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 Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
The Issue The issue in this case is whether Select Specialty Hospital- Lee, Inc.’s (Select), Certificate of Need (CON) No. 9656 application, to establish a long-term acute care hospital (LTCH) in Agency for Health Care Administration's (AHCA) District 8, should be approved.
Findings Of Fact The Parties AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Section 408.034, Florida Statutes (2003). Select is the applicant in this proceeding and proposes to construct a 60-bed freestanding LTCH in Lee County, Florida. Select is a wholly-owned subsidiary of Select Medical Corporation (SMC) and is one of the largest providers of LTCH in the nation. It operates 79 LTCHs in 24 states, including two located in Florida. LMHS is a public health system created by special authorizing legislation. It is controlled by a board of directors elected by the citizens of Lee County and consists of three hospitals, a rehabilitation hospital, a children’s hospital, a skilled nursing facility (SNF), a physician service, a home health agency, and various outpatient health services. LMHS has 946 licensed acute care beds, 112 SNF beds, 5,000 employees, and 85 employed physicians on its medical staff. LMHS treats a large share of patients and is the safety net provider in Lee County. LMHS annually provides 18 percent Medicaid care and 4 percent charity care. Lee Memorial, et al., is comprised of Lee Memorial Hospital and Cape Coral Hospital, both short-term acute care hospitals; Lee Memorial Rehabilitation Hospital, a comprehensive medical rehabilitation (CMR) hospital; and HealthPark Care Center, a SNF. Lee Memorial, et al., collectively alleges that it would be adversely impacted by the approval of Select’s proposed LTCH. Cypress Cove is a multi-stage adult congregate living facility that includes a 64-bed SNF. In its Petition to Intervene, Cypress Cove alleges that approval of the Select LTCH will adversely impact the efficiency, quality, extent of utilization, and financial status of its existing program and adversely impact its ability to maintain and attract qualified clinicians and other necessary staff. Nature of Long-Term Acute Care Services Generally, LTCHs are health care facilities that provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions. To qualify as an LTCH, the facility must serve a patient population whose average length of stay (ALOS) exceeds 25 days. LTCHs fit into the continuum of care between traditional short-term acute care hospitals and traditional post-acute care facilities such as nursing homes, SNFs, skilled nursing units (SNU) or CMR facilities. They are designed to serve patients that would otherwise have to be maintained in a traditional acute care hospital where the reimbursement rates may be insufficient to cover the costs associated with an extended stay or be moved to a traditional post-acute care facility where the patient may not receive sufficient care. LTCH services are most highly utilized by persons 65 and older, since they are more likely to have complex and/or co-morbid medical conditions that require long-term acute care. The majority of LTCH admissions are patients transferred directly from a traditional acute care hospital. Nursing homes, SNFs, SNUs, CMR facilities, and home health care services are frequently inappropriate for the traditional LTCH patient since the patient's acuity level and medical needs are generally higher than patients treated in those settings. Medicare reimbursements are the primary source of revenue for LTCHs since 75 to 85 percent of LTCH patients are covered by Medicare. Effective October 1, 2002, the Centers for Medicare and Medicaid Services (CMS) implemented a prospective Medicare payment reimbursement system (PPS) designed specifically for LTCHs. Through this system, CMS reimburses the services of LTCHs separately and distinctly from short-term acute care and other post-acute care providers. Specifically, each patient admitted to an LTCH is assigned into a Long Term Care Diagnosis Related Grouping (LTC- DRG) with a corresponding reimbursement rate that is weighted based upon the patient’s diagnosis and acuity. Thereafter, the LTCH is reimbursed a predetermined payment rate for the respective DRG, regardless of the costs of care. The reimbursement system was established pursuant to 42 C.F.R. Sections 412, 413, and 476. AHCA has genuine concern about the long-term viability of the LTCH industry given its dependence upon CMS reimbursement rates. Consequently, AHCA admits that it takes a very conservative approach towards the evaluation of LTCH CON applications. At the time of hearing, there were nine LTCH facilities operating in Florida. Generally, Florida LTCHs are well-utilized and have an average occupancy rate exceeding 75 percent. The ALOS for all patients discharged from Florida LTCHs between July 2001 and June 2002 was over 42 days, which is considerably higher than the national average and attributable to several reasons, including Florida’s aging population, existing provider relationships, the limited number of facilities, and the higher acuity of patients presenting to the facilities. Statutory Criteria Select proposes to establish a 60-bed freestanding LTCH in Lee County. It timely filed its CON application with AHCA and the local health council. At the time of filing, no local health criteria existed for the establishment of LTCH facilities. Need AHCA does not publish a fixed-need pool for LTCHs and has not established a numeric need methodology for LTCH services, nor does it have any rule policy in place related to LTCHs. Florida Administrative Code Rule 59C-1.008(2)(e) states that if neither an agency need methodology nor an agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology, which must include consideration of the following: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Select addressed each of these topics in its application. Population Demographics and Dynamics Given that AHCA has not defined specific service areas for LTCHs, Select appropriately analyzed the population, demographics, and dynamics of its proposed service area and demonstrated the reasonableness of its selected area based on the needs of the demographics in the area. While AHCA admits that it reviews LTCH applications on a District level, in terms of health care planning and development, the evidence demonstrates that, given the small number of LTCH facilities in Florida, physicians and patients often cross district lines and hospitals for service. Notwithstanding this fact, LTCHs typically draw the majority of their patients from the 30 to 40-mile radius area surrounding it. In determining the service area for its proposal, Select reasonably analyzed population estimates for Lee County and the surrounding area, the number of acute care and LTCH beds in the area, discharge data from area acute care hospitals, the types of patients treated at acute care hospitals, and the lengths of stays of the patients treated at those hospitals. Population estimates for Lee County and its surrounding areas demonstrate that population in the district is projected to grow in all age groups, particularly among residents age 65 and over who are the most likely to use LTCH services. In addition, as of January 2003, nearly 25 percent of Lee County’s population exceeded the age of 65. Given the evidence, including the absence of an existing LTCH provider in the area, it is reasonable to expect most of Select's LTCH patient days to originate from residents of Lee County. It is also reasonable to expect Select to draw LTCH patients from a 30 to 40-mile radius service area. Accordingly, the designation of Lee County and its proposed LTCHs service area is reasonable from a need, cost, and accessibility analysis. Prior to submitting its CON application in this case, Select developed a market analysis for the Lee County area and discussed with Lee Memorial Hospital its intent to potentially establish a LTCH in Lee County. Lee Memorial Hospital provided Select with various patient utilization and discharge data excluding certain rehabilitation, obstetrics, and psychiatric DRG information, in an effort to identify patients appropriate for LTCH admission. The data provided by Lee Memorial suggests that annually, there were over 900 long-stay patients at Lee Memorial who may likely have been appropriate candidates for admission to an LTCH had one been available. Lee Memorial Hospital agrees and readily admits that LTCH services are appropriate and necessary in Lee County. Availability, Utilization and Quality of Like Services in the District The second criterion contained in Florida Administrative Code Rule 59C-1.008(2)(e) requires an applicant to look at the availability, utilization, and quality of long-term care services in District 8. Given the lack of LTCH beds in District 8, Select assessed all other health care facilities that may provide LTCH “like” services including SNUs, SNFs, CMRs, nursing homes, and home health care services. Select's approach was conservative, since many of the "like" service providers do not provide acute care services and are merely “post-acute” providers. LTCHs, on the other hand, must provide acute care since all qualified patients must have an acute condition and meet medical necessity requirements. In fact, in order to meet the level of care and services its patients require, SMC's LTCHs have four core programs, including pulmonary and ventilator patients, wound care, neuro- trauma, and medically complex. The vast majority of Select’s proposed patients fit within those four categories. Most LTCH patients arrive from the ICU of short-term acute care hospitals after a determination is made that they will require an extended stay to treat their medical condition. Upon arrival, the patients are frequently re-evaluated, diagnosed, and stabilized and their conditions often change over the course of days and weeks, not hours. In addition, unlike many acute care facilities, due to the extended stay, family members are encouraged to participate in the LTCH patient's plan of care. The ALOS for patients in a SMC LTCH is approximately 25 to 30 days. A general intensive care unit (ICU) is not equipped, nor intended to be a place for extended patient stays. The evidence clearly demonstrates that patients who are forced to stay in the ICU for an extended period consume needed ICU beds and prevent other critically ill patients from being admitted to the unit. In addition, acute care hospitals are seldom adequately reimbursed for extended-stay patients and commit unforeseen resources toward their care. LTCH patients usually have co- morbidities associated with their primary diagnosis and require extensive treatment for the initial underlying illness, as well as additional complications. Select’s proposed neuro-trauma program will treat patients with spinal cord injuries, head injuries, cerebral hemorrhages, and strokes. On average, patients who are classified as wound-care patients have at least five severe wounds, are usually older and nutritionally depleted, are unable to care for themselves, and require significant care and resources. Select’s proposed medically complex program will treat patients that have more than one body system involved in their illness. Typically, one of the systems involved is the renal system; so an example of this type of patient would be a dialysis patient who may also have several severe wounds or who may be on a ventilator. For many reasons, in general, none of these categories of patients are appropriate for care in other post-acute care settings, including CMR facilities, nursing home facilities, SNFs, SNUs, or home health. First, CMR facilities generally limit the types of patients they will accept. Federal requirements require that at least 75 percent of a CMR facility’s patients come from ten Diagnostic Related Groups (DRGs). LTCHs, on the other hand, take care of any type of critically ill patient who needs to be in an acute care setting for an extended period of time. Second, the acuity level of a CMR patient is much lower than that of a LTCH patient. In fact, most CMR facilities, including Lee Memorial Rehabilitation Hospital, do not accept vent patients. Third, unlike LTCH patients, CMR patients are expected to actively participate in their plan of care and treatment program, which includes at least three hours of daily rehabilitation. LTCH facilities provide eight hours of nursing care a day, whereas rehabilitation facilities provide less than four. Given that the acuity and medical needs of a rehabilitation patient are less than the needs of a LTCH patient, it is often appropriate for an LTCH patient to be discharged to a CMR facility or to a skilled nursing unit once their medical condition has stabilized, and they no longer require acute care. Similarly, neither a SNU nor a SNF is an appropriate venue for most LTCH patients. Typically, patients in a SNF or SNU have a 12 to 15-day length of stay and require a lower level of patient care that is more restorative in nature than the care provided in a LTCH. SNFs are also reimbursed under a distinct and different payment system than LTCHs. SNFs and SNUs are reimbursed under a case-mix reimbursement system that pays the facility differential rates, depending upon the types of treatments and conditions of the patient. Therefore, if the patient needs more rehabilitation, it will be assigned a different resource utilization group (RUG). Medical Treatment Trends The third element contained in Florida Administrative Code Rule 59C-1.008(2)(e) is medical treatment trends. Select appropriately addressed this criterion in its application by explaining the types of conditions that are primarily treated in the LTCH setting and the services provided to meet the needs of the LTCH patient. As previously discussed, LTCHs provide services to patients who are medically complex and for whom the services of a traditional short-term acute care hospital are no longer the most appropriate or the lowest cost setting, but who are still in need of acute care on a long-term basis. The evidence demonstrates that acute care for patients with chronic and long-term care needs is becoming increasingly necessary as society ages and medical technology makes advances toward prolonging life expectancies. LTCH patients have complex medical, nursing, and therapeutic requirements that require state-of-the-art medical technology including mechanical ventilators, metabolic analyzers, and breathing monitors to assist in their recovery. These needs are beyond the capabilities of the traditional rehabilitation hospital, nursing home, and/or home care. Accordingly, LTCHs are beginning to fill an increasingly important role in the continuum of care and serve the needs of a small, but growing, patient population that are not being efficiently treated in the conventional health care setting. Absent LTCH services, these patients will remain in the acute care hospital and consume valuable ICU space and resources without adequate reimbursement or be transferred to an alternative, less suitable setting with inadequate staffing, care, and services. Market Conditions The final element of Florida Administrative Code Rule 59C-1.008(2)(e) requires an applicant to consider market conditions for the service proposed. Select addressed this element throughout its application and focused on the federal government’s development of a distinct prospective payment system for LTCHs known as “LTC-DRG.” As a result of this new payment system, LTCHs are distinct, recognized, and valuable tools in the health care continuum. Specifically, with hospital case indices on the rise, since managed care often limits hospital admission coverage, and with a growing elderly population often requiring lengthy acute care stays, hospitals are forced to experience losses for complicated and compromised patients who use more resources than expected. In addition, many nursing facilities that accepted the high acuity patients prior to PPS have discontinued their sub- acute programs following reimbursement shortfalls. Moreover, short-term acute care hospitals often have an incentive(s) to reduce long-term institutional care and minimize inpatient hospital stays and the rising costs associated with that care. The evidence demonstrates that Medicare covers approximately 80 to 85 percent of LTCH patients, while private insurance, managed care and Medicaid cover the balance. The benefits of an LTCH program include providing valuable outcomes, shorter lengths of stay in the short-term acute hospital, fewer re-admissions to the short-term acute hospital, and more discharges home, are important considerations. By focusing their resources on clinical programs that treat medically complex and critically ill patients, the evidence suggests that LTCH facilities incur fewer overhead costs than short-term hospitals treating similar patients and, therefore, are often more cost- effective and generate appropriate reimbursements. Finally, AHCA concedes that there is a clear patient population to be served by LTCH facilities that does not significantly overlap with other health care settings. AHCA has previously approved several LTCH applications. Select’s LTCH Bed Demand Forecast for Lee County In order to assess numeric need, Select presented two bed need methodologies in its application that quantified the appropriate number of beds necessary to serve the area. In summary, each analysis demonstrates that a LTCH bed need exists above the capacity of the combined total for the Select 60-bed LTCH to be located in Lee County, as well as the previously approved 40-bed LTCH to be located in Sarasota County. Use-Rate Analysis Although it is less reliable, the first methodology presented in Select’s CON application is commonly referred to as a use-rate analysis which has been used and relied on by health planners in projecting need. Select reviewed the number of LTCH patient days in six of the eight counties where there are operational LTCHs per 1,000 by age group and produced a use rate per 1,000 persons for each age group. The age group specific use rates were then applied to AHCA’s population estimates for Lee County for the July 2007 through June 2008 planning horizon and produced an expected number of patient days by age group. The age group totals were summed up to forecast the number of total LTCH patient days for the area. Select then conservatively applied a target occupancy rate of 80 percent to the projected total number of patient days and determined a need for 109 to 114 LTCH beds for the projected planning horizon in Lee County for Lee County residents. Long Length of Stay Model The second methodology proposed by Select to project the number of patient days is more reliable. It utilizes length of stay information, by DRG, for LTCH appropriate patients in general acute care hospitals in the area to determine an estimated number of patient days that may be generated by patient referrals from the area hospitals. The extended length of stay methodology was applied utilizing the “Geometric Mean Length of Stay plus 15 days” (GMLOS+15), the “Length of Stay greater than 15 days” (LOS>15) and the ALOS to patients in the Lee County area with LTCH appropriate DRGs to determine appropriate ranges of patient days. The GMLOS+15 analysis provides the most conservative estimate of projected patient days expected from Lee County and surrounding hospitals. It establishes a statistically adjusted value for all cases in a given DRG assigned by CMS that includes consideration for outliers, transfer cases, and negative outlier cases which could skew data. The GMLOS for each DRG identified in the application is the reasonable length of time the average patient would expect to spend in an acute care hospital, given the specific illness/injury being treated. Specifically, utilizing the GMLOS+15 analysis, Select removed patients with DRGs identified as inappropriate for LTCHs, removed patients with a length of inpatient stay less than the GMLOS for the DRG plus 15 days, and subtracted the DRG’s GMLOS from the total length of stay for each discharge to determine the patient’s potential LTCH length of stay. As a result, Select conservatively determined via its calculation, which only captures the extremely sick in hospitals in the Lee County area, that there is a need for 60 LTCH beds in Lee County and the surrounding area. Select’s analysis and projections are reasonable. The second extended length-of-stay analysis Select provided utilized an aggressive application of the LOS>15 days approach which focuses on the opportunity physicians are given to transfer diagnosed LTCH patients to an appropriate facility as soon as possible in their treatment regimen when LTCH beds are available. The analysis yields a bed need of 111 in Lee County area hospitals. Given that Select has no presence in Lee County, the approach is not persuasive. Finally, the third extended length of stay analysis provided by Select uses the midpoint of patient days generated by the GMLOS+15 days analysis and the potential LTCH patients identified by the LOS>15 days analysis to establish age-specific utilization rates in order to forecast estimates for future years. This ALOS methodology produces a bed need that ranges from 102 to 107 beds. The evidence indicates that while the majority of LTCH admissions in Florida come from within the county where the LTCH is located, on average, over 40 percent of patient days generated in LTCHs originate outside their county boundaries. Consequently, it is reasonable to expect that an established LTCH in Lee County would draw additional patient days from residents outside of Lee County. In summary, there is need for Select’s proposed 60-bed LTCH in District 8. Financial Feasibility Short-Term Financial Feasibility The short-term financial feasibility of Select’s proposal depends on its ability to provide or obtain sufficient capital to fund its proposed project through the initial implementation and start-up phases. The evidence demonstrates that Select has the financial ability to provide or obtain sufficient capital for the proposal. Select’s parent, SMC, has committed to fund the initial project cost of $12,421,457.00 and any additional monies necessary to establish and operate Select's proposed 60-bed freestanding LTCH. At the time the application was filed, SMC had in excess of $125 million. Long-Term Financial Feasibility The long-term financial feasibility of Select’s proposal hinges on whether the proposed project will sustain itself by generating revenues in excess of expenses on an on-going basis. The reasonableness of Select’s utilization projections, project costs, and revenue and expense projections are important factors in determining the long-term feasibility of Select’s proposal. The evidence demonstrates that Select’s utilization projections are reasonable. In year one, for the first and second quarters, Select will undergo (as do all LTCHs) a demonstrative period under short-term acute care PPS to establish a length of stay of 25 days; therefore, admissions will be restricted in the first quarter. The balance of Select’s utilization projections are based on Select’s standard start-up model adjusted for anticipated growth patterns. Accordingly, Select projects a conservative 36 percent occupancy for year one and a 68 percent occupancy for year two. Select’s most conservative bed need methodology, discussed above, demonstrates there is sufficient demand for LTCH services within District 8, specifically Lee County, to enable Select to meet its utilization projections for the proposed project. In addition, Select’s projected revenues for its proposed project through the second year of operation are reasonable. Select’s Medicare revenue projections were based on Select’s exemption from acute care inpatient PPS after six months of operation and based on Medicare reimbursements under the acute care PPS system during the first six months of operation. Commercial insurance and other managed care projections were based on an average for the Florida market. Medicaid self-pay projections were based on a Florida cost factor. Overall, the Medicare revenues projected on Select’s Schedule 7A are conservative and reasonable. When Select submitted its application, it was not under the new reimbursement method implemented by CMS. As such, Select estimated that it would have Medicare revenues of $25,000.00 for non-vent patients and $30,000.00 for vent patients. However, it is now reasonable to expect under the new LTCH PPS system, that Medicare reimbursement will average, at least, $31,504.00, which will have the effect of $843,222.00 in additional revenues than those projected on Schedule 7A. Select has reasonably projected 7,877 days in the first year and 14,878 in the second year. Accordingly, Select’s projected payor mix was calculated using SMC’s average at the time, which was 75 percent Medicare; approximately 2.8 percent Medicaid and self-pay; and the remainder for commercial payers. The projected expenses shown on Select’s Schedule 8A are reasonable and consistent with SMC’s existing LTCHs and are reasonable for the proposed project. Select’s projected staffing salaries, as shown on Schedule 6 are reasonable and appropriate. The staffing projections contained on Schedule 6 are based on SMC’s staffing model. This model incorporates patient days compared to census data projected in Schedule 5, and provides the number of FTEs (full-time equivalent employee) needed by position. In projecting nursing staff, Select reasonably uses an average of eight to eight and one-half hours per patient day. Total therapies are averaged at 2.7 hours per patient day, respiratory therapy at 1.67 hours per patient day, speech therapy at 0.2 hours per patient day, and occupational therapies at 0.5 hours per patient day. The salaries projected on Schedule 6 are based on Select-Miami’s experience in hiring staff and a slight adjustment for wage index using the Medicare wage index and are reasonable for the proposed project. Given the evidence, Select’s projected utilization, revenues and expenses are reasonable for the proposed project, and the project is financially feasible in the long term. Quality of Care SMC is a large quality care provider, and it is reasonable and appropriate to conclude that Select will likewise provide quality care based on the policies and procedures utilized by its parent. Medicaid and Charity Care Commitment Select has conditioned approval of its proposal to providing a 2.8 percent Medicaid and charity combined with .08 percent of its total patient days to Medicaid and 2.0 percent of its total patient days to charity care. While the .08 percent Medicaid commitment is less than the statewide average (due in part to the high percentage of Medicaid provided to pediatric patients at one LTCH in Tampa), the commitment to 2.0 percent charity care is higher than the statewide average. Architectural Criteria and Costs The projected construction costs on Select’s Schedule 1 are reasonable for the proposed project. Select’s projected construction costs were developed utilizing the knowledge and experience of the architect; the use of a R.S. Means data, which is a nationally recognized industry standard database, and the review of market area data. Included in the construction costs are “fixed” items, which include items like walk-in coolers, freezers, major kitchen equipment, security cameras, announcement systems, cubical curtains, interior/exterior signage, ventilator hoods, pharmacy hoods, and some landscaping. Select engaged a real estate agent to assist it with development of costs associated with site costs and site selection. The costs associated with site preparation for this project are reasonable even with the potential for elevation issues associated with one of the sites selected. The remaining equipment costs, excluding the fixed equipment costs factored into the construction costs, are also reasonable. Finally, the projected timetable for completion of Select’s proposal is reasonable. Adverse Impact Alleged Financial Impact of Approval Approval of Select’s proposed project will not have a significant adverse impact on LMHS and have little, if any, adverse impact on Cypress Cove. It is noted however, that although neither Cypress Cove nor Lee Memorial provides precisely the same service proposed by Select in its CON application, they will occasionally compete for patients and staff. However, if the parties can find some common ground, the approval of Select’s proposed project may have a positive effect on LMHS by offering a referral source for long-stay patients that currently drain resources. In fact, the reliable evidence demonstrates that LMHS may reasonably expect to achieve some financial gains as a result of the establishment of Select’s LTCH. Similarly, the proposed Select LTCH will not adversely effect HealthPark Care Center, Lee Memorial’s SNF. HealthPark Care Center does not treat the same patients projected for Select’s LTCH, nor does it provide the necessary nursing or daily physician care required for a LTCH patient. The approval of Select’s proposed LTCH will not have an adverse impact on Cypress Cove. Cypress Cove is a continuing care retirement community licensed in accordance with Chapter 651, Florida Statutes (2003). Similar to HealthPark Care Center, they are not equipped to treat the type of patient admitted to an LTCH. Lee Memorial’s expert, Bob Beiseigel, provided no persuasive evidence relating to adverse impact. Mr. Beiseigel determined the potential maximum impact by calculating total lost admissions on an annual basis at HealthPark Care Center and Lee Memorial Rehabilitation Hospital, notwithstanding the fact that it is unreasonable to assume that Select’s LTCH would simultaneously cannibalize both programs’ admissions. Furthermore, Mr. Beiseigel incorrectly opined that 683 admissions from Lee Memorial’s Rehabilitation Hospital and 62 admissions from HealthPark Care Center would be lost to the Select LTCH. He based his opinion on the flawed premise that all of Lee Memorial’s rehabilitation patients, regardless of case mix, with a length of stay over 15 days will be re-directed to Select’s LTCH. State Agency Action Report The criticisms contained in the State Agency Action Report (SAAR) of Select’s CON application relate solely to need. In its SAAR, AHCA states: Select-Lee’s two methodological approaches to demonstrate need are not supported by any specific discharge studies or other data, including DRG admission criteria from area hospitals regarding potential need; Select-Lee failed to provide any supporting documentation from area physicians or other providers regarding potential referrals; Select-Lee did not demonstrate that patients that qualify for LTACH services are not currently being served or that an access problem exists for residents in District 8. With the approval of a new freestanding 40-bed LTACH in District 8 and the approved addition of 22 LTACH beds for the Kindred-St. Petersburg facility in contiguous District 5, the need for additional LTACH beds in District 8 is not demonstrated. Despite AHCA’s general assertions in the SAAR and at final hearing that Select should have examined inpatient discharge studies or data, the evidence demonstrates that Select did in fact review and evaluate that very type of data, including discharge and DRG information, to demonstrate need for this project. Specifically, Select examined Florida Hospital Discharge Data for Lee County area hospitals for the 12-month period ending June 2002 to identify patient days appropriate for its proposed facility. Select further utilized information that Gregg Sassman obtained freely from Lee Memorial Hospital. Specifically, Lee Memorial Hospital indicated that there were in excess of 969 long-stay patients it believed were appropriate for admission to an LTCH had one been available. AHCA further asserts that Select failed to provide any supporting documentation, i.e., letters of support, from area physicians or other providers regarding potential referrals. AHCA’s concerns are well taken. However, at final hearing, AHCA itself admitted that these types of letters of support aren’t in and of themselves critical to an application or dispositive to approval. Furthermore, when asked if AHCA considered the letters of support filed in the subsequent batch by Lee Memorial Rehabilitation Hospital that identified 1,220 potential LTCH patients as an indicator of need, AHCA indicated that the letters could support the methodology utilized by Select. AHCA also stated that Select failed to demonstrate that patients that qualify for LTCH services are not currently being served or that an access problem exists for residents in District 8. However, the responses provided by Select in its application to Florida Administrative Code Rule 59C-1.008(2)(e) and the needs methodologies utilized by Select sufficiently demonstrate that patients that qualify for LTCH services lack sufficient access. 88. Finally, AHCA noted that Select failed to take into account the 22-bed addition at Kindred-St. Petersburg in District Given that Kindred-St. Petersburg had an average occupancy level of 99.23 percent for July 2001 through June 2002, it is patently clear that the addition of 22 beds, filled to capacity in an area located approximately 2.5 hours away does not serve as a viable alternative to the need for a LTCH in Lee County.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law, it is RECOMMENDED that, on balance, Select’s application for CON No. 9656 satisfies all applicable statutory and regulatory criteria, and should therefore be APPROVED. DONE AND ENTERED this 8th day of April, 2005, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of April, 2005. COPIES FURNISHED: Mark A. Emanuele, Esquire Deborah S. Platz, Esquire Panza, Maurer & Maynard, P.A. Bank of America Building, Third Floor 3600 North Federal Highway Fort Lauderdale, Florida 33308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Caleen, P.A. 1725 Mahan Drive, Suite 201 Post Office Box 15828 Tallahassee, Florida 32317-5828 Richard J. Saliba, Esquire Kenneth W. Gieseking, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308
Findings Of Fact Introduction Petitioner, Leesburg Regional Medical Center ("Leesburg"), is a 132-bed acute care private, not-for-profit hospital located at 600 East Dixie Highway, Leesburg, Florida. It offers a full range of general medical services. The hospital sits on land owned by the City of Leesburg. It is operated by the Leesburg hospital Association, an organization made up of individuals who reside within the Northwest Taxing District. By application dated August 13, 1982 petitioner sought a certificate of need (CON) from respondent, Department of Health and Rehabilitative Services (HRS), to construct the following described project: This project includes the addition of 36 medical/surgical beds and 7 SICU beds in existing space and the leasing of a CT scanner (replacement). The addition of the medical/surgical beds is a cost effective way to add needed capacity to the hospital. Twenty-four (24) beds on the third floor will be established in space vacated by surgery and ancillary departments moving into newly constructed space in the current renovation project. A significant portion of this area used to be an obstetric unit in the past; and therefore, is already set up for patient care. The 7 bed SICU unit will be set up on the second floor, also in space vacated as a result of the renovation project. Twelve additional beds will be available on the third and fourth floors as a result of changing single rooms into double rooms. No renovation will be necessary to convert these rooms into double rooms. It is also proposed to replace the current TechniCare head scanner with GE8800 body scanner. Based on the high demand for head and body scans and the excessive amount of maintenance problems and downtime associated with the current scanner, Leesburg Regional needs a reliable, state-of-the-art CT scanner. The cost of the project was broken down as follows: The total project cost is $1,535,000. The construction/renovation portion of the project (24 medical/surgical and 7 SICU beds) is $533,000. Equipment costs will be approximately $200,000. Architectural fees and project development costs total $52,000. The CT scanner will be leased at a monthly cost of $16,222 per month for 5 years. The purchase price of the scanner is $750,000 and that amount is included in the total project cost. The receipt of the application was acknowledged by HRS by letter dated August 27, 1982. That letter requested Leesburg to submit additional information no later than October 10, 1982 in order to cure certain omissions. Such additional information was submitted by Leesburg on October 5, 1982. On November 29, 1982, the administrator for HRS's office of health planning and development issued proposed agency action in the form of a letter advising Leesburg its request to replace a head CT scanner (whole body) at a cost of $750,000 had been approved, but that the remainder of the application had been denied. The basis for the denial was as follows: There are currently 493 medical/surgical beds in the Lake/Sumter sub-district of HSA II. Based upon the HSP for HSA II, there was an actual utilization ratio of existing beds equivalent to 2.98/1,000 population. When this utilization ratio is applied to the 1987 projected population of 156,140 for Lake/Sumter counties, there is a need for 465 medical/surgical beds by 1987. Thus, there is an excess of 28 medical/surgical beds in the Lake/Sumter sub-district currently. This action prompted the instant proceeding. At the same time Leesburg's application was being partially denied, an application for a CON by intervenor-respondent, Lake Community Hospital (Lake), was being approved. That proposal involved an outlay of 4.1 million dollars and was generally described in the application as follows: The proposed project includes the renovations and upgrading of patient care areas. This will include improving the hospital's occupancy and staffing efficiencies by reducing Med-Surg Unit-A to 34 beds and eliminating all 3-bed wards. Also reducing Med-Surg Units B and C to 34 beds each and eliminating all 3-bed wards. This will necessitate the construction of a third floor on the A wing to house the present beds in private and semi-private rooms for a total of 34 beds. There is also an immediate need to develop back-to-back six bed ICU and a six-bed CCU for shared support services. This is being done to fulfill JCAH requirements and upgrade patient care by disease entity, patient and M.D. requests. Another need that is presented for consideration is the upgrading of Administrative areas to include a conference room and more Administrative and Business office space. However, the merits of HRS's decision on Lake's application are not at issue in this proceeding. In addition to Lake, there are two other hospitals located in Lake County which provide acute and general hospital service. They are South Lake Memorial Hospital, a 68-bed tax district facility in Clermont, Florida, and Waterman Memorial Hospital, which operates a 154-bed private, not-for-profit facility in Eustis, Florida. There are no hospitals in Sumter County, which lies adjacent to Lake County, and which also shares a subdistrict with that county. The facilities of Lake and Leesburg are less than two miles apart while the Waterman facility is approximately 12 to 14 miles away. South Lake Memorial is around 25 miles from petitioner's facility. Therefore, all three are no more than a 30 minute drive from Leesburg's facility. At the present time, there are 515 acute care beds licensed for Lake County. Of these, 493 are medical/surgical beds and 22 are obstetrical beds. None are designated as pediatric beds. The Proposed Rules Rules 10-16.001 through 10-16.012, Florida Administrative Code, were first noticed by HRS in the Florida Administrative Weekly on August 12, 1983. Notices of changes in these rules were published on September 23, 1983. Thereafter, they were filed with the Department of State on September 26, 1983 and became effective on October 16, 1983. Under new Rule 10-16.004 (1)(a), Florida Administrative Code, subdistrict 7 of district 3 consists of Lake and Sumter Counties. The rule also identifies a total acute care bed need for subdistrict 7 of 523 beds. When the final hearing was held, and evidence heard in this matter, the rules were merely recommendations of the various local health councils forwarded to HRS on June 27, 1983 for its consideration. They had not been adopted or even proposed for adoption at that point in time. Petitioner's Case In health care planning it is appropriate to use five year planning horizons with an overall occupancy rate of 80 percent. In this regard, Leesburg has sought to ascertain the projected acute care bed need in Lake County for the year 1988. Through various witnesses, it has projected this need using three different methodologies. The first methodology used by Leesburg may be characterized as the subdistrict need theory methodology. It employs the "guidelines for hospital care" adopted by the District III Local Health Council on June 27, 1983 and forwarded to HRS for promulgation as formal rules. Such suggestions were ultimately adopted by HRS as a part of Chapter 10-16 effective October 16, 1983. Under this approach, the overall acute care bed need for the entire sixteen county District III was found to be 44 additional beds in the year 1988 while the need within Subdistrict VII (Lake and Sumter Counties) was eight additional beds. 2/ The second approach utilized by Leesburg is the peak occupancy theory methodology. It is based upon the seasonal fluctuation in a hospital's occupancy rates, and used Leesburg's peak season bed need during the months of February and March to project future need. Instead of using the state suggested occupancy rate standard of 80 percent, the sponsoring witness used an 85 percent occupancy rate which produced distorted results. Under this approach, Leesburg calculated a need of 43 additional beds in 1988 in Subdistrict VII. However, this approach is inconsistent with the state-adopted methodology in Rule 10- 5.11(23), Florida Administrative Code, and used assumptions not contained in the rule. It also ignores the fact that HRS's rule already gives appropriate consideration to peak demand in determining bed need. The final methodology employed by Leesburg was characterized by Leesburg as the "alternative need methodology based on state need methodology" and was predicated upon the HRS adopted bed need approach in Rule 10-5.11(23) with certain variations. First, Leesburg made non-rule assumptions as to the inflow and outflow of patients. Secondly, it substituted the population by age group for Lake and Sumter Counties for the District population. With these variations, the methodology produced an acute care bed need of 103 additional beds within Lake and Sumter Counties. However, this calculation is inconsistent with the applicable HRS rule, makes assumptions not authorized under the rule, and is accordingly not recognized by HRS as a proper methodology. Leesburg experienced occupancy rates of 91 percent, 80 percent and 73 percent for the months of January, February and March, 1981, respectively. These rates changed to 86 percent, 95 percent and 98 percent during the same period in 1982, and in 1983 they increased to 101.6 percent, 100.1 percent and 95.1 percent. Leesburg's health service area is primarily Lake and Sumter Counties. This is established by the fact that 94.4 percent and 93.9 percent of its admissions in 1980 and 1981, respectively, were from Lake and Sumter Counties. Although South Lake Memorial and Waterman Memorial are acute care facilities, they do not compete with Leesburg for patients. The staff doctors of the three are not the same, and there is very little crossover, if any, of patients between Leesburg and the other two facilities. However, Lake and Leesburg serve the same patient base, and in 1982 more than 70 percent of their patients came from Lake County. The two compete with one another, and have comparable facilities. Leesburg has an established, well-publicized program for providing medical care to indigents. In this regard, it is a recipient of federal funds for such care, and, unlike Lake, accounts for such care by separate entry on its books. The evidence establishes that Leesburg has the ability to finance the proposed renovation. HRS's Case HRS's testimony was predicated on the assumption that Rule 10-16.004 was not in effect and had no application to this proceeding. Using the bed need methodology enunciated in Rule 10-5.11(23), its expert concluded the overall bed need for the entire District III to be 26 additional beds by the year 1988. This calculation was based upon and is consistent with the formula in the rule. Because there was no existing rule at the time of the final hearing concerning subdistrict need, the witness had no way to determine the bed need, if any, within Subdistrict VII alone. Lake's Case Lake is a 162-bed private for profit acute care facility owned by U.S. Health Corporation. It is located at 700 North Palmetto, Leesburg, Florida. Lake was recently granted a CON which authorized a 4.1 million dollar renovation project. After the renovation is completed all existing three-bed wards will be eliminated. These will be replaced with private and semi-private rooms with no change in overall bed capacity. This will improve the facility's patient utilization rate. The expansion program is currently underway. Like Leesburg, the expert from Lake utilized a methodology different from that adopted for use by HRS. Under this approach, the expert determined total admissions projected for the population, applied an average length of stay to that figure, and arrived at a projected patient day total for each hospital. That figure was then divided by bed complement and 365 days to arrive at a 1988 occupancy percentage. For Subdistrict VII, the 1988 occupancy percentage was 78.2, which, according to the expert, indicated a zero acute care bed need for that year. Lake also presented the testimony of the HRS administrator of the office of community affairs, an expert in health care planning. He corroborated the testimony of HRS's expert witness and concluded that only 26 additional acute care beds would be needed district-wide by the year 1988. This result was arrived at after using the state-adopted formula for determining bed need. During 1981, Lake's actual total dollar write-off for bad debt was around $700,000. This amount includes an undisclosed amount for charity or uncompensated care for indigent patients. Unlike Leesburg, Lake receives no federal funds for charity cases. Therefore, it has no specific accounting entry on its books for charity or indigent care. Although Leesburg rendered $276,484 in charity/uncompensated care during 1981, it is impossible to determine which facility rendered the most services for indigents due to the manner in which Lake maintains its books and records. In any event, there is no evidence that indigents in the Subdistrict have been denied access to hospital care at Lake or any other facility within the county. Lake opines that it will loose 2.6 million dollars in net revenues in the event the application is granted. If true, this in turn would cause an increase in patient charges and a falling behind in technological advances. For the year 1981, the average percent occupancy based on licensed beds for Leesburg, Lake, South Lake Memorial and Waterman Memorial was as follows: 71.5 percent, 58.7 percent, 63.8 percent and 65.7 percent. The highest utilization occurred in January (81 percent) while the low was in August (58 percent). In 1982, the utilization rate during the peak months for all four facilities was 78 percent. This figure dropped to 66.5 percent for the entire year. Therefore, there is ample excess capacity within the County even during the peak demand months.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the application of Leesburg Regional Medical Center for a certificate of need to add 43 acute care beds, and renovate certain areas of its facility to accommodate this addition, be DENIED. DONE and ENTERED this 15th day of December, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 15th day of December, 1983.
The Issue The issue is whether BayCare Long Term Acute Care Hospital, Inc.'s Certificate of Need Application No. 9753 and University Community Hospital's Certificate of Need Application No. 9754, both submitted to the Agency for Health Care Administration, should be approved.
Findings Of Fact LTCHs defined An LTCH is a medical facility which provides extended medical and rehabilitation care to patients with multiple, chronic, or clinically complex acute medical conditions. These conditions include, but are not limited to, ventilator dependency, tracheotomy care, total parenteral nutrition, long- term intravenous anti-biotic treatment, complex wound care, dialysis at bedside, and multiple systems failure. LTCHs provide an interdisciplinary team approach to the complex medical needs of the patient. LTCHs provide a continuum of care between short-term acute care hospitals and nursing homes, skilled nursing facilities (SNFs), or comprehensive medical rehabilitation facilities. Patients who have been treated in an intensive acute care unit at a short-term acute care hospital and who continue to require intensive care once stabilized, are excellent candidates for care at an LTCH. Included in the interdisciplinary approach is the desired involvement of the patient's family. A substantial number of the patients suitable for treatment in an LTCH are in excess of 65 years of age, and are eligible for Medicare. Licensure and Medicare requirements dictate that an LTCH have an average length of stay (ALOS) of 25 days. The Center for Medicare and Medicaid Services (CMS) reimburses for care received through the prospective payment system (PPS). Through this system, CMS reimburses the services of LTCHs separately from short-term acute care providers and other post acute care providers. The reimbursement rate for an LTCH under PPS exceeds that of other providers. The reimbursement rate for an LTCH is about twice that of a rehabilitation facility. The increased reimbursement rate indicates the increased cost due to the more intensive care required in an LTCH. The Agency The Agency is a state agency created pursuant to Section 20.42. It is the chief health policy and planning entity for the State of Florida. The Agency administers the Health Facility and Services Development Act found at Sections 408.031-408.045. Pursuant to Section 408.034, the Agency is designated as the single state Agency to issue, revoke, or deny certificates of need. The Agency has established 11 health service planning districts. The applications in this case are for facilities in District 5, which comprises Pinellas and Pasco counties. UCH UCH is a not-for-profit organization that owns and operates a 431-bed tertiary level general acute care hospital and a 120-bed acute care general hospital. Both are located in Hillsborough County. UCH also has management responsibilities and affiliations to operate Helen Ellis Hospital, a 300-bed hospital located in Tarpon Springs, and manages the 300-bed Suncoast Hospital. Both of these facilities are in Pinellas County. UCH also has an affiliation to manage the open heart surgery program at East Pasco Medical Center, a general acute care hospital located in Pasco County. As a not-for-profit organization, the mission of UCH is to provide quality health care services to meet the needs of the communities where it operates regardless of their patients' ability to pay. Baycare BayCare is a wholly-owned subsidiary of BayCare Healthsystems, Inc. (BayCare Systems). BayCare Systems is a not-for-profit entity comprising three members that operate Catholic Health East, Morton Plant Mease Healthcare, and South Florida Baptist. The facilities owned by these organizations are operated pursuant to a Joint Operating Agreement (JOA) entered into by each of the participants. BayCare Systems hospitals include Morton Plant Hospital, a 687-bed tertiary level facility located in Clearwater, Pinellas County; St. Joseph's Hospital, an 887-bed tertiary level general acute care hospital located in Tampa, Hillsborough County; St. Anthony's Hospital, a 407-bed general acute care hospital located in St. Petersburg, Pinellas County; and Morton Plant North Bay, a 120-bed hospital located in New Port Richey, Pasco County. Morton Plant Mease Health Care is a partnership between Morton Plant Hospital and Mease Hospital. Although Morton Plant Mease Healthcare is a part of the BayCare System, the hospitals that are owned by the Trustees of Mease Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside, are not directly members of the BayCare System and are not signatories to the JOA. HealthSouth HealthSouth is a national company with the largest market share in inpatient rehabilitation. It is also a large provider of ambulatory services. HealthSouth has about 1,380 facilities across the nation. HealthSouth operates nine LTCHs. The facility that is the Intervenor in this case is a CMR located in Largo, Pinellas County. Kindred Kindred, through its parent company, operates LTCH facilities throughout Florida and is the predominant provider of LTCH services in the state. In the Tampa Bay area, Kindred operates three LTCHs. Two are located in Tampa and one is located in St. Petersburg, Pinellas County. The currently operating LTCH in District 5 that may be affected by the CON applications at issue is Kindred-St. Petersburg. Kindred-St. Petersburg is a licensed 82-bed LTCH with 52 private beds, 22 semi-private beds, and an 8-bed intensive care unit. It operates the array of services normally offered by an LTCH. It is important to note that Kindred-St. Petersburg is located in the far south of heavily populated District 5. The Applications UCH proposes a new freestanding LTCH which will consist of 50 private rooms and which will be located in Connerton, a new town being developed in Pasco County. UCH's proposal will cost approximately $16,982,715. By agreement of the parties, this cost is deemed reasonable. BayCare proposes a "hospital within a hospital" LTCH that will be located within Mease Hospital-Dunedin. The LTCH will be located in an area of the hospital currently used for obstetrics and women's services. The services currently provided in this area will be relocated to Mease Hospital- Countryside. BayCare proposes the establishment of 48 beds in private and semi-private rooms. Review criteria which was stipulated as satisfied by all parties Section 408.035(1)-(9) sets forth the standards for granting certificates of need. The parties stipulated to satisfying the requirements of subsections (3) through (9) as follows. With regard to subsection (3), 'The ability of the applicant to provide quality of care and the applicant's record of providing quality of care,' all parties stipulated that this statutory criterion is not in dispute and that both applicants may be deemed to have satisfied such criteria. With regard to subsection (4), 'The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation,' it was stipulated that both applicants have all resources necessary in terms of both capital and staff to accomplish the proposed projects, and therefore, both applicants satisfy this requirement. With regard to subsection (5), 'The extent to which the proposed services will enhance access to health care for residents of the service district,' it was stipulated that both proposals will increase access. Currently there are geographic, financial and programmatic barriers to access in District 5. The only extant LTCH is located in the southernmost part of District 5. With regard to subsection (6), 'The immediate and long-term financial feasibility of the proposal,' the parties stipulated that UCH satisfied the criterion. With regard to BayCare, it was stipulated that its proposal satisfied the criterion so long as BayCare can achieve its utilization projections and obtain Medicare certification as an LTCH and thus demonstrate short-term and long-term feasibility. This issue will be addressed below. With regard to subsection (7), 'The extent to which the proposal will foster competition that promotes quality and cost- effectiveness,' the parties stipulated that approval of both applications will foster competition that will promote quality and cost effectiveness. The only currently available LTCH in District 5, unlike BayCare and UCH, is a for-profit establishment. With regard to subsection (8), 'The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction,' the parties stipulated that the costs and methods of construction for both proposals are reasonable. With regard to subsection (9), 'the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent,' it was stipulated that both UCH and BayCare have a demonstrated history and a commitment to providing services to Medicaid, Medicaid HMO, self-pay, and underinsured payments. Technically, of course, BayCare has no history at all. However, its sponsors do, and it is they that will shape the mission for BayCare. BayCare's Medicare certification as an LTCH The evidence of record demonstrates that BayCare can comply with Medicare reimbursement regulations and therefore can achieve its utilization projections and obtain Medicare certification as an LTCH. Thus short-term and long-term feasibility is proven. Because BayCare will be situated as a hospital within a hospital, in Mease Hospital Dunedin, and because there is a relationship between that hospital and BayCare Systems, Medicare reimbursement regulations limit to 25 percent the number of patients that may be acquired from Mease Hospital Dunedin or from an organization that controls directly or indirectly the Mease Hospital Dunedin. Because of this limitation, it is, therefore, theoretically possible that the regulator of Medicare payments, CMS, would not allow payment where more than 25 percent of admissions were from the entire BayCare System. Should that occur it would present a serious but not insurmountable problem to BayCare. BayCare projects that 21 percent of its admissions will come from Mease Hospital Dunedin and the rest will come from other sources. BayCare is structured as an independent entity with an independent board of directors and has its own chief executive officer. The medical director and the medical staff will be employed by the independent board of directors. Upon the greater weight of the evidence, under this structure, BayCare is a separate corporate entity that neither controls, nor is controlled by, BayCare Systems or any of its entities or affiliates. One must bear in mind that because of the shifting paradigms of federal medical regulation, predictability in this regard is less than perfect. However, the evidence indicates that CMS will apply the 25 percent rule only in the case of patients transferring to BayCare from Mease Hospital Dunedin. Most of the Medicare-certified LTCHs in the United States operate as hospitals within hospitals. It is apparent, therefore, that adjusting to the CMS limitations is something that is typically accomplished. BayCare will lease space in Mease Hospital Dunedin which will be vacated by it current program. BayCare will contract with Mease Hospital Dunedin for services such as laboratory analysis and radiology. This arrangement will result in lower costs, both in the short term and in the long term, than would be experienced in a free-standing facility, and contributes to the likelihood that BayCare is feasible in the short term and long term. Criteria related to need The contested subsections of Section 408.035 not heretofore addressed, are (1) and (2). These subsections are illuminated by Florida Administrative Code Rule 59C- 1.008(2)(e)2., which provides standards when, as in this case, there is no fixed-need pool. Florida Administrative Code Rule 59C-1.008(2)(e)2., provides as follows: 2. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, sub district or both; Medical treatment trends; and Market conditions. Population Demographics and Dynamics The applicants presented an analysis of the population demographics and dynamics in support of their applications in District 5. The evidence demonstrated that the population of District 5 was 1,335,021 in 2004. It is anticipated that it will grow to 1,406,990 by 2009. The projected growth rate is 5.4 percent. The elderly population in the district, which is defined as persons over the age of 65, is expected to grow from 314,623 in 2004, to 340,676, in 2009, which represents an 8.3 percent increase. BayCare BayCare's service area is defined generally by the geographic locations of Morton Plant Hospital, Morton Plant North Bay Hospital, St. Anthony's Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside. These hospitals are geographically distributed throughout Pinellas County and southwest Pasco County and are expected to provide a base for referrals to BayCare. There is only one extant LTCH in Pinellas County, Kindred, and it is located in the very southernmost part of this densely populated county. Persons who become patients in an LTCH are almost always moved to the LTCH by ambulance, so their movement over a long distance through heavy traffic generates little or no problem for the patient. Accordingly, if patient transportation were the only consideration, movement from the north end of the county to Kindred in the far south, would present no problem. However, family involvement is a substantial factor in an interdisciplinary approach to addressing the needs of LTCH patients. The requirement of frequent movement of family members from northern Pinellas to Kindred through congested traffic will often result in the denial of LTCH services to patients residing in northern Pinellas County or, in the alternative, deny family involvement in the interdisciplinary treatment of LTCH patients. Approximately 70 letters requesting the establishment of an LTCH in northern Pinellas County were provided in BayCare's application. These letters were written by medical personnel, case managers and social workers, business persons, and government officials. The thread common to these letters was, with regard to LTCH services, that the population in northern Pinellas County is underserved. UCH Pasco County has experienced a rapid population growth. It is anticipated that the population will swell to 426,273, in 2009, which represents a 10.1 percent increase over the population in 2004. The elderly population accounts for 28 percent of the population. This is about 50 percent higher than Florida as a whole. Rapid population growth in Pasco County, and expected future growth, has resulted in numerous new housing developments including Developments of Regional Impact (DRI). Among the approved DRI's is the planned community of Connerton, which has been designated a "new town" in Pasco County's Comprehensive Plan. Connerton is a planned community of 8,600 residential units. The plan includes space for a hospital and UCH has negotiated for the purchase of a parcel for that purpose within Connerton. The rate of growth, and the elderly population percentages, will support the proposed UCH LTCH and this is so even if BayCare establishes an LTCH in northern Pinellas County. Availability, utilization, and quality of like services in the district, sub-district, or both The Agency has not established sub-districts for LTCHs. As previously noted, Kindred is the only LTCH extant in District 5. It is a for-profit facility. Kindred was well utilized when it had its pediatric unit and added 22 additional beds. Subsequently, in October 2002, some changes in Medicare reimbursement rules resulted in a reduction of the reimbursement rate. This affected Kindred's income because over 70 percent of its patients are Medicare recipients. Kindred now uses admission criteria that have resulted in a decline in patient admissions. From 1998, the year after Kindred was established, until 2002, annual utilization was in excess of 90 percent. Thereafter, utilization has declined, the 22-bed addition has been shut down, and Kindred projects an occupancy of 55 percent in 2005. Kindred must make a profit. Therefore, it denies access to a significant number of patients in District 5. It denies the admission of patients who have too few "Medicare- reimbursable days" or "Medicaid-reimbursable days" remaining. The record indicates that Kindred only incurs charity care or Medicaid patient days when a patient admitted to Kindred with seemingly adequate funding unexpectedly exhausts his or her funding prior to discharge. Because of the constraints of PPS, Kindred has established admission criteria that excludes certain patients with conditions whose prognosis is so uncertain that it cannot adequately predict how long they will require treatment. Kindred's availability to potential patients is thus constrained. HealthSouth, a licensed CMR, is not a substitute for an LTCH. Although it is clear that there is some overlap between a CMR and an LTCH, HealthSouth, for instance, does not provide inpatient dialysis, will not accept ventilator patients, and does not treat complex wound patients. The nurse staffing level at HealthSouth is inadequate to provide for the type of patient that is eligible for treatment in an LTCH. The fact that LTCHs are reimbursed by Medicare at approximately twice the rate that a CMR is reimbursed, demonstrates the higher acuity level of LTCH services when compared to a CMR. HealthSouth is a facility which consistently operates at high occupancy levels and even if it were capable of providing the services typical of an LTCH, it would not have sufficient capacity to provide for the need. A CMR is a facility to which persons who make progress in an LTCH might repair so that they can return to the activities of daily living. SNFs are not substitutes for LTCHs although there could be some limited overlap. SNFs are generally not appropriate for patients otherwise eligible for the type of care provided by an LTCH. They do not provide the range of services typically provided by an LTCH and do not maintain the registered nurse staffing levels required for delivering the types of services needed for patients appropriate for an LTCH. LTCHs are a stage in the continuum of care. Short- term acute care hospitals take in very sick or injured patients and treat them. Thereafter, the survivors are discharged to home, or to a CMR, or to a SNF, or, if the patients are still acutely ill but stable, and if an LTCH is available, to an LTCH. As noted above, currently in northern Pinellas County and in Pasco County, there is no reasonable access to an LTCH. An intensive care unit (ICU) is, ideally, a treatment phase that is short. If treatment has been provided in an ICU and the patient remains acutely ill but stable, and is required to remain in the ICU because there is no alternative, greater than necessary costs are incurred. Staff in an ICU are not trained or disposed to provide the extensive therapy and nursing required by patients suitable for an LTCH and are not trained to provide support and training to members of the patient's family in preparation for the patient's return home. The majority of patients suitable for an LTCH have some potential for recovery. This potential is not realized in an ICU, which is often counterproductive for patients who are stabilized but who require specialized long-term acute care. Patients who remain in an ICU beyond five to seven days have an increased morbidity/mortality rate. Maintaining patients suitable for an LTCH in an ICU also results in over-utilization of ICU services and can cause congestion when ICU beds are fully occupied. UCH in Pasco County, and to a lesser extent BayCare in northern Pinellas County, will bring to the northern part of District 5 services which heretofore have not been available in the district, or, at least, have not been readily available. Persons in Pasco County and northern Pinellas County, who would benefit from a stay in an LTCH, have often had to settle for some less appropriate care situation. Medical Treatment Trends LTCHs are relatively new cogs in the continuum of care and the evidence indicates that they will play an important role in that continuum in the future. The evidence of record demonstrates that the current trend in medical treatment is to find appropriate post acute placements in an LTCH setting for those patients in need of long-term acute care beyond the stay normally experienced in a short-term acute care hospital. Market conditions The federal government's development of the distinctive PPS for LTCHs has created a market condition which is favorable for the development of LTCH facilities. Although the Agency has not formally adopted by rule a need methodology specifically for LTCHs, by final order it has recently relied upon the "geometric mean length of stay + 7" (GMLOS +7) need methodology. The GMLOS +7 is a statistical calculation used by CMS in administering the PPS reimbursement system in determining an appropriate reimbursement for a particular "diagnostic related group" (DRG). Other need methodologies have been found to be unsatisfactory because they do not accurately reflect the need for LTCH services in areas where LTCH services are not available, or where the market for LTCH services is not competitive. GMLOS +7 is the best analysis the Agency has at this point. Because the population for whom an LTCH might be appropriate is unique, and because it overlaps with other populations, finding an algebraic need expression is difficult. An acuity measure would be the best marker of patient appropriateness, but insufficient data are available to calculate that. BayCare's proposal will provide beneficial competition for LTCH services in District 5 for the first time and will promote geographic, financial, and programmatic access to LTCH services. BayCare, in conducting its need calculations used a data pool from Morton Plant Hospital, Mease Dunedin Hospital, Mease Countryside Hospital, Morton Plant North Bay Hospital, and St. Anthony's Hospital for the 12 months ending September 2003. The hospitals included in the establishment of the pool are hospitals that would be important referral sources for BayCare. BayCare then identified 160 specific DRGs historically served by existing Florida LTCHs, or which could have been served by Florida LTCHs, and lengths of stay greater than the GMLOS for acute care patients, and compared them to the data pool. This resulted in a pool of 871 potential patients. The calculation did not factor in the certain growth in the population of the geographic area, and therefore the growth of potential LTCH patients. BayCare then applied assumptions based on the proximity of the referring hospitals to the proposed LTCH to project how many of the patients eligible for LTCH services would actually be referred and admitted to the proposed LTCH. That exercise resulted in a projected potential volume of 20,265 LTCH patient days originating just from the three District 5 BayCare hospitals and the two Mease hospitals. BayCare assumes, and the assumption is found to be reasonable, that 25 percent of their LTCH volume will originate from facilities other than BayCare or Mease hospitals. Adding this factor resulted in a total of 27,020 patient days for a total net need of 82 beds at 90 percent occupancy. BayCare's GMLOS +7 bed need methodology reasonably projects a bed need of 82 beds based on BayCare's analysis of the demand arising from the three District 5 BayCare hospitals and the two Mease hospitals. UCH provided both a GMLOS +7 and a use rate analysis. The use rate analysis is suspect in a noncompetitive environment and, obviously, in an environment where LTCHs do not exist. UCH's GMLOS +7 analyses resulted in the identification of a need for 159 additional LTCH beds in District 5. This was broken down into a need of 60 beds in Pasco County and 99 additional beds in Pinellas County. There is no not-for-profit LTCH provider in District The addition of BayCare and UCH LTCHs to the district will meet a need in the case of Medicaid, indigent, and underinsured patients. Both BayCare and UCH have agreed in their applications to address the needs of patients who depend on Medicaid, or who are indigent, or who have private insurance that is inadequate to cover the cost of their treatment. The statistical analyses provided by both applicants support the proposed projects of both applicants. Testimony from doctors who treat patients of the type who might benefit from an LTCH testified that those types of facilities would be utilized. Numerous letters from physicians, nurses, and case managers support the need for these facilities. Adverse impacts HealthSouth and Kindred failed to persuade that BayCare's proposal will adversely impact them. HealthSouth provides little of the type of care normally provided at an LTCH. Moreover, HealthSouth is currently operating near capacity. Kindred is geographically remote from BayCare's proposed facility, and, more importantly, remote in terms of travel time, which is a major consideration for the families of patients. Kindred did not demonstrate that it was currently receiving a large number of patients from the geographic vicinity of the proposed BayCare facility, although it did receive some patients from BayCare Systems facilities and would likely lose some admissions if BayCare's application is approved. The evidence did not establish that Kindred would suffer a material adverse impact should BayCare establish an LTCH in Mease Dunedin Hospital. HealthSouth and Kindred conceded that UCH's program would not adversely impact them. The Agency's Position The Agency denied the applications of BayCare and UCH in the SAARs. At the time of the hearing the Agency continued to maintain that granting the proposals was inappropriate. The Agency's basic concern with these proposals, and in fact, the establishments of LTCHs throughout the state, according to the Agency's representative Jeffrey N. Gregg, is the oversupply of beds. The Agency believes it will be a long time before it can see any measure of clinical efficiency and whether the LTCH route is the appropriate way to go. The Agency has approved a number of LTCHs in recent years and is studying them in order to get a better understanding of what the future might hold. The Agency noted that the establishment of an LTCH by ongoing providers, BayCare Systems and UCH, where there are extant built-in referring facilities, were more likely to be successful than an out-of-state provider having no prior relationships with short-term acute care hospitals in the geographic vicinity of the LTCH. The Agency noted that both a referring hospital and an LTCH could benefit financially by decompressing its intensive care unit, and thus maximizing their efficiency. The Agency did not explain how, if these LTCHs are established, a subsequent failure would negatively affect the delivery of health services in District 5. The Agency, when it issued its SAAR, did not have the additional information which became available during the hearing process.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that UCH Certificate of Need Application No. 9754 and BayCare Certificate of Need Application No. 9753 satisfy the applicable criteria and both applications should be approved. DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2005. COPIES FURNISHED: Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 J. Robert Griffin, Esquire J. Robert Griffin, P.A. 1342 Timberlane Road, Suite 102-A Tallahassee, Florida 32312-1762 Patricia A. Renovitch, Esquire Oertel, Hoffman, Fernandez, Cole, & Bryant P.A. Post Office Box 1110 Tallahassee, Florida 32302-1110 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Timothy Elliott, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Mail Station 3 Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308
The Issue The issue is whether the Agency should approve the Certificate of Need applications filed by Select-Marion and/or Kindred, each of which proposes to establish a new long-term care hospital in Marion County.
Findings Of Fact Based upon the testimony and evidence received at the hearing and the parties' stipulations, the following findings are made: Parties Select-Marion is a recently-created subsidiary of Select Medical Corporation (Select). Select has its corporate headquarters in Pennsylvania. Select operates 79 LTCHs in 24 states, including two in Florida. Select’s Florida LTCHs are located in Jacksonville and Miami. Another Select LTCH has been approved in Orlando, but that facility has not yet opened. Kindred is a subsidiary of Kindred Healthcare, Inc., which has its corporate headquarters in Kentucky. Kindred Healthcare operates 72 LTCHs in 26 states, including seven in Florida. Kindred operates 17 of those LTCHs, including six of the seven Florida LTCHs. Kindred’s Florida LTCHs are located in Green Cove Springs, St. Petersburg, Hollywood, Ft. Lauderdale, Miami, and Tampa. Another subsidiary of Kindred Healthcare operates a second LTCH in Tampa. Select and Kindred Healthcare have each been in the business of operating LTCHs since the 1980’s. The Agency is the state agency responsible for administering the CON program and licensing LTCHs and other health care facilities. Relevant Demographics of Marion County The LTCHs proposed by Select-Marion and Kindred are to be located in Ocala, which is in Marion County. Marion County is in District 3 for health planning purposes. District 3 is a geographically large district. It includes 16 counties: Marion, Hamilton, Suwannee, Columbia, Lafayette, Dixie, Gilchrist, Union, Bradford, Alachua, Putnam, Levy, Citrus, Sumter, Lake, and Hernando. Marion County is the most populous county in District The 2003 population of Marion County was approximately 275,000, which represented approximately 20 percent of the total population of District 3. Approximately 25 percent of Marion County’s 2003 population was in the 65 and older (65+) age cohort, and approximately 23 percent of the population of the respective primary service areas defined by Select-Marion and Kindred (see Part D(3) below) was in that age cohort. Those percentages are higher than the statewide average of 17.5 percent in the 65+ age cohort. The population of Marion County is projected to increase approximately 8.9 percent by January 2007, and during that same period, the population of the 65+ age cohort in the county is projected to increase approximately 11.3 percent. Similar relative growth rates are projected in the primary service area defined by Kindred through July 2005, which was to be the beginning of the facility's second year of operation.4 Marion County has a higher percentage of persons in the 65+ age cohort than do any of the counties that currently have an LTCH except for Sarasota County, which has 31.2 percent of its population in the 65+ age cohort. There are 40 approved but not yet operational LTCH beds in Sarasota County. Hospitals in Marion County and the Surrounding Areas There are three acute care hospitals in Marion County: Munroe Regional Medical Center (Munroe), Ocala Regional Medical Center (Ocala Regional), and West Marion Community Hospital (West Marion). Each of those hospitals is in Ocala. Munroe is a not-for-profit hospital. It is the oldest and largest acute care hospital in Marion County. Munroe currently has 323 beds, and it is in the midst of a $78 million expansion that will increase its capacity to 421 beds. Ocala Regional and West Marion are for-profit hospitals owned by HCA, Inc. Ocala Regional, which has more than 200 beds, is located directly across the street from Munroe. West Marion, which opened in 2002 and has approximately 70 beds, is a satellite facility of Ocala Regional. There is very little in-migration to the Marion County hospitals. For fiscal year 2002, approximately 83 percent of Munroe’s discharges were residents of Marion County. A similar percentage of the discharges from Ocala Regional were Marion County residents. In addition to the three hospitals in Marion County, there are nine more acute care hospitals in District 3 within a 40-mile radius of the parties’ proposed Ocala LTCHs. Those facilities include Shands Hospital (Shands) at the University of Florida in Gainesville, Leesburg Regional Medical Center (Leesburg Regional), and The Villages Regional Hospital (Villages Regional). Shands is located to the north of Marion County in Alachua County. Leesburg Regional and Villages Regional are located to the south of Marion County in Lake County and Sumter County, respectively. The record does not reflect how many total acute care beds are in the hospitals outside of Marion County within the 40-mile radius, nor does it reflect whether any of those hospitals (other than Shands) are trauma centers or have other specialty programs that might impact, either positively or negatively, the potential patient pool for the parties’ proposed LTCHs. The record does not reflect the number, type, quality of care, or utilization at the nursing homes and other traditional post-acute care facilities in Marion County or District 3. The Parties’ Proposed LTCHs Select-Marion and Kindred each submitted timely letters of intent and CON applications for their proposed LTCHs in the first “hospital beds and facilities” batching cycle of 2003. Kindred Kindred’s proposed LTCH is a 31-bed “hospital-within- a-hospital” (HIH). Kindred's proposed LTCH will be located on a wing of the fifth floor of Munroe’s existing hospital. The wing includes 11,606 square feet of contiguous space that Kindred is leasing from Munroe. Kindred is renovating the leased space to include 15 semi-private (i.e., double-occupancy) rooms and one “isolation room.” The total project cost of Kindred’s proposed LTCH is approximately $1.4 million, or approximately $45,300 per bed. That cost will be funded by Kindred Healthcare’s “cash on hand.” The lease agreement between Kindred and Monroe has been executed. The terms of the executed lease are slightly different than the terms of the draft lease included in Kindred’s CON application. The lease is for an initial term of seven years with two five-year renewal periods upon the agreement of the parties. The draft lease included in the CON application contained a 10- year initial term with the two five-year renewals at Kindred’s option. Because renewal of the lease will require the mutual agreement of Kindred and Munroe, there is no guarantee that the lease will be renewed at the end of the seven-year initial term. However, Kindred’s expert in LTCH business development testified that HIH leases typically are renewed. There is also no guarantee that space will be made available within Munroe for future expansions of Kindred’s LTCH. However, Munroe’s Chief Operating Officer testified that Munroe would “entertain whatever discussions that would facilitate the expansion.” Kindred's application states that its proposed LTCH will include the same types of services that are provided at Kindred’s other Florida LTCHs, including respiratory/life support, wound care, and neurological. Kindred’s proposed LTCH will not include an intensive care unit (ICU) or a pediatric program. Kindred will contract with Munroe for services such as laboratory, radiology, surgery/operating room, physical and speech therapy, and cardiology. An “ancillary services agreement” for these services has been executed by Kindred and Munroe. A patient transfer agreement between Munroe and Kindred has been negotiated. The agreement cannot be formally executed until Kindred’s LTCH is approved. Kindred projected that its proposed LTCH would begin operating in June 2004, which is one year after the “initial decision deadline date” for the applicable batching cycle. The need projections in Kindred’s application were based upon July 2005 population figures, and the utilization and financial projections in Kindred’s application were for the first two years of operation ending May 31, 2005 and 2006. Select-Marion Select-Marion’s proposed LTCH is a 60-bed freestanding facility to be located in Ocala. The precise site of the facility has not yet been determined by Select-Marion. The application identifies a “top priority location” east of Interstate 75 on State Road 200 in the general vicinity of Central Florida Community College. Select-Marion’s proposed LTCH will consist of 44,434 square feet of new construction. The bed complement at the facility will be 47 private (i.e., single-occupancy) rooms, five semi-private rooms, and three “isolation rooms.” The total project cost of Select-Marion’s proposed LTCH is approximately $12.2 million, or approximately $204,100 per bed. That cost will be funded by Select from its cash flow from operations and/or through borrowings from Select’s line of credit with its bank. The services at Select-Marion's proposed LTCH will include the same "core" services found at other Select LTCHs. Those services include the treatment of pulmonary and ventilator patients, neuro-trauma and stroke patients, medically complex patients, and wound care. Select-Marion’s proposed LTCH will include a “step down” unit where ICU-level care will be provided. The facility will not include a pediatric program. Select-Marion has not negotiated patient transfer agreements with any of the area hospitals. Select-Marion’s application includes a letter from West Marion’s Administrator, which states that West Marion “anticipates implementing a transfer agreement with [Select- Marion’s] facility” in the event that the LTCH “achieves appropriate licensure and certification.” No weight is given to that letter because, as discussed below, West Marion did not have any potential LTCH patients and it is a satellite facility of Ocala Regional, which provided a letter of support to Kindred. Select-Marion projected that its proposed LTCH would begin operating in June 2005, which is one year later than Kindred's proposed LTCH was projected to open. The delay is a result of Select-Marion's proposed LTCH being a new freestanding facility, which has a longer construction period than does the renovation of the existing hospital space for Kindred's HIH LTCH. The need projections in Select-Marion’s application were focused on the facility’s third year of operation, which is the 12-month period ending June 2008. The utilization and financial projections in Select-Marion’s application were for the first two years of operation ending May 31, 2006 and 2007. Proposed Service Areas Kindred’s application defines the primary service area (PSA) for its proposed LTCH as Marion, Alachua, Levy, Citrus, Sumter, and Lake Counties. The secondary service area is defined as the remaining 10 counties in District 3. Select-Marion’s application defines the PSA for its proposed LTCH as Marion County and a 40-mile radius around the proposed facility. A secondary service area is not specifically defined, but the application states that Select-Marion’s proposed LTCH will serve the entire district “to the degree possible.” The geographic scope of the PSA proposed by Select- Marion is similar to the geographic scope of the PSA proposed by Kindred; the 40-mile radius defined by Select-Marion includes all of Marion County and substantial portions of the remaining five counties included in Kindred’s PSA. It is not reasonable to expect that a material number of the admissions to either of the proposed LTCHs would come from outside of the PSAs defined in the applications. On this issue, the undersigned accepts the expert testimony of Select- Marion’s health planner that a realistic PSA for an LTCH in Ocala would be Marion County, and based upon the limited in-migration to Marion County hospitals and the testimony of Kindred's expert health planner that patients generally prefer to receive their long-term care close to their homes, the undersigned draws the inference and finds that realistic secondary service area for an LTCH in Ocala would be the remainder of the PSAs defined by the parties. It is also not reasonable to expect that either of the proposed LTCHs will serve District 3 in its entirety despite the parties’ expressed intentions and desire to do so. Indeed, Kindred’s application states that it expects that residents of District 3 who are geographically closer to the existing LTCHs in Green Cove Springs and Tampa -– which would include a number of the counties in Kindred’s proposed secondary service area -- will continue to leave the district for LTCH services. Similar statements are included in Select-Marion’s application as part of its explanation of the proposed 40-mile PSA. Letters of Support Select-Marion’s application included only one letter of support, which was from West Marion. Although the letter represented that “[m]any of our long-stay acute patients are candidates for care in [an LTCH,]” the evidence establishes that West Marion did not have any long-stay patients that would be potential LTCH patients. Moreover, West Marion is a satellite facility of Ocala Regional, which is located across the street from Munroe and provided a letter of support for Kindred’s proposed LTCH. Kindred’s application included 13 letters of support, including letters from five hospitals in District 3 (i.e., Munroe, Ocala Regional, Leesburg Regional, Villages Regional, and Citrus Memorial Hospital), a nursing home in Ocala, a home health care organization affiliated with Munroe, a local physician, and several local and state politicians. The support expressed in the letters included in Kindred’s application was general in nature. Indeed, many of the letters, including the letters from Ocala Regional and several of the other hospitals, appeared to be form letters. Other than the letter from Monroe’s director of case management, the letters included in Kindred’s application did not attempt to quantify the number of LTCH patients that would likely be generated for Kindred’s proposed LTCH. Nor did the letters detail access or other problems for potential LTCH patients that would help to demonstrate need for an LTCH in Marion County. General letters of support typically carry little weight with the Agency in its evaluation of need for a new health care facility. Indeed, the Bureau Chief of the Agency’s CON program, Jeffrey Gregg, testified that general letters of support are only significant to the Agency where one applicant has received a number of such letters and the other applicant has not received any letters of support.5 Because of their general nature, the letters of support included in Kindred’s application do not in and of themselves demonstrate need for a proposed LTCH in Marion County, nor do they validate the numeric bed need projected in either of the applications. However, the volume of the letters included in Kindred’s application from hospitals and health care providers as compared to the single letter included in Select- Marion’s application demonstrates that there is greater support from the relevant community for Kindred’s proposed LTCH than there is for Select-Marion’s proposed LTCH. Application Review and Preliminary Agency Action The applications filed by Select-Marion (CON 9647) and Kindred (CON 9648) complied with all of the application content and submittal requirements in the governing statutes and the Agency’s rules. The required filing fees were paid, and the local health council submittal requirements were met. The applications were comparatively reviewed by the Agency in accordance with the Agency’s rules and standard procedures. On June 11, 2003, the Agency issued its State Agency Action Report (SAAR) based upon its comparative review of the applications. The SAAR recommended denial of both applications based primarily on the Agency’s determination that neither applicant had adequately demonstrated need for its proposed LTCH. The Agency’s decision to deny the applications was published in the Florida Administrative Weekly as required by statute and Agency rule, and Select-Marion and Kindred each timely requested a hearing on the Agency’s decision. This consolidated proceeding followed. In March 2004, the Agency changed its position with respect to Kindred’s application and provided timely notice of that change in position to the parties. The Agency now supports approval of Kindred’s application, even though it continued to maintain at the hearing that need has not been adequately demonstrated by either applicant. LTCHs Generally LTCHs are health care facilities that provide extended medical and rehabilitative care to patients with multiple, chronic, and/or clinically complex acute medical conditions. To qualify as an LTCH, the facility must serve a patient population whose average length of stay (ALOS) exceeds 25 days. LTCHs fit into the continuum of care between traditional, “short-term” acute care hospitals and traditional post-acute care facilities such as nursing homes, skilled nursing facilities (SNFs), skilled nursing units (SNUs), or comprehensive medical rehabilitation (CMR) facilities. LTCHs are designed to serve patients that would otherwise have to be maintained in a traditional acute care hospital where the reimbursement rates may be insufficient to cover the costs associated with a lengthy stay, or be moved to a traditional post-acute care facility where the patient may not receive the level of curative care needed. LTCH services are most highly utilized by persons in the 65+ age cohort because those persons are more likely to have complex and/or co-morbid medical conditions that require long- term acute care. The typical LTCH patient is still in need of considerable acute care, but a traditional acute care hospital may no longer be the most appropriate or lowest cost setting for that care. Most LTCH admissions are patients transferred directly from a traditional acute care hospital. It is not uncommon for an LTCH patient to be transferred on life support from a critical care unit or ICU after the patient has been diagnosed and stabilized. Nursing homes, SNFs, SNUs, CMR facilities, and home health care are not appropriate for the typical LTCH patient because the patient's acuity level and medical/therapeutic needs are higher than those generally treated in those settings. Indeed, unlike traditional post-acute care settings, which typically do not admit patients who still require acute care, the core patient-group served by LTCHs are patients who require considerable acute care through daily physician visits and intensive nursing care in excess of eight hours of direct patient care per day. LTCH patients are often discharged to a traditional post-acute care facility such as a nursing home, SNF, SNU, CMR facility, or home health care. Thus, those facilities cannot be considered as "substitutes" for LTCHs, even though there is some overlap between the services provided to lower acuity LTCH patients and higher acuity patients in those traditional post- acute care facilities. The family of a patient in an LTCH is generally encouraged to be more involved in the patient’s care than it would be if the patient was in the ICU of a traditional acute care hospital. For example, the visiting hours at LTCHs are typically more liberal than the visiting hours at a traditional acute care hospital for the ICU and, in some cases, the general medical/surgery floor. Medicare reimbursements are the primary source of revenue for LTCHs because on average 75 to 85 percent of LTCH patients are covered by Medicare. In this case, Kindred projected that approximately 91 percent of the patient days and 86 percent of the net patient revenues for its proposed LTCH would be generated by Medicare patients, and Select-Marion projected that approximately 76 percent of its patient days and approximately 71 percent of its net patient revenue at its proposed LTCH would be generated by Medicare patients. In 2002, CMS adopted a Medicare prospective payment system (PPS) specifically for LTCHs. That system recognizes the LTCH patient population as being distinct from the patient populations treated by traditional acute care hospitals and post-acute care facilities such as nursing homes, SNFs, SNUs, and CMR facilities, even though there may be some overlap between the patient populations served by LTCHs and those other types of facilities. Under the LTCH PPS, services are reimbursed by Medicare at a predetermined rate that is weighted based upon the patient's diagnosis and acuity, regardless of the cost of care. This reimbursement system is similar to, but uses Diagnosis Related Groups (DRGs) that are different than the DRGs used in the PPS for traditional acute care hospitals. The Medicare reimbursement rates for services to long- stay patients in an LTCH are generally higher than the reimbursement rates for the same services to long-stay patients at a traditional acute care hospital. As a result, there is a financial incentive for hospitals to transfer their long-stay patients to an LTCH. It takes approximately six months for a new LTCH to receive its Medicare certification from CMS. During that period, the LTCH is reimbursed by Medicare at the lower rates applicable to traditional acute care hospitals, and, there is a financial incentive for the LTCH to keep its patient census as low as possible while still meeting the 25-day minimum ALOS. Accordingly, the first year of operation of an LTCH is not necessarily representative of the facility’s utilization, patient mix, or payor-source mix over time. The Agency has concerns about the long-term viability of the LTCH industry because it is largely dependent upon CMS's continuing the LTCH PPS with its higher Medicare reimbursement rates. The Agency’s concerns have caused it to take a very conservative approach in evaluating CON applications for new LTCHs so as not to allow the LTCH market to over-develop in the same way that freestanding psychiatric hospitals were over- developed at a time when the reimbursement rate for those facilities was favorable, which is no longer the case. HIH Verses Freestanding LTCHs There are two distinct types of LTCHs: HIHs and freestanding facilities. Both types are accepted in the industry, and both types are found nationwide. Almost all of Select’s LTCHs (i.e., 76 out of 79) are HIHs. Approximately 80 percent of Kindred Healthcare’s LTCHs, including all of its Florida LTCHs, are freestanding facilities. Initially, all of the LTCHs approved in Florida were freestanding facilities because of the Agency’s concern that the applicable building codes precluded HIHs and/or because the Agency’s interpretation of the building codes made the development of HIH LTCHs cost-prohibitive. The Agency no longer has concerns about the building code issue and, as reflected by its change in position in this case, it is willing to approve HIH LTCHs. Indeed, the two recently-approved Orlando LTCHs are HIHs. The Agency does not have a formal preference for HIHs over freestanding LTCHs, or vice versa. There are no material operational differences between HIH LTCHs and freestanding LTCHs, except that HIHs typically contract with the “host hospital” (i.e., the hospital in which the LTCH is located) for ancillary services such as laboratory, radiology, and operating room. The acuity level and mix of patients is materially the same at HIHs and freestanding LTCHs. The ALOS at HIH LTCHs is slightly less than the ALOS at freestanding LTCHs, but the difference is not material. HIH LTCHs draw the largest percentage of their admissions from the host hospital. That percentage is typically at least 25 percent, and it is not uncommon for the percentage to range from 50 to 90 percent. Typically, HIH LTCHs are less expensive to operate than freestanding LTCHs because of lower overhead and the ability to obtain ancillary services from the host hospital; however, both types of LTCHs can be financially viable. Currently, the Medicare reimbursement rates under the LTCH PPS are the same at HIH LTCHs and freestanding LTCHs. LTCHs in Florida At the time Select-Marion’s and Kindred’s applications were filed, there were only nine LTCHs operating in Florida with a total of 683 licensed beds. Those facilities were concentrated in six counties – Dade, Broward, Hillsborough, Pinellas, Duval, and Clay – and five of the State’s 11 heath planning districts – Districts 4, 5, 6, 10 and 11. There were an additional 182 LTCH beds that had been approved by the Agency but which were not operational at the time that Kindred’s and Select-Marion’s applications were filed, including new facilities in Panama City (District 2), Orlando (District 7), and Sarasota (District 8). Those 182 beds do not include Select’s recently-approved 40-bed LTCH in Orlando. There are no licensed or approved LTCHs in District 3. The closest operational LTCH to Ocala is Kindred’s 60-bed facility in Green Cove Springs, which is 50 to 75 miles away. The approved but not yet operational Orlando LTCHs will be approximately 75 miles from Ocala. The Florida LTCHs are generally well utilized; the occupancy rates at the facilities range from 54.6 percent to 99.2 percent. Four of the nine facilities, including Kindred’s LTCH in Green Cove Springs, have occupancy rates higher than 80 percent, and the average occupancy rate for all of the Florida LTCHs is 76.6 percent. Data reported to the Agency reflects that counties and districts where LTCHs are located have considerably more LTCH admissions (both in number and as a percentage of total patients whose length of stay was greater than 25 days) than do counties and districts where there is no LTCH. See Exhibit S-4, at 5-6, 8-9. This data indicates that patients generally remain closer to home for their long-term care, which is consistent with the expert testimony of the health planners in this case. During calendar year 2002, a total of 202 District 3 residents were admitted to a Florida LTCH. Over half of those admissions were residents of the District 3 counties that are closer to an existing LTCH, which indicates that residents of those counties have better access to LTCH services than do residents of the other counties in the district.6 By contrast, only 20 Marion County residents were admitted to a Florida LTCH in calendar year 2002. The admission experience at Kindred’s Green Cove Springs LTCH is consistent with that data. Between 20 and 25 percent of the admissions at that facility are District 3 residents, most of whom come from Putnam, Bradford, and other northern counties in District 3. The ALOS for all patients discharged from Florida LTCHs between July 2001 and June 2002 was 42.2 days. The 65+ age cohort accounted for approximately 77 percent of the LTCH discharges in Florida for that period. The ALOS for Florida LTCHs is considerably higher than the ALOS experienced nationwide by either Select or Kindred Healthcare. The ALOS at Select’s LTCHs is between 25 and 30 days; the ALOS at Kindred Healthcare’s LTCHs is in the low 30's. The higher ALOS at the Florida LTCHs is due, at least in part, to the limited number of LTCHs in Florida and their tendency to treat only the “sickest of the sick,” which are the patients that generally have longest lengths of stay. The ALOS at the Florida LTCHs is expected to become lower as the number of LTCHs in Florida increases and as medical technology improves such that the more complex cases can be better managed. Determination of Need for LTCH Beds in District 3 and Marion County Generally Select-Marion and Kindred have the burden to demonstrate need for their proposed LTCHs. The Agency does not publish a fixed-need pool for LTCHs, nor is there an Agency rule which provides a specific formula or methodology for determining numeric need for LTCH beds.7 Indeed, it was clear from Mr. Gregg’s testimony at the hearing and in his deposition that the Agency’s policy toward LTCHs and, more specifically, need projections for LTCHs is still evolving. The criteria that must be addressed by the applicant to demonstrate need are set forth in Florida Administrative Code Rule 59C-1.008(2)(e)2.a. through d. The criteria are population demographics and dynamics; availability, utilization and quality of "like services" in the district; medical treatment trends; and market conditions. In addition to or as part of the demonstration of need based upon the rule criteria, the applicant must demonstrate that there is numeric need for at least the number of beds that it is proposing. Kindred and Select-Marion stipulated that there is a numeric need for at least 31 LTCH beds in District 3. The Agency did not join that stipulation, and even though Mr. Gregg testified at the hearing and in his deposition that the Agency “presumes” that there is some level of need for LTCH beds in District 3, the Agency continued to take the position that neither applicant demonstrated need for its proposed LTCH.8 Methodologies Used by Kindred and Select-Marion to Project Numeric Need Kindred and Select-Marion each used a “use rate” methodology and a “length of stay” methodology to project numeric need for their proposed LTCHs. “Use Rate” Methodologies Use rate methodologies are commonly used by health planners to project need for acute care hospital beds and other types of services. However, use rate methodologies do not produce reliable projections of bed need in the LTCH context because the existing LTCHs are not evenly distributed statewide and the utilization rates for the existing LTCHs vary significantly.9 The use rate methodologies used by Kindred and Select-Marion each projected the number of LTCH patient days that will likely be generated for their proposed LTCHs based upon the utilization rates at the existing LTCHs in Florida. Those patient days were then converted into an average daily census (ADC) and, in the case of Select-Marion, a bed need based upon a presumed occupancy rate. The use rate methodology used by Kindred calculated the average utilization rate of the existing Florida LTCHs for both the population as a whole and for the 65+ age cohort. Those use rates were then applied to the respective 2005 populations of the primary and secondary service areas for Kindred’s proposed LTCH. Kindred’s use rate methodology projected an ADC of 79 applying the use rate for the total population and an ADC of 109 applying the use rate for the 65+ age cohort. The ADCs projected for the PSA, which as noted above is a more reasonable geographic scope from which Kindred’s proposed LTCH will likely draw its patients, were 56 applying the use rate for the total population and 80 applying the use rate for the 65+ age cohort. Select-Marion’s use rate methodology calculated separate “statewide” utilization rates for the 0-44, 45-64, 65- 74, 75-84, and 85+ age cohorts. Those rates were then applied to the projected 2008 population of Marion County in the respective age cohorts in order to calculate a projected number of patient days that will be generated by Marion County residents in the third year of operation at Select-Marion’s proposed LTCH. Those patient days were then "grossed up” by an occupancy standard of 80 percent and then "grossed up" by an additional 44.5 percent to account for patients coming to the facility from outside of Marion County. Select-Marion’s use rate methodology projected that Marion County residents would generate an ADC of 55 in 2008, which resulted in a projected need for 123 LTCH beds when the ADC was “grossed up” to account for the 44.5 percent of out-of- county patients and to reflect the 80 percent occupancy standard. The use of age cohort-specific utilization rates is generally more reliable than the use of a utilization rate for the total population or only the 65+ age cohort. Kindred’s failure to use age cohort-specific utilization rates causes the bed need projections based upon its use rate methodology to be unreliable. The age cohort-specific utilization rates used by Select-Marion in this case are unreliable because the LTCHs in Miami-Dade and Pinellas Counties were excluded from the calculations because their utilization rates were, according to Select-Marion’s application, “misleadingly conservative.” The effect of excluding those counties is that the utilization rates applied by Select-Marion were inflated. The 44.5 percent out-of-county rate was purportedly derived from the experience of the other LTCHs operating in Florida, but there is no evidence in the record to corroborate that rate. Moreover, Select-Marion’s own health planning expert testified that the 44.5 percent rate was too high; she testified that a more appropriate out-of-county rate would have been 20 to 25 percent, which is more consistent with the in-migration rate experienced by existing hospitals in Marion County. Based upon the general unreliability of use rate methodologies in the LTCH context and the specific flaws in the use rate methodologies applied by Kindred and Select-Marion, the ADC and bed need projected under those methodologies are not reliable or reasonable. “Length of Stay” Methodologies The length of stay methodologies used by Kindred and Select-Marion each attempted to quantify the need for LTCH beds in their respective service areas by analyzing discharges from the hospitals in those areas. The methodologies each focused on “long-stay patients” discharged from those hospitals with “LTCH- appropriate DRGs” as the potential patient population for the proposed LTCHs. This general approach is reasonable from a health planning perspective. The lists of LTCH-appropriate DRGs used by Kindred and Select-Marion in their respective methodologies were generally consistent. Although Select-Marion’s list included a greater number of DRGs than did Kindred’s, both lists are reasonable. The parties’ respective methodologies each used the geometric mean length of stay (GMLOS) as the starting point for defining long-stay patients, which is reasonable and appropriate.10 The GMLOS is calculated by CMS. It is a statistically-adjusted value for all cases within a DRG that takes into account certain types of cases that could skew an arithmetic average length of stay. Patients who have lengths of stay substantially longer than the GMLOS due to co-morbidities, complex medical conditions, or frailties due to age are typically appropriate LTCH patients, particularly if the patient would otherwise remain in the ICU of a traditional acute care hospital. In such circumstances, an LTCH would likely be the more appropriate setting for the patient from both a financial and patient-care standpoint. Kindred defined long-stay patients as adult patients who were residents of District 3 and whose length of stay was at least 17 days longer than the GMLOS. Select-Marion’s definition of long-stay patients included adult patients whose length of stay was at least 15 days longer than the GMLOS, and was not limited to District 3 residents. Kindred’s definition of long-stay patients produced a more conservative (and more reasonable) estimate of potential LTCH patient days than did Select-Marion’s definition, primarily because Kindred’s definition included only District 3 residents. In this regard, Kindred’s methodology appropriately recognizes and takes into account the fact that patients discharged from District 3 hospitals who are not residents of the district are less likely to stay in the district for long-term acute care. Kindred’s methodology was also more conservative (and more reasonable) in the manner that it calculated the number of potential LTCH patient days generated by the identified long- stay patients. Kindred calculated the potential LTCH patient days starting seven days after the GMLOS, whereas Select-Marion calculated the potential LTCH patient days starting at the GMLOS. In this regard, Kindred’s methodology appropriately recognizes and takes into account the fact that hospitals typically do not consider the transfer of patients to an LTCH until after the GMLOS and that it typically takes several days for the transfer to be coordinated once the patient has been identified as a potential LTCH patient. Both parties’ methodologies assumed a 100 percent capture rate of the potential LTCH patients identified through their respective definitions of long-stay patients with LTCH- appropriate discharges. The assumed 100 percent capture rate is not realistic, particularly when applied to the potential LTCH patients outside of the PSAs defined by the parties in the northernmost and southernmost counties in District 3. The evidence establishes that those patients will likely continue to leave the district for LTCH services, and as a result, a considerably lower capture rate would be expected from those counties. The assumed 100 percent capture rate within the PSAs is more reasonable for Kindred’s methodology than it is for Select-Marion’s methodology because Kindred’s methodology includes only District 3 residents in the pool of potential LTCH patients whereas Select-Marion’s methodology also includes non- District 3 residents. The result of Kindred’s length of stay methodology was an estimate of 14,269 potential LTCH patient days generated by residents of its PSA and 4,762 potential LTCH patient days generated by residents of its secondary service area. Those patient days translated into an ADC of 39 from the PSA and an ADC of 13 from the secondary service area. The result of Select-Marion’s length of stay methodology was an estimate of 51,221 potential LTCH patient days generated by discharges from hospitals within the 40-mile radius around Ocala. Those patient days translated into an ADC of 140 and a bed need of 175 based upon an 80 percent occupancy standard. Kindred’s length of stay methodology is, on balance, more reasonable than Select-Marion’s, and as a result, its projection of need is more reliable than the projection based upon Select-Marion’s methodology. Specifically, the preponderance of the evidence establishes that Select-Marion’s methodology overstates need by including patient days generated by non-residents of District 3 (who would not be as likely to use an LTCH in Marion County, and would certainly not use the facility at the assumed 100 percent capture rate) and by calculating the potential LTCH patient days starting at the GMLOS, rather than the seven days after the GMLOS which reasonably reflects the period of time necessary to identify, assess, and discharge a patient to the LTCH. Ultimate Findings Related to Numeric Need There was no credible evidence that there is a need for more than 91 LTCH beds so as to allow for the approval of both applications. As discussed above, the parties' use rate methodologies and Select-Marion’s length-of-stay methodology, which all projected need for more than 91 LTCH beds, were not reliable. The most reliable projection of need for a proposed LTCH in Marion County is the ADC of 39 projected by Kindred’s length of stay methodology for its PSA.11 The assumptions underlying that methodology are more reasonable than the assumptions underlying the length-of-stay methodology used by Select-Marion, and Kindred’s PSA, which is essentially the same as Select-Marion’s proposed 40-mile service area, is the most reasonable projection of the area from which an LTCH in Ocala could expect to draw virtually all of its patients. See Part of D(3) above. An 80 percent occupancy standard is reasonable and appropriate because it is conservative figure and better reflects the lower bed turn-over by LTCH patients than does the 75 percent occupancy standard typically applied to traditional, “short-term” acute care hospitals. Applying the 80 percent occupancy standard to an ADC of 39 results in a numeric need for 49 LTCH beds in the service area from which an LTCH in Ocala could reasonably be expected to draw its patients. Ultimate Findings Related to Need Based Upon the Criteria in Florida Administrative Code Rule 59C-1.008(2)(e)2. The population demographics and dynamics of Marion County and the PSAs support the establishment of an LTCH in Ocala. The 65+ age cohort, which is the group that most highly utilizes LTCH services, represents approximately 25 percent of Marion County’s population and approximately 23 percent of the population of the parties' proposed PSAs. That age cohort is projected to grow at a higher rate than the overall population of the county and the PSAs over the planning horizons of the proposed LTCHs. There are no LTCHs in District 3, and there are no LTCHs reasonably accessible to the residents of Marion County. The closest LTCH is more than 50 miles away in Green Cove Springs, and the occupancy/utilization rate at that facility is higher than 80 percent. The absence of an LTCH in District 3 does not mean that there are no “like services” available at the existing hospitals in District 3 and, potentially, at some of the traditional post-acute care facilities in the district. The availability of an LTCH in District 3 would, however, provide an alternative and, in some cases, more appropriate and cost- effective setting for those services to be provided. There is a general trend towards the increased utilization of LTCHs due to higher reimbursement rates available under the relatively new LTCH PPS, but the evidence failed to establish that the trend will, in fact, impact the delivery of health care services in Marion County or District 3. Instead, the evidence establishes that the utilization of a LTCH in Ocala will depend in large part on how well the local physicians are “educated” about the availability of LTCH services and whether the physicians have positive experiences with their patients at the facility. Market conditions in Marion County support the establishment of an LTCH. The favorable market conditions include the size and projected growth of the 65+ age cohort and the letters of support provided by the two largest hospitals in Marion County as well as several of the hospitals in the surrounding counties. The letters demonstrate a general level of support in the community for the establishment of an LTCH in Marion County, even though they do not specifically quantify the number of LTCH patients that would be generated from those hospitals. Given the stage in the process at which the letters were obtained, the level of specificity in the letters is reasonable, at least for purposes of demonstrating market support for the proposed LTCHs. These factors, on balance, demonstrate the need for an LTCH in District 3 and Marion County, and they also support the projection of numeric need set forth above. Comparative Analysis of the CON Applications Based Upon the Criteria in Section 408.035, Florida Statutes (2003)12 Assuming the Agency accepts the foregoing findings that there is a demonstrated need for only 49 LTCH beds, it is not necessary to comparatively evaluate Kindred’s application against Select-Marion’s application, which proposes a 60-bed LTCH; it is only necessary to evaluate Kindred’s application against the applicable statutory criteria. However, in an abundance of caution, a comparative evaluation of the applications is set forth below in the event that the Agency (or an appellate court) determines that the evidence demonstrates a need for more than 60, but less than 91 LTCH beds. Criteria Upon Which All of the Parties Agree The parties stipulated that Kindred’s and Select- Marion’s applications each satisfied the criteria in Subsections 408.035(3), (5), (6), (10), and (12), Florida Statutes, or that the criteria in those subsections are not applicable. See Joint Pre-hearing Statement, at 7. Notably, the parties stipulated that both Kindred and Select have a history of providing high quality of care to their patients. The evidence fails to establish that either of the proposed LTCHs would provide a materially higher quality of care to its patients than would the other facility.13 Criteria That Are in Dispute Section 408.035(1), Florida Statutes (Need in Relation to District Health Plan) There are no preferences related to the development of LTCHs in the District 3 health plan; the plan does not even address LTCH services. Accordingly, this criterion is not implicated in this case. Section 408.035(2), Florida Statutes (Availability, Quality of Care, etc. of Existing Services) There are no existing LTCHs in District 3. As a result, either of the proposed LTCHs will enhance the availability and accessibility of LTCH services in the district to some degree. That impact will be most significant in Marion County and the adjacent counties because the evidence establishes that residents of the northernmost and southernmost counties in District 3, which are closer to the existing LTCHs in the adjacent districts, already have access to LTCH services. Kindred’s proposed HIH LTCH will primarily serve its host hospital, Munroe. The most persuasive evidence on this issue was that Kindred's LTCH will likely receive 80 to 90 percent of its admissions from Munroe and Ocala Regional, which is across the street from Munroe. That will leave only 10 to 20 percent of its admissions coming from the remainder of District 3, which equates to 3 to 6 of the facility’s beds being available to serve residents of District 3 outside of Marion County. Because Select-Marion’s proposed LTCH is nearly twice the size of Kindred’s proposed LTCH, it would have more beds available to serve residents of District 3 outside of Marion County. However, because it is unreasonable to expect that there will be significant in-migration to Marion County for LTCH services, the evidence does not support the inference that Select-Marion’s larger facility will, in fact, better enhance access to LTCH services for residents of District 3 than will Kindred’s facility. Accordingly, each application satisfies the criterion in Section 408.035(2), Florida Statutes, and that criterion does not materially weigh in favor of the approval of one application over the other. Section 408.035(4), Florida Statutes (Special Health Care Services) The phrase “special health care services” in Section 408.035(4), Florida Statutes, is not defined in statute or Agency rule. Kindred and Select-Marion contend that LTCH services are “special health care services”; the Agency contends that they are not. See Joint Pre-hearing Statement, at 10. The health care services that will be provided in the proposed LTCHs are services that are currently being provided in District 3, either at a traditional acute care hospital (with respect to acute-level care) or at a post-acute care facility (with respect to rehabilitative care). The approval of the CON applications at issue in this proceeding would simply provide an alternative, and potentially more cost-effective setting in which those services could be provided. Accordingly, LTCH services are not “special health care services” for purposes of Section 408.035(4), Florida Statutes, and the criterion in that subsection is not implicated in this case. Section 408.035(7), Florida Statutes (Enhancing Access) The approval of an LTCH in Ocala will enhance access to LTCH services in Marion County and the immediate surrounding areas; however, access to such services will not be significantly enhanced for residents of District 3 who are closer to and currently have reasonable access to LTCH services in an adjacent district. Moreover, as discussed above in relation to Section 408.035(2), Florida Statutes, there is no credible evidence that access would be improved to a greater extent by the approval of Select-Marion’s proposed LTCH over Kindred’s, or vice versa. Accordingly, each application satisfies the criterion in Section 408.035(7), Florida Statutes, and that criterion does not materially weigh in favor of the approval of one application over the other. Section 408.035(8), Florida Statutes (Financial Feasibility) Issues Upon Which All of the Parties Agree The parties stipulated that both of the proposed LTCHs are financially feasible in the short-term. The parties also stipulated that Select-Marion’s proposed LTCH, which is projected to generate a net profit of approximately $939,000 in its second year of operation is financially feasible in the long-term. Disputed Issues Related to the Long-term Financial Feasibility of Kindred's Proposed LTCH The Agency concluded in the SAAR that Kindred’s proposed LTCH is financially feasible in the long-term, and that position was reaffirmed through Mr. Gregg’s testimony at the hearing. However, Select-Marion disputes the long-term financial feasibility of Kindred’s proposed LTCH. The general rule for assessing the long-term financial feasibility of a CON project is if the project will at least break even by the end of the second year of operation, then the project is financially feasible in the long-term; if, however, the project continues to show a loss in the second year of operations and it is not demonstrated that the project will reach a break-even point within a reasonable period of time, then the project is not financially feasible in the long-term. Schedule 8A in Kindred’s application projects a net profit from operations of $263,134 for Kindred’s proposed LTCH in its second year of the operation. Omission of Public Medical Assistance Trust Fund Assessment Kindred concedes that the net profit from operations is overstated by $117,734 because Schedule 8A did not include a deduction for the Public Medical Assistance Trust Fund assessment in that amount. That assessment is imposed on all hospitals at a rate of 1.5 percent of the facility’s gross revenues. Understatement of Property Taxes The preponderance of the evidence establishes that the net profit from operations is overstated by an additional $92,918 because the taxes shown on Schedule 8A are understated by that amount. The $92,918 represents the difference between the amount of taxes shown on Schedule 8A and the total estimated property taxes on the proposed facility, which according to John Grant, the Kindred witness responsible for calculating the taxes for Schedule 8A, were based upon the average property taxes paid on Kindred’s other Florida LTCHs. There is no competent evidence, such as expert testimony from a property appraiser, to support Kindred’s position that the $32,136 of taxes shown on Schedule 8A is a reasonable estimate of the taxes for its proposed LTCH.14 Alleged Understatements in the Nursing Costs Projected for the Second Year of Operation Select-Marion also contends that Kindred’s net profit from operations is overstated by an additional $191,856, as a result of various understatements in the nursing costs on Schedule 8A, which are based upon the staffing projections on Schedule 6 of Kindred’s application. Specifically, Select- Marion contends that the nursing costs are understated because of an alleged error in the calculation of the nursing salary expense for the second year of the facility’s operation based upon the number of nursing full-time equivalents (FTEs) identified for that period; because of the additional nursing staff (and related costs) that would be necessary to achieve the nursing-hours-per-patient-day figure and the licensed-to- unlicensed-nurse ratio that were referenced in the text of Kindred’s CON application; and because a benefit rate of 17 percent was used instead of 20 percent. Number of FTEs Used in Projecting Staffing Costs Kindred’s CON application does not include staffing projections on Schedule 6 for the second year of operation; however, Mr. Grant, the Kindred employee who developed the assumptions underlying the financial schedules in Kindred’s application testified in his deposition that at the end of the second year of operation, Kindred’s facility would have 41.7 nursing FTEs and 11.8 ancillary FTEs. Those projections were not disputed, and are reasonable. Mr. Grant and other Kindred witnesses testified that the staffing projections shown on Schedule 6 were the number of FTEs at the end of the year, rather than the average number of FTEs during the year. Those witnesses further testified that the nursing costs shown on Schedule 8A are based upon the average number of FTEs during the year, not the year-end FTEs. That testimony is found to be credible. The opinion of Select-Marion’s expert financial witness, Patricia Greenberg, that there is an error in the calculation of the nursing costs shown on Schedule 8A was based upon the incorrect assumption that the nursing costs on Schedule 8A and the staffing projections on Schedule 6 were both based upon the year-end figures. Accordingly, Ms. Greenberg’s opinion on that issue is rejected. Nursing-Hours-Per-Patient-Day Kindred’s application states that Kindred Healthcare's LTCHs currently provide an “average [of] 10.5 nursing hours per patient day.” The financial projections in Kindred’s application used the 10.5-hour figure for the proposed Ocala LTCHs' first year of operation only. The figure used for the second year of operation was approximately 9.6 nursing hours per patient day. Kindred’s application did not represent that 10.5 hours of nursing care per day would actually be provided at the proposed Ocala LTCH. There are no regulations that require that amount (or any amount) of nursing care per day at LTCHs. Kindred’s application refers to the 10.5 hours as an “average.” Kindred’s medical director testified in his deposition that 10.5 hours is “a little on the high side” based upon his experience and another Kindred witness testified that the nursing hours would only be “around that number.” Select- Marion did not offer any credible evidence to the contrary. Accordingly, the net profit from operations for Kindred’s proposed LTCH is not overstated in any amount because of the failure to project nursing costs for the second year of operation based upon the 10.5 hours of nursing care per day, and Ms. Greenberg’s opinion on that issue is rejected. Licensed-to-Unlicensed-Nurse Ratio Kindred’s application states that the ratio of licensed to unlicensed nursing personnel in Kindred Healthcare's LTCHs “averages 3.5 to 1.” The ratio actually used in the financial projections for Kindred’s proposed Ocala LTCH was approximately 2.46-to-one, which can be calculated by dividing the 23.2 FTEs shown on Schedule 6 for “R.N.’s” and “L.P.N.’s” by the 9.4 FTEs shown on that schedule for “Nurses Aides.” Kindred’s application did not represent that the 3.5- to-one ratio would actually be provided at the proposed Ocala LTCH. There are no regulations that require that ratio (or any ratio) of licensed-to-unlicensed nursing personnel at LTCHs. Accordingly, the net profit for Kindred’s proposed facility is not overstated in any amount because of the failure to project nursing costs for the second year of operation based upon the 3.5-to-one ratio, and Ms. Greenberg’s opinion on that issue is rejected. Benefit Rate The preponderance of the evidence establishes that Kindred’s benefit rate is 17 percent (not 20 percent), and that the 17 percent rate was used for the salary projections included in Kindred’s application.15 Accordingly, the net profit from operations projected for Kindred’s proposed LTCH is not understated in any amount based upon its use of a 17 percent benefit rate, and Ms. Greenberg’s opinion on that issue is rejected. Summary In sum, the evidence establishes the net profit from operations of Kindred’s proposed LTCH in the second year of operation is overstated by a total of $210,652. Even after that amount is deducted from the net profit from operations shown on Schedule 8A, Kindred’s facility will still have a net profit from operations in the amount of $52,482. Therefore, Kindred’s proposed LTCH is financially feasible in the long-term. Kindred and Select-Marion are both for-profit entities whose parent corporations are headquartered in other states, and there is no credible evidence that the local community would directly benefit from the profitability of either facility. As a result, the fact that Select-Marion’s proposed facility is projected to be “more financially feasible" in the long-term than Kindred’s proposed facility is immaterial to the outcome of this case. Moreover, on the latter point, the net profit projected for Select-Marion’s facility is likely overstated to some degree because it is based on the patient revenues generated by a 60-bed LTCH operating at an average utilization rate of 68 percent in the second year of operation, which translates into an ADC of approximately 41. That ADC is higher than the ADC projected through the need methodology that was found to be the most reasonable and reliable. See Part G(3) above. Section 408.035(9), Florida Statutes (Fostering Competition that Promotes Cost-effectiveness) Competition for LTCH services in District 3 will not be fostered by the approval of only one of the applications, and need has not been established for two LTCHs. The approved applicant would be the sole provider of such services in District 3, and there would likely not be any significant overlap in and competition for the patients served by the LTCH in Ocala and the existing LTCHs in Green Cove Springs, Jacksonville, and Tampa. Accordingly, the criterion in Section 408.035(9), Florida Statutes, does not materially weigh in favor of the approval of either application. Section 408.035(11), Florida Statutes (Medicaid and Indigent Care) Kindred and Select-Marion stipulated that their applications were conditioned on the provision of Medicaid and charity care at levels consistent with the statewide average. However, the Agency took the position in the SAAR and in the Joint Pre-hearing Statement that the conditions offered by each applicant were lower than the statewide average. Kindred conditioned its application on a combined two percent of its total patient days being provided to Medicaid and charity patients. Schedule 7A of Kindred’s application reflects only 0.4 percent of the patient days being Medicaid patients and 0.3 percent of the patient days being charity patients for the first year of operation. In the second year of operation, Schedule 7A reflects 1.6 percent of the patient days being Medicaid patients and 1.2 percent of the patient days being charity patients, for a total of 2.8 percent. Select-Marion conditioned its application on a combined 2.8 percent of its patient days being provided to Medicaid and charity patients. Schedule 7A of Select-Marion’s application projects two percent of its patient days being charity patients and 0.8 percent of the patient days being Medicaid patients in each of the first two years of operation. The SAAR states that the statewide averages for Medicaid and charity patient days are two percent and 1.7 percent, respectively, for a total of 3.7 percent. There is no credible evidence in the record to corroborate those figures. Even if those percentages were assumed to accurately reflect the data reported to the Agency, the evidence establishes that the Medicaid percentage is skewed based upon the pediatric program in Kindred’s St. Petersburg LTCH, which attracts an inordinately high level of Medicaid patients. The St. Petersburg facility is the only LTCH in Florida that has such a program. Neither of the proposed LTCHs at issue in this proceeding will have a pediatric program. As a result, it is not reasonable to compare the skewed statewide average to the Medicaid and charity care commitments proposed by the applicants in this case. If the Medicaid patient days from the St. Petersburg LTCH are removed from the calculation of the statewide average, the “adjusted” statewide average for Medicaid patient days would between 1.2 and 1.5 percent. That range is comparable to the levels projected by the applicants in this case by the second year of operation of their respective LTCHs. Select-Marion projects that it will provide a higher percentage of patient days for Medicaid and charity care in the first year of operation than does Kindred; however, by the second year of operation, the total percentage of patient days for Medicaid and charity care projected for each facility is the same. The Agency recognizes that an LTCH may not meet its Medicaid and charity care conditions in the first year of the facility’s operation because the facility must control its admissions during a portion of that year in order to ensure that its ALOS is long enough to obtain certification from CMS. In sum, Select-Marion and Kindred both satisfy the criterion in Section 408.035(11), Florida Statutes, when their projected Medicaid and charity care commitments are compared to the statewide average that is adjusted to exclude pediatric patient days; and, because the Medicaid and charity care commitments by the Select-Marion and Kindred are materially the same by the second year of the facilities’ operation, this criterion does not favor either applicant over the other. Ultimate Findings Based upon Comparative Analysis On balance, Kindred’s application satisfies the applicable criteria in Section 408.035, Florida Statutes. On balance, Select-Marion’s application satisfies the applicable criteria in Section 408.035, Florida Statutes. Neither application is materially superior to the other in relation to the statutory criteria. Faced with two comparatively equal applications, it is not unreasonable for the Agency to view the more conservative application more favorably. In this case, the more conservative application is Kindred’s because it is proposing to establish only 31 beds in existing, unused hospital space with a cost of only $1.4 million (or $45,300 per bed), as compared to Select- Marion’s 60 beds in a newly-constructed facility with a cost of $12.2 million (or $204,100 per bed). The higher costs associated with Select-Marion’s proposed LTCH will be borne primarily by Select, not the facility’s patients or the general public because approximately 75 percent of the facility’s revenues will come from Medicare reimbursements, which are made under a PPS rather than a cost- based system. The same is true for the costs of Kindred’s LTCH; it will just take Kindred Healthcare less time to recoup its investment than it will for Select to recoup its investment. The applicants also bear the primary financial risk if the Medicare reimbursement system for LTCHs becomes less favorable. However, as Mr. Gregg pointed out in his deposition, there is also a risk to the health care system in those circumstances because the approved LTCH would have an incentive to serve patients who might also be equally well-served in an another, less expensive post-acute care setting in order to recoup its capital investment. This consideration weighs in favor of approval of Kindred’s LTCH, which has less of a capital investment to be recouped. Other considerations also weigh in favor of the approval of Kindred’s application over Select-Marion’s application. Specifically, Kindred garnered more community support for its proposed LTCH, including support from the two largest acute care hospitals in Ocala from which most of the admissions to a proposed LTCH in Ocala would come, and Kindred has also already negotiated a transfer agreement with one of the hospitals, making it more likely that Kindred’s LTCH would actually receive the admissions that it has projected. Additionally, Kindred’s LTCH will be operational approximately a year sooner than Select-Marion’s LTCH.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order approving Kindred’s application (CON 9648) and denying Select-Marion’s application (CON 9647). DONE AND ENTERED this 14th day of July, 2004, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of July, 2004.
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 Whether the Agency for Health Care Administration should approve the application of Kindred Hospitals East, LLC, for a Certificate of Need to establish a 60-bed, long- term care hospital ("LTCH") to be located in Brevard County, one of four counties in AHCA District 7.
Findings Of Fact The Parties Kindred Hospitals East, LLC, ("Kindred" or the "Applicant") is a subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 84 LTCHs nationwide, including eight in the State of Florida. Twenty-four of Kindred Healthcare's LTCHs are operated by Kindred Hospitals East, LLC, including the eight in Florida. The Agency is the state agency responsible for the administration of the Certificate of Need program in Florida. See § 408.034(1), Fla. Stat., et seq. Pre-hearing Stipulation The Joint Pre-hearing Stipulation between Kindred Hospitals East, LLC, and Agency for Health Care Administration, filed May 25, 2006, contains the following: E. STATEMENT OF FACTS WHICH AREADMITTED AND WILL REQUIRE NO PROOF The CON application filed by Kindred complies with the application content and review process requirements of Sections 408.037 and 408.039, Florida Statutes (2005), and Rule 59C- 1.008, Florida Administrative Code, and the Agency's review of the application complied with the review process requirements of the above-referenced Statutes and Rule. With respect to compliance with Section 408.035(3), Florida Statutes (2005), it is agreed that Kindred has the ability to provide a quality program based on the descriptions of the program in its CON application and based on the operational facilities of the applicant and/or of the applicant's parent facilities which are JCAHO certified. With respect to compliance with Section 408.035(4), Florida Statutes (2005), it is agreed that Kindred has the ability to provide the necessary resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. With respect to compliance with Section 408.035(6), Florida Statutes (2005)it is agreed that the project is likely to be financially feasible. The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(8), Florida Statutes (2005), which relates to an applicant's proposed costs and methods of proposed construction for the type of project proposed. The parties agree there are no disputed issues with respect to Kindred's compliance with Section 408.035(9), Florida Statutes (2005), which relates to an applicant's proposed provision of health care services to Medicaid patients and the medically indigent. Section 408.035(10), Florida Statutes (2005), relating to nursing home beds, is not at issue with respect to the review of Kindred's CON application. With respect to compliance with Rule 59C-1.008(1)(a)-(c), Florida Administrative Code, it is agreed that Kindred complied with the letter of intent requirements contained therein. 9. Rules 59C-1.008(1)(d), (e), (h), (i), and (j) are not at issue with respect to the review of Kindred's CON applications. With respect to compliance with Rule 59C-1.008(1)(f), Florida Administrative Code, it is agreed that Kindred complied with the applicable certificate of need application submission requirements contained therein. The need assessment methodology is governed by Rule 59C-1.008(2)(e)2.a.- d., Florida Administrative Code. With respect to Rule 59C-1.008(2), Florida Administrative Code, except as to Rule 59C-1.008(2)(e)2.a-d and (2)(e)3, Florida Administrative Code, it is agreed that this provision is not applicable to this proceeding, as the Agency did not at the time of the review cycle at issue, and currently does not, calculate a fixed need pool for LTCH beds. With respect to compliance with Rule 59C-1.008(3), Florida Administrative Code, it is agreed that Kindred submitted the required filing fees. With respect to compliance with Rule 59C-1.008(4)(a)-(e), Florida Administrative Code, it is agreed that Kindred complied with the certificate of need application requirements contained therein. Rule 59C-1.008(5), Florida Administrative Code, relating to identifiable portions of a project, is not at issue with respect to the review of Kindred's CON applications. In light of the stipulation, the issues remaining generally concern: the need for Kindred's proposed facility (including the reasonableness of Kindred's need methodology and whether its need assessment conforms to AHCA rules), the accessibility of existing LTCH facilities, and the extent to which the proposal will foster competition that fosters cost-effectiveness and quality. Long-Term Care Services The length of stay in the typical acute care hospital (a "short-term hospital" or a "STACH") for most patients is four to five days. 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 in an short-term hospital. Patients appropriate for LTCH services represent a small but discrete sub-set of all inpatients. They are differentiated from other hospital patients. Typically, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly and frail, unless they are victims of severe trauma. All LTCH patients are generally medically complex and frequently catastrophically ill. Generally, Medicare patients admitted to LTCHs have been transferred from short-term hospitals. At the LTCH, they receive a range of services, including cardiac monitoring, ventilator support, and wound care. Existing LTCHs in District 7 At the time of the CON application there were 12 LTCHs operating in Florida with a total licensed bed capacity of 805 beds. There is one existing LTCH within District 7. Another is approved and under construction. Select Specialty Hospital-Orlando, Inc. ("Select-Orlando") contains 35 beds; it was licensed in 2003. The occupancy rate for this facility for CY 2005 was 73.57 percent. Select-Orlando's history shows few discharges to Brevard County. The majority of its discharges are to Orange, Seminole, and Osceola Counties. Most of the balance are to Volusia, Lake, and Polk Counties. A second LTCH, Select Specialty-Orange, Inc., has been approved and is under construction. It will contain 40 beds. The total licensed capacity of these two LTCHs will be 75 beds. Both of the facilities are located in Orange County and are located in or near Orlando within a few miles of each other. The acuity levels of the patients in the existing LTCH are not known. There are no LTCHs in Brevard County where Kindred proposes to build and operate a new LTCH should its application be approved. Kindred's Proposal Kindred's proposal in Brevard County, AHCA District 7, is for a freestanding 60-bed LTCH, with all private rooms, including an 8-bed intensive care unit (ICU). The proposed LTCH will follow a care model template that is similar to Kindred's other LTCHs. It will be a freestanding, licensed, certified and accredited acute-care hospital with an independent self-governed medical staff under the same model as a short-term acute hospital. The majority of patients in an LTCH typically arrive after discharge from a short-term acute care hospital, most often ending their STACH stay in an ICU. Not surprisingly, Kindred projects that its proposed LTCH will receive the bulk of its referrals from STACHs in the surrounding area. Kindred's LTCH patients will be discharged to either their homes, home health care, or to another post-acute provider on the basis of patient needs, family preference, and geography. There are several levels of care provided within an LTCH such as Kindred's proposed facility. Typically, LTCHs accept stable medical patients but with catastrophically ill patients some are bound to become medically unstable. There are eight ICU beds for the medically unstable patient. Thus, Kindred's patients who undergo changes of condition (such as becoming medically unstable) can be cared for without a transfer, unlike in skilled nursing facilities or comprehensive medical rehabilitation hospitals facilities not suited for the medically unstable patient. The goal of an LTCH is to take acute care hospital patients and provide them with a higher level of medical rehabilitation than they would receive in an STACH, and rehabilitate them so that they can be transferred home, or to a rehab hospital, or to a nursing facility. The "medical rehabilitation" of an LTCH addresses system failures and dependence on machines. This is different from the rehabilitation that takes place in an inpatient or outpatient rehab center, where patients usually have suffered an injury or trauma to a muscular or bone system, and their care is based on physical medicine rather than internal medicine. The Orlando Metropolitan Area and Brevard County In evaluating markets that may need an LTCH, Kindred looks at established metropolitan areas the boundaries of which are determined on the basis of population concentrations and commuting data. District 7 contains most of the metropolitan area associated with the city of Orlando (the "Orlando Metropolitan Area"). Like District 7, the Orlando Metropolitan Area has a presence in four counties. But the counties are different. The Orlando Metropolitan Area encompasses all or part of Orange, Osceola, Seminole, (shared with AHCA District 7) and a county that is not in District 7: Lake County. In addition to the three counties it shares with the Orlando Metropolitan Area, District 7 includes Brevard County. At hearing, Mr. Wurdock explained the following about the Orlando Metropolitan Area: When we talk about the Orlando area, we are not just talking about Orange County. Orange County, Osceola County, and Seminole County are all part of the Orlando metro area. That means they're an integrated economic unit based on commuting patterns. Lake County is also part of [the Orlando metropolitan area.] . . . [W]hen we looked at . . . Orange, Osceola and Seminole and ran an analysis . . ., we found . . . there was a need for approximately 180 more beds beyond the . . . 35 that currently existed. So even after you take out the 40 under construction, there is still a really huge need [in the Orlando metropolitan area.] Tr. 56-57. That Brevard County is not part of the Orlando Metropolitan Area is a consideration in this case. Kindred's evaluation also showed two other factors about Brevard County that distinguish it from the Orlando Metropolitan Area. First, it does not have adequate access to long-term care hospitals. Second, it's population with a significant number of seniors and a high number of discharges from STACHs makes it one of the few markets of its size that does not have at least one LTCH. As Mr. Wurdock continued at hearing: Brevard County has a population of more than a million people and it's got more than 100,000 seniors and they have six short term hospitals that produce more than 60,000 discharges a year. . . . [T]here are very few markets of that size in this country that do not have at least one long term hospital . . . Tr. 57. These two factors led Kindred to pursue the application that is the subject of this proceeding. Kindred's decision to pursue a CON for an LTCH in District 7 also stemmed from the interest of Brevard County physicians who had referred patients to Kindred facilities in Fort Lauderdale and Green Cove Springs in Duval County, a government unit consolidated with the city of Jacksonville. This interest was also supported by evidence that showed a predominate north/south referral pattern along the I-95 corridor. Patients in Brevard County STACHs appropriate for LTCH services are referred to facilities in Duval County (north) and Fort Lauderdale (south), but generally not to the lone District 7 LTCH in Orlando. The number of short-term acute hospitals in an area affects the decision of whether to locate a facility in a particular market. The presence of STACHs in a market is significant because the vast majority of an LTCH's patients are transfers from STACHs. The growing senior population (persons aged 65 and over) in Brevard County was also a factor; the elderly population is a large constituent of an LTCH's patient base. Dr. Richard Baney, who practices with Melbourne Internal Medicine Associates, the largest physician- practice group in Brevard County, holds privileges at Holmes Regional Medical Center, and is familiar with the various health care facilities of all types in Brevard County, including hospitals, inpatient rehabilitation hospitals, and nursing homes. Dr. Baney anticipates serving as either an attending or consulting physician if the Kindred facility in Brevard is approved, as do several of the other physicians in his group, including some "intensivists" such as pulmonologists, critical-care physicians, and cardiologists. Dr. Baney's physician group consists of 45 primary care physicians, including internists, family practitioners and pediatricians. The group also includes OB/GYNs, neurologists, medical sub-specialists such as cardiologists, pulmonologists, endocrinologists, hematologists, and oncologists. Among the oncologists are radiological oncologists. There are general surgeons in the group, surgery sub-specialists, including vascular surgeons, and ENT (ear, nose, and throat) physicians. Dr. Baney summed up his opinion on the need for an LTCH in Brevard County as follows: In our area we have excellent acute- care hospitals, and we have a good network located throughout the area of subacute rehab facilities, as well as nursing homes, and then home care, and then eventually a patient is home. What we don't have in this area is a long-term acute-care facility that would handle the more significantly ill patients who need more intensive medical and nursing and physical therapy support. Right now those patients that would normally benefit from this type of facility have to dwell in the hospital for . . . weeks and weeks at a time until they achieve a point of stability where they can be moved into a subacute rehab. What this does in turn is clog up the hospital beds, ICU beds in particular, and every year we have at our large acute-care hospitals here at Holmes patients who are being quartered in the . . . auditorium at the hospital, in the hallways of the emergency room, since the hospital gets just overwhelmed with patients and cannot move them out. Certainly I believe a facility in this area would have no trouble being able to fill that need of taking many of these patients who need this kind of care out of the [STACH] into a better, more efficient setting. Also, we don't have any place that's nearby that patients and their families can go for this kind of care. . . . [I]t's really not logistically feasible for patients and their families to go 80, 90 miles away or further to . . . have their care for this type of duration. Kindred No. 7, Deposition of Richard Baney, Jr., M.D., at 10-11. When asked about the difficulty presented by the distance to the LTCHs in Fort Lauderdale and Duval County, Dr. Baney answered with regard to one of his patients that administratively there a few if any problems. The problem is for the family: But the family was very hesitant to allow their father to be transported . . . 150, 180 miles away and be there for weeks or months while they were recovering. They were quite resistant to the idea of him so far away, since the family would have to travel back and forth. Eventually they overcame that and the patient did go . . . to the facility down south. * * * But it was quite a hurdle that we had to get over. Id., p. 16, 17. Aside from the logistical problems faced by the families whose loved one is a potential patient at an LTCH at great distance from home, Dr. Baney's testimony accentuates another factor faced by potential LTCH patient in Brevard County. This is a factor favoring approval of an LTCH application recently recognized by AHCA when it approved Select-Orange, a second LTCH in the Orlando Metropolitan Area dominated by two large hospital organizations. Similar to the Orlando area, Brevard County STACHs, for the most part, belong to one of two hospital organizations predominate in the area. Brevard County's Two Main Hospital Organizations There are two main hospital organizations in Brevard County: the Health First system and the Wuesthoff system. Health First includes Holmes Regional Medical Center; Palm Bay Community Hospital, which is about 90 beds; and Cape Canaveral Hospital, which is also about 90 beds, in the central part of the county. Palm Bay is a large community about 15 miles south of Melbourne. Cape Canaveral is about 20 miles from Melbourne, and Rockledge is about 15 miles from Melbourne. The Wuesthoff system consists of Wuesthoff Rockledge and Wuesthoff Melbourne. Wuesthoff Rockledge is a 267-bed acute care facility with 32 ICU beds, 8 cardiac surgery beds, and an active emergency room that sees about 1,500 visits a month. Wuesthoff Melbourne is a 115-bed facility with a 12-bed ICU and an active ER of around 800 visits a month. Wuesthoff currently refers LTCH patients- primarily long-term ventilator patients-to Kindred's facilities in Fort Lauderdale and near Jacksonville. When Wuesthoff refers a patient to Kindred, it calls Kindred's intake coordinator who journeys to Wuesthoff to review the patient's records, meet with the family, and determine if the patient can be placed. Only if a physician from the LTCH signs an admission order concurring that the patient is clinically appropriate for admission to an LTCH is the patient transferred. Often, however, because the Kindred facilities are so far away, just as Dr. Baney pointed out, the families do not want to move the patient out of Wuesthoff. This resistance continues despite increased education about the benefit of LTCHs to potential LTCH patients. LTCH Education When an LTCH comes into a market, an education process begins. It begins with the physicians, and with the case managers and social workers in the STACH. Kindred educates these professionals about what an LTCH is, what its services are, and where it fits into the continuum of care. Kindred's Admission and Patient Evaluation Processes Kindred does not admit every patient that falls within the diagnoses that might produce LTCH-appropriate patients. Patients are pre-assessed before admission using what is nationally known as Interqual criteria for hospital admissions. That set of criteria is based on severity of the patient's illness and the intensity of services required to treat the patient, and then a review committee at the LTCH makes a clinical determination whether or not the patient is appropriate for LTCH services. The sole way that a patient gets referred to a Kindred Hospital is through a physician order. Before a patient comes to a Kindred Hospital, a physician has determined that to the best of his or her judgment the patient requires continued care at the level of an acute care hospital and that the patient's course of treatment will be prolonged. A physician from a Kindred Hospital must write the admission order, concurring that it is appropriate for that patient to be in an LTCH. Prior to obtaining that physician order, potential candidates for transfer are identified through the STACH case management staff, with the assistance of the LTCH staff. The STACH medical staff, nurses, or other personnel initiate the request for Kindred to visit the patient, interview the family, talk with the STACH attending physician, and make a determination of whether transfer and care at Kindred is clinically appropriate. Kindred gathers information on a potential patient to assist in making the admission determination using individuals in the field known as "clinical liaisons," who are primarily licensed registered nurses. The clinical liaison gathers the information, but does not make the ultimate determination as to whether to admit the patient to a Kindred facility. The ultimate determination for admission is made by the physician who will be seeing the patient at the Kindred facility. In order to comply with Medicare reimbursement requirements, Kindred employs such safeguards to make sure only appropriate patients are admitted. Medicare reviews the patients treated into the hospital, and it can and does reduce payment for "short stay outliers" who do not stay at least five-sixths of the geometric mean of the length of stay (GMLOS) for the patient's diagnosis. Mathematically, however, LTCHs will always have some patients who are short stay outliers. Even if GMLOSs rise as result of the elimination of short stay patients, between 35 and 40 percent of patients will always be "short stay outliers" under CMS's current definition. They will just be hospitalized for a stay that is short relative to a longer length of stay. Kindred LTCHs utilize criteria that assure that patients, once admitted, have sufficient severity of illness and need sufficient intensity of service to continue to warrant acute care. Case managers in LTCHs apply discharge screens to patients as they near completion of their LTCH care plan to help physicians make a judgment of when they are ready to be transferred either home or to a lower level of post-acute care. Kindred's CON application included a utilization review plan, using an example from Kindred Hospital North Florida. Every hospital has a utilization review plan designed to assure that appropriate care is given to patients. It serves an oversight function for medical care, nursing care, medication administration, and any other area where resources are expended on behalf of the patient. A PPS for LTCHs Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services (CMS) established a prospective payment system for LTCHs. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by providers of short-term acute care or other post short-term acute care providers. Under the system, each patient is assigned an LTCH DRG, indicating that the patient's diagnosis is within a certain Diagnostic Related Group. The LTCH is reimbursed the pre-determined payment rate for that DRG, regardless of the cost of care. The creation of separate DRGs for LTCH patients is the mark of the federal government's recognition of the validity of LTCH services and the distinct place occupied by LTCHs in the continuum of care based on the high level of LTCH patient acuity. Despite this recognition, concerns about the identification of patients that are appropriate for LTCH services have been voiced both at the federal level and at the state level. With the rise in LTCH applications over the last several years, AHCA has been consistent in voicing those concerns, particularly when it comes to LTCH population levels of acuity. Acuity The Agency is not convinced that there is not significant overlap between the LTCH patient population and the population of patients served appropriately in healthcare settings other than LTCHs. The Agency has reached the conclusion that there are options (other than an LTCH in Brevard County) available to patients targeted by Kindred. The options depend on such matters as physician preference and the availability of long-term care hospitals in a given geographic area. Kindred answers the concerns, in part, with evidence that relates to acuity. A "case mix index" for the hospital is a measure of its average resource consumption. Resource consumption can be viewed as a surrogate measure of complexity and severity of illness, so case mix index is often cited as a readily available measure of patient acuity. Using that indicator, the case mix index of Kindred hospitals is high compared to the entire LTCH industry, and is higher than the average case mix index for STACHs. The APR/DRG system is a way to further refine the variation of patients' acuity within a DRG. The system assigns not only a DRG, but a severity of illness on a scale of one (minor severity) to four (extreme severity). Using that tool with the Kindred data base (as well as the federal MedPAR data base) confirms that the distribution of severe and extreme severity of illness is skewed toward LTCH patients, meaning that there are more patients with higher severity of illnesses in LTCHs than in STACHs. As is to be expected, and one would hope if LTCHs are appropriately serving their niche in the continuum of care, this is consistent with the empirical observation that patients in LTCHs, are more sick than those in STACHs. A third measure of patient acuity routinely used in Kindred hospitals is an APACHE score, which is a combination of physiologic derangement and concurrent illnesses. The average Kindred patient has an APACHE score of about 45, whereas the average critical care patient in all STACHs has a score about two-and-a-half points higher. Thus, Kindred's LTCHs treat a severely ill population only a few points, on the APACHE measure, below that of critical care units in STACHs across the country. The Agency does not, by rule or order, define the level of acuity at which LTCH patients should be for admission. Information on acuity level of patients in STACHs is not available through the State's health statistics data base, nor is any information that would allow an LTCH applicant to undertake an acuity analysis of potential patients. AHCA acknowledges that it has no reason to believe that Kindred admits lower-acuity patients with the least need for resources among those in LTCH- appropriate DRGs. Family Hardship In those markets that do not have LTCHs, STACH patients typically have no choice of treatment but to stay in the STACHs, unless they are willing to travel long distances. As Dr. Baney pointed out in his deposition testimony, many patients who could benefit from an LTCH are not inclined to travel long distances. One reason is that the patients' families are not able to commute that distance. If the patient is going to be in an LTCH for weeks or months, it creates a hardship on the family to have their loved one that far away. The family either loses contact with their loved one or they actually have to relocate to where the loved one is and abandon their home temporarily. The need for family presence and involvement is more than just an emotional matter of patient and family preference. Families are involved in the treatment of a patient in a long-term care hospital, not only through their presence in the hospital but also because they will participate in patient care after the patient leaves the LTCH. Families have to learn how to get the patients out of bed, feed them, and possibly suction them. The families would be taught how to care for their family members once they leave the LTCH, by nursing and therapy staff, teaching them exercises for the patient, how to regulate the oxygen, and giving medications. Differences between LTCHs and Other Providers LTCHs and STACHs do not have the same purpose, and the gap is widening between the two. Over the last 20 years, STACHs have evolved into settings that are very good at stabilizing patients, diagnosing their conditions, and developing treatment plans. Most admissions to the medical ward of an STACH come in through the emergency room where patients are so acute, so unstable, that emergency care is required to stabilize the patient. In their role as diagnostic centers, STACHs provide imaging and laboratory services, and then develop a treatment plan based on the diagnostic work-up performed. STACHs have moved away from the function of carrying out a treatment plan. This is borne out by shrinking STACH lengths of stay over the last 20 years, which now average four to six days. As a result, STACHs have limited capability to provide a prolonged treatment plan for patients with multiple co-morbidities. In contrast, LTCHs do not hold themselves out to be diagnostic or stabilization centers. They have developed expertise in caring for the small subset of patients that require a prolonged treatment plan. A multi-disciplinary physician- based care plan is provided in LTCHs that is not provided in STACHs or other post-acute settings. LTCH patients meet hospital level criteria, and if there is no LTCH readily accessible to provide a hospital-level discharge option for these patients, then the STACH has no option but to keep them, and manage their treatment and costs as best they can. LTCHs take care of those patients who need to be in a hospital, but for whom reimbursement is not adequate for STACHs to treat. The reimbursement system is driving this to a great extent, because of the incentives it gives to discharge patients as quickly as possible. Not every STACH patient needs LTCH care; as a rule of thumb, about one percent of all non-obstetric patients are potentially LTCH-appropriate. Ms. Woods, Vice President for Wuesthoff Health System which operates STACHs in Brevard County, testified in deposition that Wuesthoff's ICUs in Wuesthoff hospitals often retain patients who could be placed in an LTCH. As the Wuesthoff ICUs remain full, the ability to move patients through the hospital, from the emergency department through the ICU, is significantly impacted. While long-term care hospitals take a team approach to getting patients weaned from ventilators or getting them to a rehab involvement, an acute care hospital ICU deals more with acute crisis situations, such as an acute MI (myocardial infarction) or an acute blood clot to the lungs, or someone who has acute sepsis or infection. The roles that LTCHs play have a significant impact on acute care hospitals such as Wuesthoff. If an acute care hospital has to maintain a patient for 30 to 60 days on a ventilator in order to get them weaned or to meet their needs, that poses the potential to interfere with the acute care hospital from meeting the needs of the community, such as patients who are coming in the emergency room with acute conditions. Most of the stays in Wuesthoff's ICU beds, for example, are five to seven days; they are trauma patients, surgery patients that need support and critical care, and patients coming in with major infections. When ICU beds are unavailable, these patients are being held in the emergency departments; it stops the patient flow if the beds in a community hospital are taken up from a long-term ventilator patient. SNFs and LTCHs are different both in intent and execution. SNFs are appropriate for patients whose primary needs are nursing, who are stable and unlikely to change, and who do not require very much medical intervention. Conversely, LTCHs, being licensed and accredited as acute care hospitals, are appropriate when daily medical intervention is required. LTCHs are able to respond to changes in conditions and changes in care plans much better than SNFs because LTCHs have access to diagnostics, laboratory, radiology, and pharmacy services. Further, there are no skilled nursing facilities in Brevard County that operate beds for ventilator dependent patients, nor are there hospital-based skilled nursing units ("HBSNUs"). Using Kindred's own nursing data base, which consists of 250 SNFs across the country, and Kindred's LTCH data base, consisting of 75 LTCHs, Kindred has discovered that that overlap in patient condition is very small. Where there is overlap, it tends to be at the ends of care in LTCHs and the beginning of care in SNFs. This progression makes sense, since SNFs are a common discharge destination for LTCH patients. LTCHs and rehab hospitals are also distinctly different. Rehab hospitals are geared for people with primarily neurologic or musculoskeletal orthopedic issues, and are driven with a care model based on physical medicine rather than internal medicine; LTCH care requires the oversight of an internist rather than a physical medicine doctor. While rehab is a concurrent component of LTCH care, the patient in an LTCH cannot tolerate the three hours per day of therapy required for admission to rehab hospitals due to their medical conditions. In fact, a common continuum of care is for an LTCH patient to receive treatment and improve to the point where they can tolerate three hours of rehab and so be transferred to a rehab hospital. There is one acute rehab center in Brevard County, and it does not take ventilator-dependent patients. There are no hospital based skilled nursing units in Brevard County. There are no skilled nursing facilities in Brevard County that can accommodate ventilator-independent patients. Often ventilator-dependent patients also have IV antibiotics and tube feedings, and these are complicated conditions that a nursing home will not treat. LTCH care cannot be provided through home health care, because, by definition, LTCH patients meet criteria for inpatient hospitalization. Home health care is designed for patients who are very stable and have such a limited medical need that it can be administrated by a visiting nurse or by families. This is in sharp contrast to an LTCH patient where many hours a day of nursing, respiratory, and other therapies are required under the direct care of a physician. On the basis of regulation alone, STACHs could provide LTCH care. They generally do not do so because they have evolved into centers of stabilization, diagnosis, and initiating a treatment plan. Case studies bear out that when patients who made very little progress in STACHs are transferred to LTCHs, where the multidisciplinary approach takes over from the diagnostic focus, the patients improve in both medical and physical well-being. Those patients that would normally benefit from an LTCH have to dwell in the hospital for weeks until they achieve a point of stability where they can be moved in to a subacute facility; instead of continuing to move efficiently down the continuum they remain in the "upper end of the stream." This, in turn, may overwhelm the short-term acute care hospital, particularly in its ICU, resulting in patients being quartered in the auditorium at the hospital and in the hallways of the emergency room. The LTCHs available along the east coast of Florida in Fort Lauderdale or Jacksonville are at a distance from Brevard County that is an obstacle to referral of a Brevard County patient. Having a long-term care hospital in Brevard County would enhance the continuum of services available to Brevard County residents. On the other end of the referral process from Dr. Baney is Rita DeArmond, the clinical liaison for Kindred Hospital Fort Lauderdale. Her duties include, "patient evaluations on potential admissions to [Kindred Fort Lauderdale], which also involves meeting with families and educating the families, . . . case managers, . . . physicians and other people in the community about our hospital and long-term acute care hospitals in general." Kindred No. 8, at 5. She serves "Palm Beach County, the area around Lake Okeechobee [Okeechobee and Hendry Counties], Martin County, . . ., St. Lucie County, Indian River County and Brevard County." Id. at 11. In Ms. DeArmond's experience in dealing with potential long-term care hospital patients and their families not in the immediate vicinity of an LTCH, the willingness of those patients to travel great distances is the biggest hurdle for the patients admission to an LTCH. Most of the patients and their spouses are elderly, and they do not tend to travel long distances, or on the interstate. Being faced with traveling hundreds of miles round-trip to visit a loved one is very distressing to most of them. Not only would potential Brevard County LTCH patients be more likely to avail themselves of LTCH services if there were an LTCH in Brevard County but so would patients in other counties. For example, according to Ms. DeArmond, Lawnwood Regional Medical Center in Fort Pierce, a St. Lucie County STACH, and Sebastian River Medical Center, an STACH in Indian River County, would definitely send potential LTCH patients to an LTCH in Brevard County rather than the current closest LTCH, Kindred Fort Lauderdale. Having an LTCH would be a positive impact for other Brevard County STACHs as well. For example, Wuesthoff would not experience the backup in its emergency department and in its ICU beds, especially in the winter time where there is a high census due to more cases of pneumonia in the winter. If a patient who might be clinically appropriate for an LTCH remains in the ICU in an acute care hospital such as Wuesthoff, that patient does not receive the same care that he or she would receive at an LTCH. Acute care hospitals do not provide the medical rehabilitation work that LTCH's do, such as a plan of care just for the rehab of ventilator patients. An acute care hospital can deal with the pneumonia, and can wean the patient, but does not have the same plans or care or the same focus that an LTCH does with those types of patients. If the patient does not go to an LTCH, they will stay in the acute care hospital using the hospital resources. Wuesthoff has had patients there up to 65 days. The hospitals and physicians visited by Kindred- Fort Lauderdale clinical liaison Ms. DeArmond on a regular basis are located in Brevard County in District 7, as well as Indian River and St. Lucie counties. The hospitals within Brevard County that she contacts include Holmes Regional and Wuesthoff Melbourne Hospital; within Indian River County, Indian River Memorial Hospital in Vero Beach and Sebastian River Medical Center, and within St. Lucie County, St. Lucie Medical Center in Port St. Lucie and Lawnwood Hospital in Fort Pierce. In gathering letters of support that were submitted with Kindred's CON application for a long-term care hospital in Brevard County, Ms. DeArmond met with case managers and physicians and informed them of Kindred's intention to apply for a CON to build a hospital in Brevard County. The physicians and case managers who provided letters of support had previously referred patients to Kindred Hospital in Fort Lauderdale, so they were familiar with the services that Kindred can offer in an LTCH. It is reasonable to assume that such physicians and case managers would refer patients to a Kindred LTCH in Brevard County, if approved. MedPAC Concerns In denying Kindred's application, AHCA relied on reports issued to Congress annually by the Medicare Payment Advisory Committee (MedPAC) that discuss the placement of Medicare patients in appropriate post-acute settings. The June 2004 MedPAC report state the following about LTCHs: Using qualitative and quantitative methods, we find that LTCHs' 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 that 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. AHCA Ex. 7, at 121. The June 2004 MedPAC report, therefore, concludes that LTCHs should "be defined by facility and patient criteria that ensure that patients admitted to these facilities are medically complex and have a good chance of improvement." Id. Despite the above language in the June 2004 MedPAC report, discussion in the SAAR of portions of the MedPAC report shows that AHCA may have misread some of the subtleties of the MedPAC findings. The MedPAC report makes statements that LTCHs and SNFs substitute for one another. While there is some gross administrative data to support that hypothesis, that conclusion cannot yet be drawn due to limitations in data and the wide variation of patient conditions that may be represented by a single administrative grouping such as a DRG. An example of patients in different settings who would appear to be similar are those under DRG-475, which means they were on ventilator life support for at least 96 hours. Such patients may be discharged in conditions that vary greatly. These conditions range from an "alert, talking patient, no longer on life support," to a patient who is "not on life support but is making no progress." There is no administrative data that describes patients at the time of their discharge. MedPAC analysis, therefore, lacks the data to determine why some of those patients went to a higher versus a lower level of care. The SAAR also concludes, based on a letter from the MedPAC Chairman, that LTCH patients cost more on average than patients in other settings. This conclusion is based on an analysis that is unable to differentiate patients within a DRG based on their severity at the time of discharge. The limitation in the DRG is that it is designed to describe the patient's need at the time of admission rather than discharge, so the DRG classification alone does not identify whether the patient was healthy or ill at the time of discharge. Furthermore, MedPAC found that patients who tended to be more severe based on DRG assignment tended to be cared for at similar cost between LTCHs and other settings. In fact, for the tracheostomy patient, which is the extreme of severity and complexity, there was evidence of lower cost of care for patients whose case included an LTCH stay. MedPAC Chairman Glenn Hackbaith, in his March 20, 2006 letter, agreed that CMS's proposed change to the short stay outlier policy was "too severe"; that it affects a "substantial percentage of LTCH patients"; and that it would continue to affect a large percentage of admissions "regardless of the admission policies of LTCHs." MedPAC's March 2006 Report to Congress notes that the total Medicare payments to LTCHs nationwide -- $3.3 billion in 2004 -- represented less than one percent of all Medicare spending. Need Analysis in the Absence of an AHCA Need Methodology The Agency does not have a rule that sets out a formula for determining the need for LTCH beds. Accordingly, AHCA does not publish a fixed need pool for LTCH beds. As the parties agree, this case is governed, therefore, by Florida Administrative Code Rule 59C- 1.008(2)(e)2.a-d (the "Needs Assessment Rule"). Application of the Needs Assessment Rule makes Kindred responsible for demonstrating need through a needs assessment methodology that covers specific criteria listed by the rule as detailed below, following the sections of this Order devoted to Kindred's Need Methodology and AHCA's criticisms of it. Kindred's Need Methodology Kindred bases its need methodology (the "Kindred Methodology") in this case on long-stay patients in short- term hospitals. A description of the Kindred Methodology, supported and proved by the testimony of Mr. Wurdock at hearing, appears in Kindred's CON application under a section entitled "Bed Need Analysis," see Exhibit K-1, at 14. It begins with the statement: "Long-term care hospital bed need can be estimated directly based on the acute care discharges and days occurring in the market." Id. There follows a chart that lists the six Brevard County STACHs and shows the number of patient discharges in the six months ending March 2004 and the patient days for the same period. These total 68,710 and 309,704, respectively. To identify the number of patient days appropriate for LTCH care, the Kindred Methodology takes into account patient diagnosis at discharge, patient age and length of stay. Some types of patients (burn patients, obstetric and pediatric patients or behavioral patients) are not appropriate for LTCH admission. Likewise, patients with short-term rehabilitation diagnoses typically are not appropriate for LTCH care. The first step in the Kindred Methodology, therefore, is to identify and omit those diagnoses which represent patients not appropriate for long-term care admission. Those include all DRGs in the Major Diagnostic Categories (MDC) of 13-Female Reproductive System; 14-Pregnancy, Childbirth and Puerperium; 15- Newborns and Other Neonates; 19-Mental Diseases and Disorders; 20-Alcohol and Substance Abuse; 22-Burns; and 23-Factors Influencing Health Status. Two additional groups of DRGs are omitted by the Kindred Methodology: DRGs specific to patients less than 18 years of age and DRGs for organ transplant patients who are usually required to remain in the STACH for specialized care. The end result of the first step in the Kindred Methodology is a list of 387 short-term acute care DRGs ("LTCH Referral DRGs") that represent patients who potentially could be eligible for LTCH admission. The Kindred Methodology's second step is to identify discharges that are assigned to one of the LTCH Referral DRGs and are aged 18 or older and whose length of stay exceeds a threshold number of days. This threshold is described in the application as follows: The length of stay threshold is defined in terms of the national geometric mean length of stay (GeoMean). That statistic is calculated annually by the federal Centers for Medicare and Medicaid Services (CMS) for each DRG. The number of long-term hospital patients and patient days is affected by the timing of the referrals. Referrals usually occur after the patient's length of stay has become longer than average. It is commonly accepted that many patients who stay in the acute care hospital beyond the geometric mean length of stay would be best cared for in a specialized, long- term environment. Therefore, in this analysis it is assumed that referral to Kindred Hospital Brevard will occur five days after a patient has passed their DRG-specific geometric mean length of stay. This allows time for patient assessment and transfer arrangements. Another important factor affecting the potential number of long-term hospital patients and patient days is the length of time a patient stays in the LTCH. In order to qualify for Medicare certification, long-term care hospitals must maintain a minimum average length of stay of twenty-five days or greater among their Medicare patients. Admission criteria, therefore, are used to minimize the number of Medicare patients requiring just a few days of care. To reflect this in the analysis, patients are considered to be LTCH appropriate only if they would have a long-term hospital length of stay of ten days or more. Exhibit K-1, at 16. Discharged patients, therefore are considered appropriate for LTCH care by the Kindred Methodology if they are discharged from a Brevard County STACH, are at least 18 years of age, are assigned to one of the 387 Referral DRGs, and have a hospital length of stay that exceeds the geometric mean by at least 15 days, the sum of a referral period of five days and an LTCH minimum length of stay of ten days. The third step in the Kindred Methodology is to sum the potential LTCH days produced by the appropriate patients. For these patients, potential LTCH days include all days after the "'transfer day' (i.e., all days that exceed the GeoMean + five days)." Id. For the 12-month period ending March 2004, this calculation yielded approximately 18,400 hospital days in the six Brevard County hospitals, for an average daily census (ADC) of 50.4. The fourth step in the Kindred Methodology is to identify the number of patient days that are leaving Brevard County for LTCH care, due to the absence of an LTCH in the county. During the 12-month period ending in March 2004, 41 Brevard County residents were discharged from Kindred Hospital North Florida in Green Cove Springs and Kindred Hospital Fort Lauderdale. Those patients received 2,229 days of LTCH care, equaling an average daily census of 6.1. Adding that to the 50.4 ADC un-served patients in Brevard County, yields a potential LTCH ADC of 56.5. The fifth step is to account for population growth. This is especially important when there is rapid growth in senior population as there is in Brevard County. According to AHCA projections, the population 65 and over will increase 9.2 percent during the next five years, while the total population will increase 10.8 percent. It is appropriate to increase LTCH ADC at least by 9.2 percent during this time period, since the proposed project will not open until 2007 at the earliest, and will not achieve full utilization until at least 2011. This step produces an LTCH ADC of 61.7. The sixth and final step is to calculate LTCH "bed need" by assuming 85 percent occupancy. Dividing the LTCH ADC of 61.7 by 0.85 yields a bed need of 72 LTCH beds. The Kindred Methodology does not account for the five percent or more of referrals that come from sources other than LTCHs such as nursing homes. Nor does it take into account the admissions from Indian River County currently served by Kindred Hospital Fort Lauderdale, some of which are sure to come to the proposed project if approved. AHCA Criticism The methodology is criticized by AHCA on the bases, among others, that it does not account for beds available elsewhere in District 7, and that it determines need solely within Brevard County, a departure from the statutory mandate which requires Agency review of CON applications with regard to "availability, quality of care, accessibility, and extent of utilization of existing health care facilities in the service district of the applicant." § 408.035(2), Fla. Stat. (emphasis supplied). The Agency's argument with regard to the un- utilized beds at the one existing LTCH in District 7, Select-Orlando, is undermined by recent action of the agency in approving a second Select facility in Orange County, a 40-bed freestanding facility: Select Specialty Hospital-Orange, Inc. ("Select-Orange"). The Agency approved the 40-bed Select-Orange facility, not open at the time of hearing, by way of a Settlement Agreement (the "Select-Orange Settlement Agreement") with the applicant. The two parties to the agreement, AHCA and Select-Orange, jointly stated in that document: [T]he Agency, in recognizing that there are two distinct health systems in the Orlando area, believes that this LTCH is needed for the Orlando Regional Healthcare System due to that unique situation . . . Kindred Ex. 4, at 2. The two distinct health systems in the Orlando area are Orlando Regional Healthcare System, Inc., which has a number of STACHs in the Orlando area including Orlando Regional Medical Center (ORMC), a tertiary medical facility with more than 500 beds, and the Adventist Health System, Inc. (Adventist), a hospital organization with a nationwide presence that as of 2002 operated seven acute care campus systems under a single license held by Adventist d/b/a Florida Hospital in the Orlando Metropolitan Area. See Orlando Regional Healthcare System, Inc. vs. AHCA, Case No. 02-0449 (DOAH November 18, 2002), pp. 8-10. The Select-Orange Settlement Agreement was entered in the midst of administrative litigation over AHCA's preliminary agency action with regard to a CON application. The meaning and impact of AHCA's statement quoted above from the Select-Orange Settlement Agreement were not fully elaborated upon at hearing by any direct evidence. Kindred established through the testimony of Mr. Wurdock and through cross-examination of Ms. Rivera that although Select-Orange was originally approved as a "hospital-in- hospital" or "HIH," that Select-Orange obtained a modification of its CON to become a freestanding facility. Had the facility remained an HIH, federal regulations would have limited the percentage of Medicare referrals that could come from its host hospital, ORMC. As a freestanding facility, Select-Orange has no such limitations. It can fill its beds with referrals from ORMC. Whatever the impact of the freestanding nature of Select-Orange, the Agency's recognition of the unique situation in the Orlando area created by two distinct health systems, such that there is support for a new LTCH when the existing LTCH has available beds, gives rise in this case to an inference in Kindred's favor. If two distinct hospital systems in the Orlando area can support the addition of 40 LTCH beds, then it is highly likely that Brevard County can support a 60-bed LTCH. The county is not a part of the Orlando Metropolitan Area. LTCH referral patterns are north-south along the I-95 corridor (not to Select-Orlando). There are geographic and roadway access issues from Brevard County to the Orlando area demonstrated by commuting patterns that exclude Brevard County from the Orlando Metropolitan Area. And most significantly, the methodology reasonably established need for more than 60 beds in Brevard County. The Needs Assessment Rule The need for any health care service or program regulated by CON Law for which AHCA has not provided a specific need methodology by rule is governed by Florida Administrative Code Rule 59C-1.008(2)(e)(the "Need Assessment Rule"), which states in part: . . . If an agency need methodology does not exist for the proposed project: . . . 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 exist, 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 when 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; Market conditions; and Competition. The Agency does not publish a fixed need pool for LTCH beds because it does not have a specific need formula or methodology for LTCH beds. The Agency, furthermore, has not provided Kindred with any policy upon which to determine need in this case. Accordingly, Kindred used its own methodology for determining need in Brevard County and elsewhere in the district (the Orlando Metropolitan Area). Finally, since no agency policy exists with regard to an LTCH need methodology, Kindred is required to prove the existence of need for its proposed project on the basis of the five categories of criteria (referred to in the rule as "topics") listed in sub-paragraphs "a. through e.," of paragraph 2., in subsection (2)(e) of the Rule. Population Demographics and Dynamics In assessing an area's population and demographics for the purpose of evaluating LTCH need, special attention is paid to the elderly population because the majority of LTCH patients are Medicare patients. The elderly are also more likely to produce LTCH patients because they are more likely to be medically complex and catastrophically ill with co-morbidities and dependent on medical equipment like ventilators. Brevard County, while home to only an approximate one-quarter of District 7's population, accounts for more than a third of its seniors. While Brevard County's elderly population is experiencing average or slightly below average growth in relation to the rest of the state, there is no question that Brevard County's elderly population is on the increase and reasonably projected to increase in the future. Availability, Utilization, and Quality of Like Services in the District "[B]y definition, putting a long term hospital in Brevard County will increase accessibility [make LTCH services more available] because . . . the people in Brevard County will no longer have to go all the way to Orlando, or Jacksonville, or Ft. Lauderdale for [LTCH] care." Tr. 48. Mr. Wurdock elaborated on the point of district availability at hearing: We did look at the entire district. . . . [T]here [are] only four counties in the district, three of which orbit around the Orlando and then there is the Palm Bay/Melbourne metropolitan area, which is Brevard. And when we looked at the district as a whole, what we discovered was that there is a need really for two new long term hospitals in the district. There is clearly a need for another one in Orlando [beyond the existing Select- Orlando and the approved not yet operating Select-Orange] and there is also a need for one in Brevard County. . . . [You] could build . . . two new long term care hospitals, both of them in Orlando, but that doesn't . . . make . . . sense when you've got a very large concentration of seniors significantly removed from the Orlando area with six short term hospitals in . . . [Brevard C]ounty comprising essentially its own market. So logically, you . . . put one long term hospital in Brevard and then another long term hospital in Orlando. Tr. 48-49. The presence of six STACHs in Brevard County and the large senior population is significant. The closest LTCH is Select-Orlando more than an hour's drive away. The distance to Select-Orlando and Select-Orange's future site from the municipality in which Kindred proposes to site its proposed LTCH, Melbourne, is more than 60 miles, in a direction not favored by Brevard County residents oriented to driving north or south along the I-95 corridor, but not to the west into the Orlando Metropolitan Area. Furthermore, and most significantly, family members rarely fully understand and accept that their catastrophically ill elderly loved one should be shipped 60 miles away when the patient is in a hospital with a good reputation. Their resistance to a referral at such a distance is unlikely to increase utilization at the Orlando area LTCHs no matter how convinced are their physicians and other clinical practitioners that such a move is required for better care. Medical Treatment Trends LTCHs are recognized as a legitimate part of the health care continuum by the federal government and CON approvals of LTCHs in Florida have been on the upswing throughout this decade. At the federal level, in recognition of their treatment of a small but important subset of patients, Medicare has adopted LTCH DRGs, that is, DRGs specific to LTCHs, for reimbursement under Medicare's PPS. At the state level, the Agency recognizes that "[t]he trend is for LTCHs to be increasingly used to meet the needs of patients in other settings who for a variety of reasons are better served in LTCHs." Respondent Agency for Health Care Administration's Proposed Recommended Order, at 15. This recognition is made by AHCA despite MedPAC's concerns, many of which were tempered and adequately addressed by Kindred in this proceeding. Market Conditions At first blush, market conditions might not seem to favor Kindred's application. The occupancy rate in the District indicates that there are available beds. In AHCA's view, the occupancy rate at the one existing LTCH in District 7, the 35-bed Select-Orlando facility, an H-I-H in a converted nursing home at Florida Hospital Orlando, is not optimal. Select-Orlando opened in 2003, only a few years ago, and it is operating at a high occupancy rate that is approaching optimal. Kindred, moreover, did not confine its need case to its Brevard County methodology. It also presented evidence of need in the Orlando Metropolitan Area consisting, in part, of the three other counties in District 7. Competition While the Agency asserts that it did not give competition much weight in this application, AHCA has not taken the position that Kindred's proposed facility would not foster competition. Having an LTCH in Brevard County would foster competition in the traditional sense in that the only LTCHs in the District, one existing and one approved, are those of Select Medical Corporation, Kindred's chief competitor. A Reasonable Methodology for Brevard County In short, Kindred's methodology is reasonable for determining need in Brevard County and it appropriately includes the topics required by the Needs Assessment Rule. The Agency's argument that there is no need for LTCH beds in Brevard County when there are LTCH beds available elsewhere in the district is defeated by its approval of the Select-Orange facility. Whether Kindred's methodology in this case carries the day for Kindred, given the Agency's approach on a district-wide basis to the need for LTCHs, is addressed in the section of this Order devoted to conclusions of law.
Recommendation Based on the foregoing Findings of Facts and Conclusions of Law, it is recommended that the Agency for Health Care Administration issue CON No. 9835 to Kindred Hospitals East, LLC, for a 60-bed, long-term acute care hospital in AHCA Health Planning Service District 7, to be located in Brevard County. DONE AND ENTERED this 29th day of November, 2006, 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 29th day of November, 2006. COPIES FURNISHED: Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street Tallahassee, Florida 32302 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308
