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 Whether Respondent committed the offenses described in the Administrative Complaint? If so, what disciplinary action should be taken against her?
Findings Of Fact Based upon the record evidence, the following Findings of Fact are made: Respondent began her nursing career in the State of Indiana in 1968. She is now, and has been since July 14, 1972, licensed as a registered nurse in the State of Florida. She currently holds license number RN 60839-2, which expires April 30, 1993. In July, 1990, Respondent was employed by the All-Star Nursing Agency, an agency used by Larkin General Hospital (Larkin), a small community hospital located in Dade County, Florida. The chain of command for nursing personnel at Larkin is as follows: nurse; charge nurse; head nurse; nursing supervisor; nursing director; and administrator. During a four-day period concluding on July 17, 1990, Respondent was assigned to the intensive care/coronary unit (ICU) at Larkin. She worked the 11:00 p.m. to 7:00 a.m. shift. Among the patients in Larkin's ICU during the period of Respondent's assignment was a 16-year old, critically ill girl. The girl's condition, which had deteriorated during her stay at the hospital, was a major concern of the nurses assigned to the unit. Respondent and the other nurses on her shift, including the charge nurse, discussed the plight of this young patient. The consensus of opinion was that the patient would be better off in a facility, such as Miami Children's Hospital or Jackson Memorial Hospital, that offered specialized pediatric services not available at Larkin. 1/ Respondent was led to believe during these discussions that the patient could not be transferred to such a facility because no beds were available. At no time was Respondent assigned the primary care of this 16-year old patient; however, at around 3:00 a.m. on July 17, 1990, after the patient had suffered a grand mal seizure, the assigned nurse asked Respondent for her assistance. For the remainder of her shift that day, pursuant to the assigned nurse's request, Respondent assisted in caring for the patient. It is not uncommon for a nurse to render such assistance at the request of a colleague. Following the completion of her shift on July 17, 1990, Respondent went home. Although she was off-duty, her thoughts centered around the young patient she had helped care for earlier that morning. After getting some sleep, Respondent made a couple of telephone calls from her home. First, she telephoned Miami Children's Hospital and, without giving her name or the name of the patient, asked if there were any vacant beds in its pediatric intensive care unit. The person to whom she spoke advised her that no such beds were available. Respondent then called a friend who was a resident at Jackson Memorial Hospital (Jackson). Respondent asked the friend what procedure needed to be followed in order for a patient to be transferred to Jackson. After the friend explained the procedure to her, Respondent thanked him and hung up. Shortly thereafter, the friend called back to ask Respondent if she needed a bed at Jackson for one of her patients. Respondent indicated that she was "not able to comment on that" and the conversation ended. Later that same day, Respondent telephoned Larkin and spoke with Randy Dickson, the nursing supervisor on duty, and inquired about the young patient's condition. Dickson responded that there had not been any significant change in the condition of the patient. During her conversation with Dickson, Respondent expressed her view that the patient should be transferred from Larkin to another hospital. After speaking with Dickson, Respondent telephoned Dr. Ira Bloomfield, the patient's attending physician at Larkin. Respondent asked Bloomfield if he had been advised that his patient had suffered a grand mal seizure earlier that day. Bloomfield answered in the affirmative and told Respondent that the matter was under control. Respondent then raised the issue of the patient's transfer to another hospital. She told Bloomfield that she and the other nurses thought that such a transfer would be in the best interests of the patient. Furthermore, she offered to do what she could, including speaking with the Dade County State Attorney, Janet Reno, to assist Bloomfield in effectuating such a transfer if he needed such assistance. Later that same day, Respondent had another telephone conversation with Bloomfield. During this second telephone conversation, Respondent told Bloomfield that she had contacted Janet Reno and that he could do the same if he had a problem finding a suitable facility with an available bed for his patient. At no time did Respondent tell Dickson or Bloomfield that she had made arrangements to have the patient transferred. In fact, she had made no such arrangements. Respondent fully recognized that she was without authority to initiate the transfer of the patient and that a physician's order from Bloomfield was necessary for such a transfer to occur. Her purpose in speaking with Bloomfield was to provide him with information that he would be able to use in deciding whether to issue such a transfer order. 2/ Respondent believed that it was important for Bloomfield to know that, if he wanted to transfer the patient to a facility like Jackson, a bed could be made available for that purpose. She therefore took it upon herself to convey this information to Bloomfield. Although Respondent was attempting to be helpful, her efforts were not appreciated by Bloomfield. It was his belief that Respondent's intervention in the matter was inappropriate. Accordingly, he contacted Lynda Plummer, Larkin's Director of Nursing, to complain about Respondent. Plummer responded to Bloomfield's complaint by contacting Respondent's nursing agency and requesting that Respondent not be assigned to work at Larkin anymore. The agency complied with Plummer's request. Respondent did not work at Larkin after the end of her shift on July 17, 1990. Nonetheless, Respondent remained interested in the patient's progress. She called Larkin on various occasions subsequent to July 17, 1990, to find out about the patient's condition. She expected to obtain such information from the switchboard operator at the hospital, who usually answers such inquiries. Respondent's calls, however, were routed either to an ICU staff member or to Plummer or another supervisor, notwithstanding that Respondent did not ask to speak with anyone other than the switchboard operator. On at least one occasion, when Respondent's call was transferred to Plummer, Respondent sought to engage Plummer in a discussion regarding the care the patient was receiving. Plummer declined to partake in such a discussion. During a subsequent telephone conversation with Respondent, Plummer, who had been informed by her staff of the previous phone calls that Respondent had made to the hospital, told Respondent that her phone calls were disruptive to patient care and that they should therefore stop. Plummer instructed her nursing staff, if they received a telephone call from Respondent, to tell Respondent that she should not make any further inquiries regarding the patient. Bloomfield never ordered the transfer of the patient. The patient therefore remained at Larkin.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby recommended that the Board of Nursing enter a final order (1) finding the evidence insufficient to establish that Respondent engaged in "unprofessional conduct," within the meaning of Section 464.018(1)(h), Florida Statutes, as charged in the instant Administrative Complaint, and (2) dismissing said Administrative Complaint in its entirety. RECOMMENDED in Tallahassee, Leon County, Florida, this 19th day of September, 1991. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of September, 1991.
Findings Of Fact Introduction Orlando General Hospital applied in April, 1987, for a certificate of need to allow it to convert 24 existing medical-surgical beds to short term psychiatric beds. O.G. Ex. 2, p. 1. It did not explicitly apply for beds limited to serve adults. It did, however, state that adolescent care would not be provided "at this time," leaving open the use of the 24 beds in the future for possible adolescent use. Id. at p. 5. Charter Medical-Orange County, Inc., applied for a certificate of need for a 50 bed short term psychiatric specialty hospital. It explicitly applied for a specialty hospital having 50 beds of "short term adult psychiatric care." C.M. Ex. 1, application, section I. In the executive summary, it characterized its proposal as a specialty hospital "for adults." Id. at p. 1. Charter does not intend to treat child or adolescent short term psychiatric patients. T. 23. The applications were filed in early 1987 to meet need in the January, 1992, planning horizon. The rule that applies in this case is the one contained in the prehearing stipulation. T. 392. It is rule 10-5.011(1)(o), Fla. Admin. Code. A copy of the rule is contained in O.G. Ex. 7, p. 33. The provisions of the local health plan at issue in this case are accurately reproduced in the State Agency Action Report (SAAR) which is C.M. Ex. 5. Net Short Term Psychiatric Bed Need (Numeric Need) Rule 10-5.011(1)(o)4a-c, Fla. Admin. Code, provides that the projected number of beds shall be based on a bed need ratio of .35 beds per 1,000 population projected five years into the future and based, in this case, on the January, 1987, projections for January, 1992. That 1992 population for District VII is projected to be 1,505,564, and thus the gross short term psychiatric bed need is 527 beds. For this batching cycle, the inventory of licensed and approved short term psychiatric beds was 410. These were: General Hospitals Florida Hospital-Altamonte 20 Florida Hospital-Orlando 85 Orlando Regional Med. Center 32 Wuesthoff Memorial Hospital 25 Subtotal 162 Specialty Hospitals Brevard Mental Health Center 52 CPC Palm Bay (began 10/86) 40 Laurel Oaks (began 10/86) 60 Lynnhaven (approved only) 39 Park Place (approved only) 17 West Lake 40 Subtotal 248 TOTAL (Licensed and approved) 410 TOTAL (Licensed only) 354 Thus, there is a net need for 117 short term psychiatric beds In District VII by 1992. The rule further specifies that a minimum of .15 per 1,000 population should be allocated to hospitals holding a general license, and that .20 per 1,000 of the beds may be located in either speciality hospitals or hospitals holding a general license. HRS interprets the word "should" in the rule with respect to .15 per 1,000 allocated to hospitals with a general license as being mandatory. C.M. Ex. 5, pp. 13-14. This is a reasonable construction of the rule. By 1992 there must be 226 short term psychiatric beds located in hospitals holding a general license. Since currently there are 162 beds in such hospitals, there is a net need by January, 1992, for 64 short term psychiatric beds to be opened in hospitals holding a general license. The remainder of the net bed need, 53 beds, may be located in either a specialty hospital or a hospital holding a general license. T. 500-02. The Occupancy Rate for "All Existing Adult Short Term Inpatient Psychiatric Beds" Rule 10-5.011(1)(o)4e, Fla. Admin. Code, provides in part that "no additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75 percent for the preceding 12 month period." (E.S.). Calendar year 1986 is the period of time accepted by all parties as the "preceding 12 month period" as specified by the rule, that is, the period of time to calculate the occupancy rate for this batching cycle. See, e.g., T. 285; C.M. Ex. 5. The State Agency Action Report Occupancy Rate The State Agency Action Report computed the occupancy rate for all licensed short term psychiatric beds in District VII in calendar year 1986 at 70.13 percent. C.M. Ex. 5, p. 10. This figure was based upon data as to patient days as reported by District hospitals to the District VII local health council and was based upon 354 licensed beds in the District during the full calendar year, but excluded 56 beds the re approved but not opened. O.G. Ex. 7, p. 6. Exclusion of CPC Palm Bay and Laurel Oaks CPC Palm Bay and Laurel Oaks have been designated by certificate of need issued by HRS to serve only children and adolescents. T. 507. Since those facilities by law cannot serve adults, their beds are not "adult beds," their patient days are not adult patient days, and their occupancy rate is not an adult occupancy rate. T. 1128. If CPC Palm Bay and Laurel Oaks were excluded from the calculation of the occupancy rate in the SAAR, the occupancy rate would be 73.7 percent. This rate is a weighted average based upon a 86,779 patient days that were possible at 100 percent occupancy of all licensed short term psychiatric beds in District VII in 1986, excluding Palm Bay and Laurel Oaks. C.M. Ex. 17, p. 11, fn. 9. How Many Adult Patient Days and Beds? HRS often issues certificates of need without age restrictions, allowing the facility to provide short term psychiatric treatment to everyone, regardless of age. Such hospitals can and do serve all ages, and their licensed short term psychiatric beds are not designated as, or restricted to, adults. T. 1128-29. With the exception of Palm Bay and Laurel Oaks, none of the other licensed short term psychiatric hospitals in the District are restricted by HRS by patient age. HRS does not have data to enable it to determine which short term psychiatric beds were used by adult patients in the District in 1986. T. 1169. Use of beds for age cohorts can dramatically and continuously change during a calendar year, and 41 has no reliable means to know about such changes. T. 1229-30. Hospitals issued certificates of need without limitation as to the age of the patient are not required by HRS to report the number of patient days served by the hospital by age or age group of the patient. See T. 1218-19; HRS Ex. 2. HRS Ex. 2. Consequently, the reported short term psychiatric patient days for District VII for calendar year 1986 mix adult patient days with patient days for children and adolescents. Thus, with the exception of Laurel Oaks and Palm Bay, it is impossible in this case for the applicants and other parties in this batching cycle to untangle pure adult psychiatric patient days from the available data. T. 392, 353, 287, 291, 371, 1169-71. It is impossible on this record to make a finding of fact as to what would happen to the mixed occupancy rate all patient days attributable to adolescents and children could be excluded from the adult patient days. The only bit of evidence is found in C.M. Ex. 17, the data from Florida Hospital, which shows for that hospital that the 16 adolescent unit in 1986 had an occupancy rate of 60.92 percent, and the open adult unit had an occupancy rate of 82.42 percent. C.M. Ex. 17, p. 3. But that percentage is more a reflection of Florida Hospital's choice in how it set up the beds in the two programs than it is a reflection of need. For example, had Florida Hospital chosen to allocate only 12 beds to its adolescent program, instead of 16, the 1986 occupancy rate for that unit, based on 3,558 patients a day, would have been 81.23 percent. One wonders why Florida Hospital did not simply allocate a lower number of beds to the adolescent unit, since it had only 13 admissions to that unit in 1986. In any event, since a hospital like Florida Hospital has discretion as to how it sets up its beds with respect to the ages of patients. In those beds, the fact that it had an occupancy rate of 60.92 percent in the subunit it called the adolescent unit in 1986 is relatively meaningless when trying to predict which way a pure adult occupancy rate might change if adolescent and child patient days could be excluded. In summary, there is no accurate count of beds licensed only as adult beds, there is no accurate count of beds used only as adult beds, and there is no accurate count of adult patient days. The Problem of West Lake Hospital The record has an additional data problem with respect to calculation of the occupancy rate of adult short term psychiatric beds. West Lake Hospital is licensed for 40 short term beds (not restricted by age), and 30 long term psychiatric beds. Data for calendar year 1986, the only year relevant in this case, is a mixture of short term and long term patient days. C.M. Ex. 17. As will be discussed ahead, additional evidence as to the patient days at West Lake Hospital was excluded from evidence for failure to comply with the prehearing order. The Problem of Short Term Psychiatric Patient Days Occurring in General Hospitals Without Licensed Short Term Psychiatric Beds A general hospital with no licensed short term psychiatric care can lawfully provide temporary and sporadic short term psychiatric care in its medical-surgical beds. T. 1191. In calendar year 1986, Orlando General Hospital reported to the Hospital Cost Containment Board that it provided 4,969 psychiatric (MDC 19) patient days of care. O.G. Ex. 7, p. 11. By 1988, it had over 30 psychiatric patients in the hospital at any given time. T. 753. Orlando General Hospital does not have any beds licensed for short term psychiatric care, or for long term psychiatric care, for that matter. Orlando General Hospital's psychiatric patients are currently receiving inpatient psychiatric care that is substantially the same as would be provided in a licensed short term psychiatric bed, with the exception that the care is osteopathic in nature. See T. 797, 1355-58, 1360-62, 788-90, 792-93. HRS Policy as to the Data Problems HRS stated that it "... would not attempt to fix a specific occupancy for a specific age cohort" in this case, T. 1220. A good faith attempt was made, however. Following a new policy, HRS argued that the adult bed occupancy rate should exclude the beds and patient days of hospitals having certificates of need explicitly limited to service of the needs of children and adolescents (Palm Bay and Laurel Oaks), but should include all of the licensed short term psychiatric beds at any other facility that is not restricted by patient age. T. 1127-29. It was acknowledged that the information is faulty, but the Department urges that it is the best that it can do under the circumstances. T. 1174. With respect to patient days, HRS also urges that only the patient days reported to the local health council by hospitals having licensed adult short term psychiatric beds should be counted in the mixed rate. In particular, HRS argues that it should not use patient day data reported to the Hospital Cost Containment Board because such data is not limited to hospitals having "designated" psychiatric units. T. 1126-27. This argument is not reasonable. Hospitals that are legally authorized to provide short term psychiatric care to adults (i.e., having a certificate of need and a license) can provide such care in any licensed bed in the hospital, even though the bed is not licensed as a psychiatric bed. Moreover, a general hospital with no licensed short term psychiatric care, according to HRS witnesses, can lawfully provide temporary and sporadic short term psychiatric care in its medical-surgical beds. It may even provide such care on a continuous, ongoing basis, as in the case of Orlando General Hospital, although the legality of doing so is questioned by HRS. The critical question is not whether these licensed hospitals have legal authority to provide short term psychiatric care, but whether the care in fact given results in a short term psychiatric patient day in the District. If the care given is essentially the same as if the patient had been in a licensed short term psychiatric bed, it would be unreasonable not to treat the resulting statistic as a short term psychiatric patient day. What is at stake is a true measurement of District capacity. If tomorrow all of the District short term psychiatric patients and the patient days generated by such patients transferred to the District licensed short term psychiatric beds, these short term psychiatric patient days would certainly be counted in the occupancy rate. When trying to assess the real extent of availability of District capacity, a false picture of excess and unused capacity would be shown if real short term psychiatric patient days are occurring somewhere in the District, but are not counted in determining the occupancy rate. On the other hand, if the facility is not even a licensed hospital, it is presumptively providing an alternative kind of inpatient psychiatric care that is different from a licensed psychiatric hospital. Thus, its patient days are irrelevant absent some specific proof that the care given in such a bed is essentially the same as a short term psychiatric patient day in a licensed general or specialty hospital. What is an "Existing" Adult Short Term Bed? Rule 10-5.011(1)(o)4e, Fla. Admin. Code, calls for the occupancy rate for "all existing" adult short term psychiatric beds in the service district, and does not define the word "existing." Petitioners assert that "existing" adult beds of the facility for purposes of determining occupancy rate is the number of beds characterized by the facility as having been in fact used for psychiatric care during the year, but only if that number is less than the number of licensed short term psychiatric beds. T. 391, 354-55. The Respondent and the Intervenor argue that "existing" adult beds is fixed by the number of licensed short term psychiatric beds granted to the facility by the state if available to serve adult patients. Normally, to be licensed a bed must be available within 24 hours. T. 1121. Orlando Regional Medical Center In calendar year 1986, Orlando Regional Medical Center had 32 licensed short term psychiatric beds. T. 348. These 32 beds were not restricted by patient age. In calendar year 1986, Orlando Regional Medical Center characterized as "in service" 32 beds for the first 7 months of 1986, 22 beds for the month of August, 18 beds for the month of September, and 12 beds for the remaining 3 months of the year. The figure of 25 beds used by the Petitioners is the weighted average. T. 348. These licensed short term psychiatric beds at Orlando Regional Medical Center were temporarily not in service because of the construction of new facilities at the hospital. Orlando Regional Medical Facility intended to reopen those beds in the future because the hospital reminded the party seeking discovery that it had 32 licensed beds, and characterized the missing beds as having been "warehoused," that is, saved for future use. T. 509-10; O.G. Ex. 7, appendix 3. Thus, all 32 of Orlando Regional Medical Center's licensed beds would be available and would be used for adult short term psychiatric care if demand existed. Florida Hospital Florida Hospital has two facilities relevant to this case, one in Orlando, in Orange County, and one in Altamonte Springs, in Seminole County. In calendar year 1986, Florida Hospital had 105 beds licensed as short term psychiatric beds. Florida Hospital would serve patients of any age in these 105 beds. C.M. Ex. 18 is a document which was obtained from Florida Hospital through discovery. T. 286. The document is entitled "Florida Hospital Center for Psychiatry Monthly Operating Statistics," and thus was assumed by Charter's expert to be Florida Hospital's characterization of its data as psychiatric data. T. 289. C.M. Ex. 18 could not have been obtained by Charter at the time it made application. It was obtainable only through the discovery process after commencement of section 120.57(1), Fla. Stat., proceedings. T. 314-16, 386-87. Florida Hospital reported in discovery that in calendar year 1986, it had 113 beds operating in its "Center for Psychiatry." Of these, 16 were substance abuse beds, 13 were beds in an eating disorders unit, and 16 were adolescent beds. That left 24 beds in the intensive care unit, 24 beds in an open unit, and 20 beds at a unit at Altamonte Springs. C.M. Ex. 18. The 16 substance abuse beds clearly were not psychiatric beds. If the 13 eating disorders beds were short term psychiatric beds, Florida Hospital had 97 of its 105 licensed short term psychiatric beds in actual operation in 1986. If they were not, Florida Hospital had 84 of its 105 licensed short term psychiatric beds in actual operation in 1986. There is no evidence in this record that Florida Hospital could not and would not have readily opened 8 more short term psychiatric beds during 1986 if demand for those beds had existed, thus having "open" all 105 of its licensed beds. There is no evidence in this record that in 1986, Florida Hospital could not have closed its 16 bed adolescent unit and devoted all of those beds to adult short term psychiatric care, had there been a need. Indeed, it appears that generally speaking, that is how Florida Hospital operates: by shifting beds to other uses within its licensed authority according to demand. See T. 1322-26. Thus, all 105 of Florida Hospital's licensed beds would have been available and would have been used for adult short term psychiatric patients if the demand existed. Counting Patient Days - Are Eating Disorder Patient Days Psychiatric Patient Days? Florida Hospital reported in discovery that it had 2,982 patient days in its eating disorder unit, and that the unit operated with 13 beds. C.M. Ex. 18, P. 3, lines 8 and 26. The eating disorder unit reports to the administrative director of the Florida Hospital Center for Psychiatry. T. 977. The administrative director could not explain why the unit reported to the Center for Psychiatry. T. 977. The unit has co-directors, one a psychiatrist, and the other a specialist in internal medicine. Id. The administrative director of the Center for Psychiatry characterizes the 13 eating disorders beds as medical-surgical beds, and classifies patients in those beds as primarily having a medical problem, T. 976, but the psychiatrist co-director of the program hedged, and would not say whether the primary diagnosis is medical or psychiatric. T. 1315. The patients typically are, however, very ill from a medical point of view. T. 1314. Florida Hospital's characterization of the nature of the care given in its eating disorders unit, as summarized in the preceding paragraph, in view of the manner in which the witnesses were unclear as to how to characterize the eating disorder unit, is not evidence that the care given in that unit is not psychiatric care in view of Florida Hospital's interest in these cases in opposition to the applications. Charter's expert concluded from C.M. Ex. 18 that Florida Hospital was serving short term psychiatric patients in its eating disorders unit at Altamonte Springs. T. 287. He characterized this as a short term psychiatric service in medical-surgical beds. T. 289. But he also characterized the 13 beds as psychiatric beds. T. 287-88. HRS has issued a certificate of need to a short term psychiatric hospital limiting that certificate of need to treatment of eating disorders, thereby recognizing treatment of eating disorders in that case as a form of psychiatric treatment. T. 1191. From testimony at the hearing, it would appear that HRS's expert would view the eating disorder unit at Altamonte Springs as a short term psychiatric program. T. 1191-1192, 1194. It is concluded that the preponderance of the evidence shows that the care rendered to patients in the eating disorders unit was psychiatric care. The unit is administratively a part of the hospital's Center for Psychiatry. While the patients are very ill, medically speaking, they also have substantial mental health problems. Finally, and most persuasive, HRS has previously characterized such care as short term psychiatric care. If these 2,982 eating disorder patient days are counted as psychiatric patient days in 1986 for District VII, and if the number of beds at Florida Hospital remains as it was in the SAAR calculation (105 licensed beds), then the total patient days for the District changes from 63,976 to 66,958. The result is that the occupancy rate for District VII for 1986 for adult and mixed short term psychiatric beds changes from 73.72 percent to 77.16 percent. C.M. Ex. 17, p. 13. This calculation is the result of a weighted average discussed above. Psychiatric Patient Days Reported to the Hospital Cost Containment Board Orlando Regional Medical Center and Florida Hospital report patient days by Medicare major diagnostic categories (MDC). MDC 19 is the category for psychiatric care. T. 512; O.G. Ex. 7. The data collected in this record was for calendar year 1986. T. 603-604. Relying upon MDC 19 statistics for calendar year 1986, Florida Hospital (Orlando and Altamonte Springs combined) had 28,372 MDC 19 patient days, and Orlando Regional Medical Center had 7,328 MDC 19 patient days. The Florida Hospital MDC 19 patient days shown in table 6, O.G. Ex. 7, are very close to the number of patient days shown on C.M. Ex. 18, the operating statistics from the "Center for Psychiatry" obtained from Florida Hospital in discovery. The MDC 19 patient days, 28,372, exceed the "Center for Psychiatry" reported data by only 452. The Orlando Regional Medical Center's MDO 19 patient days, 7,328, is 618 patient days greater than the patient days reported by Orlando Regional Medical Center to the local health council. If these MDC 19 patient days are assumed to be short term adult psychiatric patient days, following the same mathematical calculation used by HRS both in the SAAR and in testimony during the hearing (with the same weighted averages), the occupancy rate for adult and mixed short term psychiatric care in District VII, using licensed beds, was 78.39 percent in calendar year 1986. O.G. Ex. 7, table 6. This calculation uses the same weighted average (86,779 patient days at 100 percent occupancy) as used by all the other parties. C.M. Ex. 17, p. 11, fn. 9. There is no evidence in the record that the foregoing MDC 19 patient days are limited to short term psychiatric days, or the extent to which the data considers long term patient days as well. Of course, there is also no evidence available to separate the MDC 19 patient days into adult patient days and patient days attributable to children and adolescents. Westlake Hospital Data as to Short Term Psychiatric Patient Days in 1986 The Intervenor, Florida Hospital, has renewed its effort to have F.H. Ex. 3, and testimony based upon that exhibit admitted, into evidence. The exhibit and testimony involves data as to short term psychiatric patient days for 1986 at Westlake Hospital, located in Seminole County. Florida Hospital argues that the ruling excluding F.H. Ex. 3 from evidence, as well as testimony related to that exhibit, is inconsistent with the ruling that allowed Charter Medical to introduce C.M. Ex. 19. It is argued that the only difference is that in the case of Charter Medical, the witness first testified as to the contents of the exhibit, whereas in Florida Hospital's case, the exhibit was admitted, the witness testified, and then the exhibit was excluded. Florida Hospital argues that as a result of this sequence of events, its witness was not afforded an opportunity to present the same evidence from memory without the exhibit. From a review of the sequence of events, it is apparent that there is a substantial difference between the two exhibits, as well as a substantial difference in the procedures used by counsel, and that difference necessitates the two rulings. C.M. Ex. 19 is nearly identical to C.M. Ex. 17, with three exceptions. In C.M. Ex. 19 the patient days at the Florida Hospital eating disorder unit were moved from the Orlando facility to the Altamonte Springs facility. C.M. Ex. 19 also excluded adolescent patient days from the Florida Hospital count changed the number of "existing" beds at Orlando Regional Medical Center to 25 instead of 32. T. 295. C.M. Ex. 19 made no other changes to C.M. Ex. 17 with respect to patient days or number of beds. Two objections were made by Florida Hospital to the admission of C.M. Ex. 19, that C.M. Ex. 19 had not been provided to opposing counsel at the exchange of exhibits, in violation of the prehearing order, and that C.M. Ex. 19 was an impermissible amendment to Charter Medical's application for certificate of need. T. 295-296. Only the first objection is the subject of Florida Hospital's renewed argument. The Hearing Officer at the time overruled the first objection because it was determined that C.M. Ex. 19 merely summarized the testimony of Dr. Luke as to changes he would make to C.M. Ex. 17. That ruling was correct, and should not be changed at this time. All of the underlying data for the expert analysis in C.M. Ex. 19 came into evidence without objection that it had not been exchanged among the parties. C.M. Ex. 18 contained the data as to adolescent patient days and eating disorder patient days at Florida Hospital in 196. That data came into evidence without objection that it had not been exchanged. T. 316. Dr. Luke's testimony that Orlando Regional Medical Center had only 25 beds operational in 1986 came into evidence without objection. T. 292. Dr. Luke's testimony concerning the location of the eating disorders unit at Altamonte Springs came into evidence without objection. T. 287, 291. Both of these latter evidentiary matters were of a type that easily could have been known to Dr. Luke without reference to a document to refresh his memory. Additionally, the parties were well aware of the argument that Orlando Regional Medical Center had only 25 operational beds in 1986, and that Florida Hospital had only 48 adult beds in operation in 1986, since that evidence and argument was a fundamental part of Orlando General Hospital's basic bed need exhibit, O.G. Ex. 7, and the testimony of Ms. Horowitz. Moreover, the type of analysis of the data contained in C.M. Ex. 19 is the same as that of Ms. Horowitz in O.G. Ex. 7. Thus, Florida Hospital was not caught by surprise by C.M. Ex. 19. The exhibit did not contain new data or new modes of analysis. Florida Hospital's attempt to introduce data as to the actual number of short term psychiatric patient days at Westlake Hospital in 1986 was quite different. The data as to patient days at Westlake had not been produced during the deposition of Florida Hospital's witness, although similar data for 1987 and 1988 was produced. T. 867. Had it been made available in discovery, the failure to exchange the data as an exhibit as required by the prehearing order would have been less serious. But the exhibit had not been given by Florida Hospital to opposing parties, in violation of the prehearing order. T. 869. F.H. Ex. 3 did not reorganize data that otherwise was exchanged between the parties. It attempted to introduce new raw statistical data that had not been furnished opposing counsel as required by the prehearing order. The Hearing Officer initially ruled that F.H. Ex. 3 should be admitted into evidence and allowed the witness to testify concerning the data contained in the document. T. 870-871. That initial ruling was in error. The data contained in F.H. Ex. 3 is not at all simple. The document consists of four pages of numbers representing monthly statistics in 1986 at Westlake Hospital for each of its units. It is highly unlikely that a witness could have remembered all of that data presented the data in testimony without reliance upon the exhibit. Indeed, the witness testified that all of his testimony was based upon F.H. Ex. 3. T. 907. The witness had apparently given a different impression as to Westlake's occupancy rate in 1986 during his deposition, and did so without the benefit of F.H. Ex. 3. T. 910. Florida Hospital could have asked the witness if he could have presented his testimony without reference to F.H. Ex. 3, but it did not ask the witness that critical question. In sum, the witness could not have presented his analysis from memory. He had to have F.H. Ex. 3 in front of him as he testified. On December 2, 1987, an order was entered setting this case for formal administrative hearing beginning on July 11, 1988. That order established prehearing procedures. Paragraph 3 of that order requires counsel to meet no later than 10 days before the hearing to, among other things, "examine and number all exhibits and documents proposed to be introduced into evidence at the hearing." Later in the same paragraph is the requirement that the parties file a prehearing stipulation containing a list of all exhibits to be offered at the hearing. Paragraph 3D of the prehearing order states in part that failure to comply with the requirements of the order "may result in the exclusion of testimony or exhibits." The first time that opposing counsel were given the opportunity to see the data in F.H. Ex. 3 was in the middle of the formal administrative hearing. The exhibit contained detailed raw statistical data. C.M. Ex. 19 did not try to present new raw statistical data. For these reasons, F.H. Ex. 3 and all testimony related to that exhibit by Mr. Menard was excluded from evidence. Later in the hearing, Florida Hospital sought to introduce the same data through the testimony of Wendy Thomas, the planning director and data manager for the local health council. T. 1050. Counsel for Florida Hospital first attempted to show the witness the document that had been excluded from evidence, and counsel for the other parties objected. T. 1047-1049. The Hearing Officer suggested to counsel that counsel should first ask the witness whether she had made a computation and then ask what was the basis of the computation, rather than show the witness the document. T. 1049. Counsel then attempted to do that. But when counsel asked the witness for her computation, it was still unclear whether the witness based her calculation upon data in the excluded document. T. 1053. After a number of other questions, it still was unclear whether the data in the excluded document was the basis for the calculation. T. 1053-1055. The Hearing Officer then asked the witness if she could identify F.H. Ex. 3. The witness said that F.H. Ex. 3 contained the exact type of information that she had in her own files, and that her document looked like F.H. Ex. 3, except it was photocopied smaller. T. 1056. During all of this exchange, the witness was never asked by counsel for Florida Hospital if she ever had an independent memory of the details of the underlying data, or whether, if that memory now had faded, looking at F.H. Ex. 3 would refresh her memory. Since it was apparent that the basis for the witness's calculation was the same raw statistical data as contained in F.H. Ex. 3, the Hearing Officer granted the motion to exclude the testimony. Later, in cross examination of the proffered testimony, the witness testified that the basis for her calculation was the use of a document containing the same data as F.H. Ex. 3. T. 1087-1088, 1091. Thus, counsel for Florida Hospital did not lay a proper predicate for attempting to use F.H. Ex. 3 to refresh the memory of either witness. As discussed above, had it done so, it is unlikely that either witness could have testified from memory as to the statistics because the data contained in F.H. Ex. 3 was too detailed to have ever been in the memory of either witness. Florida Hospital argued that Ms. Thomas's calculation should be admitted because the raw data had been in her possession for over a year. That argument is unpersuasive. The raw data was in the possession of Westlake Hospital as well. The issue is not whether opposing parties might have discovered the data on their own, but compliance with the prehearing order requiring exchange of important exhibits. For these reasons, the Hearing Officer's rulings as to exclusion of the foregoing evidence will remain unchanged. The Local Health Plan Applicability No part of the District VII local health plan was adopted by HRS as a rule when these applications were and reviewed. T. 1214. Several years ago, with respect to applications for certificates of need for short term psychiatric beds, HRS considered need and occupancy rates only on a district-wide basis. T. 1184. See e.g. C.M. Ex. 20, where HRS did not refer to the local health plan as to these issues in District VII. HRS has now changed that policy, however, and considers need and occupancy at the district level and by portions of the District if those issues are effectively required by the local health plan. T. 1184. For purposes of planning for short term psychiatric services, the local health plan divides District VII into county "planning areas." Orange County is thus a local health plan planning area. The local health plan does not use planning areas for substance abuse planning, and it does not explain why there is a difference in planning. Orlando General and Charter both propose to locate their proposed short term adult psychiatric beds in Orange County if granted certificates of need. Counties are convenient units for health planning purposes because population data exists by county. T. 1180. Census tracts and zip code areas are also convenient geographical units for health planning. T. 1180-81. If a proposed facility is to be located very close to the county line, it would make no difference which side of the line it was on with respect to the ability of the facility to serve patients originating in either county. T. 1181. Allocation of Net Need to Orange County The local health plan, policy 3, provides that if the application of rule 10-5.011(1)(o) indicates a need (at the District level), the need is to be allocated among the counties in the district using the state numeric need method by county. T. 1027-29; C.M. Ex. 5. Applying all of the age calculations for the projected populations and bed inventory of Orange County only, the local health plan allocates 55 new short term psychiatric beds to Orange County by 1992. However, applying the allocation ratios of the rule, there is an excess of 18 short term psychiatric beds in general hospitals, and thus none of the 55 beds would be mainly allocable to a general hospital. There is, nonetheless, a potential allocation of need of 73 beds in either a specialty or a general hospital, and the net need of 55 beds could be allocated to either a specialty hospital or a general hospital. The Orange County Mixed Occupancy Rate The local health plan, policy 4, applies the 75 percent occupancy standard to the county level. The policy explicitly calls for an average annual occupancy rate for all existing facilities in the planning area with respect to adult short term psychiatric beds. C.M. Ex. 5. Relying upon the calculation in the SAAR, but deleting Laurel Oaks, the mixed occupancy rate for Grange County in 1986 was less than 58.4 percent. This calculation only includes the beds at Florida Hospital (Orlando) and Orlando Regional Medical Center. The calculation is based upon 18,696 patient days at Florida Hospital (Orlando) in 85 beds, and 6,242 patient days in Orlando Regional Medical Center in 32 beds. There were 4,969 MDC 19 patient days occurring at Orlando General Hospital in 1986. There were 7,328 MDC 19 patient days occurring at Orlando Regional Medical Center in 1986. The eating disorder patient days occurred in Seminole County (Altamonte springs) and should not be counted in an Orlando occupancy rate. The only data as to patient days at Florida Hospital, Orlando only, is that found in C.M. Ex. 18, which is the same as the SAAR, which reports 18,696 patient days. (The MDC 19 data mixes the two units.) The number of licensed short term psychiatric beds in Orange County in 1986 was 117. All of these beds were licensed the entire year, and thus there was no need to do a weighted average of potential patient days for these beds. See C.M. Ex. 17, p. 11; O.G. Ex. 7, table 6. Using all of the foregoing patient days, the number of patient days was 30,993, the number of licensed short term psychiatric beds was 117, and the mixed occupancy rate for Orange County for 1986 was 72.6 percent. If it is not appropriate to count the 4,969 patient days at Orlando General Hospital in the Orange County occupancy rate, the 1986 Orange County occupancy rate was only 60.09 percent. Conversion of Existing Beds and Service to Indigent Patients Policy 5 of the local health plan states that excess bed capacity in, among other types of beds, medical/surgical beds, should be eliminated by reallocation of beds among the services, including psychiatric services. Policy 6 of the local health plan states that primary consideration should be given for project approval to applicants who satisfy to the greatest extent the following priorities: The first priority is to applicants who commit to serving "underserved client groups," including Medicaid, Baker Act, and medically indigent patients. The second priority is to applicants who convert underutilized existing beds. As will be discussed in the conclusions of law, Orlando General's application satisfies these priorities, and Charter Medical's application does not. Other Evidence as to Future Need Historically, health care providers have been reimbursed on a fee- for-service basis. The more services provided, the greater the payment. These insurance arrangements had little incentive to decrease the level of services. T. 720. In the last three or four years, the health insurance industry has changed its methods of providing insurance. A very large percentage of insured patient care is now managed by use of flat rates based upon a per person count (capitation). The rates do not increase related to utilization. Managed health care reimbursement uses a system whereby the health care provider is paid a flat rate annually for each insured person, and agrees to provide for the health care needs of all such persons generally without considering the degree of utilization during the year. T. 722-723. Under the capitation system, the provider has the incentive to provide only such care that, in intensity or duration, is the minimum that is clinically acceptable. T. 724. Psychiatric services have been included in the movement of the industry toward managed health care reimbursement rather than fee-for-service reimbursement. T. 722. The health care industry now offers competitive managed health care plans in central Florida, and the trend is for an increase in the availability of such methods of reimbursement in central Florida. T. 726-727. It is now 40 percent of the insurance market, and in the early 1990's, the percentage of managed health care may be twice that percentage. T. 727. The effect of the new reimbursement system is to substantially lower the length of stay, and to lower the rate of admission as well, at short term psychiatric hospitals. T. 724-725, 881-882, 1319-1320. Orlando General Hospital projected that its average length of stay would be 30 days in 1992. It has discovered from current experience that its average length of stay is about 15 days. T. 433, 464. District VII has recently experienced an increase in the availability of community based mental health facilities. These facilities provide a variety of mental health services, including brief inpatient care. The facilities do not require a certificate of need. T. 1046-1047, 1319. The Nature of the Proposed Programs Orlando General Hospital General Orlando General is a 197 bed acute care general osteopathic hospital located in Orlando, Florida, in Orange County. Orlando General proposes to convert a 35 bed medical-surgical unit to 24 short term psychiatric beds at a capital cost of $689,272. It would relocate 11 of its medical-surgical beds, and convert the remainder to short term psychiatric beds. Orlando General Hospital is located in the southeast portion of Orange County. T. 1107. It is the most eastward facility in Orange County with the exception of a long term psychiatric hospital now under construction. T. 1107. The primary service area of Orlando General by location of physicians offices is the southern half of Seminole County and the northern portion of Orange County. In particular, the hospital serves northeastern Orange County through the location of its physicians' offices. T. 412; O.G. Ex. 2, p. 27. The program of treatment described in Orlando General's application is no longer an accurate description of Orlando General's current program or of the intended program. T. 453. The treatment programs planned for the new short term psychiatric unit are comparable to the programs planned by Charter Medical-Orange County, Inc., and are adequate and appropriate programs for short term psychiatric care. Psychiatric Care for the Elderly Orlando General Hospital would provide adequate and appropriate specialized short term psychiatric care for elderly patients, but would not provide such care in a unit physically separated from other patients. There currently is a split of professional opinion as to whether or not geriatric patients should be treated in a psychiatric unit separated (physically as well as programmatically) from other patients. There are benefits from both approaches. T. 1315-1317, 68, 74-76, 43-45, 770. Various Charter Medical hospitals do it both ways. T. 70. Osteopathic Medicine at Orlando General Hospital Osteopathic medicine differs from allopathic medicine in its emphasis upon viewing the interaction of all parts of the body, rather than a single part, and the use of muscular and skeletal manipulation. T. 1349, 753-754. Orlando General Hospital is an osteopathic hospital and has been osteopathic in nature since the 1960's. It was founded by osteopathic physicians, and the hospital abides by osteopathic philosophies. The Board of Trustees at the hospital are all osteopathic physicians. Although it has medical doctors on staff, the majority are osteopathic physicians Orlando General Hospital is accredited by the American Osteopathic Association to train osteopathic physicians, and has such training programs, primarily in family medicine. T. 412-414, 755. There are about 80 osteopathic physicians in Orange County, and the vast majority are on the staff at Orlando General Hospital. T. 760. Patients who prefer osteopathy, and osteopathic physicians, prefer an osteopathic hospital. Osteopathic physicians believe that they deliver better care to their patients in an osteopathic facility rather than an allopathic facility. About 30 percent of the psychiatric patients treated by Dr. Greene at Orlando General Hospital receive manipulation as a therapy. T. 1351. There is a shortage of osteopathic psychiatrists. T. 756. Other than Randall Greene, D.O., there are no osteopathic psychiatrists in the Orange County area. Id. There is a shortage of places for psychiatric resident training. There is no osteopathic psychiatric residency in Florida, and only a few in the country. T. 764, 1349. Consequently, osteopaths seeking to become psychiatrists often have to go to allopathic hospitals for residencies. T. 1349 Residency in an allopathic hospital is often not approved by the American College of osteopathic psychiatrists. Thus the osteopath who has had his or her residency in an allopathic hospital and lacks such approval will not be readily accepted as an osteopathic psychiatrist on the staff of an osteopathic hospital. T. 1350. Orlando General Intends to have a residency program in osteopathic psychiatric for at least two positions if it is granted a certificate of need. T. 762, 415. The Evolution of Osteo-Psychiatric Care at Orlando General Hospital Dr. Randall Greene came to Orlando in 1982. He is an osteopathic physician and psychiatrist. He initially was on the staff at four hospitals but soon discovered that other osteopathic physicians were referring patients needing psychiatric care to Orlando General Hospital because it was an osteopathic hospital. These physicians frequently asked Dr. Greene to provide psychiatric care at Orlando General. T. 754. Osteopathic physicians who referred their patients to Dr. Greene and to Orlando General Hospital continued to treat the physical ailments of those patients at Orlando General Hospital. T. 760. Dr. Greene now limits his psychiatric practice to Orlando General Hospital because of the large number of psychiatric patients being treated at the hospital. T. 756. Thirty to forty percent of the psychiatric patients come to Orlando General via the emergency room. T. 421, 445. Additionally, patients admitted to the new substance abuse program often need psychiatric care. T. 407. Orlando General has difficulty transferring its psychiatric patients to other hospitals. A number of the patients have no insurance or have only Medicaid coverage. T. 420. Orlando General Hospital is located in a lower economic area, and thus attracts patients of this type. Id. Patients who prefer osteopathic treatment also prefer not to be transferred to an allopathic hospital. T. 759. The increase in numbers of psychiatric patients served at Orlando General Hospital in medical-surgical beds helped to offset the hospital's loss of medical-surgical patient days during the same period. T. 452 Due to the large number of psychiatric patients, and the decline in need for medical-surgical beds, Orlando General hospital decided to apply for the instant certificate of need. Due to the osteopathic nature of the hospital, physicians, patients and the hospital prefer to keep these patients at Orlando General Hospital rather than refer them to an allopathic hospital. It is HRS's position that if a hospital does not advertise itself as having a distinct psychiatric unit and does not organize within itself a distinct psychiatric unit, the admission and treatment of psychiatric patients to medical-surgical beds on an "random" and unplanned basis is proper even the hospital does not have licensed psychiatric beds. T. 1191. Orlando General hospital does not hold itself out to the public through advertising as having a separate psychiatric unit. T. 468. Patient Mix & Commitment to Charity Care Orlando General Hospital currently provides a large portion of charity care for Orange County. T. 1100. In its 26 bed chemical dependency unit, Orlando General reserves 2 beds for indigents. T. 785. The unit also sets aside, as needed, one bed for any Florida nurse whose license is in jeopardy due to chemical dependence and who has no financial means to pay for treatment. Id. Orlando General Hospital typically has a larger amount of bad debt and charity care (for people who do not pay) than other hospitals in the area. T. 423. In 1987, Orlando General Hospital reported to the Hospital Cost Containment Board that it had $141,404 in charity care, and that it had $3,244,530 in bad debt. T. 657, 660. Bad debt constituted 9.7 percent of gross revenue. T. 660. Since it is very difficult to determine at admission whether the patient realistically can pay for services, a lot of this bad debt is, in a functional sense, charity care. T. 659-660. It is concluded from the foregoing that Orlando General Hospital has a genuine commitment to providing health care to persons who cannot pay. T. 422, 662. Orlando General Hospital projects that it will in its proposed 24 bed short term psychiatric unit 5 percent indigent patients, 8 percent Medicaid patients, 20 percent Medicare patients, 50 percent insured patients, and 17 percent private pay patients. These projections are reasonable and are consistent with Orlando General Hospital's current experience. T. 662-664; O.G. Ex. 2, p. 16. Charter Medical-Orange County, Inc. General Charter Medical proposes to construct a 50 bed free standing short term psychiatric hospital in Orange County, Florida. The capital cost of the proposed project would $5,85,000. C.M. Ex. 1. Charter Medical would offer adult and geriatric short term psychiatric services in the proposed short term beds. As a free standing specialty hospital devoted entirely to short term psychiatric care, Charter Medical's proposal should be able to provide more space and additional therapies than would typically be found at a general hospital with a short term psychiatric unit. T. 47-50, 890-91. Charter Medical would provide adequate geriatric short term psychiatric care in a separate unit with separate programs consisting of the latest techniques for caring for the mentally ill elderly patient. Charter Medical's proposed facility would not be able to treat short term psychiatric patients who also have serious medical problems, which undoubtedly will include elderly patients. Charter Medical would have adequate transfer arrangements with a general hospital to serve the medical needs of its patients, and would have adequate staffing and equipment within the free standing specialty hospital to meet the routine and emergency medical needs of its patients. Staffing Orlando General and Charter Medical would be able to recruit, train, and retain adequate staff to operate its proposed short term psychiatric unit. T. 635-648, 849-852, T. 137-143. Lone Term Financial Feasibility Orlando General Hospital Charges When these applications were filed, HRS did not have standards for the contents of a pro forma of income and expenses. Orlando General Hospital initially projected a charge rate of $350 in 1987 and $375 in 1988. This charge rate was based upon the charge rate for Orlando General's substance abuse unit at that time, compared with a survey of five other hospitals having short term psychiatric beds. T. 425; O.G. Ex. 2, p. 24, 49. As of the summer of 1988, the Medicaid program reimbursed Orlando General Hospital for its MDC 19 (psychiatric) patients at the rate of $418 per day. T. 585. Charter Medical proposes to charge $475 per day during 1988. Florida Hospital currently charges between $425 and $445 per short term psychiatric patient day, and these charges do not include ancillary charges. T. 992. Westlake Hospital currently charges about $550 per short term psychiatric patient day. T. 888. Winter Park Pavilion is a freestanding psychiatric hospital with 39 adult psychiatric beds. The record does not indicate whether it is licensed for short or long term care. The facility charges about $500 per patient day, which does not include ancillary costs. T. 913, 918. Crossroads University Behavioral Center is a freestanding 100 bed long term psychiatric hospital that is under construction. T. 808. Crossroads has considered charges in the range of $500 to $600 per day, but has not definitely settled on the rate. T. 832-833. The charges proposed by Orlando General Hospital in its application are very reasonable, if not very conservative. Projected Utilization Orlando General Hospital's MDC 19 patient days (psychiatric patient days) have increased steadily from 1986. In 1986, the hospital had 4,969 MDC 19 patient days; in 1987, it had 7,779 MDC 19 patient days; and extrapolating (multiplying by 4) from the data for the first three months of 196, Orlando General could reasonably expect 11,804 MDC 19 patient days in 1988. O.G. Ex. 2, p. 11; T. 516. Since a 24 bed unit at 100 percent occupancy would only generate 8,760 patient days, it is unreasonable to use 11,804 as the estimate of patient days in 1988. However, it is concluded that Orlando General Hospital would have no difficulty at all in very quickly filling its proposed 24 bed unit to capacity. Expenses Orlando General Hospital's application estimated that direct expenses of the proposed 24 bed short term psychiatric unit would be $801,505 in 1987, $839,080. In 1988, and $887,030 in 1989. O.G. Ex. 2. These are reasonable projections of direct expenses. The pro forma filed by Orlando General Hospital in its application did not include an estimate of allocated expenses. The allocated expenses would typically have been 60 percent of total expenses, and the direct expenses only 40 percent of total expenses. T. 698. The projected direct expenses for 1988 in Orlando General Hospital's application were $839,080. Since that is only 40 percent of the total expense, the total projected expense (including 60 percent for indirect allocated expense) would be $2,097,700. Long Term Financial Feasibility If Orlando General Hospital charged $375 per patient day in 1988, and had 8,760 patient days, as is reasonable to expect, given its actual experience, Orlando General would have $3,285,000 in gross revenue for 1988. Assuming that net revenue, after additions and after accounting for contractuals and bad debt, will be the same percentage of gross revenue as shown in Orlando General's application, which was 76.74 percent, this would generate a net revenue of $2,520,909. This net revenue would entirely cover not only the direct expenses but also the allocated expenses, and would leave profit of $423,209. All of the remaining issues raised by the parties as to the accuracy of Orlando General's estimates of nursing expense or bad debt are irrelevant given the large amount of leeway Orlando General would have, if necessary, to raise its charges from $375 to something closer to the charges of other area hospitals. In summary, Orlando General Hospital's proposal is financially feasible in the long term. Charter Medical-Orange County, Inc. Charter Medical's proposed charges include charges for physicians who admit patients, perform histories and physicals, and make daily medical rounds. The proposed charges are reasonable. If there were need, Charter Medical's proposal would be financially feasible in the long term. The need for Charter Medical's proposed facility has not been proven by a preponderance of the evidence, however. See the Conclusions of Law herein. While the numerical need rule as applied to Orange County shows a need for 55 beds, in actual practice that need is a need for osteopathic psychiatric care. The thirty or so patients currently treated on a daily basis at Orlando General Hospital ended up at that hospital, rather than Orlando Regional Medical Center or Florida Hospital, primarily because the patients preferred osteopathic care and were admitted to Orlando General Hospital by osteopathic physicians. Absent action by HRS to stop Orlando General Hospital from treating these patients, the patients would not be available to Charter Medical in its proposed facility. This would leave Charter Medical in a situation of opening a new 50 bed facility when the county occupancy rate in 1986 was 60 percent in the only two licensed facilities in the area. It would also leave Charter Medical in a situation of opening a new facility in the face of the trend to managed health care and the certainty that the average length of stay for short term psychiatric care by 1992 will decrease from current levels. For these reasons, Charter Medical has not proven financially feasibility in the long term by a preponderance of the evidence. Quality of Care Orlando General Hospital Orlando General Hospital would provide care of good quality comparable to care that would be provided by Charter Medical. Charter Medical-Orange County, Inc. Charter Medical Corporation is a large corporation that has experience in the operation of a large number of psychiatric hospitals. That expertise would be available to insure that the care provided in Orange County would be of good quality. Charter Medical-Orange County, Inc., would provide care of good quality comparable to care that would be provided by Orlando General. Comparative Review as to Important Differences The Orlando General Hospital Application Orlando General Hospital intends to convert 24 underutilized medical and surgical beds to 24 short term psychiatric beds. T. 517. Since the project calls for conversion of existing facilities, the capital cost is $700,000, and does not include the construction of new buildings. T. 517. Since the capital cost is relatively low, the project will not drain away a large amount of reimbursement from reimbursement funding sources, thus making those funds available to other health care facilities. T. 1223. As a licensed general hospital, Orlando General Hospital's patients including the patients that would be served by the proposed short term psychiatric unit, would be eligible for Medicaid reimbursement T. 1224. Orlando General Hospital has a good record in Orange County of serving indigent patients, and currently is providing care to a large portion of the indigents cared for by Orange County. T. 1099-1100. As discussed in the section concerning osteopathic care, Orlando General Hospital's proposal for a short term psychiatric unit would have a number of benefits to the practice of osteopathic medicine in the region, and the availability of osteopathic care to patients desiring that form of care. Patients in the short term psychiatric unit at Orlando General Hospital could be transferred to a medical bed when a medical need arises without having to be transported by an ambulance. The Charter Medical Application Charter Medical-Orange County, Inc., is a wholly owned subsidiary of Charter Medical Corporation. Charter Medical Corporation has been in existence for 20 years and has 81 hospitals. Of these, 68 are psychiatric or substance abuse facilities. Charter Medical thus has extensive resources and experience to provide very good psychiatric care at the proposed facility. As a free standing hospital dedicated solely to short term psychiatric care, it is reasonable to expect that Charter Medical's facility will tend to provide more space, more varied programs, and more intensive patient care than a general hospital. This would occur because in a general hospital, the psychiatric unit must compete with medical units for allocation of resources, and in some hospitals, the psychiatric unit is given a lower priority due to the tendency of such hospitals to emphasize the medical aspect of their services. T. 47-49. Charter Medical's facility would not treat Medicaid patients, and it proposes to serve a very small percentage of indigent patients. Charter proposes in future years after the second year to provide 1.5 percent of gross revenue as charity care, and 5 percent as bad debt. T. 377-79, 197. Charter Medical's facility would serve primarily private pay and insured patients, thus draining away these paying patients from other hospitals, to the detriment of other hospitals. T. 971. The Substantial Interest of Florida Hospital If a certificate of need were granted to Charter Medical, Florida Hospital would suffer an adverse impact by loss of patients and additional competition for staff. T. 971-972, 1318-1321, 1327.
Recommendation For these reasons, it is recommended in case number 87-4748 that a final order be entered denying the application of Charter Medical-Orange County, Inc., to construct and operate a new 50 bed short term psychiatric hospital, and in case number 87-4753 that a final order be entered granting the application of Orlando General Hospital to convert 24 medical-surgical beds to short term psychiatric beds. DONE and ENTERED this 28th day of November, 1988, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1988. APPENDIX 1 TO RECOMMENDED ORDER, CASE NOS. 87-4748 and 87-4753 The following are rulings upon proposed findings of fact which have either been rejected or which have been adopted by reference. The numbers used are the numbers used by the parties. Statements of fact in this appendix or proposed findings of fact adopted by reference in this appendix are additional findings of fact. Findings of fact proposed by Charter Medical: 3-5. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The need is for beds in either a specialty or a general hospital. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The operational use of the beds is not relevant to the occupancy rate. Had the beds been restricted as a matter of licensure to children, like Palm Bay or Laurel Oaks, the beds would not have been potentially available for adults. Only in that case would exclusion of these beds have been proper. The operational use of the beds is not relevant to the occupancy rate. The testimony regarding the use of the word "existing" in the health planning field has been rejected as not persuasive. The context of such use was not explained, and thus a finding cannot be made that the use of the word is properly applicable to the way HRS intends the word to be used in its occupancy rule. The equation of "existing" with "operational" confuses capacity and need as discussed elsewhere in this recommended order. The HRS interpretation is the most reasonable construction of the word, and leads to a meaning far more consistent with the purposes of the certificate of need regulatory law than does the equation of "existing" with merely being operational. The certificate of need law is aimed at determining need five years into the future. How a hospital may temporarily operate its licensed beds during that period to respond to fluctuations in demand and operational idiosyncrasies at the particular hospital is irrelevant to the question of whether HRS should grant certificates of need and additional licensed capacity within the District. Dr. Luke's calculation was conservative and correct, but a better calculation is the one by Orlando General's expert (78 percent) that uses MDC 19 patient days. The only relevant count is 105 licensed beds at the two facilities. The last sentence is rejected for lack of credible evidence from which to draw that inference, as explained elsewhere in this recommended order. 20-21. The only relevant count is licensed beds. 22. Orlando General's average daily census was 13.6 based upon 4,969 MDC 19 patient days in 1986. 23-24. The only relevant count is licensed beds. 28. These are matters of law, and thus not appropriate as proposed findings of fact. 30. It is true that the health care needs of the metropolitan Orlando impact counties adjacent to Orange County due to the sprawl of that urban area across several county lines. But there is sufficient expert evidence in this record to conclude that generally speaking, the local health council has not acted arbitrarily and capriciously in its choices of counties as health planning areas for purposes of allocation of bed need and for purposes of applying occupancy rates. Nonetheless, the that the urban extent of the metropolitan Orlando area is important has been accepted in this recommended order with respect to the conclusion that the factor that the Orange County occupancy rate is only slightly below 75 percent is entitled to less weight in this case. 32, 33, 35, 37-63. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 64 (first sentence). It is realistically expected that Charter Medical will devote 1.5 percent of its gross patient revenue to barity care. T. 377- 379. 65-70. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 71-72. Financial feasibility has not been shown due to lack of need. Lack of need will result in insufficient occupancy and revenue. 73-74. The extrapolation from the actual trend of increase in patient days in District VII for the years 1983-1987 to create a projection of patient days in 1988 through 1992 would have been a valid and important way to show need, and would have been accepted had the projection accounted for the trend in the industry toward shorter lengths of stay due to changes in methods of payments for mental health care. The extrapolation simply assumes that the past will continue. In this case, there is substantial reason to believe that the past will not continue, that the base data, 1983-1987, is not valid for predicting patient days in 1992 because the patient days in 1992 will largely be paid for under a new system, a system that discourages inpatient stays beyond that which is absolutely necessary from a clinical point of view. Charter Medical projects that it will rely upon insurance for payment 67 percent of the time, so the changes in insurance payments will substantially affect patient days in 1992 at its proposed facility. 75-85. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 89. While osteopathic psychiatric care is essentially the same as allopathic psychiatric care, there are two critical differences. Osteopathic medicine in general emphasizes consideration of the functioning of the body as a whole; allopathic medicine does not. Secondly, osteopathic medicine utilizes muscular and skeletal manipulation in treatment, including psychiatric treatment, and allopathic medicine does not. These two differences are sufficiently marked for patients to have a preference for one or the other approach. 91-92. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 93-94. These proposed findings are true and are adopted by reference, but the findings do not prove that the quality of care at Orlando General Hospital would not be adequate in 1992. It was apparent that Dr. Greene's heavy caseload was not an optimum circumstance. However, at the time of the , Orlando General had four staff psychiatrists. T. 1355. Dr. Greene testified that the care was "basically" the same, but his testimony clearly reflected his opinion that the "deeper" differences were significant. T. 756, 1350-1354. The record cited does not support a finding that the majority of the patients transferred were indigent. That question was not asked. This proposed finding places the cart before the horse. Osteopathic physicians gravitate to Orlando General Hospital to practice osteopathy. In the practice of osteopathy, they achieve many job satisfactions, including care of patients and making money. 98-99. These proposed findings of fact are irrelevant because based upon the past, not upon a future having more staff psychiatrists. Moreover, it is clinically acceptable for other professionals to provide therapy and counseling. These proposed findings of fact are irrelevant. The program description in the application was superseded by evidence during the formal administrative hearing. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Orlando General Hospital is an existing hospital that already has these functions. It may need some augmentation of staff in these areas, but if it does, it would be an unreasonable conclusion to make that it would fail to add such 103-106. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The only exception is the last sentence in proposed finding 106. The number 18 is not supported by the record cited. This method has not been shown to be unreasonable. It is true that it was the method used. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. There was an accounting for bad debt. O.G. Ex. 2, p. 48. The point is essentially irrelevant. A 10 percent increase based upon 1987 salaries would be only about 20,000. Moreover, Charter Medical stipulated in the prehearing stipulation that the salaries of all personnel are reasonable. The proposed finding of fact is true but irrelevant. A pro forma does not have to comport with generally accepted accounting principles. Even with the addition of these charges, the resultant charge is comparable to charges of other area hospitals, including. Charter Medical's proposed charge of $475, which with inflation would increase rapidly to $500. 113-122, 124. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 125-127. Proof that an existing health care program is in sound financial condition is essentially irrelevant to the question of whether that program has a substantial interest sufficient to permit intervention into a section 120.57(1), Fla. Stat., formal proceeding. Proof of competition for the same patients in the same service area is sufficient to show that the existing program will be "substantially affected" to entitle it to intervene. Section 381.709(5)(b), Fla. Stat. (1987). Florida Hospital has proven its substantial interest by showing that the addition of new short term psychiatric beds, particularily a new facility like proposed by Charter Medical, will increase competition in Orange County for patients and staff. T. 881, 883, 649, 855-856. 128-129. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference 130. Mr. Holton's testimony was not only based upon consideration of the data mentioned in this proposed finding of fact, but also his experience in general with managed health care plans and the effect such plans have had upon the market place. The proposed finding that his testimony was not credible is rejected. 131 (first two sentences), 132-133. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Findings of Fact proposed by Orlando General Hospital: 7-12, 17, 19, 29. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The statement is true only from the perspective of the osteopathic psychiatrist and with respect to osteopathic care. Allopathic physicians disagree. The second sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 34. The second sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 38-49, 51-60. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The proposition that separate geriatric units offer no benefits to geriatric patients is contrary to the preponderance of the evidence. The proposition that there is no problem in mixing the elderly with younger patients, or that an elderly patient does much better in a mixed population, is contrary to the preponderance of the evidence. The second and third sentences are contrary to the preponderance of the evidence. 67-71, 73-80. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 86-87. While these proposed findings of fact are true, they are only marginally relevant since the ratio is measured as of 1992, not 1988. These are matters of law, and thus not appropriate as proposed findings of fact. It is unclear when Dr. Greene meant when he testified that his census was 35 to 40 patients. For the first 90 days of 1988, the hospital had 2,951 MDC 19 patient days, or 32.8 patients per day. The analysis with respect to "existing" beds and the county analysis have been rejected as explained in this recommended order. The last sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 97-102. The legal argument that beds temporarily not in operation are not "existing" has been rejected as explained in this recommended order. Thus, these findings are not relevant. 105, 107 (last sentence). These are matters of law, and thus not appropriate as proposed findings of fact. 109. The second sentence is rejected as a finding of fact because the health planning context was not adequately explained. 110-111. These are matters of law, and thus not appropriate as proposed findings of fact. 114-115. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 117. These are matters of law, and thus not appropriate as proposed findings of fact. 118-120. These proposed findings of fact are irrelevant. 122. These are matters of law, and thus not appropriate as proposed findings of fact. 123, 124, 126, 127, 129-131, 133. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The proposed finding of fact is true, but has not been shown to impact the financial feasibility of the Charter Medical proposal. The indirect costs within a single hospital are more relevant to long term financial feasibility of the proposed project than the indirect costs to a single hospital from a parent corporation that has over 60 such hospitals. 136, 147, 151, 152. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The patient body count for the first three months of 1988 was 32.8. O.G. Ex. 2, p. 11. The "consciousness" of a corporation is difficult . Orlando General Hospital was well aware that its medical-surgical census was decreasing and its psychiatric population was increasing. It is true that the increase of its psychiatric population was largely due to causes outside the control of the hospital, however, and not due to marketing efforts by the hospital. 161 (last sentence), 162. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. These are matters of law, and thus not appropriate as proposed findings of fact. This proposed finding of fact is only marginally relevant because the result could be an average caused a minority of states who do things differently. Moreover, there Is no evidence that Florida is like this. The third sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 167. The statement is true only if HRS allows Orlando General Hospital to continue to serve this large number of psychiatric patients without having a certificate of need. If the practice were discontinued, some of the patients would be served by other hospitals in the District, including Florida Hospital. These are matters of law, and thus not appropriate as proposed findings of fact. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 174, 176. These are matters of law, and thus not appropriate as proposed findings of fact. 177. The current state of access to short term psychiatric services in eastern Orange County was not credibly proven. 179. These are matters of law, and thus not appropriate as proposed findings of fact. Findings of fact proposed by HRS: 1, 2, 3, 4. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 5, 6. These are matters of law, and thus not appropriate as proposed findings of fact. 13. The number should be 64, not 63. 22. The occupancy rate is a mathematical attempt to measure the degree to which the District VII capacity to serve adult short term psychiatric patients has been used up. The theory implicit in the rule is that, with respect to adult capacity, the decision to add new capacity should be delayed until the old capacity is at least 75 percent or more used up. The rate has a numerator (patient days) and a denominator (the real capacity). Any argument that tries to ignore real patient days occurring in the District, or real capacity to serve those patients, is unreasonable. Findings of fact proposed by Florida Hospital: The second sentence is true, but the issue is not she license of the beds is, but what type of patient day is generated by that service. The preponderance of the evidence is that those were short term psychiatric patient days. The first sentence is rejected for the reasons stated above. 19-21. These are matters of law, and thus not appropriate as proposed findings of fact. 20-27. F.H. Ex. 3 was excluded from evidence, and the testimony related to that exhibit was also excluded from evidence for the reasons stated elsewhere in this recommended order. 28. This proposed finding fails to consider the MDC 19 evidence of patient days at Florida Hospital and Orlando Regional Medical Center. 29-30. These proposed findings of fact are true, and the reasoning therein is part of the reason why the denominator of the fraction that is the occupancy rate must be licensed beds. 31. A correction to the number of patient days at Westlake Hospital is legally appropriate, but the evidence for such a correction has been excluded from the record for reasons having nothing to do with the legal propriety of such a correction. 33. These are matters of law, and thus not appropriate as proposed findings of fact. 34-39. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The fact that existing facilities may have beds available to treat future patients is not inconsistent with a decision to grant a certificate of need for additional licensed beds. The occupancy rate threshold in the rule is 75 percent occupancy, not 100 percent occupancy. It is to be expected that the District will have 25 percent or less of its beds unoccupied when new beds are approved. 41, 43-44, 46-47. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. This proposed finding of fact is contrary to the credible evidence. These proposed findings of fact are irrelevant. See section 381.705(1)(g) and (h), Fla. Stat. (1987). This proposed finding of fact is contrary to the credible evidence. This proposed finding of fact is contrary to the credible evidence. To the contrary, where need exists, these are grounds for determining which of the competing applicants should be approved. 60. A conclusion that the occupancy rates are "stable" cannot be made from data based only upon calendar year 1986, which was two years ago, and six years from 1992, the time when need is projected. 61-69. These findings of fact are true. Even where there is need, the opening of the new facility normally lures some patients away from existing facilities. But if need exists sufficient to grant a certificate of need, this short term harm to existing providers is irrelevant. Finally, health care costs would not increase if there is need. While it is true that the Charter Medical utilization projections were initially prepared without a close analysis of District VII, the projections are nonetheless reasonable as discussed elsewhere in this recommenced order. Inflation of expenses without projection of inflation in revenues is an incomplete and unreasonable mode of projection. T. 229-230. Given the size of the Charter Medical Corporation and the number of hospitals it owns and operates, the condition of one more hospital will not Increase home office expenses. Those expenses will exist whether this project exists or not. The financial feasibility of the project in Orlando, therefor, need not consider home office expenses. T. 242-244. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The quantitative relevancy of this proposed finding of fact has not been shown. The proposed finding of fact is otherwise true. Orlando General Hospital's current patient census is a sufficient basis for a finding that its projected occupancy rate is reasonable. Charges proposed in an application for a certificate of need are not promises binding upon the applicant. In future years, the applicant is reasonably expected to make substantial changes in its charge structure based upon market conditions. Proposed charges, as well as proposed changes to charges to meet altered contingencies beyond the control of the applicant, is entirely appropriate for analysis in a certificate of need case. The only relevant question is whether the altered charge compares favorably with competing applicants. 81-83. Florida Hospital proved that the market for staff is competitive and that hiring staff is difficult at the moment. But it did not prove that the applicants would fail to hire adequate staff to operate their proposed facilities. T. 1327. 92-102. These proposed findings of fact summarize proposed findings of fact which have previously been addressed. APPENDIX 2 TO RECOMMENDED ORDER, CASE NOS. 87-4748 and 87-4753 Rule 10-5.008(3), Fla. Admin. Code, provides that "[s]ubsequent to an application being deemed complete by the Office of Health Planning and Development, no further information or amendment will be accepted by the Department." (E.S.) The rule states that the Department will accept no information after the application is deemed complete. The words used are not ambiguous or unclear. Thus, if normal rules of construction were to be followed, the conclusion would be drawn $ha the Department is bound by its own clear rule, and cannot, by interpretation, add exceptions. But an equally valid rule of construction is that absurd results must be avoided. Certificate of need cases, particular ones like the case at bar, are highly competitive and complicated. It would be unreasonable to require the applicants to prove applications that have become erroneous due to the passage of time. While the question is a close one, the Hearing Officer has concluded that it would be better to ignore the clear words of the rule, and attempt to apply the evolving interpretative policy of the Department to avoid an absurd result. The following appear to be the existing final orders of the Department interpreting rule 10-5.008(3), and its predecessor, published in the Florida Administrative Law Reports. Health Care and Retirement Corporation of America, d/b/a Heartland of Palm Beach, 8 F.A.L.R. 4650 (September 24, 1986); Arbor Health Care Company, Inc., d/b/a Martin Health Center, Inc., v. Department of Health and Rehabilitative Services et al., 9 F.A.L.R. 709 (October 13, 1986); Mease Hospital and Clinic v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 159 (October 13, 1986); Health Care and Retirement Corporation of America, d/b/a Heartland of Collier County v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 5883 (December 8, 1986); Health Care and Retirement Corporation of America, d/b/a Nursing Center of Highlands County, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1081 (December, 1986); Manatee Mental Health Center, Inc. d/b/a Manatee Crisis Center v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1430 (February 2, 1987); Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborouh, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1630 (February 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1628 (March 2, 1987); Psychiatric Institutes of America, Inc., d/b/a Psychiatric Institute of Orlando v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1626a (March 5, 1987) ; Manor Care, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2139 (March 24, 1987); Wuesthoff Health Services, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2110 (April 17, 1987); Hialeah Hospital, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2363 (May 1, 1987); Palms Residential Treatment Center, Inc., d/b/a Manatee Palms Residential Treatment Center v. Department of Health and Rehabilitative Services, et al., 10 F.A.L.R. 1425 (February 15, 1988). These final orders contain the following statements concerning the Department's interpretation of rule 10-5.008(3) and its evolving policy with respect to changes to applications for certificates of need during section proceedings and admissibility of new information not contained in the original applications: Health Care and Retirement, supra, 8 F.A.L.R. 1081: During 120.57 proceedings, an application may be updated to address facts extrinsic to the application such as interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories. An applicant is not allowed to update by adding additional services, beds, construction, or other concepts not initially reviewed by HRS. Manatee Mental Health Center, supra, 9 F.A.L.R. at 1431: ... HRS has authority by statute to issue a CON for an identifiable portion of . Section 381.4C4(8), Florida Statutes. MMHC's "amended" proposal reduced the number of beds sought, and was properly considered during the 120.57 proceedings. Manor Care. Inc., supra, 9 F.A.L.R. at 1628: The amended applications [amended to address needs of Alzheimer's disease patients] changed the scope and character of the proposed facilities and services and thus, must be reviewed initially at HRS... [ limited the denovo concept by requiring that evidence of changed circumstances be considered only if relevant to the application. Hialeah Hospital, Inc., 9 F.A.L.R. at 2366: It is recognized that more than a year may pass between the free form decision by HRS and the final 120.57 hearing and this passage of time may require updating an application by evidence of changed circumstances such as the' effect of inflation on interest and construction costs. For the sake of clarity HRS would avoid the use of the word "amendment" to describe such updating. Such evidence of changed circumstances beyond the control of the applicant is relevant to the original application and is admissible at the 120.57 hearing. Taking the easiest first, those items explicitly listed by the Department in the first Health Care and Retirement case, "interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories," which change after the application is initially filed, are permitted. Not permitted are "additional services, beds, construction, or other concepts not initially reviewed by HRS." The remainder of the Department's incipient policy, as presently articulated, is obscure. The word "extrinsic" without the list of examples is of little guidance. The application is only an idea on paper. Anything new, other than the bare words on the paper as originally filed, is literally "extrinsic" thereto. The concept of whether the new information changes the "scope and character of the facilities and services" originally reviewed in free form action by the Department is similarly of little guidance because the phrase "scope and character" can mean practically anything. Of fundamental difficulty is whether this phrase is intended to select substantial changes to the original application, or all changes. For example, if the original application proposes separate shower stalls and tubs for double rooms, but the amended application proposes a combination shower and tub, has the "scope and character" of the "facilities and services" changed? The phrase "additional services, beds, construction, or other concepts not initially reviewed by HRS" is similarly vague. What is a service or construction or a concept not originally reviewed? Would this include the change in bathing equipment discussed above? The concept of "control" of the applicant over the information that goes into the original application is the only phrase that gives applicants any guidance. The word "control" probably is intended as a "knew or reasonably should have "known" standard. If the applicant reasonably should have known about the information and should have provided the Department with the information as a part of its original application, then the new information cannot be considered during the formal administrative hearing. The Hearing Officer will be guided, thus, by the explicit list of items provided by the Department in the Health Care and Retirement case, and by the concept of "control" provided by the Hialeah case. COPIES FURNISHED: For Agency HRS Theodore D. Mack. Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Fort Knox Executive Building Tallahassee, Florida 32308 (904) 488-8673 Charter Medical-Orange County, Inc. Fred W. Baggett, Esquire Stephen A. Ecenia, Esquire Roberts, Baggett, LaFace & Richard 101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32301 (904) 222-6891 William D. Hoffman, Jr., Esquire Deborah J. Winegard, Esquire King & Spalding 2500 Trust Company Tower Atlanta, GA 30303 (404) 572-4600 Orlando Regional Medical Center, Inc. Steven R. Bechtel, Esquire Mateer, Harbert & Bates, P. A. 100 East Robinson Street Post Office Box 2854 Orlando, Florida 32802 (305) 425-9044 Orlando General Hospital, Inc. Eric J. Haugdahl, Esquire 1363 East Lafayette Street Suite C Tallahassee, Florida 32301 (904) 878-0215 Florida Hospital Stephen K. Boone, Esquire Robert P. Mudge, Esquire Boone, Boone, Klingbeil & Boone, P. A. 1001 Avenida del Circo Post Office Box 1596 Venice, Florida 34284 (813) 488-6716 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
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 Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue 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 Whether the Agency for Health Care Administration (AHCA or the Agency) should approve the application for certificate of need (CON) 7700 filed by Miami Beach Healthcare Group, LTD. d/b/a Miami Heart Institute (Miami Heart or MH).
Findings Of Fact The Agency is the state agency charged with the responsibility of reviewing and taking action on CON applications pursuant to Chapter 408, Florida Statutes. The applicant, Miami Heart, operates a hospital facility known as Miami Heart Institute which, at the time of hearing, was comprised of a north campus (consisting of 273 licensed beds) and a south campus (consisting of 258 beds) in Miami, Florida. The two campuses operate under a single license which consolidated the operation of the two facilities. The consolidation of the license was approved by CON 7399 which was issued by the Agency prior to the hearing of this case. The Petitioner, Mount Sinai, is an existing health care facility doing business in the same service district. On February 4, 1994, AHCA published a fixed need pool of zero adult inpatient psychiatric beds for the planning horizon applicable to this batching cycle. The fixed need pool was not challenged. On February 18, 1994, Miami Heart submitted its letter of intent for the first hospital batching cycle of 1994, and sought to add twenty adult general inpatient psychiatric beds at the Miami Heart Institute south campus. Such facility is located in the Agency's district 11 and is approximately two (2) miles from the north campus. Notice of that letter was published in the March 11, 1994, Florida Administrative Weekly. Miami Heart's letter of intent provided, in pertinent part: By this letter, Miami Beach Healthcare Group, Ltd., d/b/a Miami Heart Institute announces its intent to file a Certificate of Need Application on or before March 23, 1994 for approval to establish 20 hospital inpatient general psychiatric beds for adults at Miami Heart Institute. Thus, the applicant seeks approval for this project pursuant to Sections 408.036(1)(h), Florida Statutes. The proposed capital expenditure for this project shall not exceed $1,000,000 and will include new construction and the renovation of existing space. Miami Heart Institute is located in Local Health Council District 11. There are no subsdistricts for Hospital Inpatient General Psychiatric Beds for Adults in District 11. The applicable need formula for Hospital General Psychiatric Beds for Adults is contained within Rule 59C-1.040(4)(c), F.A.C. The Agency published a fixed need of "0" for Hospital General Psychiatric Beds for Adults in District 11 for this batching cycle. However, "not normal" circumstances exist within District which justify approval of this project. These circumstances are that Miami Beach Community Hospital, which is also owned by Miami Beach Healthcare Group, Ltd., and which has an approved Certificate of Need Application to consol- idate its license with that of the Miami Heart Institute, has pending a Certificate of Need Application to delicense up to 20 hospital inpatient general psychiatric beds for adults. The effect of the application, which is the subject of this Letter of Intent, will be to relocate 20 of the delicensed adult psychiatric beds to the Miami Heart Institute. Because of the "not normal" circumstances alleged in the Miami Heart letter of intent, the Agency extended a grace period to allow competing letters of intent to be filed. No additional letters of intent were submitted during the grace period. On March 23, 1994, Miami Heart timely submitted its CON application for the project at issue, CON no. 7700. Notice of the application was published in the April 8, 1994, Florida Administrative Weekly. Such application was deemed complete by the Agency and was considered to be a companion to the delicensure of the north campus beds. On July 22, 1994, the Agency published in the Florida Administrative Weekly its preliminary decision to approve CON no. 7700. In the same batch as the instant case, Cedars Healthcare Group (Cedars), also in district 11, applied to add adult psychiatric beds to Cedars Medical Center through the delicensure of an equal number of adult psychiatric beds at Victoria Pavilion. Cedars holds a single license for the operation of both Cedars Medical Center and Victoria Pavilion. As in this case, the Agency gave notice of its intent to grant the CON application. Although this "transfer" was initially challenged, it was subsequently dismissed. Although filed at the same time (and, therefore, theoretically within the same batch), the Cedars CON application and the Miami Heart CON application were not comparatively reviewed by the Agency. The Agency determined the applicants were merely seeking to relocate their own licensed beds. Based upon that determination, MH's application was evaluated in the context of the statutory criteria, the adult psychiatric beds and services rule (Rule 59C-1.040, Florida Administrative Code), the district 11 local health plan, and the 1993 state health plan. Ms. Dudek also considered the utilization data for district 11 facilities. Mount Sinai timely filed a petition challenging the proposed approval of CON 7700 and, for purposes of this proceeding only, the parties stipulated that MS has standing to raise the issues remaining in this cause. Mount Sinai's existing psychiatric unit utilization is presently at or near full capacity, and MS' existing unit would not provide an adequate, available, or accessible alternative to Miami Heart's proposal, unless additional bed capacity were available to MS in the future through approval of additional beds or changes in existing utilization. Miami Heart's proposal to establish twenty adult general inpatient psychiatric beds at its Miami Heart Institute south campus was made in connection with its application to delicense twenty adult general inpatient psychiatric beds at its north campus. The Agency advised MH to submit two CON applications: one for the delicensure (CON no. 7474) and one for the establishment of the twenty beds at the south campus (CON no. 7700). The application to delicense the north campus beds was expeditiously approved and has not been challenged. As to the application to establish the twenty beds at the south campus, the following statutory criteria are not at issue: Section 408.035(1)(c), (e), (f), (g), (h), (i), (j), (k), (m), (n), (o) and (2)(b) and (e), Florida Statutes. The parties have stipulated that Miami Heart meets, at least minimally, those criteria. During 1993, Miami Heart made the business decision to cease operations at its north campus and to seek the Agency's approval to relocate beds and services from that facility to other facilities owned by MH, including the south campus. Miami Heart does not intend to delicense the twenty beds at the north campus until the twenty beds are licensed at the south campus. The goal is merely to transfer the existing program with its services to the south campus. Miami Heart did not seek beds from a fixed need pool. Since approximately April, 1993, the Miami Heart north campus has operated with the twenty bed adult psychiatric unit and with a limited number of obstetrical beds. The approval of CON no. 7700 will not change the overall total number of adult general inpatient psychiatric beds within the district. The adult psychiatric program at MH experiences the highest utilization of any program in district 11, with an average length of stay that is consistent with other adult programs around the state. Miami Heart's existing psychiatric program was instituted in 1978. Since 1984, there has been little change in nursing and other staff. The program provides a full continuum of care, with outpatient programs, aftercare, and support programs. Nearly ninety-nine percent of the program's inpatient patient days are attributable to patients diagnosed with serious mental disorders. The Miami Heart program specializes in a biological approach to psychiatric cases in the diagnosis and treatment of affective disorders, including a variety of mood disorders and related conditions. The Miami Heart program is distinctive from other psychiatric programs in the district. If the MH program were discontinued, the patients would have limited alternatives for access to the same diagnostic and treatment services in the district. There are no statutes or rules promulgated which specifically address the transfer of psychiatric beds or services from one facility owned by a health care entity to another facility also owned by the same entity. In reviewing the instant CON application, the Agency determined it has the discretion to evaluate each transfer case based upon the review criteria and to consider the appropriate weight factors should be given. Factors which may affect the review include the change of location, the utilization of the existing services, the quality of the existing programs and services, the financial feasibility, architectural issues, and any other factor critical to the review process. In this case, the weight given to the numeric need criteria was not significant. The Agency determined that because the transfer would not result in a change to the overall bed inventory, the calculated fixed need pool did not apply to the instant application. In effect, because the calculation of numeric need was inapplicable, this case must be considered "not normal" pursuant to Rule 59C-1.040(4)(a), Florida Administrative Code. The Agency determined that other criteria were to be given greater consideration. Such factors were the reasonableness of the proposal, the ability to afford access, the applicant's ability to provide a quality program, and the project's financial feasibility. The Agency determined that, on balance, this application should be approved as the statutory and other review criteria were met. Although put on notice of the other CON applications, Mount Sinai did not file an application for psychiatric beds at the same time as Miami Heart or Cedars. Mount Sinai did not claim that the proposed delicensures and transfers made beds available for competitive review. The Agency has interpreted Rule 59C-1.040, Florida Administrative Code, to mean that it will not normally approve an application for beds or services unless the statutory and rule criteria are met, including the need determination criteria. There is no list of circumstances which are routinely considered "not normal" by the Agency. In this case, the proposed transfer of beds was, in itself, considered "not normal." The approval of Miami Heart's application would allow an existing program to continue. As a result, the overhead to maintain two campuses would be reduced. Further, the relocation would allow the program to continue to provide access, both geographically and financially, to the same patient service area. And, since the program has the highest utilization rate of any adult program in the district, its continuation would be beneficial to the area. The program has an established referral base for admissions to the facility. The transfer is reasonable for providing access to the medically under-served. The quality of care, while not in issue, would be expected to continue at its existing level or improve. The transfer would allow better access to ancillary hospital departments and consulting specialists who may be needed even though the primary diagnosis is psychiatric. The cost of the transfer when compared to the costs to be incurred if the transfer is not approved make the approval a benefit to the service area. If the program is not relocated, Medicaid access could change if the hospital is reclassified from a general facility to a specialty facility. The proposed cost for the project does not exceed one million dollars. If the north campus must be renovated, a greater capital expenditure would be expected. The expected impact on competition for other providers is limited due to the high utilization for all programs in the vicinity. The subject proposal is consistent with the district and state health care plans and the need for health care facilities and services. The services being transferred is an existing program which is highly utilized and which is not creating "new beds." As such, the proposal complies with Section 408.035(1)(a), Florida Statutes. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing services in the district will not be adversely affected by the approval of the subject application. The proposed transfer is consistent with, and appropriate, in light of these criteria. Therefore, the proposal complies with Section 408.035(1)(b), Florida Statutes. The subject application demonstrates a full continuum of care with safeguards to assure that alternatives to inpatient care are fully utilized when appropriate. Therefore, the availability and adequacy of other services, such as outpatient care, has been demonstrated and would deter unnecessary utilization. Thus, Miami Heart has shown its application complies with Section 408.035(1)(d), Florida Statutes. Miami Heart has also demonstrated that the probable impact of its proposal is in compliance with Section 408.035(1)(l), Florida Statutes. The proposed transfer will not adversely impact the costs of providing services, the competition on the supply of services, or the improvements or innovations in the financing and delivery of services which foster competition, promote quality assurance, and cost-effectiveness. Miami Heart has taken an innovative approach to promote quality assurance and cost effectiveness. Its purpose, to close a facility and relocate beds (removing unnecessary acute care beds in the process), represents a departure from the traditional approach to providing health care services. By approving Miami Heart's application, overhead costs associated with the unnecessary facility will be eliminated. There is no less costly, more efficient alternative which would allow the continuation of the services and program Miami Heart has established at the north campus than the approval of transfer to the south campus. The MH proposal is most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. The renovation of the medical surgical space at the south campus to afford a location for the psychiatric unit is the most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. In totality, the circumstances of this case make the approval of Miami Heart's application for CON no. 7700 the most reasonable and practical solution given the "not normal" conditions of this application.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the Agency for Health Care Administration enter a final order approving CON 7700 as recommended in the SAAR. DONE AND RECOMMENDED this 5th day of April, 1995, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of April, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-4755 Note: Proposed findings of fact are to contain one essential fact per numbered paragraph. Proposed findings of fact paragraphs containing multiple sentences with more than one statement of fact are difficult to review. In reviewing for this case, where all sentences were accurate and supported by the recorded cited, the paragraph has been accepted. If the paragraph contained mixed statements where one sentence was an accurate statement of fact but the others were not, the paragraph has been rejected. Similarly, if one sentence was editorial comment, argument, or an unsupported statement to a statement of fact, the paragraph has been rejected. Proposed findings of fact should not include argument, editorial comments, or statements of fact mixed with such comments. Rulings on the proposed findings of fact submitted by Petitioner, Mount Sinai: Paragraphs 1 through 13 were cited as stipulated facts. Paragraph 14 is rejected as irrelevant. With regard to paragraph 15 it is accepted that Miami Heart made the business decision to move the psychiatric beds beds from the north campus to the south campus. Any inference created by the remainder of the paragraph is rejected as irrelevant. Paragraph 16 is rejected as irrelevant. Paragraph 17 is rejected as irrelevant. Paragraph 18 is accepted. Paragraph 19 is rejected as irrelevant. Paragraph 20 is rejected as contrary to the weight of the credible evidence. Paragraph 21 is rejected as contrary to the weight of the credible evidence. Paragraph 22 is accepted. Paragraph 23 is rejected as irrelevant. Paragraph 24 is accepted. Paragraph 25 is rejected as repetitive, or immaterial, unnecessary to the resolution of the issues. Paragraph 26 is rejected as irrelevant or contrary to the weight of the credible evidence. Paragraph 27 is rejected as comment or conclusion of law, not fact. Paragraph 28 is accepted but not relevant. Paragraphs 29 and 30 are accepted. Paragraphs 31 through 33 are rejected as argument, comment or irrelevant. Paragraph 34 is rejected as comment or conclusion of law, not fact. Paragraph 35 is rejected as comment or conclusion of law, not fact, or irrelevant as the FNP was not in dispute. Paragraph 36 is rejected as irrelevant. Paragraph 37 is rejected as repetitive, or comment. Paragraph 38 is rejected as repetitive, comment or conclusion of law, not fact, or irrelevant. Paragraph 39 is rejected as argument or contrary to the weight of credible evidence. Paragraph 40 is accepted. Paragraph 41, 42, and 43 are rejected as contrary to the weight of the credible evidence and/or argument. Paragraph 44 is rejected as argument and comment on the testimony. Paragraph 45 is rejected as argument, irrelevant, and/or not supported by the weight of the credible evidence. Paragraph 46 is rejected as argument. Paragraph 47 is rejected as comment or conclusion of law, not fact. Paragraph 48 is rejected as comment, argument or irrelevant. Paragraph 49 is rejected as comment on testimony. It is accepted that the proposed relocation or transfer of beds is a "not normal" circumstance. Paragraph 50 is rejected as argument or irrelevant. Paragraph 51 is rejected as argument or contrary to the weight of credible evidence. Paragraph 52 is rejected as argument or contrary to the weight of credible evidence. Paragraph 53 is rejected as argument, comment or recitation of testimony, or contrary to the weight of credible evidence. Paragraph 54 is rejected as irrelevant or contrary to the weight of credible evidence. Paragraph 55 is rejected as irrelevant, comment, or contrary to the weight of credible evidence. Paragraph 56 is rejected as irrelevant or argument. Paragraph 57 is rejected as irrelevant or argument. Paragraph 58 is rejected as contrary to the weight of credible evidence. Paragraph 59 is rejected as irrelevant. Paragraph 60 is rejected as contrary to the weight of credible evidence. Paragraph 61 is rejected as argument or contrary to the weight of credible evidence. Paragraph 62 is rejected as argument or contrary to the weight of credible evidence. Paragraph 63 is accepted. Paragraph 64 is rejected as irrelevant. Mount Sinai could have filed in this batch given the not normal circumstances disclosed in the Miami Heart notice. Paragraph 65 is rejected as irrelevant. Paragraph 66 is rejected as comment or irrelevant. Paragraph 67 is rejected as argument or contrary to the weight of credible evidence. Paragraph 68 is rejected as argument or irrelevant. Paragraph 69 is rejected as argument, comment or irrelevant. Paragraph 70 is rejected as argument or contrary to the weight of credible evidence. Rulings on the proposed findings of fact submitted by the Respondent, Agency: Paragraphs 1 through 6 are accepted. With the deletion of the words "cardiac catheterization" and the inclusion of the word "psychiatric beds" in place, paragraph 7 is accepted. Cardiac catheterization is rejected as irrelevant. Paragraph 8 is accepted. The second sentence of paragraph 9 is rejected as contrary to the weight of credible evidence or an error of law, otherwise, the paragraph is accepted. Paragraph 10 is accepted. Paragraphs 11 through 17 are accepted. Paragraph 18 is rejected as conclusion of law, not fact. Paragraphs 19 and 20 are accepted. The first two sentences of paragraph 21 are accepted; the remainder rejected as conclusion of law, not fact. Paragraph 22 is rejected as comment or argument. Paragraph 23 is accepted. Paragraph 24 is rejected as argument, speculation, or irrelevant. Paragraph 25 is accepted. Rulings on the proposed findings of fact submitted by the Respondent, Miami Heart: Paragraphs 1 through 13 are accepted. The first sentence of paragraph 14 is accepted; the remainder is rejected as contrary to law or irrelevant since MS did not file in the batch when it could have. Paragraph 15 is accepted. Paragraph 16 is accepted as the Agency's statement of its authority or policy in this case, not fact. Paragraphs 17 through 20 are accepted. Paragraph 21 is rejected as irrelevant. Paragraph 22 is rejected as irrelevant. Paragraphs 23 through 35 are accepted. Paragraph 36 is rejected as repetitive. Paragraphs 37 through 40 are accepted. Paragraph 41 is rejected as contrary to the weight of the credible evidence to the extent that it concludes the distance to be one mile; evidence deemed credible placed the distance at two miles. Paragraphs 42 through 47 are accepted. Paragraph 48 is rejected as comment. Paragraphs 49 through 57 are accepted. COPIES FURNISHED: Tom Wallace, Assistant Director Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 R. Terry Rigsby Geoffrey D. Smith Wendy Delvecchio Blank, Rigsby & Meenan, P.A. 204 S. Monroe Street Tallahassee, Florida 32302 Lesley Mendelson Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Stephen Ecenia Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. 215 South Monroe Street Suite 420 Tallahassee, Florida 32302-0551
The Issue This case concerns four Certificate of Need ("CON") applications ("CONs 9891, 9992, 9893, and 9894") that seek to establish long-term acute care hospitals ("LTCHs") in Miami-Dade County (the "County" or "Miami-Dade County"), a part of AHCA District 11 (along with Monroe County). Promise Healthcare of Florida XI, Inc. ("Promise") in CON 9891, Select Specialty Hospital-Dade, Inc. ("Select-Dade") in CON 9892, and Kindred Hospitals East, L.L.C. ("Kindred"), in CON 9894, seek to construct and operate a 60-bed freestanding LTCH in the County. Miami Jewish Home and Hospital for the Aged, Inc. ("MJH"), in CON 9893, seeks to establish a 30-bed hospital within a hospital ("HIH") on its existing campus in the County. In its State Agency Action Report (the "SAAR"), AHCA concluded that all of the need methodologies presented by the applicants were unreliable. Accordingly, AHCA staff recommended denial of the four applications. The recommendation was adopted by the Agency when it issued the SAAR. The Agency maintained throughout the final hearing that all four applications should be denied, although of the four, if any were to be granted, it professed a preference for MJH on the basis, among other reasons, of a more reliable need methodology. Since the hearing the Agency has changed its position with regard to MJH. In its proposed recommended order, AHCA supports approval of MJH's application. MJH and Promise agree with the AHCA that there is need for the 30 LTCH beds proposed by MJH for its HIH and that MJH otherwise meets the criteria for approval of its application. MJH seeks approval of its application only. Likewise, the Agency supports approval of only MJH's application. Promise, on the other hand, contends that there is need for a 60-bed facility as well as MJH's HIH and that between Promise, Select- Dade and Kindred, based on comparative review, its application should be approved along with MJH's application. Although Promise's need methodology supports need for more LTCH beds than would be provided by approval of its application and MJH's, its support for approval is limited to its application and that of MJH. Like Promise's methodology, Select-Dade and Kindred's need methodologies project need for many more beds than would be provided by the 60 beds each of them seek. Unlike Promise, however, neither Select-Dade nor Kindred supports approval of MJH's application. Each proposes its application to be superior to the other applications; each advocates approval of its respective application alone. Given the positions of the parties reflected in their proposed recommended orders, whether there is need for at least an additional 30 LTCH beds in District 11 is not at issue. Rather, the issues are as follows. What is the extent of the need for additional LTCH beds in District 11? If the need is for at least 30 beds but less than 60 beds, does MJH meet the criteria for approval of its application? If the need is for 60 beds or more, what application or applications should be approved depends on what applications meet CON review criteria and on the number of beds needed (60 but less than 90, 90 but less than 120, 120 but less than 150, 150 but less than 180, 180 but less than 210, and 210 or more) and whether there is health- planning basis not to grant an application even if the approval would meet a bed need and all four applicants otherwise meet review criteria. Finally, based on comparative review, what is the order of approval among the applications that meet CON need criteria? Ultimately, the issue in the case is which if any of the four applications should be approved?
Findings Of Fact The Parties "[D]esignated as the state health planning agency for purposes of federal law," Section 408.034(1), Florida Statutes, AHCA is responsible for the administration of the CON program and laws in Florida. See §§ 408.031, Fla. Stat., et seq. As such, it is also designated as "the single state agency to issue, revoke, or deny certificates of need . . . in accordance with present and future federal and state statutes." § 408.034(1), Fla. Stat. Promise Healthcare of Florida XI, Inc. ("Promise") is a wholly-owned subsidiary of Promise Healthcare, Inc. The applicant for CON 9891, Promise proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Select-Dade, the applicant for CON 9892, proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. It is a wholly-owned subsidiary of Select Medical Corporation ("SMC"). The largest operator of LTCHs in the country, SMC operates 96 LTCHs in 24 states. The Miami Jewish Home and Hospital for the Aged is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. The applicant for CON 9893, MJH proposes the creation of a 30-bed hospital within a hospital (HIH) LTCH by the renovation of a former acute care hospital building on its existing campus in Miami-Dade County, Florida. Kindred is the applicant for CON 9894 and proposes the construction of a 60-bed freestanding LTCH to be located in Miami-Dade County, Florida. Kindred is a wholly-owned subsidiary of Kindred Healthcare, Inc. ("Kindred Healthcare"). Kindred Healthcare operates 85 LTCHs in the country, eight of which are in the State of Florida. One of the eight is in Miami-Dade County. Twenty-three of Kindred Healthcare's LTCHs are operated by Kindred as well as seven of the eight Florida LTCHs. Kindred has also received CON approval for another LTCH in Florida. It is to be located in Palm Beach County in LTCH District 9. The District and its LTCHs Miami-Dade and Monroe Counties comprise AHCA District The population of Monroe County is 80,000 and of Miami-Dade County, 2.4 million. As to be expected from the population's distribution in the District, the vast majority of the District's health services are located in Miami-Dade County. The greater part of the County's population is in the eastern portion of Miami-Dade County, with population densities there 3-4 times higher than in the western portion of the County. But there is little to no space remaining for development in the eastern portion of the County. Miami-Dade County has an urban development boundary that shields the Everglades from development in the western portion of the County. Still, the bulk of population growth that has occurred recently is in the west and that trend is expected to continue. While the growth rate on a percentage basis is higher in the more-recently developed western areas of the County, the great majority of the population is and will continue to be within five miles of the sea coast on the County's eastern edge. At the time of hearing, there were three LTCHs operating in the District with a total of 122 beds: Kindred- Coral Gables, Select-Miami, and Sister Emmanuel. All three are clustered within a radius of six miles of each other in or not far from downtown Miami. The three existing LTCHs in the District are utilized at high occupancy levels. Kindred's 53-bed facility receives most of its referrals from a within a 10 mile radius. It has operated for the 11-year period beginning in 1995 with an occupancy level from a low of 82.08 percent to a high of 92.86 percent. The occupancy levels for 2004 (82.08 percent) and 2005 (84.90 percent) show occupancy recently at a relatively stable level within the range of optimal functional capacity which tends to be between 80 and 85 percent when facilities are equipped with semi-private rooms. With gender and infection issues in a facility with semi-private rooms, admissions to those facilities are usually restricted above 85 percent. Select operates a 40-bed LTCH on one floor of a health care service condominium building in downtown Miami. It began operation in 2003 as part of legislatively-created special Medicaid demonstration project. Its occupancy levels for the two calendar years of 2004 and 2005 were 83.39 percent and 95.10 percent. Sister Emmanuel Hospital for Continuing Care ("Sister Emmanuel") is a 29-bed HIH located at Mercy Hospital in Miami. It became operational in 2004 with an occupancy level of 82.64 percent, and attained an occupancy level of 85.46 percent in 2005. Kindred's Broward County LTCHs Kindred operates two LTCHs in Broward County (outside of District 11); one is in Ft. Lauderdale, the other in Hollywood. From 1995 to 2003, Kindred-Hollywood's occupancy rate ranged from a low of 65.17 percent to a high of 72.73 percent, generally lower than the state-wide occupancy rate. For the same period, Kindred-Ft. Lauderdale's rate was significantly higher, between 83.69 percent and 91.65 percent. Both LTCHs have experienced occupancy rates significantly lower than the state-wide rates in 2004 and 2005. Kindred-Ft. Lauderdale's occupancy in 2004 fell substantially from earlier years to 66.41 percent and then even farther in 2005 to 57.73 percent. Kindred-Hollywood's rates for these two years were also well below the state's at 59.74 percent and 58.04 percent, respectively. Historically used by residents of District 11, the Hollywood facility served 4,292 patients from Miami-Dade County in the eleven year period from 1995 through 2005. For the same period, the Ft. Lauderdale facility served 275 Miami-Dade residents. Kindred assigns its clinical liaisons to hospitals in a territorial manner to minimize competition for referrals between its two facilities in Broward County and Kindred-Coral Gables. LTCHs A "Long-term care hospital" means a general hospital licensed under Chapter 395, which meets the requirements of 42 C.F.R. Section 412.23(e) and seeks exclusion from the acute care Medicare prospective payment system for inpatient hospital services. § 408.032(13), Fla. Stat. (2005), and Fla. Admin. Code R. 59C-1.002(28). Under federal rules, an LTCH must have an average Medicare length of stay (LOS) greater than 25 days. LTCHs typically furnish extended medical and rehabilitation care for patients who are clinically complex and have multiple acute or chronic conditions. Patients appropriate for LTCH services represent a small but discrete sub-set of all patients. They are differentiated from other hospital patients in that, by definition, they have multiple co-morbidities that require concurrent treatment. Patients appropriate for LTCH services tend to be elderly, frail, and medically complex and are usually regarded as catastrophically ill although some are young, typically victims of severe trauma. Approximately 85 percent of LTCH patients qualify for Medicare. Generally, Medicare patients admitted to LTCHs have been transferred from general acute care hospitals and receive a range of services at LTCHs, including cardiac monitoring, ventilator support and wound care. In 2004, statewide, 92 percent of LTCH patients were transferred from short-term acute care hospitals. That figure was 98 percent for District 11 during the same period of time. The single most common factor associated with the use of long-term care hospitals are patients who have pulmonary and respiratory conditions such as tracheotomies, and require the use of ventilators. There are three other general categories of LTCH patients as explained by Dr. Muldoon in his deposition: The second group is wound care where patients who are at the extreme end of complexity in wound care would come to [an] LTCH if their wounds cannot be managed by nurses in skilled nursing facilities or by home health care. The third category would be cardiovascular diseases where patients compromise[d by] injury or illness related to the circulatory system would come [to an LTCH.] And the fourth is the severe end of the rehabilitation group where, in addition to rehabilitation needs, there's a background of multiple medical conditions that also require active management. (Kindred Ex. 8 at 10-11). Effective October 1, 2002, the federal Centers for Medicare and Medicaid Services ("CMS") established a new prospective payment system for long term care hospital providers. Through this system, CMS recognizes the patient population of LTCHs as separate and distinct from the populations treated by short-term acute care hospitals and by other post acute care providers, such as Skilled Nursing Facilities ("SNFs") and Comprehensive Rehabilitation Hospitals ("CMRs"). The implementation by CMS of categories of payment designed specifically for LTCHs, the "LTC-DRG," indicates that CMS and the federal government recognize the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Under the LTCH reimbursement system, each patient is assigned a Diagnosis Related Group or "DRG" with a corresponding payment rate that is weighted based upon the patient's diagnosis. The LTCH is reimbursed the predetermined payment rate for that DRG, regardless of the costs of care. These rates are higher than what CMS provides for other traditional post-acute care providers. Since the establishment of the prospective pay system for LTCHs, concerns about the high reimbursement rate for LTCHs, as well as about the appropriateness of the patients treated in LTCHs, have been raised by the Medicare Payment Advisory Committee ("MedPAC") and the Centers for Medicaid and Medicare Services. CMS administers the Medicare payment program for LTCHs, as well as the reimbursement programs for acute care hospitals, SNFs, and CMRs. MedPAC's role is to help formulate federal policy on Medicare regarding services provided to Medicare beneficiaries (patients) and the appropriate reimbursement rates to be paid to health care providers. The 2006 MedPAC report reported that LTCHs were making a good margin or profit, and recommended against an annual increase in the Medicare reimbursement rate for the upcoming fiscal year. In 2006, CMS adopted a reimbursement rate rule for LTCHs for 2007 that did not raise the base rate, and made other changes that reflect the ongoing concerns of CMS regarding LTCHs. 42 C.F.R. Part 412, May 12, 2006. In that rule, CMS found that approximately 37 percent of LTCH discharges are paid under the short-stay outliers, raising concerns that inappropriate patients may be being admitted to LTCHs. CMS made other changes to the reimbursement system which, taken as a whole, actually reduced the reimbursement that LTCHs will receive for 2007. Even with the concerns raised by MedPAC and CMS and recent changes in federal fiscal policy related to LTCHs, the distinction between general hospitals and LTCHs and the legitimate place for LTCHs in the continuum of care continues to be recognized by the federal government. One way of looking at recent developments at the federal level was articulated at hearing by Mr. Kornblat. Federal regulatory changes will reduce the reimbursement LTCHs receive when treating short-term patients (short-term outliers). "On the other end of the spectrum, there are patients who stay significantly longer than would be expected on average, long- stay outliers, and the reimbursement for those patients was also modified." Tr. 163. There have been other changes with regard to LTCH patients who require surgery the LTCHs cannot provide and patients with a primary psychiatric diagnosis or a primary rehab diagnosis. Requiring the LTCH to "foot the bill" for surgery that it cannot provide for its patients and the elimination from LTCHs of patients with a primary psychiatric or rehab diagnosis send a strong signal to the LTCH industry specifically and those who interact with it: LTCHs should admit only the medically complex and severely acutely ill patient who can be appropriately treated at an LTCH. Despite recent changes at the federal level and the clear recognition by the federal government that LTCHs have a place in the continuum of health care services, AHCA remains concerned about LTCHs in Florida. AHCA's Concerns Regarding LTCHs In deciding on whether to approve or deny new health care facilities, the Agency is responsible for the "coordinated planning of health care services in the state." § 408.033(3)(a), Fla. Stat. In carrying out this responsibility, AHCA looks to federal rules and reports to assist in making health care planning decisions for the state. Regarding LTCHs, MedPAC has reported, and CMS has noted that, nationwide, there has been a recent, rapid increase in the number of LTCHs: "It [LTCHs] represents a growth industry of the last ten years." Nationwide there has also been a huge increase in Medicare spending for LTCH care from $398 million in 1993 to $3.3 billion in 2004. AHCA has also become concerned about the recent rapid increase in LTCH applications in Florida. From 1997 through 2001 there were 8 LTCHs in the state. Starting in 2002, there was a marked increase in the number of applications for LTCHs and the number of approved LTCHs rose quickly to the current 14 in 2006. In addition, 9 new LTCHs have been approved and are expected to be licensed in the next 1-3 years. When all of the approved hospitals are licensed the number of available beds will rise from 876 to 1,351 (adding the approved 475 beds), over a 50 percent increase in LTCH beds statewide. In addition, AHCA is concerned that the occupancy level of LTCHs over the entire state appears to be falling over the last 11 years. In response to the rise in LTCH applications over the last several years, and given the decrease in occupancy of the current LTCHs, the Agency has consistently voiced concerns about lack of identification of the patients that appropriately comprise the LTCH patient population. Because of a lack of specific data from applicants with regard to the composition and acuity level of LTCH patient populations, AHCA is not convinced that there is a need for additional LTCHs in the state or in District 11. There are several reasons for this concern. First, AHCA believes, like MedPAC, that there may be an overlap between the LTCH patient populations and the population of patients served in other health care settings, such as SNFs and CMRs. Kindred's expert, Dr. Muldoon, noted that length of stay in the general acute care hospital has been shortened over the last few years because there are new more effective medical treatments, and because the "post-acute sector has emerged as the place to carry out the treatment plan that 20 years ago may been provided in its entirety in the short-term hospital." (Kindred Ex. 8 at 23). To AHCA, what patients enter what facilities in this "post-acute sector" is unclear. In the absence of the applicants better identifying the acuity of the LTCH patient population, AHCA has reached the conclusion that there may be other options available to those patients targeted by the LTCH applicants. In support of this view, AHCA presented a chart showing SNFs in District 11 that offer to treat patients who need dialysis, tracheotomy or ventilator care. These conditions are typically treated in LTCHs. In addition, AHCA believes that some long-stay patients can be appropriately served in the short-stay acute care hospitals, rather than requiring LTCH care. The length of stay in 2005 for the typical acute care hospital for most patients is five to six days. (Kindred Ex. 8, Dr. Muldoon Depo, at 23). Some hospital patients, however, are in need of acute care services on a long-term basis, that is, much longer than the average lengths of stay for most patients. Thus, patients who may need LTCH services often have lengths of stay in the acute care hospitals that exceed the typical stay. AHCA believes that these long-stay patients can be as appropriately served in the short stay acute care hospitals as in LTCHs. AHCA'S Denial of the Four Applications and Change of Position with regard to MJH On December 15, 2005, the Agency issued its SAAR after review of the applications. The SAAR recommended denial of all four applications based primarily on the Agency's determination that none had adequately demonstrated need for its proposed LTCH in District 11. In denying the four applications, AHCA relied in part on reports issued the Congress annually by MedPAC that discuss the placement of Medicare patients in appropriate post-acute settings. Appropriate use of long term care hospital services is an underlying concern that we [AHCA] have and had the federal government has as evidenced by their MedPAC reports and the CMS information in its most recent proposed rule on the subject. (Tr. 2486). The June 2004 MedPAC report states the following about LTCHs: Using qualitative and quantitative methods, we find the LTCH's role is to provide post- acute care to a small number of medically complex patients. We also find that the supply of LTCHs is a strong predictor of their use and those acute hospitals and skilled nursing facilities are the principal alternatives to LTCHs. We find that, in general, LTCH patients cost Medicare more than similar patients using alternative settings but that if LTCH care is targeted to patients of the highest severity, the cost is comparable. Given these concerns, AHCA looked to the four applicants to prove need through a needs methodology that provides sufficient information on the patient severity criteria to better define the patients that would mostly likely be appropriate candidates for LTCHs. AHCA found the need methodologies of three of the four applicants (Kindred, Promise, and Select) "incomplete" because they lacked specific information on the severity level of the patients the applicants plans to admit, and therefore they "overstate need." AHCA pointed to a former LTCH provider that did provide detailed useful information on the acuity level of its patients, and the acuity level of its patients in reference to similar patients in SNFs. Other then MJH, the applicants presented approaches to projecting need that are based, in one way or another, on long- stay patients in existing acute care hospitals. In the Agency's view these methods "significantly overstate need." The method creates a "candidate pool" for the future long-term care hospital users. But it does not include enough information on severity of illness of the patients, in AHCA's view, to give a sense of who might be expected to appropriately use the service. Further, the Agency sees no reason to believe that all long-stay patients in acute care short-stay hospitals are appropriate candidates for long-term hospital services. Lastly, AHCA believes that LTCH applicants should develop an "acuity coefficient or an acuity factor," tr. 2627, to be considered as part of an LTCH need methodology. The need methodology employed by MJH differed substantially from the methodologies of the other three applicants. Because it is more conservative and yields a need "approximately a tenth of what the other three propose," tr. 2500, at the time of hearing AHCA was much more comfortable with MJH's need methodology. By the time AHCA filed its PRO, its comfort with MJH's need methodology had solidified and improved to the point that AHCA changed its position with regard to MJH. Describing MJH's "use rate model" as conservative, see Agency for Health Care Administration Proposed Recommended Order, at 24, AHCA proposed the following finding of fact in support of its conclusion that MJH's application be approved: "Miami Jewish Home projected a reasonably reliable bed need using approved, conservative, but detailed and supportable, need methodologies." Id. at 25. MJH MJH, is an existing not-for-profit provider of comprehensive health and social services in Miami-Dade County. As recited in the Omissions Response to CON 9893: [MJH's] mission is to be the premier multi- component, not-for-profit charitable health care system in South Florida, guided by traditional Jewish values, dedicated to effectively and efficiently serving a non- sectarian population of elderly, mentally ill, disabled, and chronically ill people with a broad range of the highest quality institutionally-based, community-based and ambulatory care services. MJH Ex. 1. Originally founded in 1945 to provide residential care for Jewish persons unable to access services elsewhere, MJH is now in its 62nd year of operation. MJH enjoys a good reputation within its community. MJH is located at Northeast Second Avenue and 2nd Street in north-central Miami in one of the most densely populated areas of the County. Known as “Little Haiti,” the surrounding community is primarily low income, and is a federally designated “medically underserved area.” A “safety net” provider of health care services, MJH's SNF is the largest provider of Medicaid skilled nursing services in the State of Florida. MJH assists its patients/residents in filing Medicaid applications, and also assists individuals in applying for Medicaid for community-based services. This same kind of assistance will also be provided to patients of the MJH LTCH. A 2004 study conducted by the Center on Aging at Florida International University identified unmet needs among elders living within the zip codes surrounding MJH. The study notes that the greatest predictors of need for home and community-based services are poverty, disability, living alone, and old age. Several of the zip codes within the MJH PSA were found to have relatively large numbers of at risk elders due to poverty and dramatic community changes. The study has assisted MJH in identifying service gaps within the community, and in focusing its efforts to serve this at-risk population. Following its most recent JCAHO accreditation survey, both MJH’s hospital and SNF received a three-year “accreditation without condition,” which is the highest certification awarded by JCAHO. MJH is a national leader in the provision of comprehensive long-term care services. MJH has been recognized on numerous occasions for its innovative long-term and post- acute care programs. The awards and recognitions include the Gold Seal Award for Excellence in Long Term Care, the "Best Nursing Home" Award from Florida Medical Business and "Decade of Excellence Award" from Florida Health Care Association. An indicator of quality of care, AHCA’s “Gold Seal” designation is especially significant. Of the 780 nursing homes in Florida, only 13, including MJH, have met the criteria to be designated as Gold Seal facilities. MJH operates Florida's only Teaching Nursing Home Program. Medical students, interns, and other health professionals rotate through the service program in the nursing home and hospital on a regular basis. Specifically, MJH serves as a student and resident training site for the University of Miami and Nova Southeastern University Medical Schools, and the Barry University, FIU, and University of Miami nursing schools. The LTCH would enhance these capabilities and give physicians in training additional opportunities. Not only will this enhance their education, but also will contribute to the high quality of care to be provided in the MJH LTCH. MJH has been the site and sponsor of many studies to enhance the delivery of social and health services to elderly and disabled persons. Most recently, MJH was awarded a grant to do research on fall prevention in the nursing home. MJH is committed to continue research on the most effective means of delivering rehabilitative and long-term care services to a growing dependent population. The development of an LTCH at MJH will enhance the opportunities for this research. MJH operates Florida’s first and only PACE Center (Program of All-inclusive Care for the Elderly) located on the main Douglas Gardens campus. The program provides comprehensive care (preventive, primary, acute and long-term) to nursing home eligible seniors with chronic care needs while enabling them to continue to reside in their own home as long as possible. MJH was recently approved by the Governor and Legislature to open a second PACE site, to be located in Hialeah. The proposed 30-bed LTCH will be located on MJH’s Douglas Gardens Campus. The Douglas Gardens Campus is the site of a broad array of health and social services that span the continuum of care. These programs include community outreach services, independent and assisted living facilities, nursing home diversion services, chronic illness services, outpatient health services, acute care hospital services, rehabilitation, post-acute services, Alzheimer’s disease services, pain management, skilled nursing and hospice. LTCH services, however, are not currently available at MJH. Fred Stock, the Chief Operating Officer of MJH is responsible for the day-to-day operation of the MJH nursing home and hospital and has 24 years experience in the administration of long-term care facilities. An example of Mr. Stock’s leadership is that when he came to MJH, its hospice program had management issues. He assessed the situation and then made a management change which has resulted in a successful turnaround of the program. There are now 462 skilled nursing beds licensed and operated by MJH at the Douglas Garden’s Campus. All of these beds are certified by Medicare. Community hospitals have come to rely on these skilled nursing beds as a placement alternative for their sickest and most difficult-to-place, post-acute patients. The discharges of post-acute patients in the SNF at Douglas Gardens more than doubled from 350 in FY 2002 to 769 in FY 2005. Dr. Tanira Ferreira is the Medical Director of the MJH ventilator unit. Dr. Ferreira is board-certified in the specialties of Internal Medicine, Pulmonary Diseases, Critical Care Medicine, and Sleep Disorders. Dr. Ferreira will be the Medical Director of the MJH LTCH. In addition to Dr. Ferreira, MJH has five other pulmonologists on its staff. MJH also employs: a full-time Medical Director (Dr. Michael Silverman); three full-time physicians whose practices are restricted to MJH hospital and SNF patients; and four full-time nurse practitioners whose practices are restricted to residents of the SNF. MJH employs two full-time psychiatrists, two full-time psychologists, and seven full-time Master’s level social workers. The MJH medical staff also includes many specialist physicians such as cardiologists, surgeons, orthopedists, nephrologists and opthamologists, and other specialists are called for a consultation as needed. A number of the MJH patients/residents are non-English speakers. However, many of the MJH employees, including all of its medical staff, are bilingual. Among the languages spoken by MJH staff are Haitian, Spanish, Russian, Yiddish, French, and Portuguese. This multi-language capability greatly enhances patient/resident communication and enhances MJH’s ability to provide supportive services. The proposed project is the development of a 30-bed LTCH in Miami-Dade County. The LTCH will be located in renovated space in an existing facility and will conform to all the physical plant and operating standards for a general hospital in Florida. The estimated project cost is $5,315,672. The first patient is expected to be admitted by July 1, 2007. The LTCH will be considered an HIH under Federal regulations 42 CFR Section 412.22(e). The LTCH will comply with these requirements including a separate governing body, separate chief medical officer, separate medical staff, and chief executive officer. The LTCH will perform the hospital functions required in the Medicare Conditions of Participation set forth at 42 CFR Section 482. In addition, fewer than 25 percent of the admissions to the LTCH will originate from the MJH acute care hospital, and less than 15 percent of the LTCH operating expenses will be through contracted services with any other MJH affiliate, including the acute care hospital. The separate LTCH governing body will be legally responsible for the conduct of the LTCH as an institution and will not be under the control of the MJH acute care hospital. Finally, less than five percent of the annual MJH LTCH admissions will be re-admissions of patients who are referred from the MJH SNF or the MJH hospital. Each referral to the LTCH will be carefully assessed using the InterQual level-of-care criteria to ensure that the most appropriate setting is chosen. MJH is also a member of the ECIN (Extended Care Information Network) system. As a member of this system, MJH is able to make referrals and place patients who may not be appropriate for its own programs. Only those patients who are medically and functionally appropriate for the LTCH will be admitted to the LTCH program. Many patients admitted to the MJH LTCH will have complex medical conditions and/or multiple-system diagnoses in one or more of the following categories: Respiratory disorders care (including mechanical ventilation or tracheostomy care) Surgical wound or skin ulcer care Cardiac Care Renal disease care Cancer care Infectious diseases care Stroke care The patient and family will be the focus of the interdisciplinary care provided by the MJH LTCH. The interdisciplinary care team will include the following disciplines: physicians, nurses, social workers, psychologists, spiritual counselors, respiratory therapists, physical therapists, speech therapists, occupational therapists, pharmacists, and dietitians. MJH uses a collaborative care model that will be replicated in the LTCH and will enhance the effectiveness of the interdisciplinary team. The direct care professionals in the LTCH will maintain an integrated medical record, so that each member of the care team will have ready access to all the information and assessments from the other disciplines. Nursing staff will provide at least nine hours of nursing care per patient per day. Seventy-five percent of the nursing staff hours will be RN and LPN hours. Therapists (respiratory, physical, speech and occupational) will provide at least three hours of care per patient day. The MJH medical staff includes a wide array of specialty consultants that will be available to LTCH patients. The specialties of pulmonology, internal medicine, geriatrics and psychiatry will be available to each patient on a daily basis. A complete listing of all of the medical specialties available to MJH patients was included with its application. The interdisciplinary team will meet at least once per week to assess the care plan for each patient. The care plan will emphasize rehabilitation and education to enable the patient to progress to a less restrictive setting. The care team will help the patient and family learn how to manage disabilities and functional impairments to facilitate community re-entry. Approval of the LTCH will allow the MJH to "round out" the continuum of care it can offer the community by placing patients with clinically complex conditions in the most appropriate care setting possible. This is particularly true of persons who would otherwise have difficulty in accessing LTCH services. MJH has committed to providing a minimum of 4.2 percent of its patient discharges to Medicaid and charity patients. However, Mr. Stock anticipates that the actual percentage will be higher. If approved, MJH has committed to licensing and operating its proposed LTCH. MJH already has a number of the key personnel that will be required to implement its LTCH, including the Medical Director and other senior staff. In addition, MJH has extensive experience gleaned from both its acute care hospital and SNF in caring for very sick patients. In short, MJH has the clinical, administrative, and financial infrastructure that will be required to successfully implement its proposed LTCH. Approval of the MJH LTCH will dramatically reduce the number of persons who are now leaving the MJH PSA to access LTCH services. The hospitals in close proximity to MJH have LTCH use rates that are very low in comparison to other hospitals that are closer to existing LTCHs. Thus, it is likely that there are patients being discharged from the hospitals close to MJH that could benefit from LTCH services, but are not getting them because of access issues or because the existing LTCHs are perceived to be too far away. A number of hospitals located close to MJH are now referring ventilator-dependent patients to MJH, and would also likely refer patients to the MJH LTCH. Because the majority of the infrastructure required is already in place, the MJH HIH can be implemented much more quickly and efficiently than can a new freestanding LTCH. For example, ancillary functions such as billing, accounting, human resources, housekeeping and administration already exist, and the LTCH can be efficiently integrated into those existing operations on campus. MJH will be able to appropriately staff its LTCH through a combination of its current employees and recruitment of new staff as necessary. In addition, MJH will be establishing an in-house pharmacy and laboratory within the next six months, which will also provide services to LTCH patients. On-site radiology services are already available to MJH patients. MJH has an excellent track record of successfully implementing new programs and services. There is no reason to believe that MJH will not succeed in implementing a high quality LTCH if its application is approved. MJH's Ventilator Unit By the time ventilator-dependent and other clinically complex patients are admitted to a nursing home they have often exhausted their 100 days of Medicare coverage, and have converted to Medicaid. Since Medicaid reimbursement is less than the cost of providing such care, most nursing homes are unwilling to admit these types of patients. Thus, it is very difficult to place ventilator patients in SNFs statewide. The problem is further exacerbated in District 11 by the lack of any hospital-based skilled nursing units. With the recent closure of two SNF-based vent units (Claridge House and Greynolds Park) there are now only three SNF-based vent units remaining in District 11. They are located at MJH, Hampton Court (10 beds), and Victoria Nursing Home. MJH instituted a ventilator program in its SNF in early 2004. Many of the patients admitted into the ventilator program fall into the SE3 RUG Code. On July 1, 2005, there were 24 patients in the SE3 RUG code in MJH. Only one other SNF in District 11 has more than four SE3 RUG patients in its census on an average day. Over 60 percent of the Medicare post-acute census at the MJH SNF falls into the RUG categories associated with extensive, special care or clinically complex services. This mix of complex cases is about three times higher than average for District 11 SNFs. Although some of the patients now admitted to the MJH SNF vent unit would qualify for admission to an LTCH, there are also a number of patients who are not admitted because MJH cannot provide the LTCH level of care required. SNF admissions are required to be initiated following a STACH admission. MJH has actively marketed its vent unit to STACHs. Similarly most LTCH admissions come from STACHs and, like MJH’s efforts, LTCHs also market themselves to STACHs. Hospitals providing tertiary services and trauma care will generate the greater number of LTCH referrals, with approximately half of all LTCH patients being transferred from an ICU. The implementation of the MJH ventilator unit required the development of protocols, infrastructure, clinical capabilities and internal resources beyond those found in most SNFs. Dr. Ferreira conducted pre-opening comprehensive staff education. These capabilities will serve as a precursor to the development of the next stage of service delivery at MJH: the LTCH. MJH’s vent unit provides care for trauma victims, and recently received a Department of Health research grant to develop a program for long-term ventilator rehab for victims of trauma. Jackson Memorial Hospital is experiencing difficulty in placing "certain" medically complex patients, who at discharge, have continuing comprehensive medical needs. MJH is the only facility in Dade County that has accepted Medicaid ventilator patients from Jackson. Mt. Sinai Medical Center also has difficulty placing medically complex patients, particularly those requiring ventilator support, wound care, dialysis and/or other acute support services. Mt. Sinai is a major referral source to MJH and supports its LTCH application. MJH has received statewide referrals, including from the Governor's Office and from AHCA, of difficult to place vent patients. Most of these referrals are Medicaid patients. Ten of the MJH vent beds are typically utilized by Medicaid patients. Although MJH would like to accommodate more such referrals, there are financial limitations on the number of Medicaid patients that MJH can accept at one time. Promise Promise owns and operates approximately 718 LTCH beds outside of Florida and employs an estimated 2,000 persons. Promise proposes to develop and LTCH facility in the western portion of the County made up of 59,970 gross square feet, 60 private beds including an 8-bed ICU, and various ancillary and support areas. The projected costs to construct its freestanding LTCH is $11,094,500, with a total project cost of $26,370,885. As a condition of its CON if its application is approved, Promise agrees to provide three percent of projected patient days to Medicaid and charity patients. Select Select-Dade proposes to locate its 60-bed, freestanding LTCH in the western portion of Miami-Dade County. The Agency denied Select-Dade's application because of its failure to prove need. Otherwise, the application meets the CON review criteria and qualifies for comparative review with the other three applicants. Select-Dade proposes to serve the entire District, but it has targeted the entire west central portion of the County that includes Hialeah, Hialeah Gardens, Doral, Sweetwater, Kendall, and portions of unincorporated Miami. This area is west of State Road 826 (the "Palmetto Expressway"), south of the County line with Broward County, north of Killian Parkway and east of the Everglades ("Select's Target Service Area"). To be located west of the Palmetto Expressway, east of the Florida Turnpike, north of Miller Drive and south of State Road 836, the site for the LTCH will be generally in the center of Select's Target Service Area. Approximately 700,000 people (about 30 percent of the County's population) reside within Select-Dade's Target Service Area. This population of the area is expected to grow almost ten percent in the next five years. The rest of the County is expected to grow about five and one-half percent. Kindred Kindred proposes to construct a 60-bed LTCH in the County. It will consist of 30 private rooms, 20 beds in 10 semi-private rooms, and 10 ICU beds. The facility would include the necessary ancillary service, including two operating rooms, a radiology suite, and a pharmacy. Kindred utilizes a screening process before admission of a patient to assure that the patient needs LTCH level care that includes the set of criteria known as InterQual. InterQual categorizes patients according to their severity of illness and the intensity of services they require. Every patient admitted to a Kindred hospital must be capable of improving and the desire to undergo those interventions aimed at improvement. Kindred does not provide hospice or custodial care. In addition, through its reimbursement process, the federal government provides strong disincentives toward LTCH admission of inappropriate patients. Furthermore, every Kindred hospital has a utilization review (UR) plan to assure that patients do not receive unnecessary, unwanted or harmful care. In addition to the UR plan, the patient's condition is frequently reviewed by nursing staff, respiratory staff and by a multi-disciplinary team. Kindred had not selected a location at the time it submitted its application. Kindred anticipates, however, that its facility if approved would be located in the western portion of the County. Stipulated Facts As stated by Kindred in its Proposed Recommended Order, the parties stipulated to the following facts (as well as a few other related to identification of the parties): Each applicant timely filed the appropriate letter of intent, and each such letter contained the information required by AHCA. Each CON application was timely filed with AHCA. Following its initial review, AHCA issued a State Agency Action Report ("SAAR") which indicated its intent to deny each of the applications. Each applicant timely filed the appropriate petition with AHCA, seeking a formal hearing pursuant to Sections 120.569 and 120.57, Fla. Stat. In the CON batch cycle that is the subject of this proceeding, Promise XI proposed to construct a 59,970 square foot building at a total project cost of $26,370,885.00, conditioned upon providing 3 percent of its patient days to Medicaid and charity patients. Select proposes to construct a 62,865 square foot building at a total project cost of $22,304,791.00, conditioned upon providing 2.8 percent of its patient days to Medicaid and charity patients. MJHHA proposes to renovate 17,683 square feet of space at a total project cost of $5,315,672.00, conditioned upon providing 4.2 percent of its patient days to Medicaid and charity patients. Kindred proposes to construct a 69,706 square foot building at a total project cost of $26,538,458.00, conditioned upon providing 2.2 percent of its patient days to Medicaid and charity patients. Long term hospitals meeting the provisions of AHCA Rule 59A-3.065(27), Fla. Admin. Code, are one of the four classes of facilities licensed as Class I hospitals by AHCA. The length of stay in an acute care hospital for most patients is three to five days. Some hospital patients, however, are in need of acute care services on a long- term basis. A long-term basis is 25 to 34 days of additional acute are service after the typical three to five day stay in a short-term hospital. Although some of those patients are "custodial" in nature and not in need of LTCH services, many of these long-term patients are better served in a LTCH than in a traditional acute care hospital. Within the continuum of care, the federal government's Medicare program recognizes LTCHs as distinct providers of services to patients with high levels of acuity. The federal government treats LTCH care as a discrete form of care, and treats the level of service provider by LTCHs as distinct, with its own Medicare payment system of DRGs and case mix reimbursement that provides Medicare payments at rates different from what the Medicare prospective payment system ("PPS") provides for other traditional post-acute care providers. The implementation by the Centers for Medicare and Medicaid Services ("CMS") of categories of payment design specifically for LTCHs, the "LTC-DRG," is a sign of the recognition by CMS and the federal government of the differences between general hospitals and LTCHs when it comes to patient population, costs of care, resources consumed by the patients and health care delivery. Joint Pre-hearing Stipulation at 4, 6-7, 9-10. Applicable Statutory and Rule Criteria The parties stipulated that the review criteria in Subsections (1) through (9) of Section 408.035, Florida Statutes (the "CON Review Criteria Statute"), apply to the applications in this proceeding. Subsection (10) of the CON Review Criteria Statute, relates to the applicant's designation as a Gold Seal Program Nursing facility. Subsection (10) is applicable only "when the applicant is requesting additional nursing home beds at that facility." None of the applicants are making such a request. MJH's designation as a Gold Seal Program is not irrelevant in this proceeding, however, since it substantiates MJH's "record of providing quality of care," a criterion in Subsection (3) of the CON Review Criteria Statute. The Agency does not have a need methodology for LTCHs. Nor has it provided any of the applicants in this proceeding with a policy upon which to determine need for the proposed LTCH beds. The applicants, therefore, are responsible for demonstrating need through a needs assessment methodology of their own. Topics that must be included in the methodology are listed Florida Administrative Code Rule 59C-1.008(2)(e)2., a. through d. Subsection (1) of the CON Review Criteria: Need Not only does AHCA not have an LTCH need methodology in rule or a policy upon which to determine need for the proposed LTCH beds, it did not offer a methodology for consideration at hearing. This is the typical approach AHCA takes in LTCH cases; demonstration of LTCH need through a needs assessment methodology is left to the parties, a responsibility placed upon them in situations of this kind by Florida Administrative Code Rule 59C-1.008(2)(e)2. MJH's Need Methodology Unlike the other three applicants, all of whom used one form or another of STACH long-stay methodologies, MJH utilized a use-rate analysis which projects LTCH utilization forward from District 11's recent history of increased utilization. A use-rate methodology is one of the most commonly used health care methodologies. The MJH use-rate methodology projected need based upon all of District 11. The methodology projected need for 42 LTCH beds in 2008, with that number growing incrementally to 55 beds by 2012. Because statewide LTCH utilization data is not reliable when looking at any particular district, MJH developed a District 11 use-rate, by age cohort, to yield a projection of LTCH beds needed. The use-rate is derived from the number of STACH admissions compared to the number of LTCH admissions, by age cohort. Projected demographic growth by age cohort was applied to determine the number of projected LTCH admissions. The historic average LTCH LOS in District 11 was applied to projected admissions and then divided by 365 to arrive at an ADC. That ADC was then adjusted for an occupancy standard of 85 percent, which is consistent with District 11. A number of states have formally adopted need methodologies that use an approach similar to MJH's in this case. Kindred has used a shortcut method of the use rate model in other states for analyzing proposed LTCHs "when there is not much data to work with." Tr. 1744. The methodology used by MJH was developed by its expert health planner, Jay Cushman. The methodology developed by Mr. Cushman was described by Kindred's health planner as "a couple of steps beyond" Kindred's occasionally-used shortcut method. Kindred's health planner described Mr. Cushman's efforts with regard to the MJH need methodology as "a very nice job." Tr. 1745. Mr. Cushman created a use-rate by examining the relationship between STACH admissions and LTCH admissions. The use-rate actually grows as it is segmented by age group, and thus the growth in the elderly population incrementally increases the utilization rate. MJH’s application demonstrated how LTCH utilization has varied greatly statewide, and how the District 11 market has a significant history of utilizing LTCH services. For planning purposes the history of District 11 is a significant factor, and the MJH methodology is premised upon that history, unlike the other methodologies. MJH demonstrated a strong correlation between STACH and LTCH utilization in District 11, where 98 percent of LTCH admissions are referred from STACHs. MJH also demonstrated that the south and western portions of Miami-Dade have overlapping service areas from the three existing LTCHs, while northeastern Miami-Dade has only one provider with a similar service area, Kindred Hollywood in neighboring District 10. This peculiarity explains why the LTCH out-migration trend is much stronger in northeastern portions of the District. The area most proximate to MJH would enjoy enhanced access to LTCH services, including both geographic and financial access, if its program is approved. In short, as AHCA, now agrees, MJH demonstrated need for its project through a thorough and conservative analysis. All parties agree that the number of LTCH beds yielded by MJH's methodology are indeed needed. Whether more are needed is the point of disagreement. For example, Mr. Balsano plugged the 2003 use rate into MJH's methodology instead of the 2004 used by MJH. Employment of the 2003 use rate in the calculation has the advantage that actual 2004 and 2005 data can serve as a basis of comparison. Mr. Balsano explained the result: "The number of filled beds in 2005 in District 11 would exceed by 33 beds what the use rate approach would project as needed in 2005." Tr. 370. The reason, as Mr. Balsano went on to explain, is that the use-rate changed dramatically between 2002, 2003, and 2004. Thus MJH's methodology, while yielding a number of beds that are surely needed in the District, may yield a number that is understated. This is precisely the opposite problem of the need assessment methodologies of the other three applicants, all of which overstated LTCH bed need in the District. The Need Methodologies of the Other Three Applicants The need methodologies presented by the other applicants vary to some degree. All three, however, are based on STACH long-stay data. Long-stay STACH analyses rely upon a number of assumptions, but fundamentally they project need forward from historic utilization of STACHs. The methodologies used by each of these three applicants identify patients in STACHs whose stays exceeded the geometric mean of length of stay plus fifteen days (the "GMLOS+15 Methodologies"), although the extent of the patients so identified varied depending on the number of DRGs from which the patients were drawn. Each of the proponent’s projects would serve only a relatively small fraction of the District 11 patients purported by the GMLOS+15 Methodologies to be in need of LTCH services. The lowest projected need of the three was produced by Promise: 393 beds in 2010. Promise's methodology is more conservative than that of Kindred and Select. Unlike the latter two, Promise reduced the number of potential projected admissions to be used in its calculation. The reduction, in the amount of 25 percent of the projection of 500 beds, was made because of several factors. Among them were anticipation that MedPAC's suggestions for ensuring that patients were appropriate for LTCH admission, which was expected to reduce the number of LTCH admissions, would be adopted. The methodologies proposed by Kindred and Select-Dade did not include the Promise methodology's reduction potentially posed by the impact of new federal regulation. Kindred's methodology projected need for 509 new LTCH beds in District 11; Select-Dade's methodology projected need for 556 beds. One way of looking at the substantial bed need produced by the GMLOS+15 Methodologies used by Promise, Select and Kindred was expressed by Kindred. As an applicant proposing a new hospital of 60 beds, when its need methodology yielded a need in the District for more than 500 beds, Kindred found the methodology to provide assurance that its project is needed. On the other hand, if the methodology was reliable then the utilization levels of the two Kindred hospitals in Broward County in relative proximity to a populated area of District 11 would have been much higher in 2004 and 2005, given the substantial out-migration to those facilities from District 11. The Kindred and Select methodologies are not reliable. Their flaws were outlined at hearing by Mr. Cushman, MJH's expert health planner who qualified as an expert with a specialization in health care methodology. Mr. Cushman attributed the flaws to Promise's methodology as well but as explained below, Promise's methodology is found to be reliable. Comparison of the projections produced by MJH's use rate methodology with the projections produced by the other three methodologies results in "a tremendous disconnect," tr. 1233, between experiences in District 11 upon which MJH's methodology is based and the GMLOS+15 Methodologies' bed need yield "that are three or four or five times as high as have actually been expressed in the existing system." Id. One reason in Mr. Cushman's view for the disconnect is that the GMLOS+15 Methodologies identify all long-stay patients in STACHs as candidates for LTCH admission when "there are many reasons that patients might stay for a long time in an acute care facility that are not related to their clinical needs." Tr. 1234. This criticism overlooks the limited number of long-stay patients in STACHs used by the Promise methodology but is generally applicable to the Select and Kindred methodologies. Mr. Cushman performed detailed analysis of the patients used by Kindred in its projection to reach conclusions applicable to all three GMLOS+15 Methodologies. Mr. Cushman's analysis, therefore, related to actual patients. They are based on payor mix, discharge status, and case mix. The analysis showed that the GMLOS+15 Methodologies are "disconnected from the fundamental facts on the ground," tr. 1240, in that the methodologies produce tremendous unmet need not reconcilable with actual utilization experience. Some of the gaps based on additional case mix testing were closed by Kindred's expert health planner. The additional Kindred test, however, did not completely close the gap between projected unmet need and actual utilization experience. Mr. Cushman summed up his basis for concluding that the GMLOS+15 Methodologies employed by Kindred, Select-Dade and Promise are unreliable: [W]e have an untested method that's disconnected from actual utilization experience on the ground. And it provides projections of need that are way in excess of what the experience would indicate and way in excess of what the applicants are willing to propose and support [for their projects.] So for those reasons, I considered [the GMLOS+15 method used by Kindred, Select-Dade and Promise] to be an unreliable method for projecting the need for LTCH beds. Tr. 1243-44. The criticism is not completely on point with regard to the Promise methodology as explained below. Furthermore, at hearing, Mr. Balsano made adjustments to the Promise GMLOS+15 Methodology ("Promise's Revised Methodology"). Although not sanctioned by the Agency, the adjustments were ones that made the Agency more comfortable with the numeric need they produced similar to the Agency's comments at hearing about MJH's methodology. For example, if the number of needed beds were reduced by 50 percent (instead of 25 percent as done in Promise's methodology) to account for the effect of federal policies and alternative providers and if an 85 percent occupancy rate were assumed instead of an 80 percent occupancy rate, the result would be reduce the LTCH bed need yielded by Promise's methodology to 200. These adjustments make Promise's Revised Methodology more conservative than Select's and Kindred's. In addition, Promise's methodology commenced with a much fewer number of STACH patients because Promise based on its inquiry into the patient population that is "using LTCHs in Florida right now." Tr. 351. Examination of AHCA's database led to Promise's identification of patients in 169 DRGs currently served in Florida LTCHs. In contrast, Select-Dade and Kindred, used 483 and 390 DRGs respectively. Substantially the same methodology was used by Promise in Promise Healthcare of Florida III, Inc. v. AHCA, Case No. 06-0568CON (DOAH April 10, 2007). The methodology, prior to the 25 percent reduction to take into account the effects of new federal regulations, was described there as: Long-stay discharges were defined using the following criteria: age of patient was 18 years or older; the discharge DRG was consistent with the discharge DRGs from a Florida LTCH; and the ALOS in the acute care hospital was at the GMLOS for the specific DRG plus 15 days or more. Applying these criteria reduced the number of DRGs used and the potential patient pool. Id. at 19 (emphasis supplied.) The methodology in this case produced a number that was then reduced by 25 percent, just as Promise did in its application in this case. The methodology was found by the ALJ to be reliable. If the methodology there were reliable then Promise's Revised Methodology (an even more conservative methodology) must be reliable as well as the numeric need for District 11 LTCH beds it yields: 200. Such a number (200) would support approval of MJH's application and two of the others and denial of the remaining application or denial of MJH's application and approval of the three other applications. Neither of these scenarios should take place. However high a number of beds that might have been projected by a reasonable methodology, no more than two of the applications should be granted when one takes into consideration the ability of the market to absorb new providers all at once. Tr. 518-520. Nonetheless, such a revised methodology would allow approval of MJH and one other of the applicants. Furthermore, there are indications of bed need greater than the need produced by MJH's methodology. Market Conditions, Population and History The large majority of patients admitted to LTCHs are elderly, Medicare beneficiaries. Typically, elderly persons seek health care services close to their homes. This is often because the elderly spouse or other family members of the patient cannot drive to visit the patient. This contributes to the compressed service areas observed in District 11. Historic patient migration patterns show that for STACH services, there is nine percent in-migration to Miami- Dade, and only five percent out-migration from Miami-Dade, a normal balance. Most recent data for LTCH service, however, shows an abnormal balance: three percent in-migration and 22 percent out-migration. The current utilization of existing LTCHs in District 11 and the high out-migration indicates that additional LTCH beds are needed. Notably, of the 400 District 11 residents who accessed LTCH care in Broward County in 2004, 114 (over 25 percent) lived in the 15 zip codes closest to MJH. MJH’s location will allow its LTCH to best impact and reduce out- migration from District 11 for LTCH services. Neither Kindred nor Promise has a location selected, and while Select-Dade has a “target area,” its actual location is unknown. None of the existing LTCHs in District 11 or in District 10 have PSAs that overlap with the area around MJH. For example, the Agency had indicated that there was no need in the case which led to approval of the Sister Emmanuel LTCH at Mercy Hospital. It was licensed in July of 2002, barely half a year after the Select-Miami facility was licensed. Both facilities were operating at or near optimal functional capacity less than two years from licensure without adverse impact to Kindred-Coral Gables. The utilization to capacity of new LTCH beds in the District indicate a repressed demand for LTCH services. The demand for new beds, however, is not limited to the eastern portion of the County. The demand exists in the western portion as well where there are no like and existing facilities. Medicare patients who remain in STACHs in excess of the mean DRG LOS become a financial burden on the facility. The positive impact on them of an LTCH with available beds is an incentive for them to refer LTCH appropriate patients for whom costs of care exceeds reimbursement. There were a total of 1,231 adult discharges from within Select-Dade's targeted service area with LOS of 24 or more days in calendar year 2004. Medical Treatment Trends in Post-Acute Service The number of LTCHs in Florida has increased substantially in recent years. The increase is due, in part to the better treatment the medically complex, catastrophically ill, LTCH appropriate patient will usually receive at an LTCH than in traditional post acute settings (SNFs, HBSNUs, CMR, and home health care). The clinical needs and acuity levels of LTCH- appropriate patients require more intense services from both nursing staff and physicians that are available in an LTCH but not typically available in the other post acute settings. LTCH patients require between eight to 12 nursing hours per day and daily physician visits. CMS reimbursement at the Medicare per diem rate would not enable a SNF to treat a person requiring eight to 12 hours of nursing care per day. CMR units and hospitals are inappropriate for long- term acute care patients who are unable to tolerate the minimum three hours of physical therapy associated with comprehensive medical rehabilitation. The primary focus of an LTCH is to provide continued acute care and treatment. Patients in a CMR are medically stable; the primary focus is on restoration of functional capabilities. Subsection (2): Availability, Quality of Care, Accessibility, Extent of Utilization of Existing Facilities There are 27 acute care hospitals dispersed throughout the County. Only three are LTCHs. The three existing LTCHs, all in the eastern portion of the County, are not as readily accessible to the population located in the western portion as would be an LTCH in the west. Approval of an application that will lead to an LTCH in the western portion of the County will enhance access to LTCH services or as Ms. Greenberg put it hearing, "if only one facility is going to be built, the western part of the county is where that needs to go." Tr. 2101. See discussion re: Subsection (5), below. In confirmation of this opinion, Dr. Gonzalez pointed out several occasions when he was not able to place a patient at one of the existing LTCHs due to family member reluctance to place their loved one in a facility that would force the family to travel a long distance for visits. LTCH appropriate patients are currently remaining in the acute care setting with Palmetto General and Hialeah Hospital among the busiest of the STACHs in the County. Both are within Select-Dade's targeted service area. From 2002 to 2005 the number of LTCH beds in the District increased from 53 to 122. During the same period, the number of patient days increased from 18,825 to 37,993. Recently established LTCH facilities in District 11 have consistently reached high occupancy levels, approaching 90 percent at the time of hearing. From 2001 to 2004, the use rate for LTCH services grew from 3.07 per 1,000 to 6.51 per 1,000. The increase in use rate for those aged 65 and over was even more significant; from 19.32 per 1,000 to 41.67 per 1,000. Kindred's Miami-Dade facility is licensed at 53 beds; of those seven are in private rooms; the facility has 23 semi- private rooms. As far back as 2001, the facility has operated at occupancy rates in excess of 85 percent; in 1998 and 1999 its occupancy rate exceeded 92 percent and 93 percent, respectively. More recently, it has operated at an ADC of 53 patients; 100 percent capacity. Several physicians and case managers provided support to Kindred's application by way of form letters, indicating patients would benefit from transfers to LTCHs and "an ever growing need for (these) services." Kindred's daily census has averaged 50 or more patients since 2004. Unlike an acute care hospital, Kindred has not experienced any seasonal fluctuations in its census, running at or above a reasonable functional capacity throughout the year. Taking various factors into consideration, including the number of semi-private beds, the facility is operating at an efficient occupancy level. Looking ahead five years, the capacity at Kindred's facility cannot be increased in order to absorb more patients. As designed, the facility cannot operate more efficiently than it has at 85 percent occupancy. Select's facility, located in a medical arts building, houses 34 private and six semi-private beds. In 2005, Select's facility operated at an average occupancy of almost 88 percent. Unlike Kindred, Select can add at least seven more beds to its facility by converting offices. As a hospital within a hospital, Sister Emmanuel's 29-bed facility is subject to limits on the percentage of admissions it can receive from "host" Mercy Hospital; even with such restrictions, its 2005 occupancy rate was 84.6 percent. Because of gender mix and infection opportunities, among other reasons, it is difficult to utilize semi-private beds. Only three District facilities offer ventilator care: MJHHA, HMA Hampton Court, and Victoria Nursing Home. Other health care facility settings do not serve as reasonable alternatives to the LTCH services proposed here. In 2004, roughly one quarter of District 11 residents, (nearly 400 patients), requiring LTCH services traveled to District 10 facilities. In 2005 that number fell to 369, or about 22 percent. Although there is a correlation between inpatient acute care services and LTCH services, the out-migration of patients requiring LTCH services indicated above differs markedly from the out-migration numbers generated by acute care patients. The primary north-south road configurations in the county are A1A, U.S. 1 and I-95 on the east and the Palmetto Expressway on the west. The primary east-west road configurations are composed of the Palmetto Expressway extension, S.R. 112; the Airport Expressway feeding into the Miami International Airport area and downtown Miami, S.R. 836 to Florida's Turnpike, and the Don Shula Expressway in the southwest. Assuming no delays, a trip by mass transit, used by the elderly and the poor, from various areas in Miami-Dade to the nearest LTCH outside District 11 (Kindred Hollywood) runs two to four hours one way. These travel times pose a special hardship to the elderly traveling to a facility to receive care or visit loved ones. While improvements in the system are planned over the next five years, they will not measurably change the existing travel times. These factors, along with high occupancy levels in District 11 LTCHs, indicate the demand for LTCH services in the District exceeds the existing bed supply. The three existing LTCHs have recently operated at optimal functional capacity or above it. On December 31, 2005, Select Specialty Hospital-Miami was operating with 95 percent occupancy. Subsection (3): Ability of the Applicant to Provide Quality of Care and the Applicant's Record of Providing Quality of Care As discussed above, MJH has the ability to provide high quality of care to its LTCH patients and an outstanding record of providing quality of care. Select-Dade has the ability to provide quality of care to its LTCH patients and a record providing quality of care. In treating and caring for LTCH patients, Select-Dade will use an interdisciplinary team of physicians, dieticians, respiratory therapists, physical therapists, occupational therapists, speech therapists, nurses, case managers and pharmacists. Each will discipline will play an integral part in assuring the appropriate discharge of the patient in a timely manner. The Joint Commission on Accreditation of Hospital Organizations (JCAHO) has accredited all Select facilities that have been in existence long enough to qualify for JCAHO accreditation. Both Select and Promise use various tools, including Interqual Criteria, to assure patients who need LTCH services are appropriately evaluated for admission. All Promise facilities are accredited by JCAHO. Promise has developed and implemented a company-wide compliance program, as well as pre-admission screening instruments, standards of performance and a code of conduct for its employees. Its record of providing quality of care was shown at hearing with regard to data related to its ventilator program weaning rate and wound healing rates. None of the parties presented evidence or argument that any of the other applicants was unable to provide adequate quality of care. The Agency adopted its statements from the SAAR at pages 43 through 45. The SAAR noted the existence of certain confirmed complaints at the two existing LTCH providers in Florida Select and Kindred. The number of confirmed complaints is relatively few. Kindred, for example, had 12 confirmed complaints with the State Department of Health at its seven facilities during a three-year period, less than one complaint per Kindred hospital every two years. Each applicant satisfies this criterion. Subsection (4): Availability of Resources, Health and Management Personnel, Funds for Capital and Operating Expenditures, Project Accomplishment and Operation The parties stipulated that all applicants have access to health care and management personnel. Select-Dade, Kindred and MJH all have funds for capital and operating expenditures and project accomplishment and operation. In turn, each of these three contends that Promise did not demonstrate the availability of funds for its project. This issue is dealt with below under the part of this order that discusses Subsection (6) of the Statutory CON Review Criteria. Subsection (5): Access Enhancement The applicants stipulated that "each of the applicants' projects will enhance access to LTCH services for residents of the district to some degree." All four applicants get some credit under this subsection because approval of their application will enhance access by meeting need that all of the parties now agree exists. Select-Dade and Promise propose to locate their projects in the western portion of the County. Kindred did not indicate a location. Location of an LTCH in the western portion of the County will enhance geographic access. MJH's location is in an area that has reasonable geographic access to LTCH services. But approval of its application, given the unique nature of its operation, chiefly its charitable mission, will enhance access to charity and Medicaid recipients. Approval of Select-Dade's application will also enhance cultural access to the Latin population in Hialeah. A substandard public transportation system for this population makes traveling to visit hospitalized loved ones an insurmountable task in some situations. Select-Dade has achieved a competent cultural atmosphere in its LTCH opened in the County in 2003. It has in excess of 100 multi-lingual employees, many of whom communicate in Spanish. The staff effectively communicates with patients with a variety of racial, cultural and ethnic backgrounds. Every new LTCH must undergo a qualifying period to establish itself as an LTCH for Medicare reimbursement. Specifically, the average LOS for all Medicare patients must meet or exceed 25 days. During the qualifying period the LTCH is reimbursed by Medicare under the regular STACH PPS, that is paid on a DRG basis as if the patient were in an ordinary general acute care hospital with its lower reimbursement. Upon initiation of their LTCH services, Promise, Kindred and Select all intend to restrict or suppress admissions to ensure longer LOS to meet the Medicare 25 day average LOS requirement, and to “minimize the costs” of obtaining LTCH certification and reimbursement. MJH will not be artificially restricting its LTCH admissions during the initial 6 month Medicare qualification period, even though the cost of providing services during this period will likely exceed the STACH Medicare reimbursement. MJH’s opening without suppressing admissions (as in the case of Sister Emmanuel), will enhance access by patients in need of these services during the initial qualification period. Subsection (6): Immediate and Long-term Financial Feasibility a. Short-Term Financial Feasibility Short-term financial feasibility is the ability of an applicant to fund the project. None of the parties took the position that the MJH project was not financially feasible in the short term. MJH's current assets are equal to current liabilities, a short-term position found by AHCA to be weak but acceptable. The financial performance of MJH, however, has been improving in the past three years. Expansion of existing services, improved utilization of services, and the development of new programs have all contributed to a significant increase in operational revenue and total revenue during that period. MJH has a history of receiving substantial charitable gifts (ranging from $6.2 million to $13.2 million annually during the past three years) and can reasonably expect to receive financial gifts annually of between $4-5 million in the coming years. However, MJH is moving away from reliance on charitable giving, and toward increasing self-sufficiency from operations. Approval of the LTCH will play a major role in achieving that goal. In addition, MJH has total assets, including land and buildings, of approximately $150 million. The cost to implement the proposed MJH LTCH is $5,319,647. The projected cost is extremely conservative in the sense of overestimating any potential contingency costs that could be incurred. MJH has the resources available to fund the project through endowments and investments (currently $41 million) as well as from operating cash flow and cash on hand. Select-Dade has an adequate short-term position and Kindred a good short-term position. None of the parties contest the short-term financial feasibility of either Select-Dade or Kindred. In contrast, both Select-Dade and Kindred contested the short-term financial feasibility of Promise. In accord is MJH's position expressed in its proposed recommended order: "Promise did not demonstrate the availability of funds for its project." Miami Jewish Home & Hospital For the Aged, Inc.'s Proposed Recommended Order, at 37. Promise's case for short-term financial feasibility rests on the historical relationship between the principals of Promise, Sun Capital Healthcare, Inc., and Mr. William Gunlicks of Founding Partners Capital Management Company ("Founding Partners.") The relationship has led to great success financially over many years. For example, through the efforts of Mr. Gunlicks, Sun Capital has generated over $2 billion in receivable financing. Founding Partners is an investment advisor registered with the Security Exchange Commission, the Commodity Futures Trading Commission, the National Futures Association and the State of Florida. As a general partner, it manages two private investment funds: Founding Partners Stable Value Fund and Founding Partners Equity Fund. Founding Partners also manages an International Fund for non-U.S. investors. Its base is composed of approximately 130 individuals with high net worth and access to capital. Founding Partners provided Promise with a "letter of interest" dated October 12, 2005, which indicated its interest in providing the "construction, permanent, and working capital financing for the development of a 60 bed long-term acute care hospital to be located in Dade County, Florida." Promise Ex. 3, Exhibit Promise XI, Gunlicks 4, 6-27-06. The letter makes clear, however, that it is not a commitment to finance the project: "The actual terms and conditions of this loan will be determined at the time of your loan request is approved. Please recognize this letter represents our interest in this project and is not a commitment for financing." Id. Testimony at hearing demonstrated a likelihood that Promise would be able to fund the project should it's application be approved. Mr. Balsano opined that this is sufficient to meet short-term financial feasibility: "[I]t's not required at this point that firm funding be in place. . . . [W]e have an appropriate letter from Mr. Gunlicks' organization that they're interested and willing to fund the project. It kind of goes to the second issue, which is, well, what if there were some issue in that regard? Would this project be financed. And I guess I would just have to say bluntly that in doing regulatory work for the last 20-some years, that if an applicant has a certificate of need for a given service, most lending institutions view that as a validation that the project is needed and can be supported. My experience has been that I have never personally witnessed a project that was approved that could not get financing. Tr. 392. Other expert health planners with considerable experience in the CON regulatory arena conceded that they were not aware of a CON-approved hospital project in the state that could not get financing. Despite the proof of a likelihood that Promise's project would be funded if approved, however, Promise failed to demonstrate as MJH, Select-Dade and Kindred continue to maintain, that funds are, indeed, available to fund the project. In sum, Promise failed to demonstrate the short-term financial feasibility of the project. The projects of MJH, Select-Dade and Kindred are all financially feasible in the short-term. b. Long-Term Financial Feasibility Long-term financial feasibility refers to the ability of a proposed project to generate a positive net revenue or profit at the end of the second full year of operation. MJH’s projected patient volumes are both reasonable and appropriate, given its current position in the community, the services it currently provides, and the need for LTCH services in the community. MJH’s projected payor mix was largely based upon the historical experience of the three existing LTCHs in the District, with the exception of the greater commitment to charity and Medicaid patients. The higher commitment to Medicaid/charity is consistent with MJH’s historical experience and status as a safety net provider. Sister Emmanuel is a 29-bed LTCH located within Mercy Hospital. As a similarly-sized HIH, a not-for-profit provider, and an entity with the same kind of commitment to Medicaid/charity patients, Sister Emmanuel is the best proxy for comparison of the financial projections contained in the MJH application. MJH projected its gross revenues based upon Sister Emmanuel’s general charge structure, adjusted for payor mix and inflated at 4 percent per year. The staffing positions, FTEs and salaries contained on Schedule 6 of each of the applications were stipulated to represent reasonable projections. MJH’s Medicaid net revenues were calculated by determining a specific Medicaid per diem rate using the Dade County operating cost ceiling and 80 percent of the capital costs. Given that many LTCH patients exhaust their allowable days of Medicaid coverage, 70 percent of the revenue associated with MJH’s Medicaid patient days were “written off” in total. Similarly, patient days associated with charity care and bad debt reflected no net revenue. MJH's Medicare net revenues were determined using the specific diagnosis (DRG) of each projected patient. For the first six months of operation it was assumed that MJH would receive the short-stay DRG reimbursement, and in the second 6 months and second year of operation would receive the LTCH DRG payment. Net revenues for the remaining payor categories were based upon the historical contractual adjustments of MJH. MJH’s projected gross and net revenues for its proposed LTCH are conservative, reasonable and achievable. However, if MJH has in fact understated the net revenues that it will actually achieve, the impact will be an improved financial performance and improved likelihood of long-term financial feasibility. MJH’s staffing expense projections were derived from its Schedule 6 projections (which were stipulated to be reasonable) with a 28 percent benefit package added. Non- ancillary expense costs were based upon MJH’s historical costs, while ancillary expenses (lab, pharmacy, medical supplies, etc.) were based upon the Sister Emmanuel proxy. Capitalized project costs, depreciation and amortization were derived from Schedule 1 and the historical experience of MJH, as were the non- operating expenses such as G&A, plant maintenance, utilities, insurance and other non-labor expenses. MJH’s income and expense projections are reasonable and appropriate, and demonstrate the long-term financial feasibility of MJH’s proposed LTCH. John Williamson is an Audit Evaluation and Review Analyst for AHCA. He holds a B.S. in accounting and is a Florida CPA. Mr. Williamson conducted a review of the financial schedules contained in each of the four applications at issue. In conducting his review, Mr. Williamson compared the applicants’ financial projections with the “peer group” of existing Florida LTCHs. With regard to the MJH projections, Mr. Williamson noted: Projected cost per patient day (CPD) of $1,087 in year two is at the group lowest value of $1,087. Projected CPD is considered efficient when compared to the peer group with CPD falling at the lowest level. The apparent reason for costs at this level are the low overhead costs associated with operating a hospital-within- a-hospital. MJH Ex.34, depo Ex. 4, Page 3 of 5. Mr. Williamson further concluded that MJH presented an efficient LTCH project, which is likely to be more cost- effective and efficient than the other three proposals. In its application, Kindred projected a profit of $16,747 at the end of year two of operation. Schedule 8A listed interest expense "as a way of making a sound business decision." Tr. 1458. Interest expense, however, is not really applicable because Kindred funds new projects out of operation cash flows. If the interest expense is omitted, profit before taxes would roughly $1.5 million. Taking taxes into consideration, the profit at the end of year two of operation would be roughly $1 million. Promise's projections the facility will be financially feasible in the long term are contained in its Exhibit 2, Schedules 5, 6, 7 and 8A and related assumptions. The parties agreed the information contained in Promise's Schedule 5, and the supporting assumptions, were reasonable. Schedule 5 indicates Promise projects an occupancy rate in Year 2 of 76.1 percent, based on 16,660 patient days and an ADC of 45.6 patients. To reach projected occupancy rates, Promise would have to capture roughly 15-17 percent of the LTCH market in Year 2. AHCA concluded Promise's project would be financially feasible in the long term. Only Select questioned Promise's projected long term financial feasibility. The attack, evidenced by Select Exhibits 12 and 14, was composed of a numbered of arguments, considered below: The estimated Medicare revenue per patient projected by Promise was high, and among other factors, erroneously assumed Medicare would increase reimbursement by an average of 3 percent per year. In determining a project's long-term financial feasibility, AHCA looks to the facility's second full year of operation, and, assuming reasonable projections, determines if there is a net positive profit. The analysis AHCA uses to determine the reasonableness of an applicant's projections in Schedules 7A and 8A begins with a comparison of those figures against a standardized grouping developed over the years and consistently applied by the agency as a policy. In this instance, the grouping consisted of all LTCHs operating in Florida in 2004; a total of 11 facilities; eight operated by Kindred and three operated by Select. The analysis is based on Revenue Per Patient Day (RPPD). Promise estimated it would generate an average RPPD of $1,492 in Year 2, and a net profit for the same period of $2,521.327. Using the above process, AHCA concluded that Promise's projected net income per patient day appeared reasonable. At the time of hearing, other Promise facilities were receiving an average RPPD higher than $1,400; compared to the projected "somewhat over" $1,500 it would expect to receive in Year 2 of its Miami-Dade facility. Approximately half of the existing Promise facilities (including West Valley and San Antonio) received Medicare RPPDs in excess of $1,500. As opposed to total revenue per patient, revenue on a per patient day is the one figure associated with the expenses generated to treat a patient on a given day. A comparison of net RPPDs projected by Promise with those of other applicants and the state median indicate Promise's revenue projections are reasonable. While Medicare recently opted not to increase the rate of LTCH reimbursement for the 2006-07 fiscal year, it is the first year in four that the program has done so. Compared to Promise's assumption that Medicare reimbursement would increase yearly by 3 percent on average, Select assumed a rate of 2.4 percent. The ALOS projected by Promise was too long. In projecting need, Select projected an ALOS similar to Promise's projection. Compared with the statewide ALOS of 35 days, Select's is about 28 days. This is the result of a combination of managing patients and their acuity. Assuming Promise's ability to manage patients in a manner similar to Select and achieve a like ALOS, Promise would have room available to admit more patients. There is no reason to assume Promise could not attain a similar ALOS with a similar population than that served by Select; others have done so. Like other segments of the health care industry, LTCH providers will manage patient care to the reimbursement received from payors. The CMI projected by Promise was too high. The prospective payment system is based to a great extent on how patients' diagnoses and illnesses are "coded," or identified, because the information is translated into a DRG, which, in turn, translates directly into the amount of reimbursement received. Each DRG has a "weight." By obtaining the DRG weight for each patient treated in a hospital, one can obtain the average weight, which will correspond to the average cost of care for the hospital's patients. The term for this average is Case Mix Index (CMI). Each year Medicare determines the rate it will pay for treatment of patients in LTCHs, adjusted for each market in the U.S. to account for variations in labor costs. Mr. Balsano assumed the new facility would experience an average CMI of 1.55 and that Medicare would reimburse the facility based on existing rates with an annual inflation of 3.0 percent. Mr. Balsano then reduced the estimated Medicare RPPD generated by those assumptions by 15 percent. While Select's expert criticized Promise's projected CMI adjusted reimbursement rate for Medicare patients (approximately $50,000) as to high, Select's own Exhibit 12, p. 8, indicates a projected reimbursement of $41,120.44 based on an average CMI of 1.0. However, at hearing it was verified that Select's Miami facility operated at an average CMI of 1.23. Applying a CMI of 1.23 generates an average projected Medicare reimbursement of $50,618 per patient, a number similar to that projected by Mr. Balsano. Select Ex. 14, pages 9-16, contains data on, among other things, the CMI of 161 DRGs used by Promise's expert. The data was taken from each of the existing LTCHs in Florida. In 2004, the statewide average CMI was 1.231. Also in 2004, four of 11 LTCHs in Florida experienced an average CMI of 1.4 or higher. Other Florida facilities have experienced an average CMI at or above 1.59. Indeed, other Florida facilities have experienced average CMIs and ALOS similar to that of the Select facility. While Promises operates no facility with an average CMI of 1.55, it has several with average CMIs of 1.3 or 1.4. Promise expects Medicare will take future steps to restrict the admission of patients with lower CMIs' the effect being more complex patients will access LTCHs than currently do, increasing the average CMI in LTCHs. Reducing the number of lower acuity patients admitted to LTCHs in future years will likely increase the CMI of those admitted. There is a direct correlation between CMI and ALOS. If, in fact, the CMI experienced by Promise's facility is less than 1.55, it will in turn generate a lower ALOS. Applying the reduction in reimbursement advanced by Promise's witness (15 percent) would in turn reduce the projected CMI in Promise's facility from 1.55 to 1.05. Because reimbursement coincides with acuity and ALOS, a representation that reducing one of the three does not likewise affects the others is not realistic. Whatever the CMI and ALOS for LTCHs will be in the future will be governed to a great extent by the policies established by the federal government. The federal government's reimbursement system will drive the delivery of patient services and the efficiencies the system provides, so that, in fact, the providers of care manage patients to the reimbursement provided. Whether the average CMI at Promise's facility reaches 1.55 in the future is subject to debate; however, it is reasonable that the status quo will not likely continue; thus, regardless of a facility's current CMI, more complex patients will access the facility in the future. Various sensitivity analyses generated to test the reliability of Select's criticisms in this area do not indicate any material change in the projected Medicare reimbursement. The interest rate on the loaned funds was 9 percent, rather than 7 percent. The estimated expenses did not include sufficient funds to pay the following: the necessary ad valorem taxes the required PMATF assessment the premiums to obtain premises insurance physician fees housekeeping expenses in Year 1 Using the same standardized "grouping" analysis, AHCA calculated Promise's projected costs per patient day and found them reasonable. Because the projected increase in ad valorem taxes and the PMATF assessment will not be payable until 2010, it is not necessary to borrow additional funds to meet these obligations. Select's expert concluded that, depending on a number of scenarios, the result of the appropriate calculations would produce a loss to Promise's project of between $624,636 and $902,361 of year 2. Assuming they represented sensitivity analyses which included various assumptions based on criticisms from Select. The impact of Select's suggested adjustments, reduced by overstated costs in Promise's application Schedule 8A, increased Promise's projected Year 2 net income from the initial estimate of $2,521,327 to $2,597.453. Even if the 15 percent reduction previously included in Mr. Balsano's assumptions on Medicare reimbursement were not considered, and assuming a lower CMI consistent with the existing statewide average (1.43 vs. 1.23), or that Promise's experience in District 11 will be similar to Select's, Promise's facility would still be financially feasible. Select's witness conceded that if Promise's facility experienced a lower ALOS, the demand for additional LTCH services is high enough to allow the facility to admit additional patients ("backfill"). While assuming a lower reimbursement due to lower acuity patients admitted to Promise's facility, Select's witness did not similarly assume any reduction in expenses associated with treatment of such lower acuity patients. In reality, if revenues are less than expected a facility reduces expenses to generate profits. Select's witness also conceded that Promise could reduce the management fee to reduce costs and generate a profit. The testimony of Promise's Chairman, Mr. Baronoff, established the company would take measures to reduce expenses to assure the profitability, including reducing the facility's corporate allocation. Such a reduction by itself would reduce expenses by between $1 million and $1.5 million. Reduction in corporate allocation has occurred before to maintain the profitability of a Promise facility. With regard to Select-Dade, its forecasted expenses, as detailed on Schedules 7A and 8A of its application are consistent with Select-Miami's historical experience in Miami. Evaluation of the revenues and expenses detailed in Select-Dade's Schedules 7A and 8A (and drawing comparison with SMC's 96 other hospitals, with particular attention paid to the Select-Miami facility), its profitability after year one indicates that Select-Dade's project will be financially feasible in the long term. In sum, all four applicants demonstrated long-term financial feasibility. Subsection (7): Extent to Which the Proposal Will Foster Competition that Promotes Quality and Cost-effectiveness Competition benefits the market. It stimulates providers to offer more programs and to be more innovative. It benefits quality of care generally. Competition to promote quality and cost-effectiveness is generally driven by the best combination of high quality and fair price. The introduction of a new LTCH providers to the market would press Sister Emmanuel, Kindred-Coral Gables and Select-Miami to focus on quality, responsiveness to patients and would drive innovations. Approval of any of the applications, therefore, as the Agency recognizes, see Agency for Health Care Administration Proposed Recommended Order, at 36, will foster competition that promotes quality and cost-effectiveness. Competition that promotes quality and cost- effectiveness will best be fostered by introduction to the market of a new competitor: either MJH or Promise. Between the two, Promise's application for 60 rather than 30 beds proposed by MJH, if approved, would capture a larger market share and promote more competition. On the other hand, MJH's because of its long-standing status as a well-respected community provider, particularly in the arenas of cost-effectiveness and quality of care, would be very effective in fostering competition that would promote both quality and cost-effectiveness. Kindred and Select dominate LTCH services in Florida with control over 86 percent of the licensed and approved beds: Kindred has eight existing LTCHs and one approved LTCH yet to be licensed; Select has three existing LTCHs and six approved projects in various stages of pre-licensure development. In 2005 the District 11 LTCH market shares were: Kindred-Coral Gables: 42 percent; Select-Miami: 35 percent; and Sister Emmanuel: 23 percent. Approval of Promise would only slightly diminish Select-Miami’s market share and would reduce Sister Emmanuel to a 16 percent share. A Select-Dade approval would give the two Select facilities a combined 54 percent of the market. A Kindred approval would give its two Miami-Dade facilities a combined 57 percent market share. An MJH approval would give it about 16 percent of the market, Sister Emmanuel would decline to 19 percent and Select-Miami and Kindred-Coral Gables would both have market shares above 30 percent. MJH's application is most favored under Subsection (7) of the Statutory Review Criteria. Subsection (8): Costs and Methods of Proposed Construction The parties stipulated to the reasonableness of a number of the project costs identified in Schedule 1, as well as the Schedule 9 project costs. All parties stipulated to the reasonableness of the proposed construction schedule on Schedule 10 of the application. Those additional costs items on Schedule 1 of the respective applications that were not stipulated to were adequately addressed through evidence adduced at final hearing. Given the conceptual-only level of detail required in the schematic drawings submitted as part of a CON application, and based on the evidence, it is concluded that each of the applicants presented a proposed construction design that is reasonable as to cost, method, and construction time. Each applicant demonstrated the reasonableness of its cost and method of construction. Accordingly each gets credit under Subsection (8) of the CON Statutory Review Criteria. But under the subsection, MJH's application is superior to the other three applications. The subsection includes consideration of "the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction." § 408.035(8), Fla. Stat. As an application proposing an HIH rather than a free-standing facility, not only can MJH coordinate its operations with other types of service settings at expected energy savings, its application involves less construction and substantially less cost that the other three applications. Subsection (9): Past and Proposed Provision of Services to Medicaid and Indigent Patients A provider's history of accepting the medically indigent, Medicaid and charity patients, influences patients and referral sources. Success with a provider encourages these patients on their own or through referrals to again seek access at that provider. As a safety net provider, MJH has a history of accepting financially challenged patients, many of whom are medically complex. Its application is superior to the others under Subsection (9) of the Statutory Review Criteria. Promise does not have a history of providing care in Florida. It has a history of providing health care services to Medicaid and the medically indigent at some of its facilities elsewhere in the country. As examples, its facility in Shreveport, Louisiana, provides approximately 7 percent of its care to Medicaid patients and a facility in California provides about 20 percent of its service to Medicaid patients. MJH committed to the highest percentage of patient days to Medicaid: 4.2 percent. Promise proposes a 3.0 percent commitment; Select-Dade and Kindred, 2.8 percent and 2.2 percent, respectively. Select-Dade's proposed condition is structured so as to allow it to include Medicaid days from a patient who later qualifies as a charity patient, thus accruing days toward the condition without expanding the number of patients served. Select-Dade's targeted service area, moreover, has fewer proportionate Medicaid beneficiaries identified (13 percent) as potential LTCH patients than identified by the methodologies used by the applicants (21 percent), indicating that Select's targeted area is generally more affluent than the rest of the County. Kindred does not have a favorable history of providing care to Medicaid and charity patients. For example, during FY 2004, Sister Emmanuel provided 6.1 percent of its services to Medicaid and charity patients. During this same period, Kindred-Coral Gables provided only 1.08 percent of its services to Medicaid and charity patients. Of all four applicants, Kindred proposes the lowest percentage of service to such patients: 2.2 percent. It has not committed to achieving the percentage upon its initiation of services. Its proposed condition and poor history of Medicaid and indigent care merit considerably less weight than the other applicants and reflects poorly on its application in a process that includes comparative review. MJH's proposed condition, although the highest in terms of percentage, is not the highest in terms of patient days because the facility it proposes will have only half as many beds as the facilities proposed by the other three applicants. Nonetheless, the proposal coupled with its past provision of health care services to Medicaid patients and the medically indigent, which is exceptional, makes MJH the superior applicant under Subsection (9) of the Statutory Review Criteria. Subsection (10) Designation as a Gold Seal Program None of the applicants are requesting additional nursing home beds. The subsection is inapplicable to this proceeding.
Recommendation Based on the foregoing Findings of Fact and Conclusion of Law it is RECOMMENDED that the Agency for Health Care Administration issue a final order that: approves Miami Jewish Home and Hospital for the Aged, Inc.'s CON Application No. 9893; approves Select Specialty Hospital-Dade, Inc.'s CON Application No. 9892; denies Promise Healthcare of Florida XI, Inc.'s CON Application No. 9891; and, denies Kindred Hospitals East LLC's CON Application No. 9894. DONE AND ENTERED this 17th day of May, 2007, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of May, 2007. COPIES FURNISHED: Dr. Andrew C. Agwunobi, Secretary Agency for Health Care Administration Fort Knox Building III, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 W. David Watkins, Esquire Karl David Acuff, Esquire Watkins & Associates, P.A. 3051 Highland Oaks Terrace, Suite D Tallahassee, Florida 32317-5828 Sandra E. Allen, Esquire Agency for Health Care Administration Fort Knox Building 3, Mail Stop 3 2727 Mahan Drive Tallahassee, Florida 32308-5403 F. Philip Blank, Esquire Robert Sechen, Esquire Blank & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Mark A. Emanuele, Esquire Panza, Maurer & Maynard, P.A. 3600 North Federal Highway, Third Floor Fort Lauderdale, Florida 33308 M. Christopher Bryant, Esquire Oertel, Fernandez, Cole & Bryant, P.A. 301 South Bronough Street, Fifth Floor Tallahassee, Florida 32302-1110
The Issue The issue in this case is whether the Agency for Health Care Administration (AHCA) should grant the application of Wuesthoff Memorial Hospital, Inc. (WUESTHOFF), for a Certificate of Need (CON) (CON 8597) to establish a new 50-bed general acute care hospital in South Brevard County, District 7.
Findings Of Fact WUESTHOFF is a 303-bed, acute care hospital in Brevard County, Florida. In addition to its hospital, WUESTHOFF has three home health locations, eight or nine walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, two freestanding diagnostic centers, and outpatient labs throughout Brevard County. HRMC is a JCAHO accredited, 528-bed, regional, not-for- profit community hospital based in Melbourne, Brevard County, Florida. HRMC is comprised of two acute care campuses: a 468- bed tertiary hospital in Melbourne, and a 60-bed, general acute care hospital in Palm Bay. The Melbourne campus operates a 10-bed, Level II, neonatal, intensive care unit, and 428 general medical and pediatric beds. The Proposed Project WUESTHOFF chose to establish a satellite hospital complex in South Brevard County by applying separately for: (1) a certificate of need (CON) to decertify and de-license 100 general acute care hospital beds and undertake certain renovations and improvements at its existing Rockledge hospital facility; (2) a CON for a medical office building (MOB); (3) a non-reviewability letter for a $35 million diagnostic and treatment center (DTC), which would provide all of the ancillary services for the new satellite hospital; and (4) the CON to establish the 50-bed hospital (CON 8597) which is at issue in this case. In CON 8597, WUESTHOFF has asked AHCA to treat the $35 million DTC as the “sunk” costs of an existing facility, and to review the CON application at issue in this case incrementally— i.e., as consisting of only the inpatient tower and the additional ancillary activities that would take place at the complex, over and above those that would take place at the DTC without the inpatient tower. Viewing CON 8597 in this way, WUESTHOFF presented total project costs of only $13 million. In preparing the financial schedules for CON 8597, WUESTHOFF presented the revenues and expenses of the entire hospital operation (including the DTC), except for the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower, and the revenues and expenses of the entire hospital operation, including the additional activities (inpatient and ancillary) that would result from the addition of the inpatient tower. By presenting the financial schedules in this manner, WUESTHOFF never presented the revenues and expenses of the entirety of the new satellite hospital it is proposing to establish, and AHCA has not had the opportunity to review those revenues and expenses. WUESTHOFF planned to build the MOB, the DTC and the inpatient tower in one continual course of construction and to open the entire complex at the same time; the complex, when completed, was planned to function as a single, integrated hospital facility. AHCA granted the first three applications comprising WUESTHOFF’s project but denied CON 8597. In a subsequent batch, WUESTHOFF filed a letter of intent for a single CON application that the combined the DTC and inpatient tower projects at a total cost of approximately $50,000,000. Need In Relation To State And District Health Plans: Section 408.035(1)(a) Florida Statutes State Health Plan The first State Health Plan preference favors applicants who demonstrate that the subdistrict occupancy rate is at or exceeds 75 percent, or in the case of existing facilities, where the occupancy rate for the most recent 12 months is at or exceeds 85 percent. WUESTHOFF failed to meet this preference. For the applicable period, the subdistrict occupancy was approximately 53 percent; however, more recent data shows that occupancy is below 53 percent, which suggests a continuing decline in inpatient occupancy rates in the subdistrict. During the applicable period, the occupancy rate at WUESTHOFF’s Rockledge facility was only slightly more than 45 percent. The second State Health Plan preference favors an applicant with a history of providing a disproportionate share of the subdistrict’s acute care and Medicaid patient days, and further meets the Medicaid disproportionate share hospital criteria. WUESTHOFF failed to meet this preference, as it is not a disproportionate share provider. The third State Health Plan preference favors an applicant that provides or proposes to provide disproportionate share of Medicaid and charity care patient days in relation to other hospitals within the district or subdistrict. WUESTHOFF’s existing facility is not a disproportionate share hospital. (Although WUESTHOFF’s CON application proposes to condition award of the CON setting aside 15 percent of its discharges for Medicaid, charity, and indigent patients, its application does not provide percentages for each category.) The fourth State Health Plan preference considers the current and projected indigent inpatient case load, the proposed facility size, and the case and service mix, WUESTHOFF’s application partially complies with the preference in that it proposes to provide some indigent care. The fifth State Health Plan preference favors proposals that would not negatively affect the financial viability of an existing, disproportionate share hospital. This preference is not applicable in this case. The sixth State Health Plan preference favors applicants with a record of accepting indigent patients for emergency care. WUESTHOFF meets this preference. The seventh State Health Plan preference favors applicants for any type of hospital project if the facility is verified as a trauma center. WUESTHOFF does not meet this preference. WUESTHOFF claims that it operate the emergency room at the proposed facility with “the same level of services as WUESTHOFF’s existing emergency room.” WUESTHOFF does not currently operate a Level II trauma center at its Rockledge campus. The eighth State Health Plan preference favors applicants who can document that they provide a full range of emergency services. WUESTHOFF’s Rockledge facility offers a range of emergency services, but the emergency department at the proposed facility will necessarily offer a limited range of services, as the proposed facility will not be a tertiary care hospital, and emergency patients in need of those services will have to be transferred. The ninth State Health Plan preference favors applicants who can document that it has not been fined by HRS for any violation of the emergency services statutes. WUESTHOFF meets this preference. Local Health Plan Preferences The District 7 Local Health Plan sets forth five preferences to be used in evaluating CON applications for the transfer/relocation/delicensure of acute care beds. The health plan provides that “[p]reference shall be given to applications for transfer of existing acute care beds, delicensure/conversion of existing acute care beds and/or relocation of an entire facility if the applicant can provide substantial documentation of: The need for acute care beds or specialty beds in the service area proposed to receive the beds. Need should address specific populations, access consideration, etc. The impact of the proposed project on the parent facility including projected occupancy declines, curtailing of service effect on operating cost, use of vacated space at the main campus and charge changes. The proposed service improving access by at least 25 minutes to at least 10 percent of the population or a minimum of at least 35,000 people. This should be substantiated by analyses of patient origin to existing providers, physician referral practices and location of physician offices. Commitment to provision of care to both no-pay and low-pay medically indigent patients and Medicaid patients at a minimum of no more than 2 percent below the most recent HCB publication for the District of the charity/uncompensated care percentage of net revenues. Agreement to participate in any indigent care programs which exist in the county or counties proposed to be served. Participation should be at a rate equal to or greater than the average for the general hospitals also serving that area. As to the first preference, WUESTHOFF failed to demonstrate a need for the proposed 50-bed general acute care hospital. Even with the delicensure of 100 acute care beds as a result of WUESTHOFF’s companion application, there still is an oversupply of 215 acute care beds in the county. The evidence presented at the final hearing failed to demonstrate any geographic or other barriers to accessing acute care services that would warrant the expenditure proposed by WUESTHOFF to construct the proposed project. Indeed, WUESTHOFF’s own evidence was clear that every resident of Brevard County has access to a general acute care hospital within a maximum drive time of 30-40 minutes and, in almost all instances, to two different acute care facilities within a 30-40 minute drive time. WUESTHOFF contends that its proposed 50-bed general acute care hospital is needed for four reasons: (1) to provide a high quality alternative inpatient health care provider in south Brevard County; (2) to introduce competition into the south Brevard area; (3) to enhance access to care to Medicaid, charity, and indigent population, as well as to enhance access for the managed care segment of the population; and (4) to enable WUESTHOFF to remain competitive in the marketplace. The evidence is clear that HRMC provides high quality inpatient health care in south Brevard County. See Findings 30- 44, infra. In addition, WUESTHOFF already serves some patients, residing in south Brevard County, and so does Sebastian River Medical Center, located in the adjacent county to the south. The evidence also is clear that there already is competition for inpatient hospital services in south Brevard County. HRMC serves a much greater percentage of those patients primarily due to its location and the high quality and low costs of HRMC’s services. In view of the excess capacity of hospital beds in the county, it does not make sense to add a satellite WUESTHOFF hospital in south Brevard County that would duplicate the services of the existing providers. WUESTHOFF also attempted to show that its proposed acute care hospital was needed in order to provide services for managed care participants. However, WUESTHOFF failed to offer any competent evidence to show that participants in managed care programs are a traditionally underserved population group and did not prove that WUESTHOFF’s ability to participate in managed care networks is a valid basis for determining the need of additional acute care services in south Brevard County. To the contrary, the evidence tended to show that the expansion of managed care programs would result in a decrease in the utilization of inpatient acute care services. Furthermore, there is no barrier to WUESTHOFF’s participating in managed care programs with one or more facilities in the southern portion of Brevard County, and in fact WUESTHOFF has aligned itself with Sebastian River Medical Center in a number of managed care contracts serving residents of southern Brevard County. While WUESTHOFF is offering a larger discount to managed care payers, its charges are higher, resulting in net revenue per managed care case that is still higher than HRMC’s. The price the managed care providers pay to HRMC is actually 14 percent lower than what they pay to WUESTHOFF. Not only does HRMC provide a better “deal” to managed care payers, but HRMC’s managed care volume is also greater than WUESTHOFF’s, indicating HRMC’s willingness to negotiate and work with managed care companies. At the time WUESTHOFF submitted its CON application, the penetration of managed care in Brevard County was approximately 8.6 percent. However, more recent data from 1996 shows a significant increase in the penetration of managed care to 15 percent, without the allegedly needed new hospital. A primary thrust of WUESTHOFF’s case for the need for its proposed project was that patients in the southern portion of Brevard County cannot be admitted into HRMC’s Palm Bay facility because its physicians do not enjoy staff privileges at that facility. Each hospital establishes criterion for staff privileges. In order to be eligible for staff privileges, it is normally required that the physician reside or have his or her office within certain geographic boundaries surrounding the hospital. The primary reason for such requirement is to ensure that the physician is capable of responding to patient needs within a time certain and that the physician will be able to provide coverage for his or her patients admitted into a facility. Dr. Arnold, a physician with staff privileges at WUESTHOFF who operates an office in West Melbourne, conceded that if his physician group associated with a physician living within HRMC’s geographic boundaries who was able to meet response time criteria, the physician group could admit patients into HRMC. Dr. Arnold also conceded that his physician group is not eligible for staff privileges at other Brevard hospitals, based on geographic considerations. The Availability, Quality Of Care, Efficiency, Appropriateness, Accessibility, Extent Of Utilization, And Adequacy Of Like And Existing Health Care Services In The Service District: Section 408.035(1)(b), Florida Statutes. There is no need for another hospital in South Brevard County. The county already has more than enough hospitals. Even in light of a 27-29 percent increase in population, utilization of Brevard County hospitals has dropped 10 percent in the last five years. There has been a marked shift in the Brevard County area away from inpatient services toward outpatient services. That shift is still growing. HRMC is the only hospital in Brevard County which has been nationally recognized for quality care by the National Research Corporation. According to AHCA’s hospital report card, HRMC was shown to be a consistent, low-charge provider, operating within the expected range of outcomes. According to a study done by AHCA, HRMC performs as one of the top five hospitals in Florida for reducing overall C-section births and increasing vaginal births after Cesarean (“VBAC”). This is important because vaginal births are safer for both mother and baby and save approximately $3,000 per delivery when compared with Cesarean births. HRMC has the lowest Cesarean Section rate and the highest VBAC rate in Brevard County and is one of the five lowest charging hospitals in the State for these services. Wuesthoff, on the other hand, has some of the highest costs in the county for these services. HRMC is providing efficient hospital services when compared with WUESTHOFF and other markets where competition is a factor. Of the zip codes addressed in WUESTHOFF’s travel study, there is no zip code in Brevard County that is more than 30 minutes from an existing hospital. Of the fourteen intersections tested, the addition of the proposed project would decrease travel times from only three intersections, with the greatest decrease in travel time being only nine minutes. Thus, the construction of WUESTHOFF’s proposed facility would not significantly increase access for Brevard County patients. HRMC delivers the majority of Medicaid babies in the county and is also a contract provider for Children’s Medical Services. HRMC worked with the Public Health Department to develop a better system for giving prenatal care and delivery to Medicaid and indigent mothers. HRMC offered to subsidize the salary of a doctor, and eventually two midwives, to work with the Public Health Department for this purpose. HRMC’s HOPE programs provides access to Medicaid and indigent patients. HOPE clinic and HOPE van expenses are direct expenses of HRMC. In addition to medical care, the HOPE program also provides free medication to those who cannot afford it. HRMC’s HOPE van provides services to the homeless every Tuesday, seeing as many as 40 patients each visit. Patients are provided with an examination, medications, and referrals to specialists or the hospital, if necessary. This care is provided at no charge to the patient. HRMC’s HOPE program was given the Nova award by the American Hospital Association for its ground-breaking effort in community health improvement. It is the only program in Florida which has been so recognized. The HOPE program has also received the Heartland Award from Governor Chiles for its work at improving the status of life in Florida. HRMC supports a variety of agencies to provide care to indigent AIDS patients. HRMC provides services to a nonprofit outpatient AIDS services organization, which offers reduced-rate and free lab services. HRMC, along with the Public Health Unit, funded a dental clinic for the AIDS organization. The hospitals in Brevard County do a good job in regard to taking care of the patients who are incapable of paying, with HRMC going the extra mile to provide services to the poor. There was no evidence that persons in need of quality, general acute care services are not able to access those services at any existing provider in Brevard County. There is no lack of availability or access to general acute care services based on either geographic or financial grounds. WUESTHOFF’s proposed 50- bed general acute care hospital is not needed to accomplish this. The Ability Of The Applicant To Provide Quality Of Care And The Applicant’s Record Of Providing Quality Of Care: Section 408.035(1)(c), Florida Statutes. It is clear that WUESTHOFF is capable of providing quality inpatient health care services. However, it is found that HRMC is providing higher quality services (and at a lower cost). As shown in AHCA’s hospital report card, WUESTHOFF performed in the lowest 15 percent in the State in 5 of 6 serviced lines where mortality was measured. On the other hand, HRMC was indicated to be consistently a low-charge provider, operating within expected outcomes. HRMC’s C-section rate is significantly lower than WUESTHOFF’s, and its VBAC rate much higher. The results of a low C-section rate are lower lengths of stay and less risk to both mom and baby. The Availability And Adequacy Of Other Health Care Facilities And Services In The District Which May Serve As Alternatives For The Services To Be Provided By The Applicant: Section 408.035(1)(d), Florida Statutes. WUESTHOFF already has three home health locations, 8 or walk-in clinics, a hospice, a durable medical equipment business, an ambulatory surgery center, 2 freestanding diagnostic centers, and outpatient labs in Brevard County. In addition, WUESTHOFF plans to construct a new outpatient and diagnostic center in south Brevard County. In addition, inpatient surgeries have shifted to private, for-profit outpatient centers and ambulatory surgery centers that have opened in the last five years in Brevard County. The competent, substantial evidence presented at the final hearing demonstrates that within Brevard County, there are available and adequate alternatives to the inpatient services proposed by WUESTHOFF. First, as discussed above, the existing providers of acute inpatient health care services have capacity to absorb any increase in the utilization of acute care services in the County. Second, data introduced at the final hearing demonstrate that overall utilization for the types of services WUESTHOFF proposes to offer are declining and demonstrate that residents are seeking out alternatives to inpatient hospital services. For example, from 1993-1996, inpatient surgery services in Brevard County showed a marked decline of approximately 20 percent, both in number of patients and procedures. This trend is not unique to Brevard County, but is occurring throughout the state. Health care providers are seeking alternatives to hospitalization, with procedures being performed in physician offices and ambulatory surgical centers. Likewise, there has been a decline in utilization of several other services WUESTHOFF is proposing for its 50-bed hospital. During the period 1993-1996, while the population of Brevard County was growing at a rate of approximately 2.4 percent per year, the rate of obstetric admissions as a percentage of admissions to Brevard hospitals declined. There is excess capacity for pediatric and obstetrical services in Brevard County. The average daily census in obstetrical beds has dropped from approximately 34 patients per day to approximately 29 per day. With 66 reported available obstetrical beds in Brevard County, that means that on any day only 44 percent of the available capacity is being utilized. Likewise, pediatric census has gone from approximately 32 patients per day to only about 25. With 78 reported pediatrics beds, a demand for only 25 beds means that approximately 32 percent of available capacity is utilized. Probable Economies And Improvements In Service That May Be Derived From Operation Of Joint, Cooperative, Or Shared Health Care Resources: Section 408.035(1)(e), Florida Statutes. WUESTHOFF does not propose the operation of a joint, cooperative, or shared program with any other entity. WUESTHOFF contends that its application is consistent with this criterion because it proposes the sharing of certain resources with its main facility. But the construction of a satellite facility will result in the duplication of certain services. It is actually less efficient for a hospital to operate two campuses. The Need in the Service District for Special Equipment and Services Which Are Not Reasonably and Economically Accessible in Adjoining Areas: Section 408.035(1)(f), Florida Statutes. WUESTHOFF’s CON application does not propose to provide special equipment. This criterion is not met. The Need For Research And Educational Facilities, Health Care Practitioners, And Doctors Of Osteopathy And Medicine At The Student, Internship, And Residency Training Levels: Section 408.035(1)(g), Florida Statutes. This need is already being met in the community. WUESTHOFF, HRMC, and other Brevard County hospitals are already active in community training programs through their links with Brevard Community College and the University of Central Florida. HRMC has institutional training programs with the University of Florida, all Children’s Hospital, the local vo- tech, and University of Central Florida, in addition to other community programs. The Immediate And Long-Term Financial Feasibility Of The Proposal: Section 408.035(1)(i), Florida Statutes. The immediate financial feasibility of a proposed project is satisfied by showing that the applicant has adequate financial resources to fund the capital costs of the project and the financial ability to fund short-term operating losses. WUESTHOFF has demonstrated that its proposed project is financially feasible in the short-term. Long-term financial feasibility is established by demonstrating that projected revenues can be attained in light of the projected utilization of the proposed service and average length of stay. WUESTHOFF has not demonstrated that it can achieve its projected revenues by the second year of operation and has, therefore, failed to demonstrate long-term financial feasibility. It is impossible to tell from the information contained in WUESTHOFF’s CON application 8597 what the revenues and expenses of the new hospital will be. Staffing and supply costs associated with the ancillary building, but which will be used by the hospital when constructed and which amount to millions of dollars, are not broken out in the application. The application also does not show the totality of the costs associated with the 50-bed hospital WUESTHOFF seeks to establish. For example, provision for bad debt expense does not appear in the application, nor does the indigent care tax expense. Furthermore, the application does not provide for any administrative staff for the new hospital, nor has all other necessary staff been provided for. If these positions are included under “other,” then the salary expense projected is not enough. Also, the salaries listed on Schedule 6 do not include benefits. The preopening expenses figure shown in WUESTHOFF’s application is reasonable only if the entire facility, the ancillary, outpatient, and inpatient tower would open all at the same time. It is very difficult to analyze the reasonableness of the financial projections because the revenues and expenses do not match. All the revenue from the proposed new facility appears to be included, but not all of the expenses. Schedule 8A shows that daily ancillary expenses are $470 at WUESTHOFF’s existing hospital but only $82 at the new, proposed hospital. It is implausible that the new hospital would have costs this much lower than the existing hospital. WUESTHOFF’s staffing projections do not account for a significant number of nursing and other staff necessary for the operation of the facility as a hospital. The projections only address nursing positions for the 50-bed, inpatient tower. The schedule fails to show those nurses assigned to the ancillary services areas in the outpatient diagnostic center who will be working with inpatients. For example, the scrub nurses in the emergency department who will be working on inpatients are not included in the schedule, and the nurses working in radiology who will be caring for inpatients are not shown. The schedule fails to include a director of nursing at the proposed hospital facility. Although WUESTHOFF claimed that it will assign a director of nursing when patient volumes reach 50%, it failed to include projections for that position in this second year projections, even though patient volumes are projected to reach 50% in the second year. Wuesthoff also failed to include benefits in its computation of salaries on Schedule 6, even though it expects to pay benefits at a rate of 20% of salary. Interest expenses are also significantly understated. The project is financed with 100 percent debt, which should amount to an interest expense of approximately $850,000.00 per year. However, the application shows interest in year one as $197,000.00 and for year two, $393,000.00. It is unusual that interest would be higher in year two than year one. There is no way to tell from looking at the schedules or assumptions in the application what the utilization of the new hospital will be, or how the patient days break out by payor. Therefore, reasonableness of the financial projections cannot be tested. Without additional information, one cannot determine if the average charges projected are reasonable. There are unusual projections, such as the charges during construction, year one, and year two, in the application which without explanation are not reasonable. The financial projections as to the whole facility are unreasonable. They show that WUESTHOFF, which currently makes $7 or $8 million dollars each year, will lose money once the new facility is open but that, in its second year, the new facility will make $6.9 million. Such a projection is unreasonable. By focusing only on the incremental effect of adding an inpatient tower to a presumed existing DTC, WUESTHOFF’s financial projections are not sufficient to allow a conclusion to be drawn as to the financial feasibility of the new 50-bed hospital. However, it would appear that, if those schedules had been presented, they would have shown the new satellite hospital, taken in its entirety, not to be financially feasible in the long term. The Special Needs Of Health Maintenance Organizations: Section 408.035(1)(j), Florida Statutes. The application is not made on behalf of an HMO, and this criterion is not applicable. The Needs And Circumstances Of Those Entities Which Provide A Substantial Portion Of Their Services Or Resources, Or Both, To Individuals Not Residing In The District: Section 408.035(1)(k), Florida Statutes. The CON application does not address serving a substantial number of persons or providing a substantial portion of services to individuals residing outside the district, and this criterion is not applicable. The Probable Impact Of The Proposed Project On The Costs Of Providing Health Services Proposed By The Applicant, Including The Effect On Competition: Section 408.035(1)(l), Florida Statutes. There is significant competition for managed care services in Brevard County. HRMC seeks and desires to enter into managed care contracts and is as competitive in the managed care arena as WUESTHOFF is. In fact, HRMC’s managed-care, patient volume is higher than WUESTHOFF’s. Managed care penetration in Brevard County has increased over the last five years and especially in the last two years. One particular HMO in Brevard County that is just getting started has received an acceptable managed care offer from HRMC. If they did not receive an acceptable offer from WUESTHOFF. Brevard County does not need another inpatient facility to allow the County to achieve higher levels of managed care penetration. There are no barriers in Brevard County to increasing HMO and other managed care penetration. Even though HRMC has an 82 percent market share in South Brevard County, that by itself does not indicate HRMC is charging non-competitive prices. In fact, HRMC’s charges are much lower than WUESTHOFF’s. Both the State of Florida and the FTC found that HRMC’s merger with Cape Canaveral when Health First was formed did not create an adverse, competitive effect on the marketplace. Because HRMC’s charges are so much lower than WUESTHOFF’s, the addition of the proposed hospital would not introduce price competition into the market. The majority of the proposed hospital’s patients are likely to come from South Brevard County-–an area where HRMC has an 82.5 percent market share. Thus, the bulk of the proposed hospital’s patients will come from HRMC. If the proposed hospital meets its projected utilization, HRMC stands to lose somewhere between $4 and $5 million a year. While that loss may not put HRMC into bankruptcy, it will have a significant adverse effect. The Costs And Methods Of The Proposed Construction And The Availability Of Alternative, Less Costly, Or More Effective Methods Of Construction: Section 408.035(1)(m), Florida Statutes. WUESTHOFF’s proposal to establish a 50-bed, general, acute care hospital entails the construction of a 3-story, 50-bed patient tower adjoining an outpatient diagnostic center. The outpatient diagnostic center, and not the inpatient tower, will encompass virtually all of the ancillary services necessary for WUESTHOFF to obtain a license to operate its facility as a hospital. As more fully discussed below, WUESTHOFF’s proposed 50- bed inpatient hospital will require substantial design modification and increased square footage in order to obtain licensure as a general, acute care hospital. The Applicant’s Past And Proposed Provision Of Health Care Services To Medicaid Patients And The Medically Indigent: Section 408.035(1)(n), Florida Statutes. The evidence showed that all acute care hospitals in Brevard County provide a fair level of Medicaid and indigent care in comparison to the remainder of the state. In its CON application, WUESTHOFF proposes to condition approval of its 50- bed, general, acute care hospital on providing 15 percent Medicaid and charity care, but did not provide a breakdown of each. There was no documented access problems for Medicaid or indigent patients that would warrant a new health care facility. Because indigent care is reported to the State based on a hospital’s charges, WUESTHOFF and HRMC could be doing the same amount of indigent care, but WUESTHOFF could appear to be doing more because its charges are higher. Whether Less Costly, More Efficient, Or More Appropriate Alternatives To The Proposed Inpatient Services Are Available: Section 408.035(2)(a), Florida Statutes. HRMC’s average charges are significantly lower than WUESTHOFF’s on both a per case and per patient day basis. HRMC’s costs are also lower, indicating it is more efficient. Therefore, the addition of another less-efficient, higher- charging WUESTHOFF hospital into the market would be more costly and less efficient than what it is there now. The greater weight of the evidence establishes that denial of WUESTHOFF’s proposed 50-bed, general acute care hospital is the least costly, more efficient, and appropriate alternative. The existing providers of acute care services in Brevard County are operating efficiently and have unused capacity that is available to serve Brevard residents. Data suggests that while the population of Brevard County is growing, there is no corresponding increase in utilization of general, acute care services. While Brevard enjoys a proportionately higher growth rate than the rest of the State, the growth does not translate into higher utilization of general acute care services. Further, the age 65+ population, those most likely to use hospital services, has experienced an annual growth of approximately 3.7 percent between 1990-1996, which is higher than the overall rate of growth for Brevard. While there has been a significant growth in the number of elderly and Medicaid eligible population, only approximately percent of those eligible for Medicaid in the 14 zip codes targeted as the service area of WUESTHOFF’s proposed hospital actually use hospital services. In 1993, the last year of available data, the actual county-wide use rate for Medicaid eligible residents was only 8.4 percent. This is expected to remain constant in subsequent years, as the demand for inpatient acute care services has not increased, but has in fact decreased. There is insufficient utilization of the inpatient acute care services which already exist in Brevard County, with approximately 50 percent of the available beds unoccupied. The addition of another health care facility will not improve access, improve delivery of services, or make services available to a population that is not presently being adequately and appropriately served by existing providers. In a market where inpatient volume is going down, length of stay is going down, and utilization is going down, it does not make sense to spend scarce dollars on new inpatient services. Whether The Existing Facilities Providing Similar Inpatient Services Are Being Used In An Appropriate And Efficient Manner: Section 408.035(2)(b), Florida Statutes. The greater weight of the evidence established that there is available capacity for inpatient services like those proposed by WUESTHOFF at the existing, general, acute care facilities in Brevard County. WUESTHOFF did not demonstrate that any provider is suffering from over utilization or that any patient has not been able to access general acute care services when such services were necessary. On the contrary, there was a consensus among the experts, even WUESTHOFF’s experts, that there is no problem with geographic or financial access to existing providers. Between 1993 and 1996, hospital utilization dropped from 63 percent to 52 percent. AT WUESTHOFF’s Rockledge campus, utilization fell from a high of 63 percent in 1993, to approximately 46 percent in 1996. During this same period, the population of Brevard County grew at a rate of approximately 2.4 percent per year, which was proportionately higher than for the rest of the state. At HRMC, its occupancy dropped, but not quite as dramatically. Between 1993 and 1996, HRMC’s occupancy went from 67 percent to approximately 62 percent. The satellite facility, operated by HRMC in Palm Bay and located in the same service area where WUESTHOFF proposes to construct its 50-bed general acute care hospital, has never experienced occupancy above 31 percent. That Patients Will Experience Serious Problems In Obtaining Inpatient Care Of The Type Proposed, In The Absence Of The Proposed New Service: Section 408.035(2)(d), Florida Statutes. There was no evidence to show that any population group in Brevard County is unable to access quality health care services at any of the subdistrict’s existing facilities. Further, WUESTHOFF failed to establish that its proposed facility was needed to provide general acute care services not currently provided or currently accessible to residents of south Brevard County. WUESTHOFF maintains that participants in managed care contracts may not be able to access WUESTHOFF’s general acute care services without approval of the proposed project, but there was not demonstration that those individuals would not otherwise have access to quality affordable health care in Brevard County. WUESTHOFF also failed to demonstrate that participants in managed care programs are a “traditionally underserved” population group for a determination of need under not normal circumstances. CON Application Content And Procedures: Section 408.037, Florida Statutes And Rule 59C-1.008, Florida Administrative Code. The parties stipulated as to the timeliness of the submission of WUESTHOFF’s Letter of Intent, initial CON application and response to omissions. However, the board resolution required by Section 408.037, Florida Statutes, and Rule 59C-1.008, Florida Administrative Code, is fatally defective. The applicant is required to provide certification that its governing board enacted a resolution to license and operate the proposed facility. In this case, the proposed 50- bed, inpatient tower cannot be licensed by the applicant as a hospital. In order to obtain hospital licensure, the proposed project would necessarily include the $35+ million that WUESTHOFF proposes to spend on its outpatient diagnostic center. WUESTHOFF’s CON application also fails to comply with Section 408.037(2)(c), which requires detailed financial projection including a statement of the revenues and expense for the period of construction and the first two years of operation after completion of the project. The proposed project is a “hospital.” The hospital will report all of the revenues and expenses of the inpatient and outpatients to the state in its actual report, and those same projected revenues and expenses should be in the pro forma of a certificate of need application for a new hospital project. Instead, the projected revenues and expenses in the pro formas take an “incremental” approach and focus only on the 50-bed tower and an unspecified portion of the diagnostic center. WUESTHOFF’s own financial expert admitted that one cannot determine the revenues and expenses of the new hospital from the information contained in the application. AHCA does not have sufficient information with respect to revenues and expenditures in the pro formas to determine the financial feasibility of the hospital project. The pro formas do not meet the statutory requirement contained in 408.037(2)(c), Florida Statutes, and are fatally defective. Neither AHCA nor its predecessor agency ever have approved a CON to establish a hospital without ever seeing projections of the revenues and expenses of the hospital as a whole. Additions to hospitals have been approved on a strictly incremental basis; but, in those cases, the revenues and expenses of the hospital as a whole already had been reviewed and approved. Inpatient cardiac catheterization programs also have been approved, based on a strictly incremental review of the financial impact of converting from an existing outpatient to an inpatient program. But there is a meaningful difference between the approval of a program in a hospital facility that already has been reviewed and approved as a whole and what WUESTHOFF is seeking to have done in this case. There also is a difference between treating the costs of an existing and operating facility or program as being “sunk” and treating the $35 million capital cost and additional operating costs of the proposed DTC in this case as being “sunk.” In the former, the costs have been or are being spent and truly are “sunk”; in the latter, despite WUESTHOFF’s assurances, the DTC money has not been spent, and the DTC has not been established. Indeed, the decision properly before AHCA in this case is whether those expenditures should be made for purposes of establishing a hospital. If not, the hospital should not be approved. If WUESTHOFF still wants to build and operate its proposed $35 million anyway, as it has assured AHCA that it will do, it is free to do so. Criteria Used In Evaluation Of CON Applications: Rule 59C-1.030, Florida Administrative Code. AHCA’s rules set forth additional criteria used to evaluate CON applications which focus on whether there is a need for the proposed service in the population to be served and whether the proposed project is accessible to those in need of the service. The evidence in this case showed that there was no unmet need in Brevard County for inpatient, general, acute care services and that the target population is adequately served by the existing providers of general acute care services. Furthermore, the evidenced showed that the anticipated population growth in Brevard County is not likely to generate additional numbers of inpatient admissions, based on the decline in utilization during a period when Brevard County was experiencing unprecedented annual growth at a rate of 2.4 percent overall and 3.7 percent in the 65+ population. Any attendant increase in demand for inpatient general acute care services can be easily accommodated by the existing providers in Brevard County. The rule also examines the extent to which an applicant provides services to Medicare, Medicaid, and the medically indigent patients. The evidence showed that WUESTHOFF provides a fair amount of general acute care services to Medicare, Medicaid, and charity patients, as do the other existing providers in Brevard County. Hospital Physical Plant Requirements For Licensure: Rule 59A-3, Florida Administrative Code. WUESTHOFF’s 50-bed, general, acute care hospital, as proposed, cannot meet licensure standards without significant adjustment to the design to bring it into compliance with the licensure rules. Rule 59A-3.081(4)(c), Florida Administrative Code, specifically requires that the critical care nurse’s station be situated so that nurses have visual control of each patient from common spaces. The schematics provided by WUESTHOFF indicate that there is no visual control of two patient rooms located in the northwest end of the unit. As to functionality of the space, there is no observation from the nurses station to trauma rooms located at the end of the unit and inadequate proximity to support spaces, such as soiled and clean utility and med prep, to the trauma rooms. Seriously injured patients would necessarily be transported up to surgery through what would be public corridor spaces in order to access elevators and then through additional public spaces on the second floor. Inpatient access to the CT scan room and MRI room appears to be made through a narrow, 5-foot wide corridor. Hospital licensure regulations require inpatient access through an 8-foot corridor. The only 8-foot corridors available for inpatient use, the service corridor off the housekeeping and staff facilities area to the rear of the unit and the corridor located between radiology and dietary, do not appear to be appropriate means for inpatients to access these rooms. On the third floor of the facility, WUESTHOFF proposes to locate an aerobics and exercise room, directly above the second floor patient recovery area and two of the operating rooms. With an exercise area located above such critical areas, there is the possibility that vibrations would transmit to operating room lights, ceiling mounted microscopes, and other instruments. It would be costly to sufficiently stiffen the structure to minimize vibrations. In order to bring the proposed project into compliance with hospital licensure regulations, material changes to the plans must be made, which will necessarily increase the square footage of the facility. The square footage of the facility would likely be increased by approximately 5,000 square feet, and many of the areas would have to be significantly redesigned to accommodate concerns with compliance to ADA and hospital licensure regulations.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter the final order denying WUESTHOFF’s CON 8597. RECOMMENDED this 18th day of July, 1997, in Tallahassee, Leon County, Florida. J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax FILING (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 18th day of July, 1997. COPIES FURNISHED: David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli and Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301 Mark Thomas, Esquire Agency for Health Care Administration Office of the General Counsel 2727 Mahan Drive Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone and Hines, P.A. Post Office Box 1596 Venice, Florida 34284 R. Terry Rigsby, Esquire Blank, Rigsby & Meenan 204 South Monroe Street Tallahassee, Florida 32301 Douglas M. Cook, Director Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Tallahassee, Florida 32308
