population is projected to be 128,498. The 65+ age cohort, which is the group that most heavily utilizes hospital services, is projected to make up 21.5 percent of the PSA’s population in 2010. That is a lower percentage than the projected populations of the 18-44 age cohort (29.1 percent) and the 45-65 age cohort (29.7 percent) in the PSA. VMC’s PSA has a more favorable payor-mix than the county as a whole. It has a lower percentage of Medicaid patients and a higher percentage of insured patients --i.e., commercial, HMO, PPO, workers comp, and Champus/VA patients -- than the county as a whole. Except for zip code 32935/36, each of the zip codes in VMC’s PSA has a higher median household income than Brevard County as a whole. Zip code 32935/36 is the zip code in which Wuesthoff-Melbourne is located. The zip code in which VMC will be located, 32940, has the highest median household income in Brevard County. The median household income in that zip code for 2004 was $67,000 as compared to the county-wide average of $44,000. Utilization Projections VMC was projected to open in January 2008, and Holmes' CON application contains utilization and financial projections for VMC's first three years of operation, i.e., 2008, 2009, and 2010. The utilization projections are based upon an average length of stay (ALOS) of 3.69 days, which is reasonable. The utilization projections are also based upon the assumption that by VMC’s third year of operation, it will have 26.9 percent market share in its PSA and a 7.4 percent market share in its SSA. VMC's projected market share in zip code 32940, which is its “home” zip code and the “main” Viera zip code, is projected to be 35 percent. The market share assumptions are reasonable and attainable. The utilization projections include a “ramp-up” period for VMC. Its annual occupancy rate in its first year of operation is projected to be 45.6 percent; its annual occupancy rate in its second year of operation is projected to be 65.7 percent; and in its third year of operation (2010), VMC is expected to have an annual occupancy rate of 76 percent with 6,313 discharges and 23,298 patient days. The occupancy rates, and the discharges and patient days upon which they are based, are reasonable and attainable.2 The application projects that VMC will redirect or “cannibalize” a significant percentage of its patients from the other Health First hospitals. The percentage of patients that VMC will cannibalize from the other Health First hospitals in each zip code varies from 75 percent to 45 percent, depending upon the proximity of the zip code to VMC. Overall, approximately 69.4 percent of VMC’s patients will be cannibalized patients, i.e., patients that would have otherwise gone to HRMC (66.2 percent), Cape Hosptial (3.2 percent), or PBCH (less than 0.1 percent). The remaining 30.6 percent of VMC’s patients will be patients that would have otherwise gone to Wuesthoff-Rockledge (15.8 percent) or Wuesthoff-Melbourne (14.8 percent). The record does not reflect the outpatient volume projected for VMC, but Holmes’ health planner conceded at the hearing that the projected outpatient revenues for VMC did not take into account the outpatient services that will be included in Phase I of the Viera Medical Park. As a result, the volume on which the outpatient revenues were based is overstated to some degree, but there was no credible evidence regarding the extent of the overstatement. VMC is projected to treat 15,851 patients in its ER in its first year of operation (2008), and by its third year of operation (2010), VMC is expected to treat 27,780 patients in its ER. The record does not reflect how those figures were calculated, nor does it reflect what percentage of those patients would have otherwise been treated in the ERs at HRMC, PBCH, or the Wuesthoff hospitals. However, the reasonableness of those figures was not contested by Wuesthoff or the Agency. Statutory and Rule Criteria Statutory Criteria -- Section 408.035, Florida Statutes (2004)3 Subsections (1), (2) and (5) -– Need for Proposed Services; Accessibility of Existing Services; and Enhancing Access According to the CON application (page 14), the need for VMC is justified based upon: The large population base and significant population growth projected for the [Viera] area. The need to improve access and reduce travel times for this significant population for both critical care and inpatient services. The projected need for additional acute care beds at HRMC and the benefits of delivering non-tertiary services away from [HRMC’s] campus. Additionally, the CON application (page 15) asserts that the approval of VMC will: Significantly enhance the area’s Homeland Security and disaster planning and preparedness. Enhance the quality of care delivered to area residents as a result of key design and information technology innovations planned for [VMC]. Provide access to cost-effective, quality of care for all residents of the service area, including the uninsured. In its PRO (page 19), Holmes identifies those same six issues as the “not normal” circumstances that justify approval of VMC. Holmes’ health planner conceded at the hearing that the VMC project is not intended to address any cultural, programmatic, or financial access problems, and that those potential “not normal” circumstances were not advanced in the CON application as bases for approval of VMC. Population of and Growth in the Viera Area There has been considerable growth in Viera over the past 15 years, and the demand for new homes in the Viera DRI remains strong. The projected population of the Viera DRI is expected to exceed 40,000 when the DRI is built-out in 2020, and that figure does not include the population of the Suntree area, which is outside of the Viera DRI and has a number of large residential subdivisions. Zip code 32940, which is the “main” Viera zip code, had a population of 22,940 in 2003. By 2010, that zip code is projected to have a population of 31,862. That is an increase of 38.9 percent, but only 9,000 persons. As stated above, the population of VMC's PSA is projected to increase from 108,436 (in 2003) to 128,489 (in 2010). That is an increase of 18.5 percent, but only 20,000 persons. The population of VMC’s PSA is projected to grow at a faster rate than Brevard County as a whole. Over the seven-year period used in the application (2003 to 2010), the annual growth rate for VMC’s PSA is projected to be 2.64 percent while the annual growth rate of Brevard County as a whole is projected to be 1.74 percent.4 Population growth in Florida is normal and, indeed, is expected. There is nothing extraordinary about the growth projected for zip code 32940 and/or VMC’s PSA. Accordingly, the population growth projected in the Viera area does not, in and of itself, justify the approval of VMC. Enhanced Access There are two main components to Holmes’ argument that VMC will enhance access. First, Holmes contends that VMC will reduce travel times for Viera residents and thereby enhance their access to hospital services. Second, Holmes contends that the approval of VMC will relieve pressure on the overcrowded ERs at the existing hospitals in Brevard County thereby enhancing access to ER services countywide. For Viera Residents VMC will provide more convenient access to hospital services for Viera residents (at least those in need of the basic, non-OB services that will be offered at VMC), and to that extent, VMC will enhance access for Viera residents. VMC will also provide more convenient ER access for Viera residents. Quicker access to an ER is generally beneficial to the patient, although certain heart-attack patients may benefit more by going to the ER of a hospital that can do an immediate angioplasty, such as Wuesthoff-Rockledge or HRMC. VMC will not necessarily enhance access for other residents of the PSA and SSA targeted by VMC (e.g., those outside of the Viera area) because many of those residents are closer to an existing hospital. Indeed, some of those residents would have to pass an existing hospital to get to VMC, which seems particularly unlikely for emergency patients. VMC will also not enhance access for patients in need of OB services or tertiary services that will not be offered at VMC. Convenience alone is not a basis for approving a new hospital, particularly where (as here) the evidence establishes that the residents of the area to be served by the new hospital currently have reasonable access to hospital services. VMC will be located approximately 10 miles south of Wuesthoff-Rockledge, and approximately 11 miles north of Wuesthoff-Melbourne. VMC will be approximately 15 miles northwest of HRMC. There are multiple routes from the Viera area to the Wuesthoff hospitals and HRMC. The routes are along major arterial roads, including I-95, US 1, Wickham Road, Murrell Road, Fiske Boulevard, and Eau Gallie Boulevard. All of those roads are at least four lanes wide. The travel-time studies presented by Wuesthoff show that it takes less than 15 minutes to drive from either of the Wuesthoff hospitals to the VMC site. There was anecdotal testimony suggesting longer travel times, particularly from the VMC site to Wuesthoff-Melbourne,5 but that testimony was not as persuasive as Wuesthoff’s travel-time studies. The travel-time studies presented by Wuesthoff were not without flaws. For example, the travel times were calculated by driving away from the Wuesthoff hospitals, rather than driving towards the hospitals as a potential patient from Viera would be doing. Holmes did not present its own travel- time studies, and notwithstanding the directional issue and the other unpersuasive criticisms of the study by Holmes’ traffic engineer, Wuesthoff’s studies are found to be credible and persuasive. Indeed, Holmes’ traffic engineer estimated that it would take 15 to 20 minutes to get from VMC to Wuesthoff- Melbourne using the most direct route (Transcript, at 668), which is consistent with Wuesthoff’s travel-time studies. It takes longer to drive from Viera to HRMC than it does to drive from Viera to either of the Wuesthoff hospitals. The travel-time studies did not directly address the issue, but the anecdotal testimony suggests that the travel times from Viera to HRMC are between 25 and 45 minutes depending upon the time of day and traffic conditions.6 There are several road segments on the routes between Viera and the Wuesthoff hospitals whose “v/c ratios”7 currently exceeds 1.0, which is an indication of an over-capacity road. However, there are roadway improvements planned or underway that will expand the capacity of those road segments by 2010. Indeed, a comparison of the 2003 (Exhibit H-23) and 2010 (Exhibit W-50) v/c ratios for the road segments on the routes between Viera and the Wuesthoff hospitals shows only marginal increases in the ratios, with many of the 2010 ratios projected to be lower than 0.8, which according to Holmes’ traffic engineer, indicates that the “roadway that is probably operating well within its ability to carry that traffic volume.” Holmes’ traffic engineer did not attempt to quantify the extent to which travel times would increase due to the marginal increases in the v/c ratios. Thus, his opinion that travel times would “increase significantly” and be “significantly greater” in the future is not persuasive. TVC is required to mitigate for the off-site traffic impacts generated by the development of the Viera DRI. In this regard, road improvements (e.g., additional lanes, traffic signals, etc.) will be made in the future as necessary to accommodate the additional population in the Viera DRI. In fact, there are significant road improvements currently underway that are being funded, at least in part, by TVC pursuant to the Viera DRI development order, including the six-laning of I-95 through the Viera area. In sum, the evidence establishes that persons in the PSA and SSA targeted by VMC, including residents of the Viera area, currently have reasonable access to acute care services, and the evidence was not persuasive that there will be access problems over the applicable five-year planning horizon such that a new hospital in Viera is necessary to enhance access. For ER Services in Central and South Brevard County The Brevard County government is the emergency medical services (EMS) provider for the county. Brevard County EMS responds to emergency calls throughout the county and its ambulances transport emergency patients to hospital ERs. Overcrowded ERs can adversely affect the EMS system in several ways. First, if the ER is overcrowded it can take longer for ambulances to off-load patients to the ER staff, which results a longer period of time that the ambulance is “out of service.” Second, if the closest hospital is on “diversion status” because of an overcrowded ER, ambulances will have to transport patients to a more distant hospital, which also results in the ambulance being out of service for a longer period of time. Longer out-of-service periods can, on a cumulative basis, strain the EMS system because an out-of-service ambulance is not able to respond to emergency calls in its service area and the EMS provider may have to shift other ambulances to cover the area at the risk of increasing response times for emergency calls. Brevard County EMS protocol requires ambulances to take patients to the closest hospital, unless the patient is a trauma patient or the closest hospital is on diversion status. Trauma patients are taken to HRMC, which is the designated trauma center for the county. A hospital requests diversion status from EMS when it is unable to accept additional emergency patients because its ER is overcrowded. The most common reasons that an ER is overcrowded is that it had a large number of emergency patients arrive at the same time or that there is a “bottleneck” in the ER caused by a lack of inpatient beds to move patients from the ER that need to be admitted to the hospital. If diversion status is granted, EMS will take emergency patients to another hospital, even if it is further away than the hospital on diversion. As noted above, this strains the EMS system and can result in longer response times for emergency calls, which in turn, can negatively impact patient care. If diversion status is denied, the hospital is required to continue to accept emergency patients. This can create a less than optimal setting for patient care because the hospital may not have adequate space or resources to treat the patient in a timely manner. Until recently, Brevard County EMS would not grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informed EMS that they could not take the patients. That policy recently changed, and EMS will now grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informs EMS that it can take the patients. The new EMS policy change makes it easier for hospitals in south Brevard County to be placed in diversion status. For example, under the old policy, diversion status would not be granted to HRMC if either Wuestoff-Melbourne or PBCH informed EMS that they could not take HRMC’s emergency patients, but under the new policy, diversion status will be denied to HRMC only if Wuesthoff-Melbourne and PBCH both inform EMS that they cannot take HRMC’s emergency patients. In Brevard County, having a hospital on diversion was “pretty rare” until 2002. Diversion requests have become more frequent since then, and they are no longer a seasonal phenomenon caused by the influx of “snowbirds” into the county. Diversion is a more frequent problem in south Brevard County than it is in central Brevard County, and in south Brevard County, the diversion requests have come primarily from HRMC. The evidence was not persuasive that ER overcrowding is a significant problem for the Wuesthoff hospitals or PBCH. Wuesthoff-Melbourne has not requested to go on diversion, and only one occasion was identified where HRMC’s diversion request was denied because Wuesthoff-Melbourne was unable to handle HRMC's diverted patients. That occasion occurred when Wuesthoff-Melbourne had only 65 beds and, hence, less ability than it currently has to move patients out of the ER to accommodate additional emergency patients. According to Holmes, VMC will enhance access to ER services in central and south Brevard County because it will increase the area-wide ER capacity and reduce the frequency of diversion requests, which in turn, will reduce strains on the EMS system and benefit patients. The "North Expansion" underway at HRMC (discussed below) will include a new ER that is expected to help address the overcrowding issues that have required HRMC to request diversion in the past. The new ER is designed with shelled-in space to facilitate future ER expansions as needed. In any event, the evidence was not persuasive that VMC will materially reduce the ER volume at HRMC. The record does not reflect what percentage of VMC’s projected ER patients would have otherwise been served at HRMC as compared to the Wuesthoff hospitals. Moreover, it is not likely that non-trauma emergency patients from the Viera area are contributing to the overcrowding in the ER at HRMC because, under EMS protocol, those patients currently are being taken to Wuesthoff-Melbourne or Wuesthoff-Rockledge, which are closer to Viera than is HRMC. Need to “Decompress” HRMC Holmes contends that VMC will help to “decompress” HRMC and that it is the only viable option for doing so. HRMC is a well-utilized facility. According to the SAAR, its annual occupancy rate for the 12-month period ending June 2003 was 81.22 percent. HRMC's occupancy rate tends to stay above 80 percent, and at times it is as high as 115 percent. If VMC is not approved, HRMC’s annual occupancy rate for 2008 is projected to be 83.9 percent, and by 2010, its occupancy rate is projected to increase to 90 percent. Even if VMC is approved, HRMC’s annual occupancy rate is projected to be 81.7 percent in 2010. Those figures assume that HRMC will maintain its current bed capacity and they do not take into account the impact of the expansion of the Wuesthoff hospitals. HRMC currently includes approximately 612,000 SF. It is located on 18 acres of property that is bounded by streets and developed properties. Holmes owns several parcels of land adjacent to HRMC, and it is continuing to acquire parcels as they come available. Much of the adjacent land owned by Holmes is used for parking, and notwithstanding a 500-space parking garage on the south side of HRMC, there is still a shortage of parking at HRMC. Some of its staff parks at a nearby shopping center and take a shuttle to the hospital. There is an area on the north side of HRMC identified as the site of a "future parking garage," but there are no current plans to construct that structure. The original portion of the hospital, which is referred to as the “core” area, was built in the 1960’s. The remainder of the hospital has been added over the years, which has resulted in a less than ideal facility layout and has created operating inefficiencies. Some of the hospital’s support functions and administrative offices are located off- site. HRMC has undertaken a series of construction projects in recent years to reduce inefficiencies and congestion at the hospital and to increase the percentage of private rooms at the hospital. Those projects include the construction of a new OB unit and, most significantly, the $100 million “North Expansion.” The North Expansion is an eight-story, 337,000 SF addition to the hospital that is expected to be completed by the end of 2006. It will include 144 patient rooms, a new ER with a number of new observation beds, and it will allow all of the hospital’s cardiology services to be located in contiguous space. The 144 patient rooms will include 14 cardiovascular ICU beds, 22 ICU beds, and 108 acute care beds. All of the beds will be in private rooms. The 144 beds added as part of the North Expansion will not increase the bed capacity at Holmes. The same number of existing licensed beds will be eliminated, either through the conversion of existing semi-private rooms to private rooms or because the rooms are located in space that will be demolished to construct the North Expansion. The North Expansion has been designed and engineered to withstand 200-mile per hour winds, which exceeds the applicable building code requirements for hurricane protection. The North Expansion has also been designed and engineered to accommodate future expansion at HRMC in several respects. First, it includes shelled-in space on the eighth floor for an additional 36 private patient rooms. Second, it is engineered (but not shelled-in) to allow the fourth through eighth floors to be further expanded to include up to 180 additional private patient rooms in what was referred to at the hearing as a “mirror image” of the tower being built as part of the North Expansion. Third, the ER includes shelled-in space for future expansions as well as adjacent open space into which the ER could be further expanded in the future. There is no current plan to finish the shelled-in space on the eighth floor, but Holmes’ facility manger testified that he expected that to occur as soon as funding is available, and perhaps prior to the completion of the North Expansion. The beds added on the eighth floor will not increase the licensed capacity at Holmes, but rather they will come from the conversion of 36 additional existing semi-private rooms to private rooms. There is also no current plan to construct the “mirror image” side of the fourth through eighth floors of the North Expansion. That construction will be done in conjunction with the renovation of the core area of the hospital and will initially be used to locate the services from the core area that are displaced by the renovation. After the renovation of the core area, however, the "mirror image" will be used for patient rooms. In conjunction with the construction of the North Expansion, HRMC expects to relocate some of its ancillary and support services from the core area into the space where the existing ER is located, which in turn will open up space in the core area for other purposes. The space created by the construction of the new OB unit will also be available for other uses after it is no longer needed as "swing space" during the construction of the North Expansion. Additionally, Holmes recently purchased a building directly behind HRMC into which it will likely locate other ancillary and support services. Currently, less than 40 percent of HRMC’s general acute care beds are in private rooms. After the North Expansion, almost 80 percent of those beds will be in private rooms. Ultimately, Holmes wants all of the beds at HRMC to be in private rooms. Private rooms are beneficial because they offer the patients and their families more privacy and a more restful environment, and they can also help reduce the spread of infections. However, private rooms can also create operational inefficiencies for nurses who have to visit more rooms (often on longer hallways) than they would to serve the same number of patients in semi-private rooms. High quality care can be provided in semi-private rooms, and HRMC and Wuesthoff-Rockledge each do so. Although patients may prefer private rooms and most new hospitals are being designed with only private rooms, private rooms are still best characterized as an amenity, not a necessity. As a result, and Holmes’ desire to convert all of HRMC’s semi-private rooms to private rooms does not justify the building a new hospital based upon alleged capacity constraints at HRMC. Indeed, if Holmes chose to do so, it could increase the bed capacity at HRMC with little or no additional cost by adding the 36 beds in the shelled-in eighth floor of the North Expansion and/or by not converting as many semi-private rooms into private rooms. Moreover, after the North Expansion, HRMC will have approximately 50 observation beds (as compared to 20 currently) in private rooms that can be used for inpatients as needed. Indeed, as a result of the 2004 amendments to the CON law, some of those beds could be converted to licensed acute care beds at any time without CON review. Even if the beds are not converted to licensed beds, they will still help to decompress HRMC because observation patients will not need to be placed in inpatient rooms while they are being observed and evaluated for possible admission to the hospital. Several Holmes’ witnesses testified that even if Holmes wanted to add bed capacity to HRMC by converting fewer semi-private rooms to private rooms or other means, it could not do so because of limitations on the space available to provide the support services necessary for those additional rooms. That testimony was not persuasive because the witnesses conceded that Holmes has not undertaken a thorough analysis of what it intends to do with the space created in the existing building by the relocation of services as part of the North Expansion, which as noted above, will free up additional space for support services in the core area. The evidence was also not persuasive that the alternative presented in the CON application for adding 84 beds to HRMC is realistic. That alternative, the cost of which is presented in Table 23 of the CON application, was prepared after the decision was made to seek approval of a CON for VMC; it was not an alternative actually considered by Holmes and, indeed, it was characterized by the Holmes’ witness who prepared the cost estimate as a “theoretical solution” and not a viable solution to adding beds. The cost estimate in Table 23 is based upon a plan that would require the acquisition of additional land across the street from HRMC and the construction of a new bed tower on that land and an adjacent parcel on which Holmes currently owns a medical office building. The bed tower would be connected to HRMC by a two-story bridge over the street. The plan also includes the construction of a new parking garage and an office building to replace the existing medical office building. The land and building costs of the plan were approximately $86.2 million, which is approximately $18.3 million more than the land and building costs of VMC. When the equipment costs are added, the total cost of the plan is approximately $120 million. Not only was the plan not a viable solution, its cost was clearly overstated. For example, the $450/SF cost of the new bed tower was irreconcilably higher than the $278/SF cost of VMC and the $2.5 million that Holmes represented to the Agency in October 2003 that it would cost to add 50 beds to HRMC. In sum, the evidence fails to support Holmes’ claim that the only way to add bed capacity to HRMC is through the $120 million plan presented in Table 23 of the CON application. The evidence also fails to support Holmes’ claim that VMC is the only viable option to decompress HRMC. Indeed, the evidence establishes that HRMC could be decompressed if PBCH was better utilized. Holmes contends that PBCH is too far away from Viera to be a viable alternative to HRMC for patients from the Viera area. The evidence supports that claim, but that claim ignores the fact that better utilization of PBCH by Palm Bay patients will help to decompress HRMC. PBCH is currently an underutilized facility, and it has been ever since it opened in 1992. According to the SAAR, PBCH's annual occupancy rate for the 12-month period ending June 2003 was only 51.5 percent. Its annual occupancy rate is projected to be only 60.1 percent in 2008 and 65.4 percent in 2010, which are well below the 75 to 80 percent optimum utilization level. Approximately 25 to 30 percent of HRMC’s patient volume comes from the Palm Bay zip codes. If those patients were redirected to PBCH, the utilization rate at HRMC would go down and the utilization rate at PBCH would go up. Redirecting Palm Bay patients to PBCH has the potential to decompress HRMC more than redirecting Viera patients to VMC because HRMC has approximately 7,000 admissions from the Palm Bay area, as compared to approximately 6,000 admissions from the Viera area. Holmes did not present any persuasive evidence as to why patients from the Palm Bay zip codes could not be redirected to PBCH as a means of decompressing HRMC. On this issue, there was credible evidence presented by Wuesthoff that virtually no elective cases are being done at PBCH and that PBCH is essentially being used as a triage facility for HRMC. Finally, the expansion of the Wuesthoff hospitals (particularly Wuesthoff-Melbourne) will help to decompress HRMC because the Wuesthoff hospitals will be able to serve more patients. As the Wuestoff hospitals' market share grows, HRMC’s market share (and patient volume) will decline.8 Enhanced Homeland Security and Disaster Planning Brevard County is susceptible to hurricanes because of its location on the east coast of Florida and the length of its coastline. The evidence was not persuasive that Brevard County is more susceptible to hurricanes than are the other counties on the east coast. The three major storms that affected the county in the summer of 2004 were not the norm. Brevard County has a comprehensive emergency management plan to prepare for and respond to hurricanes, as do all of the existing hospitals in the county. Those plans were tested in the summer of 2004 when the county was directly impacted by three of the four major storms that hit the state Florida. The hospitals’ hurricane plans include securing the building, discharging as many patients as possible prior to the arrival of the storm, and canceling elective surgeries scheduled around the time the storm is expected to hit the area. The plans also provide for the evacuation of some of the hospitals during particularly strong storms, i.e., Category 3 or above. Cape Hospital is particularly prone to evacuation when a strong hurricane threatens the area because it is located close to the ocean on a peninsula in the middle of the Intracoastal Waterway. Cape Hospital was evacuated twice during the summer of 2004. None of the hospitals in Brevard County were evacuated during the first storm, Hurricane Charley. Cape Hospital and Wuesthoff-Rockledge were evacuated prior to the second storm, Hurricane Francis. That was the first time that Wuesthoff-Rockledge was evacuated since it opened in 1941, and its ER remained open and staffed even though the remainder of the hospital was evacuated. Cape Hosptial’s patients were taken to HRMC, and Wuesthoff-Rockledge patients were taken to Wuesthoff-Melbourne. The evacuated patients were accompanied by physicians and nurses and were transported to the receiving hospitals by ambulance. The evacuation of Cape Hospital and Wuesthoff- Rockledge placed strains on the receiving hospitals and their staffs. At one point during the evacuation, HRMC had more than 700 patients in its 514-bed facility and Wuesthoff-Rockledge had 156 patients in its 65-bed facility. By all accounts, despite the strains placed on the receiving hospitals, the evacuations went smoothly and there were no adverse patient outcomes attributable to the evacuation. Indeed, the director of Brevard County’s Health Department testified that all of the hospitals in the county responded and performed “great” during the hurricanes, and that sentiment was echoed by physicians and administrators affiliated with both of the hospital systems involved in this case. Cape Hospital was evacuated again prior to the third storm, Hurricane Jeanne. Wuesthoff-Rockledge was not evacuated during that storm, and approximately 15 of Cape Hospital’s patients were taken to Wuesthoff-Rockledge. None of the Health First or Wuesthoff hospitals suffered any significant damage from the hurricanes. The approval of VMC will not eliminate the possibility that Cape Hospital, Wuesthoff-Rockledge, or some other hospital in Brevard County may have to evacuate during a future hurricane. VMC may provide a more convenient (or at least an additional) place to evacuate some of the patients from Cape Hospital during a future hurricane because VMC is closer to Cape Hospital than is HRMC. VMC will also be more inland than HRMC and it will be designed to withstand 165 mile per hour winds. Holmes conditioned the approval of its CON application on the inclusion of a "suitable parcel, fully equipped and designed to support temporary staging of Disaster Medical Assistance Teams (DMAT)" at VMC. A DMAT is essentially a mobile emergency room set up by the federal government after a natural disaster to help serve the medical needs of those affected by the disaster. The DMAT staging area at VMC will be an open field adjacent to the hospital that is “pre-plumbed” with water, electricity, and communication lines. In some situations, it is beneficial for a DMAT to be set up proximate to a hospital, and in that regard, VMC’s inland location and proximity to I-95 may make it an attractive location to set up a DMAT in the future. It is not necessary, however, for a DMAT to be set up proximate to a hospital. DMATs are fully self-sustaining and they can be set up anywhere, including a Wal-Mart parking lot. Indeed, in some situations, it is more beneficial for the DMAT to be located closer to the persons in need of its services than to a hospital. For example, after Hurricane Jeanne, a DMAT was set up near the Barefoot Bay community in southern Brevard County, which is miles from the closest hospital. VMC’s central-county location and proximity to I-95 would also make it a good point-of-dispensing (POD) for vaccines and medicines in the case of a severe biological emergency. However, like DMATs, PODs can be set up anywhere and it is not critical for a POD to be proximate to a hospital even though proximity might allow for greater medical oversight of the dispensing process. There are high-profile, “Tier 1” terrorist targets located in Brevard County, including Kennedy Space Center, Cape Canaveral Air Force Station, Patrick Air Force Base, and Port Canaveral. There is also a nuclear power plant in Indian River County, just south of the Brevard County line. The nature of these targets is somewhat unique because they involve the country's space program, but the presence of multiple “Tier 1” terrorist targets is not unique to Brevard County and is not, in and of itself, a special circumstance that justifies approval of a new hospital. Brevard County has developed emergency management plans in conjunction with the state and federal governments to prepare for and respond to terrorist attacks on those targets. Those plans have been in place for many years, but they have been significantly strengthened since September 11, 2001. VMC will include decontamination areas and other design features to facilitate the treatment of victims of bio- terrorism. The existing hospitals in Brevard County have similar design features as well as comprehensive plans for dealing with bio-terrorism. The evidence was not persuasive that VMC, as an 84- bed, non-tertiary satellite hospital, will materially enhance County’s ability to deal with a large-scale terrorist attack, whether biological or otherwise. Similarly, the evidence was not persuasive that Brevard County’s emergency management plans for hurricanes and/or terrorism are deficient in any way or that the approval of VMC would result in material enhancements to those plans. Any enhancements attributable to VMC would be marginal, at best. The DMAT staging area and other design elements included at VMC to facilitate the hospital’s participation in the Brevard County’s response to hurricanes, terrorist attacks, or other contingencies are positive attributes. Inclusion of those features in VMC (or any new hospital for that matter) is reasonable despite the infrequency of those contingencies, but it does not follow that VMC should be approved simply because it will include those features. IT Innovations and Design Features The evidence was not persuasive that VMC will provide a higher quality of care than is currently being provided at the existing hospitals serving central and south Brevard County as a result of the “innovative” IT systems and the other design features that will be incorporated into VMC. See Part F(1)(b) below. Accordingly, the approval of VMC is not justified on that basis. Enhanced Access to Care for the Uninsured Holmes’ contention that VMC will enhance access for the uninsured implicates the issue of “financial access.” Financial access concerns arise when there is evidence that necessary services are being denied to patients based upon their inability to pay or their uninsured status. Holmes’ health planner acknowledged at the hearing that VMC was not intended to address any financial access concerns for patients in the Viera area and, indeed, there was no credible evidence of any financial access concerns in PSA and SSA targeted by VMC. As discussed in Part E(2) above, VMC’s PSA include a higher percentage of insured patients than Brevard County as a whole, and as discussed in Part F(1)(g) below, the existing hospitals are adequately serving the medically indigent patients in central and south Brevard County, both at the hospital and through outreach efforts such as the Holmes’ HOPE program and Wuesthoff’s free clinics. Accordingly, the evidence failed to establish that VMC will enhance access to care for the uninsured, and approval of VMC is not justified on that basis. Subsection (3) -- Applicant’s Quality of Care Holmes, the applicant, provides a high quality of care at HRMC and PBCH, and it is reasonable to expect that it will provide the same high quality of care at VMC. The Wuesthoff hospitals also provide a high quality of care, and Holmes' witnesses acknowledged that VMC was not proposed to address any problem with quality of care in central or south Brevard County. The evidence was not persuasive that the quality of care at VMC will be materially better (or worse) than that provided at Wuesthoff-Melbourne, which has a similar range of services that will be provided at VMC. The award-winning IT systems in place at the Wuesthoff hospitals are materially the same as those proposed for VMC except for e-ICU at VMC. The evidence was not persuasive that the e-ICU significantly enhances quality of care, and because the e-ICU is being used at the existing Health First hospitals in Brevard County, VMC will not be providing any new technology or service that is not already available to physicians and patients in the county. Thus, the "innovative" IT systems proposed for VMC do not provide an independent basis for approving the CON application. The evidence was not persuasive that VMC would exacerbate nursing or physician shortages in Brevard County thereby negatively affecting quality of care in the county. See Part F(1)(c) below. Subsection (4) -- Availability of Personnel and Resources for Operations Holmes and Health First have the management resources necessary to establish and operate VMC. Holmes’ CON application projects that VMC will have 241.4 full-time equivalents (FTEs) in its first year of operation, and that by its third year of operation, it will have 355.7 FTEs. Nursing positions -- registered nurses, licensed practical nurses, nursing aides, and nursing directors -- account for 123.1 of the FTEs in the first year of operation, and 189.2 of the FTEs in the third year of operation. According to the CON application, a significant number of the initial FTEs at VMC are expected to be filled by persons who transfer from Holmes’ existing campuses, HRMC and PBCH. The parties stipulated that the projected number of FTEs needed by position and the projected salaries contained in Holmes’ CON application are reasonable for the census projected at VMC. However, Wuesthoff disputed whether Holmes will be able to adequately staff VMC due to nurse and physician shortages in Brevard County and/or that VMC will exacerbate those shortages and make it more difficult to staff the existing hospitals in the county. There is a nursing shortage in Brevard County, as there is around Florida and across the nation, but the situation in Brevard County is improving. Wuesthoff was able to fully staff Wuesthoff-Melbourne prior to its opening in December 2002, even though the nursing shortage was more severe at that time. Additionally, Wuesthoff is currently in the process of adding beds at Wuestoff-Melbourne and Wuesthoff-Rockledge, and it expects to be able to recruit and retain the nurses necessary to staff those additional beds despite the current state of the nursing shortage. Holmes received “magnet designation” from the American Nurses Credentialing Center, which is a recognition of its excellence in nursing. No other hospital in Brevard County has magnet designation, and that designation helps Holmes attract and retain nurses. The evidence establishes that Holmes will be able to recruit and retain the nursing and other staff needed for VMC, and the evidence was not persuasive that the staffing of VMC will exacerbate the nursing shortage or otherwise significantly impact Wuesthoff. There is a shortage of physicians in Brevard County with certain specialties, including neurosurgery, neurology, orthopedics, dermatology, and gastroenterology. Like the nursing shortage, this problem is not unique to Brevard County and it is not as severe in Brevard County as it is elsewhere in the state. The shortage of physician specialists in Brevard County is to some extent hospital-specific. For example, there is only one neurosurgeon covering Wuesthoff-Rockledge and Cape Hospital, and Wuesthoff-Melbourne only has part-time coverage neurosurgical coverage, but Holmes has several neurosurgeons. Holmes has recently had success in recruiting new physicians to Brevard County, including specialists. One of the largest multi-specialty physician groups in Brevard County, whose physicians are on staff at Holmes’ and Wuestoff's hospitals, has also been successful recently in recruiting new physicians to the area. That group, Melbourne Internal Medicine Associates, will be adding more physicians whether or not VMC is approved. The evidence establishes that Holmes will be able to attract the necessary physician staff for VMC, just as Wuesthoff-Melbourne was able to do when it opened. Indeed there are a number of physicians who have offices in the Viera area that are closer to VMC than the existing hospitals where they have privileges. Holmes and Wuesthoff require physicians with privileges at their hospitals to provide coverage for ER calls on a rotational basis. Physicians with privileges at more than one of the hospitals are required to provide ER call coverage at multiple hospitals, which can create a problem if the physician is on-call at two (or more) hospitals at the same time. Physicians who choose obtain privileges at VMC will be required to provide ER call coverage at VMC. ER call coverage is a problem in Brevard County, but the evidence was not persuasive that the problem is as significant in Brevard County as it is elsewhere in the state or that VMC would seriously exacerbate the problem. More specifically, the evidence was not persuasive regarding the extent to which VMC would cause physicians to be on call at more than one hospital at the same time. Nor was the evidence persuasive regarding the likelihood that physicians would relinquish privileges at other hospitals in Brevard County to obtain privileges at VMC in such numbers that ER call coverage problems would be created for the other hospitals. Subsection (6) -- Financial Feasibility The parties stipulated that VMC is financially feasible in the short-term and that Holmes has sufficient availability of funds for VMC's capital and operating expenses. The long-term financial feasibility of VMC is in dispute. Generally, if a CON project will at least break even in the second year of operation, it is financially feasible in the long-term. If, however, the project continues to show a loss in the second year of operation it is not financially feasible in the long-term unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. Agency precedent (e.g., Wellington, supra, at 73-74) and the evidence in this case (e.g., Exhibit W-57, at 22) establish that in the context of a satellite hospital project that is expected to “cannibalize” patients from the applicant’s existing hospital, it is important to consider the impact of the project on the entire hospital system in evaluating the long- term financial feasibility of the project. The net operating revenue projected on Schedule 7A of the CON application, which is the starting point for the net income/loss projected on Schedule 8A, is reasonable.9 On Schedule 8A of the CON application, in the column titled “VMC only,” Holmes projects that VMC will generate a net loss of $5.71 million in its first year of operation, but that it will generate net profits of $1.48 million and $5.11 million in its second and third years of operation. Thus, as a stand-alone entity, VMC is financially feasible in the long-term. However, the “VMC only” figures do not provide the complete picture of the financial feasibility of the VMC project because of the significant percentage of its patients that will be cannibalized from HRMC and PBCH. In evaluating the long-term financial feasibility of the VMC project, it is also important to consider the “incremental difference” column in Schedule 8A. That column reflects VMC’s net financial benefit (or burden) to Holmes after taking into account the patients that VMC is cannibalizing from HRMC and PBCH. The “incremental difference” column in Schedule 8A shows a net loss of $695,000 in the VMC’s first year of operation, and net profits of $605,000 and $983,000 in the second and third years of VMC’s operation. The incremental figures presented in the CON application identify the profit/loss that will be generated by the patients treated at VMC that are new to the Holmes’ system, but they do not take into account the fact that the patients treated at VMC that were cannibalized from the other Holmes’ hospitals would have generated a different profit/loss for the Holmes’ system if they were treated at one of the other Holmes’ hospitals. When incremental profit/loss associated with treating the cannibalized patients at VMC rather than HRMC or PBCH is factored in, the “incremental difference” generated by VMC will be net profits of $498,000 (year one); $720,000 (year two); and $252,000 (year three). Included in the “incremental difference” column on Schedule 8A (and embedded in the revised figures in the preceding paragraph) are negative figures on the “depreciation and amortization” line and the “interest” line. Those figures are intended to reflect the depreciation, amortization, and interest expenses that Holmes will “save” by building VMC rather than by adding 84 beds at HRMC. A critical assumption underlying the “savings” shown on those lines is that it would cost $120 million to add 84 beds to HRMC. To the extent that cost is overstated, then the depreciation, amortization, and interest expense “savings” on Schedule 8A are also overstated, as is the incremental net profit of the VMC project. The extent to which the net profit is overstated depends upon the extent to which the $120 million cost is overstated. For example, if the cost of adding 84 beds to HRMC is the same as the cost of VMC (i.e., $106 million rather than $120 million), then the depreciation, amortization, and interest expense shown in the “incremental difference” column on Schedule 8A would be $0 (rather than a negative number) because the depreciation, amortization, and interest expenses in the “with this project” and “without this project” columns would be the same. If, on the other hand, there was no cost associated with the addition of 84 beds at HRMC, then the depreciation, amortization, and interest expense shown in the “without this project” column would be $10.662 million lower in 2010 (see Endnote 10) and that amount would appear as a positive number -- i.e., expense -- rather than a negative number -- i.e., “savings” -- in the “incremental difference” column. The evidence was not persuasive that it will cost $120 million to add beds to HRMC, which is the amount underlying the projected “savings” in depreciation, amortization, and interest expense shown on Schedule 8A. Indeed, as discussed in Part F(1)(a)(iii) above, the evidence establishes that the alternative that gave rise to the $120 million cost estimate was not a viable option and that Holmes could add 84 beds at HRMC with little or no cost if it chose to do so by reducing the number of semi-private rooms that it converts to private rooms as part of the North Expansion and/or by finishing the shelled- in space on the eighth floor of the North Expansion. Accordingly, the “savings” embedded in Schedule 8A are grossly overstated as is the incremental net profit shown in that schedule. Specifically, in the third year of operation, when VMC is at a near-optimal occupancy level of 76 percent, the incremental net profit generated by VMC will be no more than $234,000 and, more likely, will be a net loss between $497,000 and $10.41 million.10 A net profit of $234,000 is a very marginal return on the $106 million cost of VMC, and is well below the three percent return that Holmes' seeks to achieve for its capital projects. However, according to Holmes' chief financial officer, the return generated by a project is not Holmes' paramount concern as a not-for profit organization, and at that level, the project would be considered financially feasible in the long-term. A $497,000 to $10.41 million incremental net loss would mean that the project is not financially feasible in the long-term. The “including this project” column on Schedule 8A projects that Holmes will have net income of approximately $31.1 million in 2010. Thus, even if VMC actually generated an incremental net loss in the range of $497,000 to $10.41 million in 2010, the Holmes' system would still be profitable. Subsection (7) -- Fostering Competition that Promotes Cost-Effectiveness Generally, competition for hospital services benefits consumers because it leads to lower prices and it creates incentives for hospitals to lower costs. It is not necessary for hospitals to be equal in size to compete, but the beneficial effects of competition will be greater if the hospitals are more equal. As explained by Dr. David Eisenstadt, Wuesthoff’s expert economist, “competitive constraints are a matter of degree” and “while it is true that a small hospital can pose some competitive constraint, it’s not correct that a small hospital can impose the same competitive constraint . . . as a large hospital could.” (Transcript at 1571-72). Holmes is, and historically has been, the dominant provider of hospital services in south Brevard County, with market shares exceeding 80 percent prior to the opening of Wuesthoff-Melbourne. Holmes still has a market share in excess of 70 percent in south Brevard County. A dominant hospital has the ability to set prices above competitive levels by commanding higher prices in negotiations with commercial payors. Holmes has done so in the past and, based upon the comparison of the commercial average net inpatient revenues reported by the Health First hospitals and the Wuesthoff hospitals in 2003 and 2004, it continues to do so. Holmes ability to set prices above competitive levels is enhanced by the fact that the largest managed care plan in Brevard County, HFHP, is operated by Health First. The original approval of the CON for Wuesthoff- Melbourne was based upon the Agency’s determinations that there was at that time a “compelling” need for competition for hospital services in south Brevard County; that the entry of a new, non-Health First provider into the market would give commercial payors and, ultimately, patients an alternative to Holmes, which because of its relationship with HFHP, had no incentive to negotiate competitive rates with other providers; and that competition would have the effect of reducing prices paid by the commercial payors to the hospitals and, ultimately, the premiums paid by patients. Wuesthoff-Melbourne’s entry into the market in December 2002 has not yet resulted in any material price reductions. Indeed, notwithstanding Wuesthoff-Melbourne’s presence in the market, HRMC increased its charges by 15 percent in 2003-04 and by an additional five percent in 2004-05. A hospital’s charges do not necessarily correspond to the prices that the hospital negotiates with commercial payors. However, in this case, there appears to be a correlation because Holmes had an 11.6 percent increase in net revenue per admission between 2003 and 2004 and it also had significant increases in the commercial average inpatient revenues per admission at HRMC and PBCH between 2003 and 2004. Moreover, the significant increase in charges at Holmes over the past two years is a strong indication that Holmes is not feeling any significant competitive pressure as a result of Wuesthoff-Melbourne’s presence in the market. Wuesthoff-Melbourne will be able to exert more competitive pressure on Holmes as its market share increases, particularly if Holmes’ market share continues to decline at the same time as is projected. As a result, Wuesthoff-Melbourne’s ability to expand and increase (or at least maintain) its market share in the growing Viera market is particularly significant to achieving price reductions (and/or minimizing price increases) in Brevard County.11 Holmes contends that even if VMC is approved, there will be sufficient competition in Viera because, according to Table 33 in the CON application, in 2010 the Health First hospitals will have a 50.5 percent market share of the PSA targeted by VMC and the Wuesthoff hospitals will have a 44.3 percent market share of the PSA. However, the approval of the VMC will have the effect of dramatically slowing the upward trend in Wuesthoff’s market share and corresponding downward trend of Health First’s market share in the PSA targeted by VMC because according to Tables 28 and 33 of the CON application, without VMC, the market share of the Wuesthoff hospitals in the PSA is projected to increase from 43.3 percent (in 2003) to 52.3 percent (in 2010), and the market share of the Health First Hospitals in the PSA is expected to decline from 51.2 percent (in 2003) to 42.5 percent (in 2010). Moreover, if VMC is approved, it is less likely that there will be sufficient need for additional acute care beds in the area to justify expanding Wuesthoff-Melbourne beyond 134 beds. That, in turn, will limit the competitive pressure that Wuesthoff-Melbourne will be able to exert on Holmes in the future. The evidence was not persuasive regarding the extent of the competitive pressure and/or price reductions that would result from the expansion of Wuesthoff-Melbourne rather than the approval of VMC.12 However, the fact remains that VMC will strengthen Holmes’ market position in central and south Brevard County, which will not foster competition that promotes cost effectiveness. Not only will the approval of VMC negatively affect the evolution of competition in south Brevard County, but it will effectively preclude the construction of another hospital in the Viera area until 2029 when the exclusivity provisions and restrictive covenants discussed in Part D(2) above expire. The evidence was not persuasive that there was an anticompetitive motivation underlying Holmes’ decision to propose VMC, but the evidence does establish that the approval of VMC will have anticompetitive effects. As a result, the criteria in Section 408.035(7), Florida Statutes, strongly weigh against the approval of Holmes’ CON application. Subsection (8) -- Costs and Methods of Construction The parties stipulated that the costs (including equipment costs), methods of construction, and energy provision for VMC are reasonable; that the architectural drawings for the VMC satisfy the applicable code requirements; and that the construction schedule for VMC is reasonable. Thus, VMC satisfies the criteria in Section 408.035(8), Florida Statutes. Subsection (9) -- Medicaid and Charity Care Holmes conditioned the approval of its application on VMC providing the following levels of Medicaid and charity care: At least 3.0 percent of inpatients at [VMC] will be covered by Medicaid and/or Medicaid HMOs. At least 2.3 percent of the gross revenues of [VMC] will be attributable to patients who meet the guidelines for charity care. The Medicaid and charity commitments are lower than the averages for Brevard County, but they are reasonable and attainable in light of the demographics of the area that will be served by VMC. Holmes has a history of providing considerable services to Medicaid and charity patients, both at its existing facilities and through community programs such as HOPE. Wuesthoff also has a history of providing considerable services to Medicaid and charity patients at its existing facilities and through community programs such as its free clinic in Cocoa. Wuesthoff-Rockledge is a Medicaid disproportionate share provider, which entitles it to a higher Medicaid reimbursement rate from the State as a “reward” for serving more than its fair share of Medicaid patients. Holmes' hospitals and Wuesthoff-Melbourne are not Medicaid disproportionate share providers. Wuesthoff-Melbourne has not been open long enough to qualify. The Wuesthoff hospitals have a contract with Well Care, which is the only Medicaid HMO in Brevard County. Holmes' hospitals do not have a contract with Well Care. On a dollar-amount basis, Holmes provides considerably more Medicaid and charity care than any other hospital in Brevard County, including the Wuesthoff hospitals. In fiscal year 2003, for example, Holmes’ Medicaid gross revenues were $53.7 million (as compared to $39.7 million for the Wuesthoff hospitals) and its charity care gross revenues were $27.8 million (as compared to $10.9 million for the Wuesthoff hospitals). The larger dollar-amount of Medicaid and charity care provided by Holmes is due, at least in part, to Holmes being almost twice the size of the Wuesthoff hospitals. On a percentage basis, Holmes provides approximately the same level of charity care as Wuesthoff-Rockledge, but it provides less Medicaid care than Wuesthoff-Rockledge. In fiscal year 2003, for example, 2.8 percent of Holmes’ gross revenue was charity care (as compared to 2.5 percent for Wuesthoff- Rockledge) and seven percent of Holmes’ patient days were attributable to Medicaid patients (as compared to 10.9 percent for Wuesthoff-Rockledge). According to Mr. Gregg, the Agency gives more weight to the percentage of Medicaid and charity care provided by a hospital than it does to the dollar amount of such services. However, Mr. Gregg acknowledged that Holmes satisfies the criteria in Section 408.035(9), Florida Statutes, based upon its history of providing services to the medically indigent and its Medicaid and charity commitments at VMC. Holmes' satisfaction of the criteria in Section 408.035(9), Florida Statutes, is not given great weight in this proceeding because the medically indigent in central and south Brevard County are currently being adequately served by the existing facilities and, more significantly, zip code 32940, in which VMC will be located and from which it is projected to draw the largest percentage of its patients, has a lower percentage of Medicaid/charity patients and a higher median household income than Brevard County as a whole. Subsection (10) -- Designation as a Gold Seal Nursing Homes The parties stipulated that Section 408.035(10), Florida Statutes, is not applicable because Holmes is not proposing the addition of any nursing home beds. Rule Criteria The Agency rules implicated in this case -- Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038 -- do not contain any review criteria that are distinct from the statutory criteria discussed above. The “health care access criteria” and “priority considerations” in those rules focus primarily on the impact of the proposed facility on the medically indigent and other underserved population groups, as well as the applicant’s history of and/or commitment to serving those groups. Holmes satisfies those rule criteria, but they are not given great weight for the reasons discussed in Part F(1)(g) above. Impact of VMC on the Wuesthoff Hospitals As discussed above, VMC is projected to take patients that are currently being served by, or would otherwise be served by one of the existing hospitals in central or south Brevard County. Approximately 30 percent of VMC’s patient volume will come at the expense of the Wuesthoff hospitals. As a result of the projected population growth in central and south Brevard County over the planning horizon, the Wuesthoff hospitals are projected to have more admissions in 2010 than they currently have, whether or not VMC is approved. However, if VMC is approved, the Wuesthoff hospitals will have fewer admissions in 2010 than they would have had without VMC. The health planners who testified at the hearing agreed that in determining the impact of VMC on the Wuesthoff hospitals it is appropriate to focus on the number of admissions that the Wuesthoff hospitals would have received but for the approval of VMC. The Agency’s precedent is in accord. See Wellington, supra, at 54, 109 n.13. Holmes’ health planner projected in the CON application that the approval of VMC will result in the Wuesthoff hospitals having 1,932 fewer admissions in 2010 than they would have had without VMC, 998 at Wuesthoff-Rockledge and 934 at Wuesthoff-Melborune. Wuesthoff’s health planner projected that the approval of VMC will result in the Wuesthoff hospitals having 2,399 fewer admissions in 2010 than they would have had without VMC, 1,541 at Wuestoff-Rockledge and 858 at Wuesthoff-Melborune. The projections of Wuesthoff’s health planner are more reasonable because they are based upon more current market share data and, as to Wuesthoff-Melbourne, the projections may even be understated because its market share is still growing in the areas targeted by VMC. On a contribution-margin basis, the lost admissions projected by Wuesthoff’s health planner translate into a loss of approximately $3.9 million of income at Wuesthoff-Rocklege and a loss of approximately $2 million of income at Wuesthoff- Melbourne. Using the lost admissions projected by Holmes’ health planner, the lost income at Wuesthoff-Rockledge would be $2.51 million and the lost income at Wuesthoff-Melbourne would be $2.15 million. Thus, impact of VMC on the Wuesthoff system would be a lost income of at least $4.66 million and, more likely, $5.9 million. A loss of income in that range would be significant and adverse to the Wuesthoff hospitals, both individually and collectively. Even though the Wuesthoff system has a net worth of approximately $70.95 million, its net income (i.e., “excess of revenues over expenses”) was only $971,000 in 2003 and $1.1 million in 2004. The system is still recovering from a “devastating” financial year in 1999 when it reported a loss of almost $12 million. Wuesthoff-Melbourne reported a $4.1 million net loss in 2003, and as of June 2004, it had yet to show a profit. The significance of the projected lost income at the Wuesthoff hospitals is tempered somewhat by the increased patient volume that the hospitals are projected to have in 2010 even if VMC is approved. However, the evidence was not persuasive that the increased patient volumes will necessarily result in greater profits at the Wuesthoff hospitals in 2010.13 The approval of VMC will also likely result in a loss of outpatient volume at the Wuesthoff hospitals. However, there is no credible evidence regarding the amount of outpatient volume that would be lost or the financial impact of the lost outpatient volume on Wuesthoff.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Holmes’ application, CON 9759. DONE AND ENTERED this 17th day of June, 2005, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2005.
Findings Of Fact Upon consideration of the oral and documentary evidenceadduced at the hearing, the following relevant facts are found: On or about September 20, 1976, petitioner submittedits application for a certificate of need to construct an acutecare general hospital in Delray Beach, Florida. Additional information was requested by respondent. On November 3, 1976, petitioner forwarded to respondent its "First Supplement to the Application for Certificate of Need." By letter dated November 16, 1976, respondent acknowledged receipt of petitioner's capital expenditure proposal effective November 8, 1976, referred the proposal to the Health Planning Council for Indian River, Martin, Okeechobee, Palm Beach and St. Lucie Counties, and informed petitioner that a decision on the proposal would be rendered by respondent not later than February 6, 1977. Petitioner is seeking a certificate of need to construct a new 300 bed hospital at an estimated cost of $10,695,000.00.The facility is to be a non-tax supported, investor-owned acute care medical/surgical hospital. Petitioner proposes to locate this hospital on chimerically zoned land on the southwest corner of Lake Ida Road and Congress Avenue in Delary Beach, Florida. The general service area is identified as Area 3, as defined in planning documents of the Health Planning Council, and comprises that portion of Palm Beach County within the boundaries of the Florida Turnpike to the West, Hypoluxo Road to the North, the Atlantic Ocean to the East and the Palm Beach/Broward County line to the South. Two other hospitals are currently in operation in this Area 3. The intervenor in this proceeding, Bethesda Memorial, a tax-supported acute care short-term hospital, is located within four miles to the northeast of petitioner's proposed hospital. The driving time between petitioner'sproposed location and Bethesda is five to eight minutes, or twenty minutes during heavy traffic. Boca Community Hospital is located approximately 9 1/2 miles from petitioner's location, with a driving time of between fifteen to thirty-five minutes. The existing two hospitals are accessible to residents within Area 3. Petitioner's location, being on an east-west artery, would be more accessible to those within the area defined by petitioner as its primary service area. This area excludes the area immediately surrounding the two existing hospitals (Exhibits A and C). Petitioner's application was reviewed and analyzed by a review committee of the Health Planning Council (HPC). Thiscommittee listed two factors supporting approval of petitioner'sapplication -- reasonable patient costs and patient charges andwider choices to physicians as to where they hospitalize theirpatients. It was noted that the by-laws of Boca Community Hospital do not allow staffing privileges to physicians practicing north of Atlantic Boulevard in Delray Beach. The five factors supporting disapproval of petitioner's application were as follows: Based on the HPC document entitled Acute Care General Hospital Bed Needs, 1980, March 1975, there will exist the appropriate number of beds to meet the needs of the 1980 population of Palm Beach County (including area 3). Thus, development of this proposed facility would result in an extensive, unnecessary, and costly excess of hospital beds in Palm Beach County (especially in area 3). In determining bed needs for Palm Beach County in 1980, the State of Florida's Medical Facilities Plan 1975 shows that the county currently has more than enough beds to meet the 1980 demand. Such need determination does not consider those hospital/hospital expansion projects which were approved by the HPC and are currently under construction or recently completed. Although development and subsequent population centers are anticipated in the area, the extent and completion dates for such developments are unknown. Regardless of such growth, however, the geographical proximity between Bethesda Memorial Hospital and the proposed facility would indicate that both these hospitals would be serving approximately the same population. This would result in costly competition between the two hospitals ultimately resulting in increased patient charges with no foreseeable benefits to the patient in terms of appropriateness, effectiveness, or availability of health care. Westerly population growth will necessitate the development of medical services and facilities; however, because this growth is expected to develop over a period of years and is dependent on economic factors, medical services must keep pace with population increases. In meeting the health needs of this population in the most effective and efficient manner, the HPC, in its document entitled Acute Care General Hospitals Long Range Growth, Position Statement and Recommendations, August 1975, states that: "Satellite facilities, both outpatient and inpatient, should be developed by the existing hospital system to provide necessary and appropriate health care in areas where the population does not justify a full service acute care general hospital." These centers and facilities will compliment the existing full service hospitals and not duplicate them. The proposed hospital will not provide such services and, at the same time, will foster duplication. If the proposed facility is unable to effectively implement its staff recruitment plan, costly salary competition and related recruitment factors will result among area hospitals, especially between Bethesda Memorial Hospital and the proposed new facility. By a vote of 13 to 7, the Board of Directors of the HPC recommended disapproval of petitioner's certificate of needrequest. The Board's decision was based on the reasons set forthin paragraphs 1, 2 and 3 quoted above. (Exhibit 2). By letter dated January 21, 1977, respondent'sadministrator, Mr. Art Forehand, notified petitioner that itscapital expenditure proposal was not favorably considered becauseit was not consistent with the standards, criteria or plans developed pursuant to the Public Health Service Act. (Exhibit 1). Specifically, it was noted that "The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities, which is the current HEW approved plan, indicates a need for 191 additional hospital beds to be constructed in Palm Beach County by 1981. Subsequent to publication of this plan, a 94-bed addition to Boca Raton Community hospital and a 135-bed addition to the Palm Beach Gardens Hospital were placed under construction, and the 162-bed Community Hospital of the Palm Beaches was placed in operation. Considering these 391-bed additions against the 191 beds to be added by 1981 results in a projected overbedding of Palm Beach County by 200 beds by 1981." At the hearing, petitioner attempted to illustrate that the 1976 Florida State Plan was erroneous, and that a correctapplication of the Hill- Burton formula and the State Plan wouldresult in a showing of greater bed needs for the area in question. Based upon interpretation by the undersigned of the applicable federal and state rules and regulations, objections to this line of testimony were sustained. Thereafter, the petitioner rested and neither the respondent nor the Intervenor presented any witnesses. The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities indicates a need for 191 additional hospital beds in Palm Beach County by the year 1981 (Exhibit 3). The Regional Health Administrator of the Department of Health Education and Welfare notified respondent by letter dated November 3, 1976, that said Plan had been approved (Exhibit 3).
Recommendation Based upon the findings of fact and conclusions of lawrecited above, it is recommended that the determination of theOffice of Community Medical Facilities to deny petitioner's application for a certificate of need to construct a 300- bed hospital in Delray Beach be upheld and affirmed. Respectfully submitted and entered this 27th day of May, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Donald H. Reed, Jr., Esquire Deschler and Reed Boca Raton Federal Building 555 South Federal Highway Boca Raton, Florida 33432 Eric J. Haugdahl, Esquire Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Fred W. Baggett, Esquire LaFace and Baggett, P.A. Post Office Box 1752 Tallahassee, Florida 32304 Mr. Art Forehand, Administrator Office of Community Medical Facilities 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
Findings Of Fact MCH was constructed circa 1973 as an acute care hospital and before 1980 had 126 medical-surgical beds authorized including eight intensive care beds. MCH is a for-profit hospital owned by Hospital Corporation of America. It is financially able to fund the proposed addition. In 1980 it received a certificate of need (CON) to add 64 medical-surgical beds for a total bed capacity of 190 medical-surgical beds. These beds came on line in January 1982. MCH here proposes to add a 54-bed unit for oncology patients; to add six operating rooms to use primarily for eye, ear, nose and throat surgical procedures on an outpatient basis; and a new eight-bed surgical intensive care unit located on the first floor adjacent to the existing surgery department. Currently, the hospital has two oncologists on staff who use a 16-bed unit dedicated to the treatment of cancer. Space exists for the additional operating room so the net result is an application for an additional 62 beds. The application also included expansion of general stores and maintenance and the addition of a parking structure, which were granted, leaving only the issue of need for the 62 additional beds requested at a cost of $7 million. When constructed MCH had an eight-bed ICU primarily for coronary care patients located on the second floor of the hospital in the opposite wing from the surgery department on the first floor. It has added a four-bed ICU on the fourth floor by converting two semiprivate medical-surgical rooms. The ratio of ICU beds to total beds in 1973 was 8:126 which is nearly identical to the current ratio of 12:190. The evidence was unrebutted that the ICU at MCH is usually full, that on occasion patients have to wait in the emergency room until a less ill patient can be moved from a bed in ICU, and that the more ICU beds are available the more they will be used. This use was attributed to the doctors desiring their patients to be in an ICU and to testimony that current surgical procedures are more sophisticated than formerly and a greater need exists today for a surgery patient to go to an ICU than existed 15 years ago. In its application for a CON (Exhibit 18) MCH's estimated charge for a medical-surgical bed is $100-150 per day and its estimated charge for ICU beds and SICU beds is $350 per day. The primary service area for MCH is Marion County. Petitioner submitted evidence that nearly 20 percent of the cancer patients diagnosed in Marion County in 1981 came from the surrounding counties of Citrus, Lake, Sumter, and Levy. Accordingly, MCH contends that its primary service area for oncology patients should include these counties. Evidence was also submitted that MCH has been certified by medical associations as an approved cancer treatment hospital; that oncology service is a service generally provided in regional hospitals which provide Level III medical treatment; and, therefore, MCH should be considered on a different scale than Level II services. No evidence was presented that any health systems plan ever considered MCH as a regional cancer hospital or established any bed need for cancer patients at MCH. The evidence was also unrebutted that cancer patients at MCH are primarily treated by chemotherapy; that the drugs used in the treatment are extremely toxic, some have a short life span after being mixed and must be used almost immediately; that having a mini-pharmacy in the cancer ward is highly desirable; that special training of nurses is required to safely administer these drugs to patients; that patients develop nausea, ulcers in the mouth and throat, and present special feeding problems, and because of these special feeding problems it is advantageous to have some facilities in the cancer ward to prepare food at odd hours for patients; that cancer is a "personal" disease, patients desire more privacy, and should have private rooms; that an area away from the patient's room where the patient can visit with his or her family and the family can consult with the doctor in some privacy is desirable; that some newer drugs require hospitalization of the patient for treatment with these drugs, but the hospital stay is shorter and the drugs may be used over longer periods of time; and that the patient needs the security that comes from developing a feeling of trust by the patient of the nurses and doctors who are administering to his needs. MCH has no radiation treatment facilities in the hospital. However, the hospital staff has access to a Linear Accelerator which is located in a private physician's office on MCH's campus. Several witnesses testified to the need for additional beds for cancer patients at MCH; that patients have had to wait several days for a vacant bed; some oncology patients have had to be placed in other wards at MCH; and that special treatment and special training for nurses are required for oncology patients. Marion Regional Medical Center (MRMC) is a nonprofit hospital owned by the Marion County Hospital District, a public body established by statutes with taxing powers in Marion County. MRMC is currently expanding its facilities by 80 beds to the authorized 314-bed hospital pursuant to a CON approved in 1981. The $23 million for that project was financed by revenue bonds issued by Marion County Hospital District. Preliminary bids indicate the original project will be under the estimated cost resulting in a $2-3 million savings. If the additional beds here requested are approved and the construction associated therewith can be accomplished concurrently with the present construction, a saving of nearly $1 million can be obtained. MRMC is the only full service hospital in Marion County and provides medical, surgical, obstetrical, pediatric, psychiatric, intensive care, coronary care, and neurological/neurosurgical services. It has the third most active Emergency Room in the state and receives approximately 45 percent of its admissions through this service. MRMC's proposed project calls for the construction of a sixth floor on the hospital, construction of 66 inpatient beds, and the conversion of a 20-bed pediatric unit for use as a labor and delivery suite, a net gain of 46 beds. As initially proposed, this would provide for eight additional pediatric beds, four pediatric intensive care beds, and 34 medical-surgical beds to be used as a pulmonary medicine unit. Before the hearing the request for additional pediatric beds was withdrawn, leaving a request for 34 additional hospital beds and four pediatric intensive care beds, a total of 38 medical-surgical beds, at a cost of $2.8 million. It was stipulated that both MCH and MRMC provide an acceptable quality of care and operate efficiently. The application satisfied the criteria in Section 381.494(6)(c) with the possible exception of need, and need is the only issue in dispute in these proceedings. Both applicants submitted evidence that they accept all patients regardless of their ability to pay; however, MCH is a private for-profit hospital whose bad debt and charity care amounts to two percent of its gross revenues. MRMC's patient load is four percent indigent and bad debts, and charity care amounts to 12 percent of its gross revenues. Exhibit 18 shows MCH patient utilization to be 61 percent Medicare and one percent Medicaid, and MRMC patient utilization to be 51 percent Medicare and five percent Medicaid, in 1981. There is currently "applicable district plan" or "annual implementation" as provided for in Section 381.494(6)(c)1, Florida Statutes (1982). The implementation of this statute has been stayed by rule challenges. The North Central Florida Health Planning Council, Inc. (NCFHPC), was the Health Systems Agency (HSA) for what was formerly known as Health Service Region II which included only Marion County as a district sub-area. Prior to the July 1, 1982, amendment of Florida's CON law, the HSA reviewed applications and made recommendations with written findings of fact to DHRS. The 1982 CON law eliminated HSA, accordingly the NCFHPC no longer exists. The former HSA recommended approval of the applications of both MCH and MRMC; however, the staff of the HSA recommended disapproval of both applications. For the determination of need in these proceedings, a planning horizon of five years is acceptable and was used by all parties. Thus, the need for the requested CON is assessed for the year 1988. At this time the population of Marion County is forecast to be 165,880. The percentage of persons 65 and older in Marion County is increasing in proportion to the remainder of Marion County's population, and this increase will continue through 1988. This "aging" of the population is occurring throughout the United States as people live longer and demographics change with differing birth rates at differing periods. No evidence was submitted that the percentage of people over 65 is greater in Marion County than in other parts of Florida. MCH has 190 authorized medical-surgical beds and MRMC has 244 authorized medical-surgical beds, for a total of 434 such beds authorized in Marion County in two hospitals across the street from each other in Ocala, Florida. With the 1982 amendment to the CON statute the HSA in Marion County ceased to exist and has been replaced by a local health council. Rule challenges have stayed the promulgation of a comprehensive state health plan and the only Health Systems Plan in being for Marion County is the revised 1983 Health Systems Plan (HSP). This plan was approved by the HSA for Marion County in June of 1982 and contains goals, objectives and standards for planning for the health services required in Marion County. Standard 1-1 provides the need for medical-surgical beds within each Level II planning area (Marion County) should be based on the actual 1980 medical-surgical bed need per 1,000 population in this area. Standard 2-1 provides no additional beds should be added to a community's total bed supply until the occupancy rate of medical- surgical beds in the community exceeds 85 percent if more than 200 such beds are available in the community. The generally accepted standard for occupancy rate above which more beds may be needed is 80 percent. However, where beds are concentrated in one area, which is the case in Marion County where 434 medical- surgical beds are authorized, 85 percent occupancy leaves a reasonable surplus of beds to cover most emergencies or unusual situations that would cause the bed availability to be exceeded. The need for medical-surgical beds per 1,000 population (use rate) in Marion County in 1980 was 2.41. The HSP has a goal of 3.5 beds per 1,000 population and an objective of 4.0 beds per 1,000 population by 1987 in Region II. Applying the 1980 use rate to the 1988 forecast population of Marion County results in a need for 400 medical-surgical beds. The Health Systems Plan update for Marion County defines medical- surgical beds as all hospital beds which are not reserved solely for the use of pediatric, obstetrics, or psychiatric patients. At the time the revised Health Systems Plan for Marion County was promulgated, the two hospitals, MRMC and MCH, had been authorized an additional 80 and 65 beds, respectively, and these beds were being placed in service. By prescribing a use rate for 1980 as the standard to be used in considering applications for additional medical-surgical beds in 1983 and for a year or two thereafter, it would be reasonable to conclude the HSA expected the use rate for the years 1981 and 1982 to be influenced by the addition of the recently authorized 144 beds and to not accurately reflect a reliable use rate for planning purposes. MRMC and MCH presented expert witnesses who, by using different modalities, containing different assumptions, arrived at a need for additional beds in Marion County in 1988 ranging from 97 to 200. Most of these modalities used an occupancy rate of 3.5 beds per 1,000 population and 80 percent utilization of beds. All assume increasing usage of medical-surgical beds by the increasing and aging population. In their application MRMC and MCH planned to finance these projects with rate increases of 11 percent per year (to keep even with inflation) and a continuing increase in the number of patients handled at these higher rates. While inflation may again be up to 11 percent or higher, it is generally accepted today that the current inflation rate is five percent or less. More than 50 percent of both MRMC and MCH patients are presently covered by Medicare, which pays 80 percent of the charges generated by these patients. To assume that this situation will not only continue in the face of current federal deficits, but grow to cover the increased use of these facilities predicted in the assumptions used to show increased bed need for 1988, is not necessarily a valid assumption. Evidence was presented that the number of doctors in Marion County has doubled in the last five years. The ratio of doctors to the population of Marion County for 1977-78 and 1982-83 was not presented nor was the percent increase in the number of doctors in the United States over the past five years. Without some basis for comparison, the fact that the number of doctors in a particular community doubled over a five-year period has no relevancy.
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 The issue is whether the Agency should approve the Certificate of Need applications filed by Manatee Memorial and/or HMA, each of which proposes to establish a new acute care hospital to serve the city of North Port in Sarasota County, Acute Care Subdistrict 8-6.
Findings Of Fact Parties Manatee Memorial Manatee Memorial, the applicant for CON 9767, is a subsidiary of Universal Health Services, Inc. (UHS). UHS is a publicly-traded corporation that is headquartered in Pennsylvania. UHS is a financially-sound company. In 2003, its net revenues were approximately $3.6 billion, its net operating income was $355.7 million, and its after-tax net income was $199.2 million. Manatee Memorial is also financially-sound despite a net loss of $2.5 million in 2003. It had net income of $13.9 million in 2002, and its net revenues increased from $164.5 million in 2002 to $180.9 million in 2003. As of December 31, 2003, Manatee Memorial’s total assets exceeded its total liabilities by $56.3 million. UHS operates approximately 100 healthcare facilities in the United States and abroad. The facilities operated by UHS include behavioral health/psychiatric facilities, surgery centers, and 37 acute care hospitals. Three of the acute care hospitals operated by UHS are in Florida. They are Wellington Regional Medical Center in south Palm Beach County, Manatee Memorial Hospital (MMH) in Bradenton, and Lakewood Ranch Medical Center (Lakewood Ranch) in Manatee County, near the Manatee County/Sarasota County border. MMH and Lakewood Ranch are operated under a single license issued by the Agency. Manatee Memorial is the licensee. MMH started as a community hospital in the 1950’s. It was acquired by UHS in 1996 and has undergone significant capital improvements since the acquisition. MMH has 319 beds. It provides tertiary services, including open-heart surgery (OHS) and interventional cardiology services. It has a Level II neonatal intensive care unit (NICU), and a full-service emergency department (ED) that operates 24 hours a day, 7 days a week (24/7). Lakewood Ranch opened in September 2004. It has 120 beds and a 24/7 ED. It offers obstetrical (OB) services, but it does not have any NICU beds. It does not provide any tertiary services. MMH and Lakewood Ranch are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). MMH and Lakewood Ranch accept all patients without regard to their ability to pay. MMH has been recognized as a “Top 100” hospital by Solucent, and it has received other accolades for the quality of care and community support that it provides. There is significant overlap in the medical staffs at Lakewood Ranch and MMH. The Lakewood Ranch CON application projected that the hospital would have an average daily census (ADC) of 46.8 in its first year of operation, which equates to a 39 percent utilization rate. Manatee Memorial’s witnesses acknowledged at the hearing that Lakewood Ranch would likely not meet those projections. The total cost of Lakewood Ranch was $48.7 million, which is $8.1 million more than was projected in the CON application for the hospital. Approximately $2.9 million of the “cost overrun” was attributed to additional IT systems beyond those specified in the CON application. HMA HMA, the applicant for CON 9768, is a subsidiary of Health Management Associates, Inc. (HMA, Inc.) HMA, Inc., is a publicly-traded corporation that is headquartered in Naples. It operates 57 hospitals in 16 states. HMA, Inc., is a financially-sound company. Its net revenues increased from $1.1 billion in 1998 to $3.2 billion in 2004. Its net income increased from $137 million to $325 million over that same period. HMA, Inc., operates 14 acute care hospitals and two behavioral health/psychiatric facilities in Florida. It also has CON approval for new acute care hospitals in Brooksville and Naples. Most of the hospitals operated by HMA, Inc., are in non-urbanized areas. According to its 2004 annual report, HMA, Inc., “focuses on non-urban America because many of those communities are underserved medically, have populations that are growing faster than the national average, and offer competitive advantages compared to major urban areas.” The Florida hospitals operated by HMA, Inc., include Charlotte Regional Medical Center (Charlotte Regional) in Punta Gorda, Peace River Regional Medical Center (Peace River) in Port Charlotte, and Venice Hospital in Venice. Charlotte Regional has 208 beds, including 156 acute care beds and 52 psychiatric beds. It has a 24/7 ED and it offers OHS and inpatient psychiatric care. It does not offer OB services. Peace River has 212 beds, but only 170 of the acute care beds were available for use at the time of the final hearing. It has a 24/7 ED and a 20-bed skilled nursing unit. It offers OB services, but it does not have any NICU beds. Venice Hospital has 342 licensed beds. It has a 24/7 ED and a skilled nursing unit. It offers OHS and inpatient rehabilitation services. A majority of the beds at Charlotte Regional, Peace River, and Venice Hospital are in semi-private rooms. Charlotte Regional, Peace River, and Venice Hospital are all accredited by JCAHO, and they all accept patients without regard to their ability to pay. Charlotte Regional has been recognized as one of the top 100 cardiovascular hospitals in the country. Peace River and Venice Hospital were formerly not-for- profit hospitals operated by the Bon Secuors organization. Peace River was formerly known as Bon Secours St. Joseph’s Hospital (BS-St. Joe) and Venice Hospital was formerly known as Bon Secours Venice Hospital (BS-Venice). HMA, Inc., entered into an agreement to acquire BS-St. Joe and BS-Venice in November 2004. The acquisition, which was completed in February 2005, also included a hospital in Virginia, a nursing home in Port Charlotte, and “health parks” in northern Charlotte County, Venice, and North Port. BS-St. Joe and BS-Venice were not profitable at the time that they were acquired by HMA. The financial performance of those hospitals has improved significantly under HMA’s management, primarily through better management of accounts receivable. Englewood Englewood is owned and operated by HCA, Inc. (HCA). HCA is a publicly-traded corporation and the largest for-profit acute care hospital chain in the country. Englewood is located in the city of Englewood, which is in Sarasota County on the Cape Haze Peninsula near the Sarasota County/Charlotte County line. Englewood has 100 beds and a 24/7 ED. It does not offer OB services. Its largest service lines are cardiology, general medicine, orthopedics, and pulmonology. Englewood is accredited by JCAHO. It has received special accreditation for its chest pain center and certification from the American Stroke Association for its stroke care. Englewood accepts all patients without regard to their ability to pay. Englewood’s building has one floor. All of its beds are in semi-private rooms, except for four isolation rooms. Englewood is authorized to use its acute care beds as “swing beds” to provide skilled nursing care. Englewood’s primary service area (PSA) includes the Cape Haze Peninsula. Its secondary service area (SSA) includes south Venice and the mostly-undeveloped portion of North Port to the west of the Myakka River in zip code 34287. Englewood’s census ranges from 30 to 90 patients, depending upon the time of the year. During the “season” in 2005, its census peaked at 93 patients and averaged 73 patients. At the time of the final hearing, Englewood’s census was in the mid-50’s. Fawcett Fawcett is owned and operated by HCA. Fawcett is located in Port Charlotte, directly across the street from Peace River and five miles south of the city of North Port. Fawcett has 238 beds, a 24/7 ED, a 20-bed intensive care unit (ICU), a 20-bed comprehensive medical rehabilitation (CMR) unit, and a diagnostic cardiac cath lab. Fawcett does not offer OB services. It will be opening an ambulatory surgical center in December 2005. Fawcett is accredited by JCAHO, and it was recently designated as a primary stroke center. Its oncology unit is affiliated with the Moffitt Cancer Center. Fawcett accepts all patients without regard to their ability to pay. Fawcett’s building has four floors. All of its beds are in semi-private rooms, except for the ICU beds and two isolation rooms. Fawcett suffered significant damage during Hurricane Charley in August 2004. The hospital’s fourth floor, which had 78 beds (including 10 ICU beds), was closed as a result of the damage. At the time of the final hearing, Fawcett was still in the process of repairing the damage to the fourth floor, and it had only 165 beds (including the CMR beds and 14 ICU beds) available for use. Fawcett’s PSA includes two of the North Port zip codes, 32486 and 32487. Those zip codes encompass the vast majority of the city’s geographic area. Agency The Agency is the state agency that administers the CON program. It is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Review and Preliminary Agency Action Manatee Memorial and HMA each filed letters of intent and CON applications in the February 2004 batching cycle for hospital beds and facilities. Each application sought Agency approval to establish a new acute care hospital in Subdistrict 8-6 to serve the city of North Port. The fixed need pool published by the Agency for the February 2004 batching cycle identified a need for zero new acute care beds in Subdistrict 8-6. There were no challenges to the fixed need pool. HMA’s letter of intent was filed in the “grace period” established by Florida Administrative Code Rule 59C-1.008(1)(d) in direct response to Manatee Memorial’s earlier-filed letter of intent. Manatee Memorial’s application was designated CON 9767, and HMA’s application was designated CON 9768. The applications complied with the technical submittal requirements in the statutes and Agency rules, and they were properly accepted for review by the Agency. The Agency comparatively reviewed the CON applications filed by Manatee Memorial and HMA. The Agency’s review of the applications complied with the applicable statutes and Agency rules. The Agency’s review culminated in a State Agency Action Report (SAAR) issued on June 11, 2004. The SAAR recommended denial of Manatee Memorial’s CON 9767 and approval of HMA’s CON 9768. The SAAR was issued prior to HMA’s acquisition of BS- St. Joe and BS-Venice. The Agency’s preference for HMA’s application over Manatee Memorial’s application was primarily based upon its assessment that HMA’s projected utilization was more reasonable and attainable than Manatee Memorial’s projected utilization. The SAAR recommended that the approval of HMA’s application be conditioned upon HMA providing 6.9 percent of the patient days at its North Port hospital to Medicaid patients and 2.9 percent of the patient days to charity patients. Those percentages were derived from the payor-mix assumptions used in the revenue projections in Schedule 7A of HMA’s CON application. The Agency published notice of its decisions on the CON applications in the Florida Administrative Weekly on June 25, 2004. The petitions for administrative hearing were all timely filed. The Agency reaffirmed its support for HMA’s application and its opposition to Manatee Memorial’s application at the final hearing through the testimony of Jeffrey Gregg, the bureau chief over the Agency’s CON program. Mr. Gregg testified that the Agency’s support of HMA’s application is unaffected by HMA's acquisition of BS-St. Joe and BS-Venice even though he acknowledged that the acquisition may have implications on the competition for acute care services in market in and around the city of North Port. Subdistricts 8-1 and 8-6 District 8 is comprised of Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. There are six subdistricts in District 8, only two of which are relevant to this case. They are Subdistricts 8-1 and 8-6. Subdistrict 8-6 is comprised of Sarasota County. There are no other counties in the subdistrict. There are four acute care hospitals in Subdistrict 8-6: Sarasota Memorial Hospital (Sarasota Memorial), Doctors Hospital of Sarasota (Doctors), Venice Hospital, and Englewood. Sarasota Memorial and Doctors are in northern Sarasota County in the city of Sarasota. Venice Hospital and Englewood are in southern Sarasota County. Sarasota Memorial is a not-for-profit, taxpayer supported hospital. Doctors is an HCA hospital. Sarasota County is bordered on the south by Charlotte County, which is the only county in Subdistrict 8-1. There are three acute care hospitals in Subdistrict 8-1: Peace River, Charlotte Regional, and Fawcett. There are a total of 1,776 licensed acute care beds at the seven hospitals in Subdistricts 8-1 and 8-6. That number has remained constant since at least 2002. The overall annual occupancy rate for the hospitals in Subdistricts 8-1 and 8-6 was 49.53 percent in 2002. In 2003 and 2004, the overall annual occupancy rate was approximately 46.4 percent. Between 2002 and 2004, Charlotte Regional had the highest occupancy rate of any of the hospitals in Subdistricts 8-1 and 8-6, but its occupancy rate did not exceed 67 percent in any of those years. In 2004, its annual occupancy rate was only 56.6 percent. The occupancy rates at the existing hospitals is higher during the “season,” but the evidence was not persuasive that any of the existing hospitals are routinely at or over capacity during the “season” or at any other time during the year. In 2002, there were a total of 321,696 patient days at the hospitals in Subdistricts 8-1 and 8-6. By 2004, the total number of patient days had declined to 301,099. Some, but not all, of that decline is attributable to Hurricane Charley, which directly hit the Port Charlotte area in August 2004 causing significant damage to Fawcett and disrupting service at the other hospitals in the area. There are no geographic barriers between Sarasota and Charlotte Counties. The service areas of the hospitals in southern Sarasota County and the hospitals in northern Charlotte County overlap, and there is significant cross-migration of patients between the counties. There is significant competition for acute care services in both Charlotte and Sarasota Counties. No hospital organization has a dominant market position. In 2004, for example, Sarasota Memorial had a 47 percent market share in Sarasota County, the HCA hospitals had a 22.8 percent market share, and the HMA hospitals (including the former Bon Secours hospitals) had a 21.4 percent market share. In the combined Sarasota County/Charlotte County “market,” the HMA hospitals (including the former Bon Secours hospitals) had a 33.7 percent market share, Sarasota Memorial had a 31.4 percent market share, and the HCA hospitals had a 25.6 percent market share. City of North Port (1) Generally The city of North Port is located in southern Sarasota County. The southern border of the city is the Sarasota County/Charlotte County line. The city roughly corresponds to the area encompassed by zip codes 34286, 34287, and 34288. Zip code 34289 is also a North Port zip code, but there is no geographic area assigned to that zip code. The city was platted in the 1960’s by General Development Corporation. The plats covered approximately 75 square miles of land and included approximately 70,000 residential lots, only 20 percent of which have been developed. There are also several large "developments of regional impact" under construction or in the planning stages within the city that together are projected to add at least 15,000 more residential units to the city over the next 15 to 20 years. A number of the streets that were constructed when the city was originally platted have fallen into disrepair, which hampers the provision of police, fire, and EMS. The city is currently conducting a comprehensive street inventory to assess the extent of the problem. Additional undeveloped land has been annexed into the city over the years, which has increased the city's size to 103 square miles. Currently, North Port is the fourth largest city in the state in terms of landmass. The Myakka River runs through the western portion of the city. The land to the west of the Myakka River is mostly undeveloped and includes the Myakka State Forest. Residential lots and open space make up approximately 95 percent of the city’s platted land area. The non-residential uses are clustered in five “activity centers” around the city. Major roadways through North Port include Interstate 75 (I-75), which runs east-west in the vicinity of the northern city limit and then north-south in the vicinity of the eastern city limit; U.S. Highway 41 (US 41), which runs parallel to I-75 in the southern portion of the city; Price Boulevard, which runs parallel to I-75 and US 41 through the center of the city; and Toledo Blade Boulevard and Sumter Boulevard, which run north- south near the center of the city. Toledo Blade, Sumter, and Price Boulevards are in need of widening, and there are several intersections on those roads that are operating below their adopted levels of service. It is not clear when the widening will occur, and the city’s concurrency management ordinance may soon require a moratorium on the issuance of building permits in the geographic areas impacting those intersections. The city is also in the process studying how to control its growth. The possibility of a moratorium is part of that study, but no recommendations had been formulated on that issue as of the date of the hearing. As a result, the likelihood of a moratorium on building permits in areas other than those which impact the intersections referenced above is unknown. Two of the activity centers are located on Toledo Blade Boulevard, two are located on Sumter Boulevard, and the other is located US 41. Hospitals are considered a permitted use in the activity centers. There is currently no acute care hospital or 24/7 urgent care facility in North Port. The North Port Health Park, which was acquired by HMA in February 2005 along with BS-St. Joe and BS-Venice, offers a variety of outpatient services and diagnostic procedures (e.g., echocardiography, mammograms, and “CAT scans”). It also includes approximately 20 physician offices and a clinical laboratory. The volume of diagnostic procedures at the North Port Health Park increased significantly between 1999 and 2004. There has also been steady growth in its laboratory volume over that period. Patients frequently come to the North Port Health Park with conditions requiring emergency services or hospitalization, which requires an ambulance to be called to transport the patient to one of the existing hospitals in the area. North Port city officials have been actively pursuing the establishment of a hospital in the city for several years. In 2003, the city engaged health planner Gene Nelson to study the feasibility of a hospital in the city. At the time, the City was considering filing its own CON application. Mr. Nelson presented a report to the City Council in June 2003, in which he concluded that it was “premature” for a hospital in North Port at that time. He projected that a hospital in North Port could “eventually” reach census levels to support a 59-bed to 74-bed hospital, and that even under more “aggressive” or “optimistic” assumptions, there would be a need for only 84 beds in 2010. The city ultimately decided to devote its efforts to encouraging an existing hospital company to build a hospital in the city and, in that regard, the City Commission voted to actively support those efforts through a “locally based campaign to collect letters of support for the hospital.” In January 2004, the City Council adopted a resolution reaffirming its “objective” to get a hospital in the city and expressing its support for Manatee Memorial’s proposal to build the hospital. There is considerable support for the establishment of a hospital in North Port from the residents of the city. The Agency received more than 20,000 letters and petitions from city residents urging the Agency to approve a hospital in the city. A community’s desire for a new hospital does not mean there is a “need” for a new hospital. Under the CON program, the determination of need for a new hospital must be based upon sound health planning principles, not the desires of a particular local government or its citizens. There are approximately 40 physicians who practice in North Port, but only nine of those physicians have full-time practices in the city. The others have part-time practices, meaning that they are in their North Port office for only part of the week. Most of the physicians practicing in North Port are primary care physicians, but there are also specialists in cardiology, oncology, general surgery, radiology, and other fields. Many of the physicians have their offices in the North Port Health Park. Population The city of North Port has grown steadily since 1970. In 2000, according to the U.S. Census Bureau, the city’s population was 22,797. Approximately 31 percent of the city’s residents are in the 65 and older (65+) age cohort. The largest percentage of the residents in the 65+ age cohort are in zip code 34287, which is growing at a slower rate than the other zip codes in the city. The median age in the city is declining. In 1990, the median age was 49, and in 2000, the median age was 41. In 2004, according to the University of Florida’s Bureau of Economic and Business Research (BEBR), the city’s population was 35,721. BEBR publishes the “official” population estimates for cities and counties in Florida. It does not project future populations and it does not provide population data by zip code. Claritas is a national demographic research firm. It projects future population by zip code, by age cohort, and with other demographic information. Health planners commonly rely upon the population projections from Claritas in preparing CON applications. Claritas projects future population in five-year increments, and it updates its population projections annually. At the time Manatee Memorial and HMA filed their CON applications, the most current Claritas data was for the period of 2003-2007. Population projections beyond 2007 were extrapolated based upon the annual population increases reflected in the available Claritas data. At the time of the final hearing, the most current Claritas data was for the period of 2004-2008. The North Port Planning and Zoning Department uses its own methodology to project future population for the city. The population projections are used in the city’s capital improvement planning and in the development of its comprehensive plan. The city’s methodology uses Census data as the starting point and then projects the future population by using a “rolling average” of the number of residential building permits issued in the previous five years to develop a projected number of residential building permits for each future year. A factor of 2.48 individuals per household (which is a North Port- specific figure from the U.S. Census Bureau) is then used to project the annual increase in population for each year in the future. A factor of 10 percent is added to the projection for seasonal residents. The evidence was not persuasive that the projections based upon the city's methodology are reliable. The city’s methodology typically results in population projections that are materially higher than the official BEBR estimates. For example, the city’s methodology projected a 2004 population of 39,662, which is approximately 11 percent higher than the official BEBR estimate of 35,721. The city’s methodology is based upon building permits, not certificates of occupancy or some other measure that would indicate that the residence was completed and, more importantly, inhabited. The city’s methodology also assumes continued growth at the historical rate and does not take into account the possibility of a moratorium on the issuance of building permits, which was being studied by the city at the time of the final hearing. The Claritas population projections are not entirely accurate either. Claritas typically under-projects future population in fast-growing areas, such as North Port. For example, the 2003-2007 Claritas data projected that the city’s 2004 population would be 32,487, which was approximately 9.1 percent lower than the official BEBR estimate of 35,721. The variance between the Claritas population projections and the projections based upon the city’s methodology are more pronounced in the later years. In 2010, for example, the city’s projected population based upon an extrapolation of the 2003-2007 Claritas data was 39,446 as compared to 72,066 based upon the city’s methodology. The population projections based upon the 2003-2007 Claritas data are too low and the projections based upon the city’s methodology are too high. On balance, the most reasonable population projections for the city of North Port contained in the record are those in Exhibit EF-10. Those projections, which were based upon the updated Claritas data for 2004-2008 and then extrapolated for 2009 and 2010, are as follows: 36,733 in 2004; 38,613 in 2005; 40,601 in 2006; 42,703 in 2007; 44,928 in 2008; 47,283 in 2009; and 49,777 in 2010. The 2004-2008 Claritas data better takes into account the city’s historically-high growth rate than does the 2003-2007 Claritas data, but it results in a more realistic projection of the city’s 2010 population than does the city’s methodology. Hospital Discharges There were 4,473 non-tertiary patients from the North Port zip codes discharged from a hospital in Florida in 2004.1 Only 1,356 (or approximately 30.3 percent) of the non-tertiary patients from the North Port zip codes were discharged from a hospital in Subdistrict 8-6, which means that almost 70 percent of the patients “out-migrated” from the subdistrict. Approximately 86.9 percent of the patients who “out-migrated” were discharged from a hospital in Subdistrict 8-1, which is adjacent to the city’s southern border. Overall, in 2004, approximately 91 percent of the non-tertiary patients from the North Port zip codes were discharged from a hospital in Subdistrict 8-1 (60.5 percent) or Subdistrict 8-6 (30.3 percent). Those percentages were similar in 2002 and 2003. The average length of stay (ALOS) related to those discharges was approximately 4.5 days, which means that North Port patients generated approximately 20,129 non-tertiary patient days in 2004. If a hospital had captured 100 percent of North Port’s non-tertiary patients in 2004, it would have had an ADC of 56 patients. There were 499 OB patients from the North Port zip codes discharged from a Florida hospital in 2004. Those discharges resulted in 1,172 OB patient days, which means that the ALOS for the OB patients from the North Port zip codes was 2.34 days. Approximately 95 percent of the North Port OB patients were discharged from either Sarasota Memorial (56.5 percent) or BS-St. Joe (38.3 percent), which is now Peace River. If a hospital captured 100 percent of the North Port OB patients in 2004, its OB unit would have had an ADC of 4 patients. The Proposed North Port Hospitals (1) HMA Generally HMA’s proposed North Port hospital (hereafter “North Port HMA”) will be an 180,167 square foot (SF) facility with 80 beds. All of the beds at North Port HMA will be in private rooms. The rooms are large enough to be converted into semi- private rooms, if necessary. The design of North Port HMA is similar to that of other HMA hospitals, but the size of the hospital and scope of the services offered at North Port HMA was tailored based upon North Port's demographics. North Port HMA will have a 9-bed OB unit, a 12-bed ICU, a 24/7 ED, and it will offer some outpatient services. The hospital will not have a cardiac cath lab or a dedicated pediatric unit, and it will not offer tertiary services. The total project cost for North Port HMA will be approximately $78 million, or $975,730 per bed. The project will be funded by HMA, Inc., from its “existing cash, future cash flow, and possible proceeds from the issuance of debt [by HMA, Inc].” HMA’s CON application includes a letter from the Corporate Comptroller of HMA, Inc., confirming that HMA, Inc., “will provide any and all funding or financial resources which may be required for the completion and continued operation of [North Port HMA].” HMA did not commit in its CON application to build North Port HMA in the city of North Port, but its witnesses testified at the final hearing that the hospital will be built in the city. The precise location of the hospital was not specified. North Port HMA will have three floors. The first floor will include the ED, operating rooms, radiology department, the clinical laboratory, outpatient services, and ancillary space such as kitchen/dining, medical records, and administrative offices. The second floor will include patient rooms and the ICU. The third floor will include patient rooms. North Port HMA is designed and engineered for vertical expansion, and it will be “pre-stressed” for additional floors. North Port HMA will utilize a picture archive communication system (PACS) and other digital IT systems. Patient clinical information will be maintained electronically, updated at the point of care, and will be available to clinicians through a secure network in the hospital. Service Area and Utilization Projections The PSA for North Port HMA is the city of North Port, which is comprised of zip codes 34286, 34287, 34288, and 34289. The PSA is reasonable. A SSA is not geographically defined, but HMA projected in the application that 20 percent of the admissions at North Port HMA would come from outside of the PSA. The projected 20 percent in-migration from the SSA is somewhat optimistic for a non-tertiary community hospital, but it is nevertheless reasonable under the circumstances.2 HMA used Claritas' population projections to project the utilization of North Port HMA. The utilization projections assumed that North Port HMA will have a 55 percent market share in the PSA in its first year of operation and a 70 percent market share in the PSA in its second year of operation. These market share assumptions are reasonable and attainable based upon HMA's historical experience and the considerable community support for a hospital in the city. North Port HMA was projected to open in 2007, and HMA’s CON application includes utilization projections for the hospital’s first two years of operation in 2007 and 2008. The application projected that North Port HMA would have 15,695 patient days in its first year of operation and 20,629 patient days in its second year of operation, which is an ADC of 43 patients and a utilization rate of 53.8 percent in year one (2007) and an ADC of 57 patients and a utilization rate of 70.6 percent in year two (2008). The methodology used to calculate those figures was as follows: first, the projected patients from the PSA were calculated by applying the 2003 age-cohort specific use rates to the PSA’s projected 2007 and 2008 populations; then, the market share assumptions were applied and a factor of 20 percent was added to reflect “in-migration” from the SSA; and finally, an ALOS of 4.6 was used to convert the discharges to patient days. The 4.6 ALOS, which is based upon the actual 2003 discharge data for residents of the PSA, is reasonable even though the 2004 discharge data reflects a slightly lower ALOS of 4.5. Use of age-cohort specific use rates to project future discharges is reasonable. However, application of the 2003 use rates to the projected 2007 and 2008 populations is not reasonable because the median age in the city of North Port is declining, and as the population’s age declines, so does its use rate. Nevertheless, the utilization projections for North Port HMA are reasonable and attainable. The utilization projections in HMA's CON application are more conservative than the projections based upon the updated Claritas population projections, a declining use rate, and the lower 2004 ALOS of 4.5.3 (2) Manatee Memorial (a) Generally Manatee Memorial’s proposed North Port hospital (hereafter “North Port Hospital”) will be a 200,000 SF facility with 120 beds. It will have a mix of private and semi-private rooms. North Port Hospital will have a 20-bed “women’s center,” a 20-bed ICU/critical care unit (CCU), a 24/7 ED, and a diagnostic cardiac cath lab. It will not offer tertiary services. The “women’s center” will be more than an OB unit. It will offer range of services related to women’s health, including general gynecological care, pre-natal and post-natal care, delivery of babies, mammography and other breast cancer services, and gynecological surgery. The total project cost for North Port Hospital will be approximately $59.7 million, or $497,448 per bed. The funding for the project will be provided by UHS from its “net cash flow from operation.” Manatee Memorial’s CON application includes a letter from UHS’s Senior Vice President and Chief Financial Officer confirming that UHS will finance North Port Hospital. Manatee Memorial committed in its CON application to build North Port Hospital in the city of North Port, but no specific site was identified. Manatee Memorial has not yet acquired or contracted to purchase any property in the city. North Port Hospital will have three floors. The first floor includes the “women’s center,” ED, laboratory, outpatient services, cardiac cath labs, surgery suites, and ancillary space such as medical records, kitchen/dining, and administrative offices. The second floor includes the ICU/CCU, pediatric unit, and patient rooms. The third floor includes patient rooms. The design, space plan, methods of construction, and equipment at North Port Hospital will be similar to that at Lakewood Ranch. Indeed, Manatee Memorial’s witnesses described North Port Hospital as a “mirror image” of Lakewood Ranch, which is also a 120-bed non-tertiary hospital with a 20-bed ICU/CCU and a 20-bed “women’s center.” North Port Hospital is designed for horizontal expansion, which causes less disruption to the ongoing operations of the hospital than does vertical expansion. North Port Hospital will utilize a PACS and other “state of the art” IT systems. Patient clinical information will be maintained electronically, updated at the point of care, and will be available to clinicians through the hospital’s secure wireless network. The mechanical and engineered systems at North Port Hospital are appropriate, as is the hospital's design.4 Manatee Memorial will not fully equip North Port Hospital at start-up. Instead, as it did with Lakewood Ranch, it will minimally equip each patient room with the required equipment (e.g., bed, headwall, etc.) but it will only provide the specialized equipment necessary to serve the projected patient census for the first year of operation. Additional equipment will be incrementally added as census increases. (b) Service Area and Utilization Projections The PSA and SSA for North Port Hospital, which are the same as the PSA and SSA for North Port HMA, are reasonable. North Port Hospital was projected to open in 2008, and Manatee Memorial’s CON application includes utilization projections for the first three years of operation, 2008-2010. The utilization projections assume that North Port Hospital will have a 45 percent market share in the PSA in its first year of operation, a 60 percent market share in its second year of operation, and a 70 percent market share in its third year of operation. These market share assumptions, which are slightly more conservative than those projected for North Port HMA, are reasonable and attainable. Manatee Memorial projected in its CON application that North Port Hospital would have 17,413 patient days in 2008; 25,798 patient days in 2009; and 33,327 patient days in 2010. Those patient days equate to ADCs of 48 patients in 2008, 71 patients in 2009, and 92 patients in 2010, which, in turn, equate to utilization rates of 39.7 percent in 2008, 58.9 percent in 2009, and 76.1 percent in 2010. The methodology used by Manatee Memorial to calculate those figures was as follows: first, the 2008-2010 populations were projected by using the 2003 BEBR estimate as a starting- point and then applying the city’s building permit-based methodology described in Part D(2) above; then a use rate of 142 was applied to the 2008-2010 populations to calculate the discharges from the PSA; then, after applying the market share assumptions, a 20 percent factor was added to reflect “in- migration” from the SSA; and, finally, the discharges were converted to patient days by applying an ALOS of 4.2. The results of this methodology are not reasonable. As discussed in Part D(2), the city’s methodology for projecting future population is not reliable and tends to overstate the future population. Moreover, the use rate is overstated because it is not age-cohort specific and it did not take into account the declining age of the city’s population. The combined effect of applying an overstated use rate to the overstated 2008-2010 populations is a significant overstatement in the projected patient days and utilization rates at North Port Hospital. The most reasonable projections of the discharges from the PSA for 2008-2010 are those in Exhibit EF-10 (pages XI- 1, XII-1, and XII-2): 5,433 in 2008; 5,709 in 2009; and 6,000 in 2010. Those projections are based upon the updated Claritas population projections and a declining use rate. Applying the market share assumptions and ALOS used in the methodology in Manatee Memorial’s CON application to those more reasonable discharge projections results in projected patient days at North Port Hospital of 12,835 in 2008; 17,983 in 2009; and 22,050 in 2010.5 If an ALOS of 4.5 were used (rather than the 4.2 ALOS used in Manatee Memorial’s CON application), the projected patient days would be 13,752 in 2008; 19,268 in 2009; and 23,625 in 2010.6 The utilization rate at North Port Hospital based upon those patient-day projections will be between 29.3 and 31.4 percent in 2008, between 41.1 and 44 percent in 2009, and between 50.3 and 53.9 percent in 2010. Statutory and Rule Criteria There was no credible evidence that there is a need for two new acute care hospitals in the city of North Port or in southern Sarasota County. Therefore, if either of the CON applications at issue in this proceeding is to be approved, it should be the one that best satisfies the applicable statutory and rule criteria. (1) § 408.035(1), (2), and (5), Fla. Stat. (2005),7 and Fla. Admin. Code R. 59C-1.008(2)(e)2. (a) Generally Subsections 408.035(1), (2), and (5), Florida Statutes, are interrelated and require an evaluation of the availability and accessibility of the existing hospitals in the district and the extent to which the proposed new hospital would “enhance access” for residents of the district. Florida Administrative Code Rule 59C-1.008(2)(e)2. also requires consideration of those issues, as well as population demographics and dynamics and market conditions. Florida Administrative Code Rule 59C-1.008(2)(e)2. is implicated when the Agency does not have a rule methodology or policy for calculating need, which is now the case for acute care beds. The utilization levels at the existing hospitals is a measure of their availability, but the Agency does not focus on utilization levels to the same extent that it did before the recent “deregulation” of acute care bed additions at existing hospitals. North Port Population Growth and Demographics There has been steady population growth in the city of North Port since 2000, and that the growth is projected to continue over the applicable planning horizon. The city's population grew by 56.7 percent between 2000 and 2004, and it is projected to grow by an additional 39.3 percent between 2004 and 2010. These percentage growth rates are misleading, however, because of the city’s small size.8 The actual population figures are a better measure of the city’s projected growth for CON purposes. Those figures reflect an increase of only an additional 14,000 persons between 2004 and 2010, which is a modest amount of growth. In 2010, the city’s population is still projected to be less than 50,000. The percentage of the city’s population in the 65+ age cohort is declining, as is the median age of the city’s population. These declines are significant because the elderly generally utilize hospital services at a higher rate than younger persons. The projected population growth in the city of North Port through 2010 is not in and of itself a basis for approving a new hospital in the city, and the declining elderly population and median age in the city also weigh against the approval of a hospital in the city. Quality of Care and Utilization at the Existing Hospitals and Market Conditions Manatee Memorial and HMA do not contend that there are problems with the quality of care at the existing hospitals currently serving the city of North Port, and the evidence establishes that the existing hospitals, which are all JCAHO- accredited, provide high quality care. There is not a shortage of acute care beds in the existing hospitals serving the city of North Port, and the evidence establishes that there are more than enough available beds at the existing hospitals, even during the “season.” The capacity constraints experienced at several of the hospitals during the 2004-2005 “season” are attributable to the impacts of Hurricane Charley, which resulted in the loss of 78 beds (including a 10-bed ICU) at Fawcett and also caused strains on the other hospitals. Even though the utilization rates at the existing hospitals are not as significant now as they once were, it is still noteworthy that none of the hospitals in Charlotte and Sarasota Counties had a occupancy rate above 57 percent in 2004 and that the number of patient days in those hospitals decreased by approximately 20,000 between 2002 and 2004. Availability and Accessibility of the Existing Hospitals and Enhancing Access The accessibility of the existing hospitals in an area is typically evaluated in terms of geographic, programmatic, cultural, and financial access. Geographic access concerns arise when there are substantial impediments to patients obtaining services at the existing hospitals in a timely manner, and typically involve distance, travel time, geographic barriers, or other similar factors. Programmatic access concerns arise when specific programs or services are not available at the existing hospitals or when the quality of the existing programs or services is inadequate. Cultural access concerns arise when cultural factors, such as race, ethnicity, and/or national original, impede patients from obtaining services at the existing hospitals. Financial access concerns arise when indigent patients are denied or have difficulty in obtaining care because of policies or practices in place at the existing hospitals. Manatee Memorial and HMA did not contend in their CON applications, nor is the evidence persuasive that a hospital in North Port is needed to address programmatic, cultural, or financial access concerns. Manatee Memorial and HMA contend that a hospital is needed in North Port to address existing geographic access problems and/or to enhance geographic access to acute care and emergency services for North Port residents. Geographic Access, Generally There are no significant geographic barriers between North Port and the existing hospitals, although it is necessary to cross a drawbridge over the Intracoastal Waterway to get to Venice Hospital. There are five acute care hospitals within 20 miles of North Port. Two of the hospitals, Peace River and Fawcett, are less than five miles south of the city’s southern border. As discussed in Part D(3) above, there is significant "out-migration" of patients from North Port in Subdistrict 8-6 to hospitals outside of the subdistrict. "Out-migration" of patients from one subdistrict to hospitals in another subdistrict can be an indication of an access problem. The proximity of North Port to Peace River and Fawcett explains the significant level of “out-migration” of patients from the city to those hospitals in Subdistrict 8-1. Indeed, in 2004, approximately 72.2 percent of the North Port patients who were discharged from a hospital outside of Subdistrict 8-6 were discharged from either BS-St. Joe (now Peace River) or Fawcett.9 Thus, the significant level of “out- migration” of patients from the city to hospitals outside of Subdistrict 8-6 does not, in and of itself, indicate an access problem. The CON applications indicate that there are as many as six hospitals within a 30-minute drive of North Port, and that four are within a 17-minute drive. Those drive times were corroborated by several of the witnesses who testified at the hearing. A 30-minute drive time is the generally accepted standard for access to acute care services. There was anecdotal testimony that the drive times can be significantly longer if there is an accident on US 41 or I-75, but the more persuasive evidence was that the “typical” drive times are those reflected in the CON applications. The evidence was not persuasive that the current drive times will be longer in the future even though the city’s population is expected to increase. Indeed, although there was testimony that the city is considering a moratorium on development due, in part, to the congestion on the city’s roads, there was also testimony that there are planned or ongoing capital improvements to expand the capacity of the roads. A hospital in North Port is not necessary to address a geographic access problem. As recognized by Mr. Nelson in his report to the city regarding the need for a hospital in North Port, “[t]he proximity of two hospitals within 10 miles negates a geographic access argument.” It cannot be determined whether, or to what extent, a hospital in North Port will enhance geographic access because it is unknown where the hospital will be located. Indeed, it is possible that because of the city’s large landmass some North Port residents will be as close to one or more of the existing hospitals even if there is a hospital within the city limits. Access to Emergency Care Another “access” argument advanced by Manatee Memorial and HMA focuses on perceived problems with access to emergency care in the existing hospitals. One measure of access to emergency care is the length of time that patients stay in the ED from the time of their arrival to the time of their discharge (hereafter “ED-LOS”). A related measure of access to emergency care is the number of patients who leave the ED without treatment or against medical advice (collectively “LWOTs”). A longer ED-LOS does not directly correlate to a “delay” in access to emergency care because the ED-LOS includes not only the time that the patient is waiting to be seen, but also the time that the patient is being assessed and treated, which can vary based upon the complexity or severity of the patient’s medical condition. A two to three-hour ED-LOS is a reasonable standard. HMA has established a two-hour “goal” for ED-LOS at its hospitals. Charlotte Regional, Peace River, and Venice Hospital have been unable to meet the two-hour goal. ED-LOS fluctuates throughout the year. It is higher between December and April, which generally corresponds to the “season” in Sarasota and Charlotte Counties. The number of LWOTs also fluctuates throughout the year and, like ED-LOS, LWOTs are typically higher during the “season.” This indicates that, as would be expected, there is a correlation between longer ED-LOS and LWOTs. The ED-LOS at Charlotte Regional has increased over the past several years. For example, its average annual ED-LOS increased from two hours and 46 minutes in 2003 to three hours and 16 minutes in 2005 (through March), and its average ED-LOS in March 2005 was three hours and 45 minutes. The ED-LOS at Venice Hospital has also increased over the past several years. In 2003, its average annual ED-LOS was 2.94 hours and, in 2005 (through March), its average ED-LOS was 3.55 hours. The average ED-LOS in February 2005 was 4.18 hours. The record does not reflect the average ED-LOS at Peace River, although there was anecdotal testimony that the ED- LOS can be as long as six to eight hours during the “season.” The number of LWOTs at Charlotte Regional has been increasing over the past several years, as has the number of LWOTs at Venice Hospital. LWOTs have also been a problem at Peace River. The ED-LOS at Fawcett was approaching two hours prior to Hurricane Charley, but it has increased since the hurricane. The anecdotal testimony that the ED-LOS at Fawcett is “routinely” six-to-eight hours during the “season” was not persuasive. The ED-LOS at Englewood is two-to-three hours. Charlotte Regional’s ED has 12 beds and had approximately 19,000 visits in 2004. The ED has long been in need of expansion and/or renovation, but there are no current plans to expand the ED. Expansion of the ED would be difficult because of the age of the hospital, its location in a floodplain, and limited space on the current site. Peace River’s ED was expanded in December 2003 to include 24-beds and a 10-bed observation unit. Its patient volume has grown from 16,000 visits in 1990 to 32,000 visits in 2004, and despite the expansion, Peace River’s ED continues to be overburdened during the “season.” Fawcett’s ED is 5,700 SF and has 13 treatment “rooms,” some of which are separated by curtains. The ED has not been expanded since 1992 despite increasing volumes. In 2004, Fawcett’s ED had 21,000 visits. In April 2005, Fawcett received approval from HCA for a $7.3 million expansion to its ED. The expansion will increase the size of the ED to 12,500 SF and 20 treatment rooms. Architectural plans for the expansion had not been prepared at the time of the final hearing, but it was expected that construction on the expansion would begin by the end of 2005 and be completed by December 2006. The expansion of Fawcett's ED will help to enhance access to emergency care at Fawcett. Englewood’s ED has eight beds and two “fast track” beds. It had approximately 17,000 visits in 2004. Englewood’s ED is approximately the same size as Fawcett’s ED, but with fewer beds. There are no plans to expand the ED at Englewood because, as noted above, ED-LOS has not been a problem at Englewood. Another measure of access to emergency care is the frequency that the existing hospitals are on “diversion.” A hospital goes on diversion when it is unable to receive any additional emergency patients and the EMS providers are instructed to take additional patients to another hospital. There are a number of reasons that a hospital may go on diversion. Common reasons include an overcrowded ED, a lack of ICU beds or inpatient beds to move ED patients into, or a piece of equipment (such as a CT scanner) being unavailable. A hospital may be on “full” diversion status, meaning that it is unable to accept any patients, or it may be on diversion status for only certain types of patients, such as OB patients or patients in need of CT scans. Diversion has not been a significant problem in Charlotte County, but it is becoming more common for one or more of the hospitals in the county -– Charlotte Regional, Peace River, and Fawcett -– to be on diversion, particularly during the “season.” When one of the hospitals goes on diversion, there is often a “domino” effect at the other hospitals resulting in all three of the hospitals being on diversion at the same time. When all of the hospitals are on diversion at the same time, EMS requires each hospital to take patients on a rotational basis. The most common reason that Charlotte Regional goes on diversion is a lack of inpatient beds to receive patients admitted through the ED, which results in a “bottleneck” of patients in the ED. The length of time that Charlotte Regional remains on diversion typically ranges from two to 12 hours. The most common reason that Fawcett goes on diversion is a lack of inpatient beds to move patients into from the ED. This problem was exacerbated by the damage to the hospital caused by Hurricane Charley and, as a result, Fawcett has been on diversion considerably more since the hurricane than it was prior to the hurricane. For example, in February 2005, Fawcett was on diversion for a total of 260 hours, as compared to 13 hours in February 2004 and 62 hours in February 2003. Fawcett also has gone on diversion when its CT scanner is unavailable. Fawcett recently received approval from HCA to add a second CT scanner, which should alleviate the need to go on diversion based upon the unavailability of its CT scanner. The expansion of Fawcett's ED will help to reduce Fawcett's need to go on diversion, as will the completion of the repair work to the fourth floor of the hospital. Englewood rarely has to go on diversion. In 2005, it was only on diversion three times and, in 2004, it was only on diversion twice. The primary reason that Englewood goes on diversion is when its CT scanner is unavailable. Emergency patients from North Port do not significantly contribute to the ED overcrowding issues faced by the Charlotte County hospitals. The only persuasive evidence regarding the number of emergency patients from North Port who utilized the EDs at the existing hospitals was the transport data compiled by North Port EMS. That data reflects that between March 1, 2004, and March 1, 2005, 706 patients were transported by North Port EMS to BS-St. Joe/Peace River and 701 patients were transported by North Port EMS to Fawcett, which is less than two patients per day to each hospital and only a small fraction of the total ED visits at Peace River (32,000 in 2004) and Fawcett (21,000 in 2004). On average, a North Port EMS ambulance is “out of service” for 86 minutes when it is transporting a patient to an area hospital. That time starts when the ambulance is dispatched on a call and ends when the ambulance returns to the city. The average “out of service” times for transports to Peace River and Fawcett (which are the two closest hospitals to the city) are 67 minutes and 82 minutes, respectively. The only variable portion of the “out of service” time is the time that the ambulance is in transit from the location where the patient is picked up to the hospital and the time that it is in transit from the hospital back to the city. The remainder of the “out of service” time is fixed in the sense that it will occur no matter where the patient is ultimately transported. As reflected in Exhibit HMA-14 (page 14-22), the fixed portion of the out of service time can be 31 to 36 minutes, and includes the time between dispatch and arrival at the patient’s location, the time that it takes the paramedics to deliver the patient to the hospital’s nursing staff and exchange report information, and the time that it takes the paramedics to clean and restock the ambulance. The North Port EMS system is strained when one of its ambulances is out of service because the city only has three ambulances. North Port EMS is expected to get another ambulance in 2005. A hospital in North Port may reduce the strain on the North Port EMS system by reducing the variable component of the “out of service” time for its ambulances. However, the evidence was not persuasive as to the extent of the reduction since it is unknown where the hospital would be located in the city. Approval of a hospital in North Port would not eliminate the strain on the North Port EMS. Even if one of the proposed hospitals at issue in this proceeding were approved, trauma patients and patients in need of tertiary services would still need to be transported to another hospital in the area. Even though the EDs at the existing hospitals are heavily utilized and, at times, overcrowded, the evidence was not persuasive that there is a significant access problem for emergency services in the area. The evidence was also not persuasive that the approval of a hospital in North Port would materially enhance access to emergency services. Access to OB Service The evidence was not persuasive that there are access problems for North Port residents with respect to OB services, and, to the contrary, the evidence establishes that OB services are available and reasonably accessible at Peace River and Sarasota Memorial. A hospital in North Port would provide more convenient access to OB services for North Port residents, at least those who are closer to the North Port hospital than they are to Peace River. OB patients would also benefit from having more convenient pre-natal care and other OB/GYN services that are proposed as part of the “women’s center” center at Manatee Memorial’s North Port Hospital. However, it is not necessary to provide many of those services in a hospital setting, and the inclusion of those services does not justify the approval of a hospital in North Port. More convenient or enhanced access to OB services resulting from a hospital in North Port does not, in and of itself, justify the approval of the CON applications. In 2010, there are projected to be only 686 OB discharges from the North Port zip codes, which, based upon the 2004 ALOS of 2.34, will generate 1,606 patient days. If a North Port hospital captured 100 percent of those patients, its OB unit would have an ADC of only five patients in 2010. There is more than enough capacity at the existing hospitals that offer OB services to accommodate those patients, and it is unlikely that a hospital in North Port would get 100 percent of the OB patients from the city because the high-risk patients will likely go to a hospital that has a NICU. Summary In sum, the evidence was not persuasive that there is a “need” for a hospital in North Port due to the projected population growth in the city or that there are significant problems in accessing emergency or other care at the existing hospitals in the area that would be materially enhanced through the approval of a hospital in North Port. As a result, and in light of the relatively low utilization rates at the existing hospitals, the criteria in Subsections 408.035(1), (2), and (5), Florida Statutes, and Florida Administrative Code Rule 59C- 1.008(2)(e)2. strongly weigh against the approval of either CON application. (2) § 408.035(3), Fla. Stat. Subsection 408.035(3), Florida Statutes, requires consideration of the applicants’ ability to, and record of, providing quality of care. Manatee Memorial and HMA each has a history of providing a high quality of care at its existing hospitals, and it is reasonable to expect that each would provide a high quality of care at its proposed North Port hospital. All of the existing hospitals that currently serve North Port are JCAHO-accredited, and it is undisputed that they provide a high quality of care. The evidence was not persuasive that the quality of care provided at either of the proposed North Port hospitals would be materially higher than that provided at the existing hospitals currently serving North Port.10 In some respects, the quality of care provided at the proposed North Port hospitals will be lower than that provided at the existing hospitals. For example, neither hospital will offer interventional cardiology services, which is (or is becoming) the standard of care for treating heart attack patients, and neither hospital will have any NICU beds to provide “back-up” for high-risk deliveries. The evidence was not persuasive that the quality of care provided at North Port HMA will be materially higher than that provided at Manatee Memorial’s North Port Hospital, or vice versa.11 In sum, Manatee Memorial and HMA each satisfies the criteria in Subsection 408.035(3), Florida Statutes, and that statute does not materially weigh in favor of either CON application over the other. (3) § 408.035(4), Fla. Stat. Subsection 408.035(4), Florida Statutes, requires consideration of the availability of staff, funds, and other resources necessary to establish and operate the proposed hospitals. It was undisputed that, with the assistance of their parent companies, Manatee Memorial and HMA have the financial and managerial wherewithal to establish and operate their respective North Port hospitals. Schedule 6 of Manatee Memorial's CON application projects that North Port Hospital will have 252.93 full-time equivalents (FTEs) in its first year of operation and 399.96 FTEs by its third year operation. The number of “nursing” FTEs –- registered nurses (RNs), licensed practical nurses, nursing aides, etc. -- in each of those years are 124.01 and 225.48. Schedule 6 of HMA's CON application projects that North Port HMA will have 307.7 FTEs in its first year of operation and 352 FTEs in its second year operation. The number of “nursing” FTEs in each of those years are 158.8 and 180.07. The staffing projections, including the number of “nursing” FTEs, in each of the CON applications are reasonable. The salary projections in each of the CON applications are reasonable.12 There has been an adequate supply of RNs and other clinical staff in Charlotte and Sarasota Counties despite the nursing shortage in Florida. Although some of the existing hospitals in the area experienced increased vacancy rates after Hurricane Charley, they generally have had relatively low vacancy and turnover rates. For example, the pre-Hurricane Charley vacancy rate at Fawcett was only four percent and, even after the hurricane, the vacancy rate at Englewood was only three percent. Manatee Memorial and HMA will each be able to attract the nurses and other personnel necessary to staff their proposed North Port hospitals at the FTE and salary levels identified in their respective CON applications. The evidence was not persuasive regarding the extent to which a hospital in North Port would draw staff from or otherwise impact the operations of the existing hospitals from a staffing perspective. The testimony offered by Englewood and Fawcett witnesses on these issues was imprecise and largely speculative. With respect to attracting physicians to the proposed North Port hospitals, it is significant that there are a number of specialists and other physicians who already have offices in the city of North Port and who have expressed support for a hospital in the city. It is reasonable to expect that many of those physicians will obtain staff privileges at a North Port hospital and, indeed, several testified that they would do so. HMA is in a better position to attract physicians to its proposed North Port hospital with minimal impact on the existing hospitals than is Manatee Memorial because HMA already employs physicians at the three hospitals it operates in the area from which it can draw medical staff (as Manatee Memorial did from MMH when Lakewood Ranch opened), and HMA also owns the North Port Health Park where a large number of the physician offices in the city are located. In sum, Manatee Memorial and HMA each satisfy the criteria in Subsection 408.035(4), Florida Statutes, and between the two competing applications, the criteria in that subsection marginally weigh in favor of HMA. (4) § 408.035(6), Fla. Stat. Subsection 408.035(6), Florida Statutes, requires consideration of the short-term and long-term financial feasibility of the proposed hospitals. Generally A CON project is financially feasible in the short- term if the applicant has the ability to fund or secure the funding for the capitalized project costs and initial working capital needs of the project in conjunction with the applicant’s other ongoing and planned capital projects. A CON project is financially feasible in the longterm if it will at least break-even in the second year of operation. If the project continues to show a loss in the second year of operation, it is not financially feasible in the longterm unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. HMA It is undisputed that North Port HMA is financially feasible in the shortterm. Schedule 8A of HMA's CON application projects that North Port HMA will have an after-tax net profit of approximately $3.05 million in its second year of operation. The reasonableness of the revenue and cost projections that resulted in that projected net profit was not contested and, as discussed in Part E(1)(b) above, the underlying patient days and utilization are reasonable and attainable. Therefore, North Port HMA is financially feasible in the longterm. Manatee Memorial Manatee Memorial’s North Port Hospital is financially feasible in the shortterm. Even if the construction and other start-up costs for North Port Hospital are materially higher than projected in the CON application (see Part F(6) below), UHS has the financial wherewithal to fund the project. With respect to long-term financial feasibility, Schedule 8A of Manatee Memorial's CON application projects that North Port Hospital will generate a net profit of approximately $3.5 million in its second year of operation (2009), and that by its third year of operation (2010), the hospital will generate a net profit of approximately $12.3 million. It is not unreasonable to look at North Port Hospital’s third year of operation (rather than its second year) in evaluating the hospital’s long-term financial feasibility because, unlike North Port HMA, North Port Hospital is not projected to “mature” until its third year of operation. For example, North Port Hospital is not projected to obtain a 70 percent share of the North Port market until its third year of operation, whereas North Port HMA is projected to have a 70 percent market share by its second year of operation. The projected net profits in Schedule 8A of Manatee Memorial’s CON application are overstated because, as discussed below, the underlying revenues have been overstated and the underlying expenses have been understated in several material respects. First, the revenues are based upon unreasonable and overstated utilization projections. The 2010 ADC at Manatee Memorial’s North Port Hospital will likely be no more than 64.7 patients (see Part E(2)(b) above), rather than the ADC of 76.1 projected in the CON application. The financial impact of the overstated utilization is an overstatement of the hospital’s projected 2010 net profit by at least $4.7 million.13 Second, the revenues attributable to the cardiac cath lab are based upon significantly overstated projections of cardiac cath volume. The cardiac cath lab at North Port Hospital is projected to have 10,359 inpatient and outpatient “procedures” in 2010, which, according to an expert in the administration of cardiac cath labs, is an “unheard of” number for a single cardiac cath lab at a non-tertiary hospital. The projections of cardiac cath procedures are based upon the experience at MMH. For example, the ratio of inpatient to outpatient procedures at MMH is 2.43, which is the same ratio projected for North Port Hospital. It is not reasonable to base the projected volume of cardiac caths and/or cardiac cath “procedures” at North Port Hospital on the experience at MMH because MMH has an OHS program and hospitals with OHS programs perform considerably more cardiac caths than hospitals without OHS programs. In 2004, for example, the District 8 hospitals without OHS programs averaged only 190 cardiac caths, as compared to an average of 1,476 cardiac caths for hospitals with OHS programs. Manatee Memorial acknowledges in its PRO that the projected cath procedures in the CON application are “on the high side,” but it contends that it is “not materially out of line” with the lab’s capacity because MMH did 24,629 inpatient and outpatient procedures in its two cardiac cath labs in 2003. In 2003, MMH did 17,467 inpatient "procedures" and had 1,387 cardiac cath cases, which is a ratio of 12.6 procedures per case. Manatee Memorial’s North Port hospital will likely have a ratio closer to 4.5 procedures per case, which is the ratio at Englewood and Fawcett and, as reflected in Exhibit HMA-59, is more in-line with the experience at the other hospitals in the area that do not offer OHS. The most reasonable projection of the number of cardiac cath procedures at North Port Hospital is contained in Exhibit EF-12 (at pages 6-7) which projects that the hospital will have a total of 1,473 inpatient and outpatient cardiac cath “procedures” in 2010. Indeed, that projection is likely slightly overstated because it is based upon the overstated population projections in Manatee Memorial’s CON application. The financial impact of the overstatement of cardiac cath procedures is an overstatement of the 2010 net income at North Port Hospital by approximately $5.5 million. Third, the revenues attributable to the OB unit are based upon overstated projections of OB patient days. The application projects that Manatee Memorial’s North Port hospital will have 3,770 OB patient days in 2010, which equates to 1,573 births. The record does not reflect how those figures were calculated. The health planner who prepared Manatee Memorial’s CON application testified that she did not project the number births and/or OB patient days that would likely be generated by North Port residents between 2008-10. The most reasonable projections of the number of births and OB patient days generated by North Port residents in 2010 are those referenced in Part D(3) above, which were derived from the data in Exhibit EF-10, at pages XV-1 through XV-3. The overstatement of OB patient days in Manatee Memorial’s CON application results in an overstatement of OB “charges” by approximately $1.81 million.14 The record does not reflect the degree to which net profit is overstated as a result of the overstatement in OB charges because the OB costs referenced in Manatee Memorial’s CON application are not projected on a patient-day basis. Finally, depreciation expenses are understated due to the significant understatement of the total project cost for North Port Hospital discussed in Part F(6) below. The understatement of the total project cost directly impacts North Port Hospital’s net profit by understating the depreciation expense by approximately $3.9 million per year. North Port Hospital will more likely than not generate a net loss in its third year of operation as a result of the overstated revenue projections and understated depreciation expense. Therefore, North Port Hospital is not financially feasible in the longterm. Summary In sum, the criteria in Subsection 408.035(6), Florida Statutes, weighs in favor of HMA because its proposed North Port hospital is financially feasible. (5) § 408.035(7), Fla. Stat. Subsection 408.035(7), Florida Statutes, requires consideration of “[t]he extent to which the proposal will foster competition that promotes quality and cost effectiveness.” The market for acute care services in Sarasota and Charlotte Counties is competitive, as is the North Port market. There are multiple hospitals (and hospital companies) serving the area, none of which has a dominant share of the market. The 2004 market shares of the acute care discharges from the North Port zip codes were as follows: BS-St. Joe (26.9 percent); Fawcett (20.19 percent); Sarasota Memorial (14.7 percent); BS-Venice Venice (13.78 percent); Charlotte Regional (6.94 percent); Englewood (5.9 percent); Doctors Hospital (2.39 percent); all other providers (9.19 percent). Thus, in 2004, the Bon Secours hospitals had a 40.68 percent market share, HMA had a 6.94 percent market share, HCA had a 28.48 percent market share, and Sarasota Memorial had a 14.7 percent market share. The hospitals’ respective market shares were similar in 2002 and 2003, which reflects a relatively stable market for acute care services. HMA now has the largest market share of the North Port market (approximately 47.6 percent) as a result of its acquisition of the Bon Secours hospitals in February 2005. The stated purpose of HMA’s acquisition of the Bon Secours hospitals was to create a “strategic southwest Florida network encompassing Collier County, Lee County, Charlotte County, and Sarasota County.” According to HMA, “these strategic networks will provide patients and communities with an improved continuity of care and access to even more quality health care close to home.” The evidence was not persuasive that the addition of North Port HMA to this “strategic network” will give HMA inordinate leverage with physicians or payors, although the possibility will exist. The approval of North Port HMA will increase HMA’s share of the North Port "market" from 47.6 percent to 82.7 percent. It will also increase HMA’s share of the Sarasota County "market" (from 21.4 to 29.1 percent) and HMA's share of the Sarasota County/Charlotte County "market" (from 33.7 to 39 percent). The evidence was not persuasive that the approval of North Port HMA would be anti-competitive even though it would result in HMA becoming a dominant provider in North Port. Indeed, there will still be healthy competition for acute care services in the broader Sarasota County or Sarasota County/Charlotte County "markets". Nevertheless, the approval of North Port HMA will certainly not “foster” competition. The approval of North Port Hospital would add a new competitor to the market and, to that end, it would “foster” competition. However, the evidence was not persuasive as to how or to what extent the competition fostered by Manatee Memorial’s entry into the market would promote cost effectiveness. In sum, the criteria in Subsection 408.035(7), Florida Statutes, marginally favors Manatee Memorial over HMA, but this criteria is not given significant weight because of the significant competition that currently exists in North Port and the surrounding areas and that will continue to exist in Sarasota and Charlotte Counties even if a hospital is approved in North Port. (6) § 408.035(8), Fla. Stat. Subsection 408.035(8), Florida Statutes, requires consideration of the costs and methods of the proposed construction, including the availability of alternative, less costly, or more effective methods of construction. It was stipulated that the site development costs contained in the CON applications are reasonable and appropriate even though neither of the applicants has identified a site for its proposed North Port hospital. It was undisputed that the construction costs ($39.8 million or $221 per SF) and the total project costs ($78 million) for North Port HMA are reasonable. The reasonableness of the construction costs and the total project costs for North Port Hospital is in dispute. Schedule 1 of Manatee Memorial’s CON application reflects that the construction costs for North Port Hospital will be $32.9 million, which equates to $165 per SF. The $165/SF construction cost includes “bricks and mortar only.” Manatee Memorial’s architect unequivocally testified that the cost does not include any equipment costs. The $165/SF construction cost is not reasonable, and as described by one construction cost expert, it is “way off the Richter scale.” The $165/SF construction cost would be even more unreasonable if, as suggested by several Manatee Memorial witnesses, that figure includes fixed equipment costs, notwithstanding the unequivocal testimony of Manatee Memorial’s architect that the $165/SF construction cost does not include such costs. The $165/SF cost is only slightly higher than the construction cost of Lakewood Ranch, as reflected on the Final Project Cost Report (Cost Report) for that hospital, even though Lakewood Ranch was completed in 2004 and the construction of North Port Hospital will not begin until 2008. The Cost Report reflects that the actual construction costs for Lakewood Ranch were $33,111,591 and that the facility had 185,000 SF. The Cost Report indicates that that the $33 million figure includes fixed equipment costs, but it does not itemize those costs. The fixed equipment costs were estimated in the Lakewood CON application at $4 million, and using that figure, the “bricks and mortar” construction costs at Lakewood Ranch were approximately $157/SF.15 Inflating the $157/SF cost of Lakewood Ranch to 2008 would result in construction costs of approximately $180/SF. A construction cost of $180/SF is more reasonable than the $165/SF estimate in Manatee Memorial’s CON application, but it is still lower than would be expected for a hurricane-hardened hospital in southwest Florida. A more reasonable construction cost for North Port Hospital is between $200/SF and North Port HMA’s $221/SF. Thus, North Port Hospital’s construction costs are understated by $7.1 million to $11 million. Schedule 1 of Manatee Memorial’s CON application estimates $12 million of equipment costs for North Port Hospital. That cost includes fixed and movable equipment costs. The $12 million figure does not include all of the IT systems and other “state-of-the-art” equipment identified in Manatee Memorial’s CON application. Manatee Memorial’s equipment expert testified that the total budget for the IT equipment alone will be $10 million to $14 million. The $12 million figure only includes the cost of the equipment necessary for the hospital’s first year of operation because UHS typically does not fully equip its hospitals before they open. Manatee Memorial followed a similar approach -– i.e., incrementally equipping the hospital as census increased -– at Lakewood Ranch. The reasonableness of that approach is not specifically addressed in the Lakewood Ranch Recommended or Final Orders. This approach has the effect of understating the total cost of the project by including only a portion of the equipment costs that will be necessary to fully equip the hospital. A more reasonable estimate of the equipment costs for North Port Hospital is between $23 million to $29 million, which includes the costs of movable equipment, the IT systems, and the other “state of the art” equipment described in Manatee Memorial’s CON application. Thus, Manatee Memorial’s equipment costs are understated by as much as $17 million. Schedule 1 of Manatee Memorial’s CON application projects pre-opening expenses of $250,000. Lakewood Ranch had pre-opening expenses of approximately $3.2 million. It is reasonable to expect similar pre-opening expenses at North Port Hospital since it was modeled after Lakewood Ranch. When Lakewood Ranch's pre-opening expenses adjusted for inflation, the pre-opening expenses at North Port Hospital will likely be $3.5 million. As a result, the pre-opening expenses for North Port Hospital have been understated by approximately $3.25 million. In sum, the total cost of Manatee Memorial’s proposed North Port hospital is understated by as much as $32 million. Each of the proposed hospitals has certain design features that are better than the other hospital. For example, North Port HMA has a full complement of private rooms and shorter hallways, whereas North Port Hospital has a better separation of its various patient entrances. The evidence was not persuasive that either hospital is materially superior to the other from a design perspective.16 In sum, the criteria in Subsection 408.035(8), Florida Statutes, weighs in favor of HMA because its project costs are more reasonable than those projected by Manatee Memorial. (7)_ § 408.035(9), Fla. Stat. and Fla. Admin. Code R. 59C-1.030(2) Subsection 408.035(9), Florida Statutes, requires consideration of the applicants’ past and proposed commitment to Medicaid patients and the medically indigent. Similarly, Florida Administrative Code Rule 59C- 1.030(2) requires consideration of the impact of the proposed projects on the ability of low-income persons and other medically underserved groups to access care. The statutory reference to “the medically indigent” encompasses what are typically referred to as charity patients. HMA, Inc., and Manatee Memorial each provide a significant level of care to Medicaid and charity patients at their existing hospitals. HMA, Inc., provided approximately $101 million in uncompensated charity care at its Florida hospitals for the 12- month period ending September 30, 2004, which is approximately four percent of its gross patient revenues. For that same period, approximately 7.6 of the gross patient revenues at those hospitals were attributable to Medicaid patients. Manatee Memorial provides more than 90 percent of the charity care in Manatee County, which is not surprising since MMH is the largest and one of the oldest hospitals in the county. In 2004, Manatee Memorial provided approximately $16.6 million in charity care, which is approximately three percent of its gross charges. That figure was offset by a $2.8 million subsidy that Manatee Memorial received from Manatee County for indigent care. Neither HMA nor Manatee Memorial conditioned the approval of its CON application on the provision of a particular level of care to Medicaid or charity patients. HMA offered to condition the approval of its application on a commitment to “accept all Medicaid and indigent patients that are clinically appropriate for services offered by [North Port HMA].” Similarly, Manatee Memorial offered to condition the approval of its application on a commitment that “[a]ll Medicaid & indigent patients will be accepted as are clinically appropriate for services.” The Agency reasonably construed those proposed conditions to be offering nothing more than the law currently requires. Moreover, it is unclear how the proposed conditions could be monitored by the Agency. The Agency did not accept the condition proposed by HMA. Instead, in the SAAR, it conditioned the approval of HMA’s application on the provision of 6.9 percent of the patient days at North Port HMA to Medicaid patients and 2.9 percent of the patient days to charity patients. Those figures were derived from Schedule 7A of HMA’s CON application and the notes thereto. HMA did not challenge those conditions and, therefore, is bound by them if its CON application is ultimately approved notwithstanding the recommendation herein. Mr. Gregg testified that if Manatee Memorial’s application is ultimately approved, the approval should include conditions similar to those imposed in the SAAR on the approval of HMA’s application. The revenues projected in Schedule 7A of Manatee Memorial’s CON application were calculated based upon the assumption that 7.25 percent of the patient days at North Port Hospital will be attributable to Medicaid patients. The percentage of patient days at North Port Hosptial attributable to charity care is not specified on Schedule 7A or the notes thereto,17 but it appears that the percentage is approximately 2.6 percent.18 Thus, if contrary to the recommendations herein, the Agency ultimately approves Manatee Memorial’s CON application, it should condition the approval North Port Hospital providing 7.25 percent of its patient days to Medicaid patients and 2.6 percent of its patient days to charity patients. A new hospital in North Port is not necessary to address any financial access problems in the area. There was no persuasive evidence that there is an access problem for Medicaid, charity, or other traditionally medically underserved patients at the existing hospitals in south Sarasota County and north Charlotte County. To the contrary, the evidence reflects that all of the existing hospitals in the area provide access to patients without regard to their ability to pay. As a result, the criteria in Subsection 408.035(9), Florida Statutes, is given minimal weight in determining whether a hospital is needed in North Port. The criteria in Subsection 408.035(9), Florida Statutes, do not materially weigh in favor either CON application over the other. Each applicant has a history of providing Medicaid and charity care and each has proposed to provide approximately 9.8 percent of its patient days to Medicaid and charity patients combined. (8) § 408.035(10), Fla. Stat. Subsection 408.035(10), Florida Statutes, which requires consideration of the applicant’s designation as a Gold Seal Program nursing facility, is not applicable because HMA and Manatee Memorial are not proposing to add nursing home beds. Impact of the Proposed North Port Hospitals on the Existing Hospitals in the Area North Port is in the PSA of both Fawcett and Englewood, if, as is common, the PSA is defined as the zip codes from which the hospital receives 75 percent of its admissions. In 2004, approximately 12 percent of Fawcett’s non- tertiary patients came from the North Port zip codes, and approximately 6.6 percent of Englewood’s non-tertiary patients came from the North Port zip codes. The approval of either of the proposed North Port hospitals will have an adverse impact on Englewood and Fawcett because they will lose patients to the new hospital. The impact on Englewood and Fawcett will be materially the same, no matter which application is approved because, as discussed above, Manatee Memorial is unlikely to achieve its more aggressive utilization projections. If Manatee Memorial somehow achieved its utilization projections, its North Port Hospital would have a significantly greater impact on the existing providers than would North Port HMA. The existing providers’ shares of the North Port market have remained relatively stable since at least 2002 and, therefore, it is reasonable to expect that they would have similar market shares in the future absent a significant change of circumstances, such as the approval of a new hospital in the area. As a result, it is reasonable to use the current market shares when assessing the impact of the proposed North Port hospitals on the existing providers. The approval of North Port HMA will result in a loss of 227 patients (1,046 patient days) at Englewood and a loss of 772 patients (3,553 patient days) at Fawcett in 2008, which will be the North Port hospital’s second year of operation. The financial impact of that lost patient volume is approximately $807,000 at Englewood and $3.1 million at Fawcett. The approval of North Port Hospital will result in a loss of 259 patients (1,191 patient days) at Englewood and 883 patients (4,064 patient days) at Fawcett in 2010, which will be the North Port hospital’s third year of operation.19 The financial impact of that lost patient volume is approximately $917,000 at Englewood and $4 million at Fawcett.20 Those figures only take into account the patients in the North Port zip codes that Englewood and Fawcett will “lose” to the new North Port hospital. They do not take into account additional patients that Englewood and Fawcett are likely to “gain” through growth in the population in the other zip codes in their service areas. The population growth in Englewood and Fawcett’s service area will largely off-set the patient volume that the hospitals would lose from the North Port zip codes. For example, if North Port HMA is approved, Englewood is projected to have only 16 fewer patients in 2008 than it did in 2004, and Fawcett will have only 28 fewer patients in 2008 than it had in 2004. Fawcett is a profitable hospital. Its earnings before depreciation, interest, taxes, and amortization (EBDITA) was approximately $14 million in 2004, and its operating income was $7.7 million in 2002, $5.1 million in 2003, and $1.7 million in 2004. The lower operating income in 2004 was due to the impacts of Hurricane Charley. Englewood is a less profitable hospital than Fawcett. It had operating losses of $1.7 million in 2002, $2.8 million in 2003, and $1.3 million in 2004. Its highest net income before taxes in any of those years was $631,000 in 2004. However, Englewood’s EBDITA (which is the financial indicator that its chief financial officer “really concentrate[s] on”) was approximately $3.6 million in 2004 and was budgeted to be “a little over 3 million” in 2005. The financial impact of the lost patient volume from the North Port zip codes on Englewood and Fawcett is not significant when compared to the EBDITA at those hospitals. The financial impact is even less significant when the population growth in the other zip codes in Englewood and Fawcett’s service area are taken into account. Indeed, the projected net loss of 28 patients at Fawcett equates to a reduction in net income of only $126,700, and the projected net loss of 16 patients at Englewood equates to a reduction in net income of only $56,624. The approval of a hospital in North Port would also impact Peace River and Venice Hospital. In terms of lost patient volume, the impact on Peace River would be slightly greater than the impact at Fawcett and the impact on Venice Hospital would be slightly less than the impact at Fawcett and slightly more than the impact on Englewood. The record does not reflect the financial impact of that lost patient volume at Peace River or Venice Hospital, which experienced significant operating losses prior to their acquisition and financial turn- around by HMA. In sum, the approval of a hospital in North Port will adversely impact the existing hospitals serving the area, including Englewood and Fawcett. The impacts are significant enough to give Englewood and Fawcett standing in this proceeding, but the impact on Englewood and Fawcett (and the other existing hospitals) is not so significant that it independently warrants denial of the CON applications. Stated another way, the adverse impact on the existing hospitals is a factor weighing against approval of the applications, but that factor is given minimal weight.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Manatee Memorial’s CON 9767 and also denying HMA’s CON 9768. DONE AND ENTERED this 1st day of December, 2005, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of December, 2005.
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.
The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue Whether an application for a new hospital to be constructed in Agency for Health Care Administration Planning District 9, Subdistrict 2, should be approved.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily approved Martin's CON application No. 9981. The Petitioners are existing providers who oppose the approval of the subject CON. St. Lucie is a 194-bed acute care hospital located on U. S. Highway 1 in Port St. Lucie, Florida, that opened in 1983. Included in the bed count are 17 obstetric beds and 18 intensive care beds. St. Lucie utilizes 7 operating rooms and provides a varied list of surgical services. Although St. Lucie does not provide tertiary services, it offers an impressive array of medical options including general and vascular surgery, orthopedics, spine surgery, neurosurgery, and gynecology. Furthermore, St. Lucie is a designated stroke center and it is fully accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The JCAHO mission is to improve the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations. St. Lucie uses a hospitalist program 7 days per week, 12 hours per day. The hospitalist program is a group of physicians who are employed by the hospital to manage the care of its patients. St. Lucie believes the hospitalist program moves patient cases more quickly and efficiently. St. Lucie has committed financial resources to its hospitalist program and hopes to expand its use in the future. The emergency department (ED) at St. Lucie handles approximately 42,000 visits per year. The ED has 24 beds comprised of 16 regular beds and 8 "fast track" beds. All areas are either curtained or separated by dividers to provide for patient privacy. Historically, St. Lucie has expanded the ED to provide for additional space for emergent patients. One of the strategies it has used includes the installation of special chairs in a waiting triaged area. The other Petitioner, Lawnwood, is located in Ft. Pierce, Florida, near I-95 and the Florida Turnpike. Lawnwood has 341 beds and, in additional to traditional medical/surgical options, provides tertiary services such as neurosurgery and open heart. Lawnwood also provides Level II neonatal intensive care services. Like St. Lucie, Lawnwood is fully accredited by JCAHO. Lawnwood has provided quality health care services to its region for over 30 years. The Lawnwood ED handles approximately 40,000 visits per year in a 28-bed unit. At its current location Lawnwood can expand its facilities should it desire to do so. At the current time, however, it has no plans for expansion of its main campus. It does plan to initiate an expansion of its intensive care unit. Financing for that expansion was anticipated to become more definite in 2009. In furtherance of its efforts to promote itself as a regional provider of quality medical services, Lawnwood has begun the arduous process of becoming a Level I trauma program for a multi-county area. In this regard, Lawnwood asserts that its service area for trauma patients encompasses Indian River County, St. Lucie County, parts of Okeechobee County, and portions of Martin County, Florida. Lawnwood has invested in the capital improvements needed to fully implement this program. The Petitioners are owned and operated by Hospital Corporation of America (HCA), a for-profit corporation headquartered in Nashville, Tennessee. HCA has input into the decisions affecting Petitioners and can influence when the improvements they hope to implement will be finalized. In addition to the Petitioners, other providers in the district include Indian River Hospital located in Vero Beach, Florida, and Martin Memorial Medical Center, Inc. with two hospitals in Martin County, Florida. It is the latter competitor that seeks to establish a new hospital in the western portion of St. Lucie County, Florida. Martin is a private, not-for-profit Florida corporation licensed to operate Martin Memorial Hospital North, in Stuart, Florida, and Martin Memorial Hospital South, in Port Salerno, Florida. The northern facility has 244 licensed beds; the southern hospital has 100 licensed beds. The northern hospital is the older provider and has served patients from St. Lucie and Martin Counties for over 70 years. Like Lawnwood, Martin offers a broad range of acute care hospital services including tertiary services. The options available at Martin include open-heart surgery, complex wound care, oncology, obstetrics, neonatal intensive care, pediatrics, and orthopedics. Martin provides high-quality medical services to its patients in both outpatient and inpatient venues. To that end Martin has been active in the western portion of St. Lucie County for a number of years and has solidified relationships with physicians in that area of the district. In this regard, Martin established an urgent care center in Port St. Lucie back in 1984. Since that time it has repeatedly sought to expand its provision of medical care to the residents of St. Lucie County. Martin constructed a physicians complex that employs and provides offices for physicians most of whom are on staff at St. Lucie. Over 80 percent of the patients from the Martin physician complex get admitted to St. Lucie. Martin also established a second outpatient facility in the western portion of St. Lucie County. This 70,000 square foot center provides 500-600 treatments per month to its patients. Among the services provided at this facility include a broad range of diagnostic and laboratory services, radiation therapy, rehabilitation therapy, and pediatric medicine. Finally, Martin also intends to establish a freestanding ED in the western portion of St. Lucie County in 2009. This facility will provide another access point for patients in the western portion of the county to facilitate a quicker response for patients who seek emergency care. Martin views this proposed freestanding ED as an interim measure and will convert it to an urgent care or other non-acute use if the proposed hospital it seeks to construct is approved. The Proposal Martin seeks to construct a general acute care hospital consisting of 80 beds, with intensive care, an ED, telemetry, and obstetrics. It will not offer tertiary services. The site for the proposed hospital is in an area known as "Tradition," a planned community in the western portion of St. Lucie County. The City of Port St. Lucie has annexed the geographical area into what residents consider "West Port St. Lucie" and have designated an area of Tradition to promote the life sciences industry. Accordingly, Tradition has areas reserved for medical office buildings, research facilities, as well as the hospital site to be used by Martin. Martin's proposed site is adjacent to the Torrey Pines Molecular Research Institute. The entire Tradition and West Port St. Lucie area is within AHCA's District 9, Subdistrict 2. By locating the new hospital in the western portion of the county, Martin maintains it will promote and enhance access for current and future residents of the developing area without adversely impacting St. Lucie and Lawnwood. Another advantage to a hospital in the western portion of the county is the option of having a haven in the event of a hurricane or natural disaster in the eastern portion of the county. Since the site is located to the west of the coastline, storm surges would not likely impact the facility or dictate evacuation. Further, the site provides excellent geographic access for traffic and the population of the expanding western portions of the county. Like other geographical areas, the coastal portion of the county faces “build out” that will limit the population expansion anticipated in that area. The proposed area has yet to face any limitation in that regard. It is the most likely geographic area that will expand as the population grows. HCA also recognized the benefits of the western area for future expansion of its medical facilities. It unsuccessfully negotiated to acquire a hospital site at or near the proposed location. In relation to the other parties, the proposed site is north and west of the Martin hospitals in Martin County, west of St. Lucie, and south and west of Lawnwood. The size of the parcel is adequate to construct the hospital. In reaching its decision to seek the approval of the new hospital, Martin considered input from many sources, including, but not limited to: physicians who practice in the vicinity of the proposed hospital; emergency response personnel who transport patients to the various district hospitals; medical researchers who have located to or are locating to the proposed area; elected officials familiar with the medical needs of the community; and health care planning professionals. The St. Lucie River divides St. Lucie County east to west. Only the areas west of the river have been designated as the primary service area for the proposed hospital. The primary service area comprises the land within zip codes 34983, 34984, 34986, 34953, 34987, and 34988. The secondary service area comprises those lands encompassed by zip codes 34981, 34982, 34952, and 34957. These primary and secondary service areas have been reasonably determined to project admissions and other relevant use data. As is later addressed in more detail, the population projected for the service area will reasonably support the utilization required to make the proposed hospital financially feasible. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. In this case, the parties have identified the provisions of law that pertain to this matter. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to Martin, "need" is evidenced by a large current and projected growing population in the proposed service area (PSA), sustained population growth that exceeds the district and state averages, capacity constraints at the existing providers, geographic access barriers including traffic congestion and the St. Lucie River, the need for improved access for emergency medical services, enhanced geographic and financial access to obstetrical services for residents of the western portion of the county, growth to offset impact on existing providers, and the financial health of existing providers. As previously stated, St. Lucie County is divided by the St. Lucie River. The river is crossed west-to-east by a limited number of bridges that can back up and delay the traffic utilizing them for access to St. Lucie. The county is traveled north to south by two major roadways: U.S. Highway 1 and I-95. To travel from the western portions of the county and the Tradition community, vehicles cross I-95, the river, and travel U.S. Highway 1 to St. Lucie. The PSA is the fastest growing portion of the county. The older areas to the east are not growing at the rate associated with the development of Tradition and other communities to the west. Some of the coastal areas to the east have become "saturated." That is to say, building and growth restrictions along the coast have limited the population in those areas. The western portion of the county is one of the most rapidly growing communities in the state and has become one of the focal areas of growth for the region. Although the rate of growth has slowed in the recent economic decline, the St. Lucie County area is still predicted to grow at an increased pace in the near future. Population projections prepared by the Bureau of Economics and Business Research at the University of Florida demonstrate that the growth reasonably expected for the PSA is fairly dramatic. According to Dr. Smith, whose testimony has been credited, the primary service area population is expected to reach or exceed 180,977 by 2015. If underestimated (as is typical of these types of projections), the growth could easily exceed that projection. The projection was based upon the most currently available data and has not been contradicted by more reliable data. Claritas data also suggested that the projections produced by Dr. Smith's work were reasonable. The projected growth rate in the primary service area exceeds the projected growth rate of the district as well as for Florida for the period 2007-2015. This finding is supported by the credible weight of the data admitted into evidence. Although the population growth has slowed due to economic conditions, the county will experience renewed growth in the PSA with the projected reversal of slowing trends. Development in the PSA continues to be the most likely geographic area that will be improved first and faster than other areas of the county. Looking at the age component of the population projected for the PSA, the age 65 and over cohort is the fastest growing segment of the population; the second is the 45-64 population segment. These segments are the majority of the acute care hospital utilization. Additionally, females ages 15- 44 also reflect a high rate of growth for the primary service area. This latter statistic supports the notion that a demand for obstetrics is likely. Acute care hospital utilization in the subdistrict increased from 2003 through June 2008. The non-tertiary discharges within the primary service area increased by 42 percent for the period 2003 to 2007. Birth volume in the primary service area increased for the same period and doubled the number of obstetric admissions for the time noted. This increase in utilization supports the likelihood that population growth for the area will further increase the utilizations expected for the PSA. Historically, St. Lucie has observed this utilization and growth of demand for its services. St. Lucie has responded by adding beds to its ED but the projections would suggest that past and future growth will result in capacity constraints for St. Lucie. Demand for intensive care, medical surgical beds, and progressive care beds at St. Lucie has been high. The ICU occupancy rate at St. Lucie in particular has been at or above 85 percent capacity a significant portion of the time. Capacity issues are more pronounced during the months from November through May of each year. The subdistrict enjoys a strong seasonal influx of residents who require all the amenities of a community including medical care. In this regard, St. Lucie has seen a "bed crunch" in order to accommodate the seasonal patients. This crunch results in longer ED waits, longer waits for admissions for those requiring acute care, longer waits for those seeking elective admissions, and longer waits for some services such as blood transfusions. Although hospitals are not intended to be like fast food restaurants (providing all services on a expedited basis), extended waits for bed placement can place waiting patients on gurneys in less than optimal conditions. This scenario does not promote efficient or the most effective form of providing health care services to those in need. The bed crunch at St. Lucie is expected to continue due to increasing demand for acute care hospital services in the county. Capacity constraints are similarly demonstrated at Lawnwood and Martin. Like St. Lucie, Lawnwood and Martin experience the seasonal crunch associated with the increased population during the winter months. In Lawnwood's case, the ED has delays through out the year. This means that patients wait for a bed assignment in the ED until a suitable room placement can be made. Additionally, the intensive care unit at Lawnwood experiences high occupancy. As Lawnwood transitions to a trauma center, the demand for acute care beds will also increase. Lawnwood will be the sole trauma center for the region and will likely receive an increase in utilization from that patient source. Martin also has experienced high utilization and has operated at or near capacity for extended periods during the season. Further, the birth volume growth for Martin supports the conclusion that additional obstetric beds are needed for the subdistrict. The majority of Martin's increased birth volume has come from the PSA. Martin has also established that obstetrics patients travel from areas closer to Lawnwood or St. Lucie to seek services at Martin. This demand for obstetrical services in the PSA also suggests that the proposed hospital would enhance access to obstetrics in the subdistrict. Patients who might be induced (as the mother is past her due date) for labor must, at times, wait for a delivery bed. Additionally, patients who present in labor do not always have a labor bed. The new facility would ease these constraints. The location of the hospital at Tradition will also improve geographic access to medical facilities. The traffic and natural barriers to health care services (limited west to east roadways and the river) would be eliminated by the proposed facility. Additionally, during periods of storm events, residents throughout the subdistrict would have access to an acute care hospital without driving to the coastal area. The demand for emergency medical response and transport in St. Lucie County has increased dramatically. The St. Lucie County Fire Department transports all patients requiring advanced life support services in the county. When traveling from the western portions of the county, the emergency transports use the same roadways to cross the river as the general population. Delays are common. Even after delivering a patient to the St. Lucie ED, the transport must return west from its point of origin in order to return to service. The delays in traversing the county result in delays for the unit to be able to respond to the next call. Although it is impractical to have a hospital on every corner, the establishment of a hospital at Tradition would greatly enhance the response times for emergency vehicles and enhance their ability to return to service more quickly. To respond to the increased population and need in the Tradition community, the county has established two new fire stations in the area. The primary service area has the greatest need for additional fire and emergency services according to Chief Parrish. To help address the problem of having rescue units out of service for extended periods of time while transporting patients to an existing hospital east of the river (or while they are returning west to their service area), the Fire Department has doubled rescue trucks and paramedics at two stations in the western portion of the county. This duplication of manpower and equipment increases emergency costs for the county. Although there are plans for the construction of another bridge across the river that would ease some of the congestion in crossing the county, it is unknown when that bridge will be funded and constructed. City personnel do not expect the bridge to be started prior to 2017. The proposed hospital will provide improved access for emergency medical services. The proposed hospital will provide enhanced access to obstetrical services for the residents of the PSA. With regard to financial access, the weight of the credible evidence supports the finding that residents of the PSA are able to adequately access medical services. Existing providers are meeting the needs of the needy and those without ability to pay. Although the new hospital would provide a closer point of service for the indigent or Medicaid recipients who may lack transportation advantages of the more affluent, the needy are currently being served by existing providers. The existing providers are financially healthy and are well able to meet the needs of the indigent. Should the new hospital siphon off the more desirable patients (ie. the insured, Medicare, self-pay, etc.), the existing providers should be able to continue to provide the indigent care needed by the subdistrict. Additionally, the new hospital would also be expected to accept Medicaid or indigent patients. Travel times within the subdistrict further suggest that the addition of a new hospital would reduce the time for all residents to arrive at an acute care hospital. Although the travel times currently suggest that patients could access an existing provider within 40 minutes, the addition of the new facility would ensure that during crunch times or times of traffic congestion or other times when factors extend the time for access to service, any patient from the PSA can be assured of prompt medical care. Establishment of the new hospital will also improve access in the event of a catastrophe or disaster. Given the recent history of hurricanes in the state, improved access to medical facilities in times of crisis can be critical to the patient as well as the emergency crews working during such events. To the extent that any existing provider loses admissions to the new hospital, the growth in population and projected admissions will adequately offset the loss of admissions. Further, the utilization expected by all providers will adequately assure their financial stability as the new provider achieves or exceeds its projected goals. Martin has demonstrated a strong financial position for a number of years. The establishment of the new hospital will not compromise Martin's financial strength or detract from its provision of services at the two hospital campuses it currently utilizes. The new, third campus will complement and enhance the Martin Health Care System. Martin has demonstrated the project is financially feasible both in the short and long term. Martin's past financial performance and continued strong financial position assure that it will be able to obtain financing for the proposed hospital construction and start up. Moreover, the projected patient days to be captured by the new hospital will assure that the hospital will achieve its "break even" financial point at a reasonable future date. The project should achieve revenues in excess of expenses by its third year of operation. The projections for utilization are reasonable and are based upon reasonable assumptions including the premise that Martin will redirect admissions from its southern facilities to services more geographically accessible at the new hospital. Martin has an established presence in the PSA and should be able to achieve its expected admissions without adversely impacting St. Lucie or Lawnwood. The revenue projections for the new hospital are reasonable and should be achieved. Martin has the resources, the workforce, and physician coverage to provide for the new hospital. Additionally, it is expected that new physicians will seek privileges at the new hospital and will provide emergency on-call coverage as may be needed. St. Lucie and Lawnwood have coverage for the medical specialties and ED departments at their facilities. Martin has a low vacancy and turnover rate for both nursing and non-nursing personnel. It partners with the community to sponsor initiatives that promote continued success in these areas. It is a favored employer among those in Martin County. The staffing projections for nursing and clinical support for the new hospital are reasonable. The projected salaries are also in line with those currently offered and should be reasonable and easily achieved. In short, the applicant has demonstrated that Schedule 6A of the application is supported by the record in this cause. Martin has demonstrated it is able to implement the project and to staff its needs at the levels projected by the application. St. Lucie County will grow at a sufficient rate to assure that all providers, including the proposed hospital, will have admissions to meet the financial needs of the institutions. Moreover, the growth anticipated is sufficient to fund the future improvements or expansions that may be required by the providers. Essentially, when considered as a whole, west to east, the county has sufficient growth potential to support the additional acute care hospital beds proposed by the applicant. Competition for the future beds will be enhanced by the additional provider. St. Lucie and Lawnwood will continue to perform well in the market. St. Lucie will continue to achieve the lion's portion of the market east of the river while Lawnwood will continue to serve the region as it has with tertiary and the newly added trauma services. If anything, Martin will take the largest hit from the establishment of the new hospital as it will seek to allow its patients from the PSA that currently travel south and east to Martin hospitals to remain in their community at the new facility. Acting as the "mother ship," Martin is willing to promote the new hospital so that the stresses it has at the Martin County hospitals may be alleviated. The Martin system as a whole will continue to grow and benefit from the addition of the new hospital. Martin is the chief initiator of medical services to the western St. Lucie County community. No HCA hospital has attempted to establish a presence in the Tradition area that matches or exceeds the commitment Martin has made to the residents of western St. Lucie County. St. Lucie and Lawnwood will continue to provide quality care to their patients and will continue to be financially strong should the new hospital come on line. The adverse impact suggested by the HCA hospitals is not supported by the weight of the credible evidence in this cause. In short, the market projections are adequate to assure all providers will continue to share a significant portion of the health care pie. The growth in population, growth in admissions and utilization, the demographics of the population, and the reputation of all providers to provide quality care support the long term success of all providers in the subdistrict. The establishment of the new hospital will also promote competition as medical and clinical research also come into play. Should the new hospital located near the research facilities promote clinical trials, all providers in the subdistrict would benefit from any successful achievements. Martin has agreed to the following conditions for the CON: Martin will partner with Torrey Pines Institute for Molecular Studies for the provision of resources associated with clinical trials and life science research. Martin will continue to support the Volunteers in Medicine program with free inpatient and outpatient hospital services, outpatient laboratory, diagnostic and treatment services at a value of not less than $750,000 of charges per year for the next 10 years. Martin will support other community social services organizations in the form of cash, goods and services valued at not less than $75,000 annually for the next 10 years. This represents a commitment of $750,000 to support organizations such as Meals on Wheels, American Cancer Society, American Heart Association, etc. Martin will support Florida Atlantic University Nursing School, Indian River Community College and other area nursing and allied health schools with at least $75,000 per year in services or goods for the next 10 years to help ensure an adequate supply of well-trained health care professionals. Martin will establish a volunteers program (based on its current successful program in Martin County) in Port St. Lucie area to involve local high schools in encouraging teens to volunteer in health care settings and to encourage health care careers. Martin will partner with the St. Lucie school system in the development of a High School Medical Academy. Martin will make the West Port St. Lucie Hospital available as a training site for area nursing and allied health schools and for the Florida State University physician training program. Martin will locate the new hospital south of Tradition Parkway, east of Village Parkway, adjacent to the Torrey Pines headquarters and the I-95 Gatlin Boulevard exit. Martin will provide a minimum of 11.1 percent of its total annual patient days in the new hospital to Medicaid and Medicaid HMO patients. Martin will also provide a minimum of $250,000 per year for Medicaid and/or charity outreach programs within the western Port St. Lucie area for the first five years of operation. This is not the first CON application submitted by Martin to establish a hospital in the western portion of St. Lucie County. The current application differs from others in that the updated population and utilization data more clearly establish that the projected growth for the subdistrict will support the new facility without unduly impacting the existing providers. The planning horizon for the instant application and the pertinent data show that the western portion of the county more closely resembles areas that have been granted satellite or new hospital facilities in other areas of the state. The growth projected for the county mandates additional healthcare resources be devoted to the PSA. Additionally, similar to its commitment to the Martin County residents, the applicant has demonstrated it will partner with the St. Lucie County resources to establish the same programs that have benefited other areas of the subdistrict. Finally, while the Torrey Pines affiliation was represented in prior applications, that facility is now a reality and operational. The benefits of having the Martin hospital adjacent to its facility is no longer speculative. Torrey Pines is a nationally recognized research entity. The State of Florida and St. Lucie County governmental entities have pursued this type of research facility for location to the state and this area. According to the Torrey Pines leadership, the location of the Martin hospital in proximity to its facility would enhance their efforts. The architectural schematics, project completion schedule, design narratives, and code compliance information set fort in Martin's application are reasonable. The site preparation and construction costs set forth on Schedule 9 are reasonable for the project proposed. Additionally, the equipment costs are reasonable. There is no financial barrier to access hospital services by the residents of the PSA. The quality of care rendered by all hospitals in the subdistrict is excellent. Although there may be some impact on the admissions and utilization at St. Lucie, the impact is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. The impact expected at Lawnwood should be less than St. Lucie, nevertheless, it too is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. Section 408.035(2), Florida Statutes (2007), specifies that the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district must be considered. As noted above, there is no barrier to services in the subdistrict. Nevertheless, Martin has demonstrated that access to additional services will be enhanced by the establishment of the new hospital in the western area of the county. Additionally, delays in admissions and capacity constraints at the existing hospitals although not chronic or at a critical juncture are evidenced in the record. Section 408.035(3), Florida Statutes (2007), requires the consideration of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. This criterion is not in dispute in this cause. Section 408.035(4), Florida Statutes (2007), requires the review of the availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. In this regard, Martin has established that it is able to provide the resources necessary for this project. Additionally, it has shown that projected salaries for the nurses (as depicted on Schedule 6A) are reasonable and within the general guidelines of Martin's provision of those services at its other hospitals. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require that a CON applicant demonstrate that the existing acute care providers within the PSA are failing in order to approve a new hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a hospital would be appropriate or inappropriate. In fact, AHCA has approved hospitals when residents of the PSA live within twenty minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case, the proposed hospital will provide a convenience to residents of western St. Lucie County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the hospital. Patients who would not benefit from the convenience of the proposed hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C-1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of the subdistrict will continue to use the existing providers who offer those services. The new hospital will not compete for those services. Lawnwood will continue to provide tertiary services to the PSA and will continue to be a strong candidate for any patient in the PSA requiring trauma services when that service comes on line. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The new Martin hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider or entity an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. This subdistrict enjoys a varied range of healthcare providers. All demonstrate strong financial stability and utilization. A new hospital will promote continued quality and cost-effectiveness. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. No more effective method of construction has been proposed. The financial soundness of the proposal should cover the actual costs associated with the construction of the project. Additionally, the free-standing ED that Martin is constructing will be transitioned to a urgent care clinic or some other health care facility, it will not continue to provide emergent services when the new hospital is on line. Therefore, it should not be considered a less costly alternative for ED services. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. Martin has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The new hospital would be expected to continue this tradition. Moreover, this criterion is adequately addressed by the proposed conditions to the CON approval. Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Agency's Rationale The SAAR set forth the Agency's rationale for the proposed approval of the CON application. The SAAR acknowledged that the proposal received varied support from numerous sources. Further, the SAAR acknowledged that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the applicant meets its projected occupancy levels; that the project would have a positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule is reasonable. The SAAR also recognized the improved access for obstetrical services for residents of the growing western St. Lucie County. This also reinforced the generally recognized improvements to access geographically given the limitations in east-west traffic access. Finally, the SAAR recognized that Martin is the provider that has invested in the western portion of the subdistrict by establishing clinics and physician networks to provide care to the residents of the PSA. Opponents to the new hospital have not similarly committed to the residents of western St. Lucie County. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9981 with the conditions noted in the SAAR. DONE AND ENTERED this 31st day of July, 2009, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2009. COPIES FURNISHED: Paul H. Amundsen, Esquire Julie Smith, Esquire Amundsen & Smith 502 East Park Avenue Post Office Drawer 1759 Tallahassee, Florida 32302 Karin M. Byrne, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire J. Stephen Menton, Esquire David Prescott, Esquire Rutledge, Ecenia, & Purnell 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Holly Benson, Secretary Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308-5403
