The Issue Whether CON 8241, Palm Beach Regional's application to convert its 200 bed acute care hospital to a 60 bed long-term care hospital should be granted or denied?
Findings Of Fact The Parties The applicant in this case is The Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital. A subsidiary of Columbia Hospital Corporation, ("Columbia,") Palm Beach Regional is a licensed general acute care hospital with 200 beds located in Palm Beach County, AHCA District 9. Palm Beach Regional's license is issued pursuant to Chapter 395, Florida Statutes, the chapter of the Florida Statutes entitled, "Hospital Licensing and Regulation." The agency is "designated as the single state agency to issue ... or deny certificates of need ... in accordance with the district plans, the statewide health plan, and present and future federal and state statutes." Section 408.034(1), F. S. Integrated is a licensed 120-bed skilled nursing facility, also known as a long-term care facility, located in Palm Beach County, AHCA District 9. Its license is issued pursuant to Chapter 400, Florida Statutes, the statute entitled "Nursing Homes and Related Health Care Facilities." Columbia Hospital Corporation The parent company of petitioner, Columbia has a stock market capitalization of between $15 and $20 billion and enjoys a profitability of over $1 billion per year. It owns approximately 340 hospitals, well over 100 ambulatory surgical centers, and an extensive number of home health agencies. As to be expected of a Fortune 500 company, Columbia generates substantial annual revenues. In 1994, for example, the annual revenues generated by Columbia exceeded $17 billion. Columbia also lays claim to being the largest hospital system in the state. It has five divisions with approximately 60 hospitals in its "Florida Group," the organizational title for its Florida operations. The net revenues of the Columbia Florida Group is approximately $4.5 billion. One of five divisions of Columbia's Florida Group, the South Florida Division is a $1.2 billion operation. The division encompasses Dade, Broward and Palm Beach Counties and consists of 15 hospitals, six surgery centers, and one dozen home health agencies. The South Florida Division, of course, includes Palm Beach Regional. Background to the Application Palm Beach Regional was purchased by Columbia shortly after Columbia had purchased JFK Hospital, a 300-bed tertiary hospital approximately three miles from Palm Beach Regional. In August of 1995, as a business decision, Columbia consolidated the operations of the two facilities. The consolidation resulted in a patient census drop at Palm Beach Regional. Shortly thereafter, with the permission of the agency, Palm Beach Regional ceased operations at its emergency room. The result of the consolidation and limitation of the services offered was that it cost only about $100,000 a month to keep Palm Beach Regional running with its small census. Even with the small census, and the relatively low monthly operational expense, the operational expense was more than $1 million per year. In June of 1996, Palm Beach Regional and the agency entered a stipulation which authorized the hospital to suspend the acute care operations in contemplation of this proceeding. Palm Beach Regional's hospital-based skilled nursing unit has since been transferred. Palm Beach Regional is now closed and empty. The reason Palm Beach Regional had been kept operating at all after the consolidation with JFK was to preserve the opportunity to convert the license as proposed in the application. The Application Certified for accuracy on September 18, 1995, under the signature of its authorized representative, Robert L. Newman, CEO of Columbia/HCA, South Florida Division, the application was submitted to the agency bearing a date of September 20, 1995. The application describes what it seeks in the section titled "Project Summary" as follows: Hospital Corporation of Lake Worth (Palm Beach Regional) proposes in this Certificate of Need Application to convert 60 acute care hospital beds to 60 long-term acute care hospital beds and to delicense 128 existing acute care beds. (At a later date the existing 12 skilled nursing beds will be located to another Columbia/HCA hospital in District IX.) Palm Beach Regional Exhibit No. 1, AHCA Form 1455A, Oct 92, AHCA 4600-0005 Aug 93. The transfer of the 12 skilled nursing beds has already occurred and therefore is not at issue in this proceeding. Nor is the delicensure of the 128 beds really at the heart of the agency's denial and Integrated's opposition. In contrast, what is contested is the conversion of the 60 acute care hospital beds to 60 long- term acute care hospital beds. Such a conversion would make Palm Beach Regional a long-term acute care hospital. Long-term Acute Care Hospitals Referring to a hospital as both "long-term" and "acute," is confusing. The two terms have divergent meanings both in terms of average length of stay and the traits of the illness suffered by the acute and the long-term patient. In the context of hospitals, "long-term" refers to a patient with an average length of stay of greater than 25 days. By comparison, the acute patient's stay is typically much less than 25 days, with the average length of stay being between 5 and 6 days. As is the patient in need of acute care, the typical long-term hospital patient is very ill. The difference in the type of illness suffered by the acute care patient as opposed to the long-term patient, however, lies in other characteristics. Unlike the acute care patient, the long-term patient is not in the urgent, emergent or desperately critical state of patients in the acute care setting. The two terms, "long-term" and "acute" have been used together with reference to the type of hospital to which Palm Beach Regional proposes to convert because of the history of the long- term care hospital’s development. Originally in Florida, long-term hospitals were licensed as acute care hospitals and were referred to, therefore, as "long-term acute," hence the combination of terms with disparate meanings. In the context of a study conducted by the Hospital Cost Containment Board, however, the agency examined the issue of whether long-term hospitals should be subject to CON review as long-term hospitals apart from other acute hospitals. As a result, long-term hospitals came to be reviewed in their own separate category under certificate of need review, subject to the same licensure requirements as a specialty acute care hospital. Because they had been licensed earlier as acute care hospitals, the term "acute" was carried over into the new category. At present, there is a recommendation to refer to long-term acute care hospitals simply as "long-term hospitals" to clear up any confusion caused by the terminology. This recommendation will be followed for the most part in the remainder of this order when reference is made to acute and long-term facilities and acute and long-term care. Long-term Care Hospital-based long-term care is a distinction established in federal Medicare regulations that describes a hospital with patients having an average length of stay of greater than 25 days. The distinction allows an exclusion from the Medicare prospective payment system so that reimbursement is received by the long-term hospital on the basis of cost. The distinction is of great import financially because of the distinction between "cost-based" Medicaid and Medicare reimbursement systems and another payment system used by Medicaid and Medicare: the prospective payment system. Before the prospective payment system was instituted, hospitals generally were well utilized, in fact, “filled to the brim.” The high utilization was due to the "cost-based" reimbursement system which contained a financial incentive for the hospital to keep patients in the hospital. Under the cost-based system, the more a hospital spent, the more reimbursement it would receive from Medicare and Medicaid. The prospective payment system was instituted to save taxpayers the high cost of the cost-based reimbursement system. Under the prospective payment system, the hospital receives a flat fee for Medicare and Medicaid patients depending on the diagnostic category, or diagnostic-related group, ("DRG,") into which falls the illness treated. The flat fee is figured on the basis of average length of stay for that diagnostic category. Under this system, unlike the cost-reimbursed system, the hospital receives the same reimbursement for Medicare and Medicaid patients who stay for less than the average length of stay assigned to the patient's DRG as for those who stay longer. With regard to a patient who stays in the hospital longer than the average length of stay for the patient's DRG, the hospital, in many cases, not only profits less the longer the patient stays but begins to lose money at some point in the stay. If the average length of stay for an appendicitis patient is four days, for example, then the hospital profits more in the case of an appendicitis patient who stays only two days because it has incurred only two days of costs instead of the expected four days of costs. In the case of another appendicitis patient, who stays longer than the average length of stay, the hospital makes less money and reaches the point eventually in some cases where the hospital actually loses money for treating the patient if the patient stays long enough. Medicare provides additional payments for both "day-outliers" and "cost-outliers," but not enough to prevent financial pressure on hospitals to discharge acute patients as soon as possible. The prospective payment system has succeeded in forcing hospitals to operate more efficiently; the average utilization of hospitals has declined dramatically. Today, about half of the hospital beds in Florida on any given day go unused. The system does not have the same effect on long-term hospitals; they are exempt from the prospective payment system. Instead, long-term care hospitals are reimbursed under a cost-based system. A long-term hospital well located geographically is particularly attractive to a large hospital system, such as Columbia. Not only will it likely be a financial success in its own right but it will assist Columbia’s sister acute care hospitals in relieving them of patients too sick to be discharged to a subacute setting yet finished with the acute episode which required the acute care hospital’s service in the first place. Development of Long-term Care Hospitals in Florida The first long-term care hospital was instituted in Florida in the 1980's. Fairly soon thereafter there were three long-term care hospitals in Florida, but then there was a lull in the attempt to establish long-term care hospitals. With the advent of the prospective payment system, however, there eventually came the closing of a number of small hospitals in Florida because of their inability to continue to operate in sound financial condition. At the same time, four or five applications for the conversion of small hospitals to long- term care hospitals were filed with the agency. In the early part of the present decade the agency conducted a study of long-term hospital care. The study took place within a larger study by the Hospital Cost Containment Board. Ultimately, it was recommended that long-term care hospitals be regulated separately from acute care hospitals and that they be subject to separate certificate of need review. The recommendation was made for a number of reasons. First, long-term hospitals were viewed by the agency as very different from acute care hospitals because of the patients' average lengths of stay. Second, long-term care hospitals were found to be expensive for the type of care given in them which was of great concern to the state since cost control is an objective of the certificate of need program. Third, long-term hospitals were found to experience high mortality rates. As the result of the study and recommendation, the agency made the creation or conversion of hospitals into long-term hospitals subject to certificate of need review. Admission Criteria In the study, the agency also found that there are no clear admission criteria for long-term hospitals. To date, neither the Health Care Finance Administration (“HCFA”), nor the Joint Commission on Accreditation of Hospital Organizations ("JCAHO,") or any of its sub-organizations have developed any criteria to define a long-term care hospital. It is not clear, therefore, exactly what type of patients are suitable for care in a long-term hospital. Sub-acute Care The parties are in agreement that sub-acute care is a level of care that is below acute care. Palm Beach Regional claims, however, that the care provided by long-term care hospitals is not subacute but rather falls into a category of care between acute and sub-acute. An understanding of this claim requires some discussion. Unlike other classes of hospitals which are exempt from the prospective payment system, like cancer, children's or psychiatric hospitals, patients in long-term care hospitals do not have a specific type of illness nor are they limited to serving a specific age group. Generally, however, they are patients who have had an acute episode, whose program of care has been identified and who need a longer term of care to recover or to be rehabilitated because of an acute illness or surgical procedure. And, although they are not limited to a specific age group, the experience of long-term care hospitals is that a major part of their patient population is elderly, virtually all of whom are covered by Medicare. In these respects, long-term care hospital patients are not much different from patients in other "subacute" settings: comprehensive rehabilitation hospitals, acute care hospital skilled nursing units, skilled nursing facilities in free-standing nursing homes, and, even, in some cases, home health care, assisted living and outpatient services for the elderly. If there is a difference between the long-term hospital patient and patients in other subacute settings, it is that the long-term hospital patient has more at-risk types of physical problems, is more likely to be medically unstable or is, in fact, medically unstable. But this difference is not strictly observed because of the financial pressure on hospitals to discharge patients from the acute setting into a subacute setting. Medically unstable patients, therefore, are found in subacute settings such as skilled nursing facilities whether hospital-based or in free- standing nursing homes. In contrast to what has become commonplace practice, Dr. Kathleen Griffin, an expert in health care planning with a specialty in long-term acute care and subacute care, testified that it would not be appropriate for a medically unstable patient to be transferred to a skilled nursing bed. In her opinion it would be best for a medically unstable patient about to be discharged from acute care to be admitted instead to a long-term care hospital. Despite the reality that there are no admission criteria for long-term care hospitals, Dr. Griffin maintains that if a hospital discharge planner believes through information gathered from the medical and nursing staffs that the patient "is highly acute and at risk, and there is a long-term care acute hospital available, then that would be the placement of choice." (Tr. 523.) If a long-term care hospital is not available, however, the alternative is to keep the at-risk, medically unstable patient in the acute care hospital rather than discharge the patient into a nursing facility. Dr. Griffin's opinion is shared by the physician practicing in long-term hospitals. Representative of such a physician is Dr. Wendell Williams, presently the Medical Director of a long-term care hospital, Specialty Hospital of Jacksonville. Dr. Williams sees a distinction between long-term acute care and subacute care. Long-term hospital care is acute care without the need for "highly technical diagnostic capabilities," and "high surgical capabilities," but still care in the "medically complex case that requires frequent physician direction [and] high skill level of caregivers." (Petitioner's Ex. No. 16, pg. 13.) In Dr. Williams view, long-term hospital care occupies a level of care between acute and subacute care. The views of Dr. Griffin and Dr. Williams find support in analyses of nursing hours per patient. In a typical nursing home, the number of hours per patient is about 4.5 hours per day, while in a long-term care hospital, the number is around 6.5 hours per patient day. At Specialty Hospital of Jacksonville, the nursing hours per patient day for non-ventilator patients is 6.75 hours, and for ventilator patients is 10 hours. In contrast, Integrated, a nursing home, provided nursing hours per patient day in its "med-surg unit" at 4.34 hours in March of 1996, 4.60 hours in April and 4.52 hours in May although at times Integrated's nursing hours per patient day have reached as high as 6 hours. The opinions of Dr. Griffin and Dr. Williams have not yet been generally accepted. Following the agency's study in the earlier part of the 1990's, the federal government, under the auspices of HCFA, launched a major study that addresses what AHCA viewed as the "whole gamut of what is marketed as subacute care," (Tr. 272). The study included long-term care hospitals, as well as those settings which the parties all agree are clearly in the category of "subacute": hospital-based skilled nursing facilities, free-standing nursing homes, comprehensive rehab hospitals and home health care. The report was issued in November of 1995. It confirmed that there was a great deal of overlap among the settings studied including between the long-term care hospital and other settings unquestionably subacute. Moreover, it confirmed that many of the services are "primarily driven by reimbursement," (Tr. 275), and not by which provides the best or most cost-effective health care for the very ill, elderly patient no longer in need of acute care. In other words, the financial pressure on hospitals to discharge patients from the acute care setting was what accounted for the tremendous growth of subacute services and the move toward more long-term care hospitals rather than what is actually best for the patient or the health care system. The study concluded that there is insufficient data to determine the cost effectiveness of subacute care as defined in the study. As for overlap in the various settings, the extent of overlap was not precisely determined. But just as long-term care hospitals provide ventilator treatment, skilled nursing units specialize in ventilator patients. Nursing home subacute units specialize in wound care, infectious disease programs and IV antibiotic therapy programs, as well, just as would Palm Beach Regional if approved. The HCFA study also confirmed that the cost of care and mortality rates at long-term care hospitals are high, $2,000 per day and 40 percent, respectively. The average cost per discharge at a long-term care facility was between $150,000 and $250,000. Despite the long-term hospital's recognition by the federal government, the presence in Florida for more than eight years, and separate CON regulation for the last several years, it remain unsettled which patients should be treated and cared for in long-term hospitals. While for some, such as Dr. Griffin and Dr. Williams, the question is one which discharge planners, after consultation with nursing and medical staff, ably make, it is not generally accepted that it is clear which patients should be cared for in long-term care hospitals. It is not generally accepted as evidenced by the wont of admission criteria for long-term hospitals. Furthermore, it is not clear whether long-term hospitals represent the best means or the most cost-effective way of treating patients ready for discharge from an acute care setting. Specialty Hospital of Jacksonville: the Model The Palm Beach Regional proposal to convert to a long- term care hospital is modeled after another Columbia long-term care hospital, Specialty Hospital of Jacksonville, the hospital of which Dr. Williams is the medical director. Opened in 1992, Specialty offers four major program areas: ventilator and other respiratory complications, infectious diseases, wound management and complex medical and rehabilitative services. The typical ventilator patient is quite ill; often with other attendant system breakdown such as cardiac or renal failure. The goal is to free the patient from ventilator dependence. If the patient is judged to be a lifetime custodial ventilator patient, the patient would not be appropriate for Specialty. A variety of infections are treated in the infectious disease program. Often the primary antibiotic treatment has failed and there may be other conditions attendant. The typical wound care patient admitted to Specialty has severe wounds that may derive from circulatory problems. Often admission is from a hospital or nursing home. The patient may be diabetic, paraplegic or quadriplegic. The patient may have experienced a surgical intervention which has not healed. Or the patient may have a distressed digestive system which inhibits the body's ability to absorb the proper nutrients to support the healing process. The typical complex medical and rehab patient includes the spinal cord injured patient and the multiple system failure patient. The patients at Specialty are under the management of an attending physician but typically four or five different specialties are involved in each patient's care. Specialty Hospital has experienced approximately five percent Medicaid and one percent charity care. A representative patient at Specialty Hospital has an average length of stay of 23 days. The representative patient in the infectious diseases program would experience an average length of 18, 20 days in the pulmonary program, 29 days in the ventilator program, 36 days in the wound program, 18 days in the physical medicine and rehabilitation program and 26 days in the medicine program. These lengths of stay resemble acute or Medicare certified skilled nursing bed lengths of stay more than the historical 90 day lengths of stay experienced in Florida at long- term care hospitals. A representative patient at Specialty Hospital will experience an average daily charge of $1,122 and an average charge per case of $25,810, the highest averages incurred by the ventilator program at $1,848 per day and $52,781 per case. From a medical standpoint, all of the patients treated at Specialty Hospital could be treated in an acute care hospital. There is one difference between Specialty's patient profile and the one expected at Palm Beach Regional. The approach proposed by the applicant will include patients with greater levels of instability. Whereas Specialty has taken the approach that patients at the intensive care level should be in a general acute care hospital, Palm Beach Regional expects to treat patients in need of services from an intensive care unit. Palm Beach Regional, therefore, has planned for an intensive care unit at the facility should its CON application be approved. Integrated's Existing Programs Sixty of Integrated 120 beds are dedicated to meet the needs of patients requiring subacute care. Although they may differ slightly in intensity of application because of slightly lower acuity levels of the patients, the programs offered in this sixty-bed skilled nursing unit encompass the four programs proposed for Palm Beach Regional's long-term care hospital: ventilator and respiratory complications; infectious disease; wound management; and complex medical and rehabilitation service program. Integrated uses its own method to measure the acuity of its patients. Within this method, two of the levels require active treatment of co-morbidities, multiple diseases which complicate the primary diagnoses. By whatever means acuity is measured, it is reasonable to expect that the average level of acuity would be somewhat higher among patients treated at a Palm Beach Regional long-term care facility. (Although without criteria to measure acuity for admission or to know for sure what patients are actually being treated at long-term hospitals, this is not certain.) Nonetheless, considering both diagnosis and treatment, Integrated's patients at Integrated's two highest levels of acuity, even if not at quite as high an acuity level on average, would be similar to the patients Palm Beach Regional might serve if its application were granted. Patients at a Palm Beach Regional's long-term care facility who would exceed the highest level of acuity of those patients at Integrated are patients appropriate for treatment in an acute care hospital. Ventilator Care at Integrated Ventilator patients are treated in skilled nursing facilities both in hospitals and in free-standing nursing homes like Integrated. Some skilled nursing units even specialize in ventilator care. There is clearly overlap between ventilator services in skilled nursing facilities and long-term care hospitals. The precise extent of the overlap is not clear. While the overlap may not be 100%, it is certainly significant. Twenty of Integrated's 60 subacute beds are capable of assisting ventilator patients. Within this 20 bed unit, Integrated provides oxygen, air, and wall suctioning just like in a hospital setting. Additionally, Integrated can provide respiratory services outside of its specific unit by using portable suction machines and oxygen concentrators. The ventilator patients treated at Integrated are similar to the ventilator patient treated in intensive care units in hospitals. Some of Integrated ventilator patients are in need of acute care. All are hemodynamically stable but some are medically unstable. Nonetheless, there are patients who would be too unstable to allow them to be suitable for admission into Integrated's respiratory unit. Patients who would need to remain in acute care in the hospital would be patients who, for example, were bleeding or having trouble with a post-surgical trach placement. The medical director at Integrated is a pulmonologist. Integrated has a 24-hour respiratory staff. The ventilator program at Integrated meets the description in the application of the proposed ventilator program at Palm Beach Regional. Comparison of the respiratory services offered at Integrated to the services proposed to be offered in Palm Beach Regional's ventilator program reveals significant overlap between the two. Integrated primarily uses a Bear 3 Ventilator. Other equipment used by Integrated includes pulse oximeters and pneumatic blood pressure cuffs to provide hemodynamic monitoring. The respiratory unit is able to obtain an assessment of the patient's arterial blood gases within two hours through an arrangement with a courier service and nearby JFK Hospital. On average the blood work results are received within an hour of the blood being drawn from the patient. An interdisciplinary team of therapists, including respiratory therapists, physical therapists, occupational therapists and speech therapists, work together on the plan of care and recovery of the ventilator patient including weaning the patient from the ventilator. Of those ventilator patients determined to be weanable, 75% are actually weaned from the machines. Ninety-two percent of the tracheotomy patients achieve decannulation. The average length of stay in the respiratory unit for Integrated's ventilator patients is 37 days, an average length of stay that meets that which defines the long-term care hospital patient, that is, in excess of 25 days. Infectious Disease Treatment at Integrated Just as long-term care hospitals, nursing homes offer infectious disease programs employing IV anti-biotic therapies. Integrated provides its patients with multiple antibiotic therapies. Among the IV anti-biotic therapies used at Integrated are cepo, fortaz and vancomycin. Integrated treats patients with pulmonary edema, pleural affusion, pulmonary embolus and pulmonary infarcts and patients with bi-lobar and multi-lobar pneumonia. Patients are treated with intravenous cortico steroids, intravenous bronchodilators, intraveous diuretics and intramuscular antimedics. Wound Care at Integrated Nursing homes offer wound management programs. There is significant overlap between patients treated for wounds at nursing homes and at long-term care hospitals. Limitations in care of the wound patient are similar as well. Just as a patient in need of surgical intervention for wound care, for example, would be discharged to an acute care hospital from a nursing home so would that patient be discharged to an acute care hospital from Specialty Hospital of Jacksonville, the model hospital for Palm Beach Regional's long-term care facility. Integrated offers wound and skin management treatment of the type described by Palm Beach Regional's proposal. Many of Integrated's patients recieve wound care upon admission. For instance, respiratory patients who have tracheotomies receive care for their wounds throughout the day. Integrated treats all levels of decubitous ulcers, including the most severe, Stage III and IV ulcers, as required by law in order to qualify for Medicare Certification. Complex Medical and Rehabilitative Care Integrated offers radiology and other imaging services on campus: mobile chest x-rays, normal x-rays, and video flouroscopy as well as an in-house staff of rehabilitation professionals: physical and registered occupational therapists and registered speech therapists. The rehabilitation programs proposed by Palm Beach Regional and those programs of other long-term care hospitals overlap significantly with those programs already offered at Integrated. The difference between the complex medical and rehabilitative care offered at Integrated and that proposed for Palm Beach Regional lies in the expected acuity of the patients. One would reasonably expect the patients to be slightly higher in acuity at Palm Beach Regional if approved than as are presently at Integrated. Nonetheless, the patients at Integrated are similar to those Palm Beach Regional would care for, in that Integrated treats patients with co-morbidities, including combinations of congestive heart failure, post-open heart surgery, arteriosclerotic heart disease and renal failure. Integrated's Services in General On an average month, Integrated offered 7.28 hours per day of nursing and respiratory, physical and occupational therapy care per day to the patients within its subacute unit. Forty percent of Integrated's subacute nursing hours are provided by registered nurses, 20% by licensed practical nurses, and the remaining 40% by certified nurse aides. A sample of Integrated's admissions noted numerous patients admitted with cardiopulmonary vent and ventilator needs. Integrated also maintains a large number of orthopedic patients in need of complex rehabilitation. Integrated treats patients with congestive heart failures, patients recovering from recent open- heart surgery, patients requiring specialized wound care, patients with post-operative cranial head injuries, and patients requiring tube feedings, IVS, ventilator and tracheostomy care. Integrated offers the equipment that is listed in the application as equipment to be purchased by Palm Beach Regional if approved. Integrated accepts patients who are medically unstable. These include patients admitted to Integrated's cardiopulmonary unit, patients with recent tracheostomies, patients on ventilators, patients with hemodialysis and peritoneal dialysis who have co- morbidities. Palm Beach Regional's application lists diagnoses of patients to be treated through long-term care which it claims are not appropriate for skilled nursing facilities. The application alludes to various types of comprehensive therapies, care and resources available for these patients. Yet, despite the application's claim that care of these patients is not appropriate for the skilled nursing facility, present at Integrated for the benefit of patients with the same diagnoses are very nearly all, if not all, of these therapies, care and resources. These include: IV antibiotic therapy, IV drips, plasma pheresis, management of severe decubitus ulcers, tracheotomy care with hourly suction, treatment with chest tubes and PCA pumps, cardiac monitoring, dialysis and an on-site pharmacy. Moreover, Integrated's roster of consulting physicians credentialed at the facility included the range of specialists listed in Palm Beach Regional's application. Integrated's roster of physician ranges from family practitioners to practitioners specializing in internal medicine, dermatology, neurology, and infectious disease control, to orthopedic specialists, physiatrists and psychiatrists, nearly the "full gamut" of specialties in medicine. Adverse Impact There will be adverse impact on Integrated if Palm Beach Regional's proposal is approved. The impact occurs as the result of a combination of significant overlap of services offered by Integrated and proposed for Palm Beach Regional and the likely loss of admissions to Integrated's subacute unit generated by patients discharged from JFK Hospital. JFK Hospital and Palm Beach Regional are each approximately 2 miles from Integrated. Approximately 85% of Integrated's subacute admissions come from JFK. A good estimate of how many patients JFK refers to Integrated's subacute unit on an annual basis is 460. It is reasonable to assume that many of these patients would be referred to Palm Beach Regional by its sister Columbia Hospital, JFK, if the application were approved. If only two-thirds of these patients were lost to Palm Beach Regional, using a conservative figure for contribution margin of $100 per patient day, the loss to Integrated would be about $1 million in contribution margin per year. Furthermore, if the application is approved, Integrated will also have to either raise salaries to keep qualified staff for ancillary staff or risk losing them because Palm Beach Regional proposes to offer ancillary staff salaries higher than those paid by Integrated. Certificate of Need Criteria The criteria to be used in evaluating the application are found in statutes, and in rules of the agency which implement these statutes. Section 408.035(1)Health Plans Neither the District 9 Treasure Coast Health Plan nor the State Health Plan contain any mention of long-term acute care beds. Both plans were written before there were any CON requirements for this type of bed. (b) Availability, Quality of Care, Efficiency,Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Services There is no agency rule regarding need determination for long-term acute care beds. Neither is long-term hospital care defined by agency rule as a referral service, one dependent upon other hospitals to refer patients. The service area for a referral hospital is larger than just one district. Patients are referred from districts 9 and 11 to the long-term care hospitals in District 10. This is certainly not surprising for patients in district 9 since there is no long- term hospital in the district and referrals are the common way for long-term hospitals to gain patients. Patients are referred from Districts 3, 5, 6 and 8 to the long-term care facility in Tampa. With the exception of the long-term care hospital in District 11 where the largest proportion of patients came from within the District 11, all of the long-term hospitals in the state, "had referrals from all over the place." (Tr. 288.) Palm Beach Regional itself proposes to serve patients from Districts 7 and 10. The reality is that long-term care hospitals are primarily referral hospitals. Nonetheless, since there is no agency rule defining long-term care hospitals as referral hospitals and since there is no agency rule defining the service area of a long-term care hospital, District 9 may be the appropriate service area for the health planning purposes of Palm Beach Regional's application. In order for the district to be the appropriate service area, however, the application must demonstrate that there is a need for a certain number of beds based on the data collected from District 9. Since there is no need methodology applicable to long- term care acute beds, Palm Beach Regional developed three different methodologies for the agency's consideration. The agency found the "components," (Tr. 910,) of the methodologies to be reasonable. Indeed, the agency never offered any other need methodology which it claimed was superior to those offered by the agency. Instead the agency criticizes the methodologies for failing to take into consideration the availability of like and existing services and alternative to the proposed services. Patients who will be served in the proposed facility are currently being served in either the short-term acute hospitals or skilled nursing facilities in nursing homes such as Integrated, both of which are less costly alternatives to this proposal. Palm Beach Regional anticipates referrals from other Columbia Hospitals in the districts; however, six of the eight Columbia Hospitals have skilled nursing units which propose to treat the same patients and conditions the applicant proposes to treat. Furthermore, at the time of hearing, five Columbia hospitals in the districts had 56 approved skilled nursing beds not then operational. Included among the 56 were the 12 skilled nursing unit beds transferred from Palm Beach Regional. Palm Beach Regional's presents arguments in favor of improved quality of care to the patient in need of care following stabilization of an acute episode. There is, however, no data to support a conclusion that outcomes are better in long-term care hospitals. As for the applicant’s ability and record to provide quality of care, there is little doubt. The testimony of Dr. Ron Luke as to the high quality of care to be provided by Palm Beach Regional was not challenged. The patients proposed to be served by the applicant are currently being served in hospitals, subacute units at nursing homes or hospitals, or in rehabilitation facilities. Some may even be in home health with high technology equipment. Transferring these patients to a long-term care facility has significant financial implications costly to the health care system. The 60 beds proposed in the application will, in all likelihood, be adequately utilized. In the case of long-term care hospitals, demand follows the supply because of the strong financial incentive to fill the beds. There is nothing to indicate, however, that acute care beds are not an alternative to long-term hospital beds. There are plenty of empty beds in acute care hospitals to be filled by patients who would be treated by the applicant. That these patients proposed to be treated by Palm Beach Regional might receive treatment, if the application is denied, in hospital-based skilled beds or, perhaps inappropriately at times, in nursing home skilled nursing units is not due to lack of alternatives. Rather, it is the product of financial pressure on the acute care hospitals to discharge patients from the acute setting. Effective utilization of at least 85 percent of cost- based services such as long-term services is an important consideration because fixed costs can be spread over more patient days, thereby decreasing the costs per patient day. The average utilization rate in Florida for long-term care beds is 66 percent. The most recent occupancy rate for Specialty Hospital is only 41 percent. The record of long-term care hospitals would indicate that the utilization projections by Palm Beach Regional are unreasonable. But, there was nothing established that indicated the three methodologies used by Dr. Luke were unreasonable in any way. Given that Palm Beach Regional will be able to draw patients from its sister Columbia acute care hospitals, all of whom will be anxious to provide patients to this long-term hospital, and given that long-term hospital care is a kind of care for which demand follows the supply, it is likely that utilization at Palm Beach Regional, if approved, will be strong. Despite the record of other long-term care hospitals, Palm Beach Regional’s utilization projections are reasonable. Need for Research and Educational Facilities There are no plans to provide research or education at this facility. Availability of Manpower, Management Personnel and Funds for Capital and Operating Expenditures The State Agency Action Report shows that the agency believes that there will be adequate levels of staffing available. The adequacy of the staffing levels was confirmed by the administrator of Specialty Hospital of Jacksonville. Palm Beach Regional will be able to adequately staff the hospital at the salary levels proposed in the application. Long-term acute care hospitals treat the very old. Since almost all of these people have Medicare coverage, economic access is not a problem for the individuals the applicant proposes to serve. The applicant has a 1% indigent commitment and a 5% projected Medicaid utilization. Geographic access is also served well by this facility. The facility is located where the population base of the elderly population is in District 9. Financial Feasibility The immediate financial feasibility of Palm Beach Regional is evident from its ability to open and operate for the first two years with a positive cash flow with a financing letter in the amount of $407,000 from Columbia. Palm Beach Regional, in its pro formas and the analysis underlying its pro formas concluded that it would be under the prospective payment system for six months before it could transer to a facility exempt from the prospective payment system. This conclusion is reasonable. Palm Beach Regional has two months to get the necessary certification changed prior to the end of its fiscal year. Palm Beach Regional will be able to institute the necessary six month evaluation, within CON constraints, when it chooses. Furthermore, Palm Beach Regional could change the end of its fiscal year so that the six-month time period could be accommodated. Finally, short-term financial feasibility was demonstrated by the pro forma which properly shows reimbursement levels for patients who were treated in the first six months, and who were discharged after the first six months. Under Medicare regulations, the hospital would be reimbursed on a cost basis for these patients. Palm Beach Regional projected an occupancy level of 85% in the first year of operation and 87% in the second year of operation. Neither Specialty Hospital of Jacksonville, the model for Palm Beach Regional, nor the other long-term care hospitals in Florida have occupancy levels that high. Comparison, however, is not valid. The long-term care hospitals that converted from acute care facilities converted their entire complement of beds which resulted in overbedding. In contrast, Palm Beach Regional seeks to convert only 60 of its 200 beds. The situation of Specialty is very different. It is a converted 105 bed facility which was in bankruptcy when it first started, limiting its ability to attract patients. Within its district, Specialty competes with Vencor of North Florida, a 60 bed facility. Not only does Palm Beach Regional not have any in-district competition, but it will benefit greatly from being a member of the Columbia system. Palm Beach Regional's application demonstrates financial feasibility, both immediate and long-term. Special Needs and Circumstances of HMOs Whether the facility provides an additional level in the continuum of care available to HMO patients is uncertain. It is not generally accepted that the level of care Palm Beach Regional argues it will provide, that is, a level between acute care and subacute care, even exists let alone whether such a level of care is necessary, cost-effective or the best means of treating patients. Needs and Circumstances of Entities Providing Substantial Portion of Services to Individuals Residing Outside the District There are no facilities in the district which provide a substantial portion of its service to individuals residing outside the district. Probable Impact on Costs of Providing Health Services Total property costs for Palm Beach Regional amount to $3.572 million per year, or approximately $250,000 per month. This includes depreciation, interest, insurance and all other property costs. Because Palm Beach Regional would enjoy cost- reimbursement from Medicare instead of being paid on the basis of the prospective payment system, Medicare would pay as much as $190 per patient day for simple property costs and not for patient care, if Palm Beach Regional's utilization projections prove true. Were Palm Beach Regional's utilization projections to turn out to be incorrect and Palm Beach Regional's occupancies were more in the range of other long-term care facilities, (50% the first year and 60% the second), the cost would be "into the $3-400 a day cost range for the cost of [the] ... property allocated per patient day, which would be picked up in their entirety or close to their entirety [by Medicare.]" (Tr. 782.) Either way, the high property costs of Palm Beach Regional would result, should the application be approved, in shifting a huge financial burden to Medicare. The result would be to "wind up costing the Federal government, the Medicare program, multiples of what it now cost[s] ... to treat those same patients in acute care hospitals." (Tr. 792). The Applicant's Past and Proposed Provision of Services to Medicaid and the Medically Indigent Palm Beach Regional projected a 5% Medicaid utilization but its commitment is to indigent care only and that being a mere 1%. The commitment to indigent care (as opposed to the projection for Medicaid care) is meager. Furthermore, Palm Beach Regional has little established pattern accepting patients in these payor classes. Given the savings to Columbia acute care hospitals which would feed patients to Palm Beach Regional, and ultimately, the profit to be enjoyed by the applicant, a commitment of 1% is lacking. That recognized, it must be said that the modesty of the commitment is consistent with the advantage Medicare's cost- reimbursement system provides long-term care hospitals. It is not to be expected that there will be many Medicaid or indigent patients utilizing long-term care hospitals. "The vast majority of the population utilizing the facility will be the elderly, virtually all of whom are covered by Medicare." (Palm Beach Regional's Proposed Recommended Order, p. 23, Tr. 339.) Still, a greater commitment, more along the lines of the commitment provided by St. Petersburg Health Care Management, Inc., with which Palm Beach Regional has drawn comparison, (See Findings of Fact, 123- 128, below,) would lend this criterion to favor the application rather than disfavor it. The Applicant's Past and Proposed Provision of Services Which Promotes a Continuum of Care There is no long-term hospital available in District 9. But whether that means Palm Beach Regional is adding a level to the continuum of care available for patients in the district is uncertain. There is no data to support the conclusion that long- term care hospitals provide a level of care between that of acute and subacute. Despite the earnestness with which Dr. Griffin and Dr. Williams hold their opinions to the contrary, their opinions are simply not yet accepted widely enough at this point to support such a conclusion. That Less Costly, More Efficient, or More Appropriate Alternatives to Such Inpatient Services are not Available Long-term care hospitals have existed for years by Act of Congress. "[W]hile there has been an active discussion of alternatives, so far they have not come up with one which has been moved into rule or legislation." (Tr. 421). Certainly keeping long-term care hospital patients covered by Medicare in acute care hospitals would be a less costly alternative. Whether caring for these patients in one facility or another is more cost-efficient, however, is unknown. At bottom, there is no determinative data on the issue of cost-efficiency. As for more appropriate alternatives, there is a group of long-term care hospital patients for whom it is less appropriate to be in a free-standing skilled nursing unit. But, the size of this group is uncertain. Certainly, from the point of view of care to the patient, it is at least equally appropriate for all long- term care patients to remain in acute care hospitals rather than be discharged to long-term care. Alternatives to New Construction As the result of renovations, the facility requires little capital to convert it to a 60 bed long-term care hospital. The capital outlay of $500,000 is an indication of how little actual construction is necessary to complete the project. Problems in Obtaining the Proposed Inpatient Care in the Absence of the Proposed New Service With the exception of inappropriately premature discharges of patients from the acute care hospital's acute care setting, there are beds available for appropriate care in the absence of approval of the application. There is an abundance of beds in acute care hospitals available to patients who might otherwise be discharged to the long-term care hospital. As for the patient for whom discharge from the acute care setting is appropriate who might be admitted to a long-term care hospital, there are available for inpatient care skilled nursing beds in one type of facility or another. Administrative Due Process Palm Beach Regional contends that it has been treated differently by the agency, without reasonable explanation, from St. Petersburg Health Care Management, Inc., a successful applicant for the conversion of a general acute care hospital to a long-term care hospital in another district. Initially approved by the agency, the "St. Petersburg" application, CON 8213, was not subjected to the scrutiny of a formal administrative hearing at the Division of Administrative Hearings. Nonetheless, in support of its claim of unfair treatment, portions of the St. Petersburg application and omissions response for Certificate of Need number 8213 were introduced into evidence by petitioner as well as the State Agency Action Report. There are similarities between the two applications. For example, both proposed conversion of underutilized facilities to long-term acute care beds, as well as reduction of the hospitals' complements of 200 acute care beds to 60 long-term care beds. But there are differences as well. The St. Petersburg commitment to indigent and Medicaid care is 500% of the commitment by Palm Beach Regional. St. Petersburg's commitment is a combined 5%: 2% to indigent and 3% to Medicaid. In contrast, Palm Beach Regional's commitment is 1%, to indigent care only. Palm Beach Regional stated in its application that "[p]atients classified as Medicaid payers are projected to equal 5.0% of total patient days in 1999, 2000, and 2001." Petitioner's Ex. No. 1, p. 79. As reasonable as this projection may be, it is just that: a projection, nothing more and a projection is a far cry from a commitment. There is another difference between the two applications. While the facilities from which Palm Beach Regional's application received letters of support were limited to Columbia's affiliated facilities, St. Petersburg received letters of support from three disproportionate share providers as well as numerous unaffiliated hospitals and nursing homes in the Pinellas and Pasco County areas. The difference is critical to an understanding of the likelihood that the facility will, in fact, meet its commitment to the historically underserved. As Ms. Elizabeth Dudek, Chief of the Certificate of Need and Budget Review Office at the Agency for Health Care Administration testified, "You have, in the case of having the support of all the disproportionate share providers ... more of an assurance that the historically underserved, the Medicaid and the indigent patients, will be served and get access to the service." (Tr. 902). Such an assurance is omitted unfortunately from Palm Regional’s application.
Recommendation ACCORDINGLY, it is recommended that the application of Palm Beach Regional to establish a long-term acute care hospital by delicensing 128 beds and converting 60 acute care beds to 60 long- term acute care beds be denied.DONE AND ORDERED this 24th day of March, 1997, in Tallahassee, Florida. DAVID MALONEY 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 COPIES FURNISHED: Eric Tilton, Esquire Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1997. Gustafson, Tilton & Henning, P.A. 204 South Monroe Street, Suite 200 Tallahassee, Florida 32301 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Thomas F. Panza, Esquire Seann M. Frazier, Esquire Panza, Maurer, Maynard & Neel, P.A. 3600 North Federal Highway Fort Lauderdale, Florida 33308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403
The Issue Whether there is need for a new 60-bed general acute care hospital in Seminole County? If so, to which of two applicants should a CON be awarded to construct and operate the hospital: Orlando Regional Healthcare System, Inc. (CON 9496), or Adventist Health System/Sunbelt, Inc., d/b/a Florida Hospital (CON 9497)?
Findings Of Fact The Battleground: District 7 At the heart of the conflict in this proceeding is that the two corporate combatants are the dominant providers of hospital services in major metropolitan Orlando and both are providers of very high quality acute care hospital services. Each seeks authority to construct and operate a 60-bed general acute care hospital in the fast-growing community of Oviedo, Florida. The Agency for Health Care Administration, arbiter of the conflict, has introduced a quarrel of its own by its determination that there is no need for the hospital in Oviedo, a determination with which the hospitals decidedly take issue. Oviedo is an incorporated area in east Seminole County. Seminole County, in turn, is a county that with two other counties makes a contribution by suburb or city center to the conurbation in and around Orlando, Florida's largest non-coastal city. Seminole County is also one of four counties that comprise District 7, one of eleven health service planning districts into which the Legislature has partitioned the state. See Section 408.032(5), Florida Statutes. The other three counties in the District are Orange, Osceola and, removed from the controversy in this case, Brevard. The four counties are each considered by rule of AHCA to constitute a sub-district of District 7. Brevard is Sub-district 1; Orange, sub-district 2; Seminole, sub-district 3; and, Osceola, sub-district 4. The parties consider parts of Seminole and Osceola Counties to constitute the major metropolitan area of the City of Orlando together with, of course, parts of Orange County, the county that contains incorporated Orlando. As indicated above and by its irrelevance to this proceeding, no part of Brevard County is considered by the parties to make up any of metropolitan Orlando. There is also one county outside District 7 about which the parties introduced evidence, Lake County in District 3. Nonetheless, District 7 remains the primary battleground with a focus on sub-district 3 as the site of the CON sought by the parties. The Parties AHCA The Agency for Health Care Administration is the state agency responsible for the administration of the CON program in Florida pursuant to the Health Facility and Services Development Act, Sections 408.031-408.045, Florida Statutes. ORHS One of the two dominant health care providers in the Orlando area, Orlando Regional Healthcare System, Inc., is a Florida not-for-profit corporation that owns and operates eight facilities in the four-county area of Orange, Seminole, Osceola and Lake Counties, "the only market" (tr. 22) that it serves. Half of ORHS's facilities are in Orange County. These four facilities are: Orlando Regional Medical Center, a 517-bed general acute care hospital that provides tertiary services in addition to routine acute care hospital services and that is the site of a trauma center; Arnold Palmer Hospital for Children and Women, a 281-bed specialty hospital that provides women's and children's services including neonatal services; Orlando Regional Sand Lake Hospital, a 153-bed general acute care facility that provides comprehensive medical rehabilitation services; and Orlando Regional Lucerne Hospital, a 267-bed general acute care hospital that provides comprehensive medical rehabilitation and skilled nursing unit services. In Seminole County, ORHS wholly owns and operates Orlando Regional South Seminole Hospital ("South Seminole"), a 206-bed general acute care facility that provides adult/child psychiatric and adult substance abuse services as well as general acute care services. In Osceola County, ORHS owns Orlando Regional St. Cloud Hospital, an 84-bed general acute care facility. In Lake County, ORHS jointly owns and operates two health care facilities under joint venture business arrangements: South Lake Hospital, a 68-bed general acute care facility and Leesburg Regional Medical Center, a 294-bed general acute care facility. The wholly owned facilities operate under a single license and are accredited by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"). One of six statutory teaching hospitals in the state, ORHS has been in continuous existence since 1918. Its mission is to be a local, unaffiliated health care provider, providing health care services to the citizens of Central Florida. Recognized as one of the top 100 hospitals in the United States by US News and World Report, ORHS has been the recipient of numerous awards and recognitions. As but one example, it was the winner of a Consumer Choice Award from the National Research Corporation for the years 1999 through 2001. Orlando Regional Healthcare System provides outstanding health care of the highest quality to patients at its eight facilities in three of the four counties in AHCA's Health Care Planning District 7. Florida Hospital The other dominant health care provider in the Orlando area is Florida Hospital. Founded as a sanitarium, Florida Hospital has been in existence and a presence in the Orlando medical community since 1908. Florida Hospital is part of the Adventist Health System, a not-for-profit hospital organization that operates hospitals throughout the country. In the Orlando area, Florida Hospital has seven acute care campus systems operated under a single license in a three- county area: Orange, Seminole and Osceola Counties. The original and main campus is located in downtown Orlando. A second campus is in East Orlando. The five other facilities are in Altamonte Springs, to the northwest of Orlando; Apopka, further northwest; Winter Park, just north of Orlando; and Celebration and Kissimmee, both southwest of the city. Florida Hospital also operates Florida Hospital Waterman under a separate license in Lake County in District 3. The seven campuses in District 7 are unified by more than just licensure. Consistent with their operation under a single license, all seven operate under a single provider number with Medicare/Medicaid. They have a single medical staff and a single accreditation with JCAHO. The seven Florida Hospital campuses operate under a single leadership structure; all policies, procedures and matters that pertain to the operation of the hospital are part of the single body of operational guidelines and procedures that are provided by the organization. The seven campuses also operate under a single price structure, a single charge master that runs across the entire organization. The goal of operating the seven campuses in a unified manner is to maintain continuity and promote one standard of care so that when a patient enters any of the facilities, the patient can rely on receiving the same high standard of care as would be received at any other Florida Hospital facility. Operation under a single structure also provides a patient with the coverage of physicians and staff throughout the system to cover any and all needs of the patient. From its inception, the mission of Florida Hospital has been to extend a religious ministry of healing to the community consistent with Adventist principles. Among these principles are awareness of the eternal nature of the moment at which care is extended to the patient as well as recognition of each patient as a child of God, entitled to the highest possible quality of care embodied in "whole person health" (tr. 876) composed of physical, mental and spiritual well-being. Florida Hospital carries out its mission with "a strong sense of stewardship for providing care in the communities that [the hospital] serve[s] . . . ." (Tr. 875). The success of Florida Hospital's philosophy of care is evident in recognition bestowed by others. For example, Florida Hospital was recognized as being among the top 50 hospitals in the country for nine specialties in the July 2002 edition of U.S. News & World Report's "America's Best Hospitals." To take but one of the nine, "Heart & Heart Surgery," Florida Hospital is ranked 12th in the nation in the company of those ranked just above: Cleveland Clinic, Mayo Clinic (Rochester), Massachusetts General, Brigham and Women's Hospital, Duke University Medical Center, Johns Hopkins, Texas Heart Institute-St. Luke's in Houston, Emory University Hospital, Stanford University Hospital, Barnes-Jewish Hospital in St. Louis and the UCLA Medical Center. Well-Matched Applicants In its state agency action report ("SAAR"), AHCA noted that ORHS and Florida Hospital are two large, well-matched hospital systems. Both operate over 1,500 beds in the Orlando area. Both generate approximately two billion dollars of gross charges annually. Both deliver over 300,000 patient days of patient care. Together, they are the overwhelmingly dominant providers of health care in the major metropolitan Orlando area. In the SAAR, the Agency discussed distinctions between the two applicants. Had AHCA determined that there was need for the facility, it would have had a difficult time deciding which corporation should be awarded the CON. None of the distinctions between the two were found by AHCA to be substantial enough to serve as a basis for choosing either applicant over the other. Other District 7 Hospitals Besides the two applicants, the dominant providers of hospital services in District 7 by virtue of number of facilities (13 hospitals in the District and three hospitals in Lake County immediately adjacent to the District), among other reasons, there are three other hospitals in the District. Health Central is a hospital operated by a statutorily created tax district in the City of Ocoee, in Orange County. Central Florida Regional Hospital is owned and operated by Hospital Corporation of America ("HCA") located in the City of Sanford in Seminole County. It is approximately 14 miles from the proposed locations of the applicant's facilities. Osceola Regional Medical Center, another HCA facility, is located in Kissimmee in Osceola County, not far from Florida Hospital's Kissimmee and Celebration facilities. Stipulation The parties stipulated to the following: The applicable fixed-need is zero. Both applications complied with the requirements of Sections 408.037, 408.038 and Subsections (1), (2) and (3) of Section 408.039, Florida Statutes, and the requirements of Rules 59C-1.008 and 59C-1.010, Florida Administrative Code. Both applications meet the review criteria contained in Subsections 408.035 (3),(6),(8),(10) and (11), Florida Statutes and the review criteria in Subsections 408.035(4),(5) and (12), Florida Statutes, are not applicable in this case. The statutory review criteria at issue in this case are Subsections 408.035(1), (2), (7) and (9), Florida Statutes. Numeric Need Numeric need for general acute care beds is determined pursuant to Agency rule, Rule 59C-1.038, Florida Administrative Code. The rule's methodology for the calculation of numeric need for general acute care beds is by sub-district. Since "there really is no longer a future projection methodology in the rule . . . it was stricken out two or three years ago," Gene Nelson, one of ORHS' experts in health planning, refers to the rule as containing a "retrospective occupancy model." (Tr. 619). Under the methodology, additional beds are not normally approved in any sub-district where historic occupancy is less than 75%. If occupancy exceeds 75%, beds will be awarded to bring occupancy down to 75%. In other words, instead of projecting forward as it once did to determine need, the rule looks back to occupancy. If occupancy in the sub- district has met the threshold, then positive numeric need is established. Criticism has been leveled at the methodology. Not taking into account future population growth or occupancy rates at times other than midnight, are but two examples. Criticism, however, of the rule is of little moment in this case since the case is a challenge to agency action not to the rule that contains the methodology. Whatever the appropriateness or validity of the criticism, the calculations pursuant to the methodology have not yielded a fixed-need pool above zero for any of the many sub- districts in the eleven districts of the state for some years now. Nor is numeric need for general acute care beds expected by the Agency to exceed zero anywhere in the state for the foreseeable future. During this time of numeric need "drought," AHCA, nonetheless has awarded CONs for new general acute care beds and even new hospitals on a number of occasions. For example, "[d]espite the fact that there was an applicant proposing to relocate beds within the subdistrict, which wouldn't have affected the bed inventory at all, the state elected to approve [another] applicant . . . that applied for a brand-new 60 bed hospital" (tr. 635) in the community of Lady Lake in District 3. The application in that instance had been filed in the fall of 1998. In a second example, in the fall of 2001, a few years later, Osceola Regional and Florida Hospital Celebration were each approved to add beds to existing facilities despite the fact that there was no numeric need and the hospitals did not meet the statutory occupancy levels for additional beds. Mr. Nelson also testified about a third recent example where a new hospital was built when the subdistrict occupancy was low, the facts of which compare favorably, in his view, with the facts in this case. As he tells it, these three cases, compared to this case, produce inconsistency: In the fall of 1999, Sacred Heart Hospital applied to build a new 60-bed hospital in the southern portion of Walton County. That particular subdistrict is actually a two-county subdistrict consisting of Okaloosa and Walton counties, has some existing hospitals, current subdistrict occupancy in that area is 56.3 percent. Despite . . . the low occupancy . . . the state recognized the validity of the arguments about a growing population, about accessibility, many of the same issues that you have here and approved Sacred Heart to build a new 60-bed hospital in that location. * * * I am not criticizing any of these approvals. I . . . am criticizing [that the state was] presented with a similar set of circumstances in this case [and] the applications were all denied. And I think there is an inconsistency here. (Tr. 637-8). During the same period, moreover, beds have been added to existing hospitals without CON review, accomplished by way of Section 408.036(n), Florida Statutes. The statute allows 10 beds or 10% of licensed bed capacity to be added to a hospital's acute bed inventory upon certification "that the prior 12-month average occupancy rate for the category of licensed beds being expanded at the facility meets or exceeds 80% . . . ." Section 408.036(n)(1)a., Florida Statutes. See also Rule 59C-1.038(5), Florida Administrative Code. The bed additions made with and without CON review contribute to current numeric need determinations of "zero" and the continued reasonable expectation that AHCA's methodology for determining acute care bed numeric need will not yield numeric need in excess of zero for years to come. Most pertinently to this case, these additions erode AHCA's position advanced in hearing in this case for a preference to keep open the option for a future competitor, a competitor other than one of the two dominant providers, presumably when numeric need has been determined to exist, a condition not likely to come into play for the foreseeable future. However the future plays itself out and the effect on AHCA's current methodology, there remains one point central to consideration in this case. In light of a numeric need of "zero" for the applicable batching cycle, for a CON to be awarded as a result of this proceeding, as a first step, the applicants must demonstrate the existence of "not normal" circumstances that support an award. The two applicants attempt that step in tandem. Both ORHS and Florida Hospital contend that rapid population growth, problems of access to acute care and emergency services in the Oveido area, and mal-distribution of beds in the sub-district and district constitute circumstances that justify need for their proposed facilities. In other words, they are "not normal" circumstances. Not Normal Circumstances - Population Growth A rural farm community not long ago with a population of about 7,500, the City of Oviedo, in the last 15 years, has grown into an Orlando bedroom community. The population increase within the city limits is proof of the city's metamorphosis from countryside to suburb. During this period of time, the municipal population has nearly quadrupled to 28,000 with no end in sight to continued growth in the area as explained by ORHS' expert, Dr. Rond: The special circumstances . . . that drive this application are, first, the unprecedented population growth. As we have seen, we are experiencing population growth in excess of a hundred percent in the east Seminole area. In the adjacent Winter Springs area, we are experiencing a rate in excess of 51 percent. We are talking about a population that is going to reach almost 200,000 people by the year 2006. (Tr. 377-8). The area is projected for an additional 18.2% growth by 2006, when as testified to by Dr. Rond, the population will reach nearly 200,000. The municipal population is not the only population of a political entity in the area to quadruple in modern memory. Over the past three decades Seminole County has grown fourfold - from 83,692 in 1970 to 365,196 in 2000. As a result, the county is the third most densely populated of the state's 67 counties. Until the mid-1990's, population growth was concentrated in the western half of the county as Orlando area development spread north into Seminole County along the I-4 and U.S. Highway 17/92 corridors. Since then the rate of population growth has been dramatic in east Seminole County in part because of the opening of another major transportation corridor, the "Greenway," Highway 417. Between 1990 and 2001, east Seminole County more than doubled in size (24,840 to 51,287; a 107% increase) while West Seminole grew by only 22%. East Seminole County is expected to remain the fastest growing portion of the county into the foreseeable future. With approximately 43% of the total land area of the county but only about 16% of the population, it remains much less densely populated than the remainder of the county, affording greater opportunities for future growth. Seminole County is unique in the state from the perspective of bed-to-population ratios. The three hospitals in Seminole County with a combined total of 575 licensed beds, yield a ratio of 1.55 beds per 1,000 population; tied for lowest bed to population ratio of the sub-districts in the state. The only area with a comparable ratio is Sub-district 8-4, comprised of Glades and Hendry Counties, located southwest of Lake Okeechobee, "a very rural area." (Tr. 625). While these two sub-districts are similar in bed to population ratio, they are at opposite extremes in terms of population density. The population of Seminole County, at 371,000 is nearly nine times the combined populations of Glades and Hendry Counties at slightly more than 42,000. Sub-district 8-4 is "totally unlike Seminole County from the standpoint of population demographics; and yet in terms of resource availability, . . . it has a comparable amount of resources per thousand population." (Id.) Thus, Seminole County occupies a unique place in the state for its low bed-to- population ratio considering its overall population. Population forecasts for the next five-year period support the expectation of continued strong growth in east Seminole County. For example, the downtown area of Oviedo plans a residential area with a density up to 50 dwellings per acre, at least one of the highest in the County. In the City of Oviedo vicinity, median densities are increasing from 4 homes per acre to 10, to allow for townhouses. East Seminole County is reasonably expected to have 60,597 residents by the year 2006, an 18.2% increase over 2001. By comparison, West Seminole County is expected to experience only a 6.3% rate of growth. Projected growth in the City of Oviedo, moreover, is in all likelihood understated due to significant residential developments currently underway that alone are expected to add up to 6,238 new residents to the city's population. One need only look to actual growth in the area for support for such a prediction. Actual growth has consistently outpaced projected growth governed by methodologies that have repeatedly failed to reflect the reality of population growth in Oviedo. Related to population growth are utilization projections by the applicants' health planning experts for an Oviedo hospital. Judy Horowitz, Florida Hospital's expert health care planner, explained Florida Hospital's: [W]e looked at historically what had come out of the service area as we defined it. We projected that that volume would grow in proportion to population growth. We looked at a subset of services, those that were likely to be provided at a community hospital as was being proposed by Florida Hospital Oviedo. We looked at what we thought a reasonable market share would be; and our overall forecast is that within two years of opening this facility, that we would reach 77 percent occupancy at a 60-bed facility. So our year two, which is the 12 months ending June of 2007, . . . . we would already be at 77 percent occupancy. Then our first year we would be at approximately 68 percent occupancy. * * * [T]here is clearly sufficient demand to support the hospital as proposed; and the fact that we are projecting a relatively high utilization very quickly shows the magnitude of that demand. (Tr. 1352, 1353). With the high level of population growth and the demand for hospital services that such growth generates, the citizens of Oviedo expect access to hospital care within the community. In keeping with citizen expectation, the City of Oviedo has adopted a resolution that urges AHCA to approve a new hospital in the Oviedo community. It has been joined in its resolve by the Board of County Commissioners for Seminole County through a resolution of its own. To underscore the force of the two resolutions, the corporate parties presented the testimony of representatives of both the City Council and the County Commission. Grant Malloy, the County Commissioner for County District I who grew up in the area with fond childhood memories of "being overcome by the orange blossom smells, they were so intense," (tr. 802) described the growth observed first-hand by him during his lifetime as "phenomenal." (Tr. 806). In answer to the question whether his constituents would benefit by a new 60-bed hospital, Commissioner Malloy testified I do believe so. There is . . . the growth that's occurring there. And I heard . . . discussion about getting to some of the other hospitals. And once you get out of Seminole County . . . the roads are very, very difficult to travel on especially getting into Orlando. Especially rush hour . . . . . . . [T]he growth . . . would support such a facility. I know our board passed a resolution, along with the City of Oviedo[.] [O]ur board, and all the commissioners are unanimously supportive of a hospital in the area. I haven't heard from any residents or constituents that have said it was a bad idea. . . . [P]eople are pretty excited about it. (Tr. 807-8). Tom O'Hanlon, Chairman of the City Council, in the company of three other members of the council, unequivocally backed up Commissioner Malloy's appeal for a new hospital. The changes he has seen in Oviedo, he described as: Dramatic changes. When I moved there, [Oviedo] was a very rural area, and it is no longer . . .; it’s a highly compacted urban area. [W]e are working on a new master plan for downtown, which will have higher densities than we have in our city today. (Tr. 812). Chairman O'Hanlon went on to describe how the pace of the growth continuously outstrips population projections that are the product of the City's best efforts to follow appropriate methodologies for making such projections: [T]he city continually makes population projections. I have always been involved with them[.] [T]here are guidelines . . .; and everytime we make them, the city grows far in excess of th[e] projections. The area is such a dynamic area because we have got the University of Central Florida there, which is just growing as fast as the city is, maybe even faster. You have the Research Park there and you have got excellent schools. And for that combination . . . everybody wants to move there. (Tr. 812-3). The university is just south of the city limits. It has minimal dormitory facilities on campus. The result is that "a vast majority [of students] live off campus in housing and apartments [and they are impacting all the services that must be provided in Oviedo.]" (Tr. 814). Following this testimony of Chairman O'Hanlon, the following colloquy ensued between him and counsel for ORHS: Q Is it fair to say, Councilman O'Hanlon, that the City of Oviedo and surrounding area is in growing urban area that has everything but a hospital? A That is a true statement. Q Are you familiar, Councilman O'Hanlon, with the proposals of Orlando Regional Healthcare System and Florida Hospital to locate a 60-bed hospital in the City of Oviedo? A Yes. Q Do you support that effort? A A hundred percent. Q Do you believe, Councilman O'Hanlon, it would be of benefit to your constituents to have that [hospital] in the city of Oviedo? A Absolutely. People approach me every week wanting to know where our hospital is. Q Can't understand why it's not there already?A Well what they understand is that there is a tremendous need for a hospital and they don't understand why it's not in the process. (Tr 816-7). Residents of Oviedo also do not understand why they have to drive for such a long time to reach a hospital particularly when their goal is the emergency department. This concern about which Councilman O'Hanlon hears from a constituent "at least once a month" (tr. 819) also made its way into the resolutions of the two political bodies in the form of an identical introductory clause, as follows: "WHEREAS, there are increasing problems with timely access to care especially for emergencies," (Joint ORHS/Florida Hospital Nos. 8 and 10). It is, moreover, a concern that takes up the second prong of the applicants' case for "not normal" circumstances: issues of access. - Access The Oviedo Service Area Although similarities exist between the two, the Oviedo Service Areas defined by the two applicants are somewhat different. The service area selected by ORHS is larger than the service area selected by Florida Hospital. The Primary Service Area ("PSA") for ORHS' proposed hospital is composed of four zip codes: 32765, 32732, 32766, and 32708. Of the four, the first three are in eastern Seminole County, that is, east of Highway 417, the Greenway, and south of Lake Jessup. The fourth, 32708 in the Winter Springs area, is just west of the Greenway. The Winter Springs zip code was included in ORHS' PSA in part because it is adjacent to the Greenway. It has also experienced tremendous population growth and is very close to the proposed site for ORHS' hospital. A secondary service area proposed by ORHS is composed of a zip code in Seminole County north of Lake Jessup, 32773, and three zip codes in Orange County, 32817, 32820, and 32826. Located in the midst of the three Orange County zip codes is zip code 32816. It appears on ORHS exhibits as part of the secondary service area. As the zip code for the University of Central Florida, it has a very low residential population so that there are only a few students who might live in a dorm that would list it as their residence when receiving hospital services. There are actually "very few" (tr. 302) discharges from zip code 32816. If one does not include zip code 32816 then ORHS' service area is a comprised of eight zip codes. The April 1, 2001, population for the primary and secondary service areas or the service area designated by ORHS is 170,774. This service area has more than doubled in population over the last decade. Over the next five years, the service area is expected to reach 193,408 residents, of which 45% will be of prime child bearing age (15-44), "a dominant position for that age cohort within the population." (Tr. 315). The Oviedo service area is defined by Florida Hospital as four zip codes in Seminole County, 32708, 32732, 32765, and 32766 and one in Orange County: 32826 (all zip codes in ORHS' service area) with a population of more than 100,000. Florida Hospital's service area does not include Zip Code 32773 (the zip code north of Lake Jessup) that is in ORHS' service area nor, with the exception of 32826, does it include any of the Orange County zip codes that are in ORHS' service area. Thus, there are five zip codes in what Florida Hospital regards as the Oviedo Service Area and eight in what ORHS regards as the Oviedo Service Area if zip code 32816 is excluded. Although somewhat different, for purposes of examining travel distance and time between Oviedo and area hospitals, the Oviedo Service Areas of the two applicants are similar enough to be considered to be the same. Or, as William E. Tipton, an expert in traffic transportation and civil engineering, testified at hearing, the results of his study entitled "Travel Time Analysis Proposed ORHS Oviedo Campus, Oviedo, Florida" (ORHS Ex. 14) would not be substantially different if he had focused on the Florida Hospital site instead of the ORHS site. Travel Time Analysis Mr. Tipton prepared a travel time analysis to evaluate the differences in travel time that could be anticipated with the development of a hospital campus in Oviedo. Mr. Tipton's study concluded that there would be a reduction of average daily travel time from the ORHS PSA to a hospital by 64% or 18 minutes. The maximum reduction will be 75% of the time or 21 minutes. In the critical peak afternoon hour, there will be a maximum reduction of 79% or 22 minutes in time from that which exists today. The reductions in drive distance for Oviedo area residents if a hospital were in Oviedo would be significant especially in the arena of emergency services. Emergency Services Access to emergency services at a hospital emergency department ("ED") is one of the most important factors in making sure people have reasonable access to community hospitals. "[Y]ou really need . . . immediate care for emergencies, and so it's important to be able to get to the emergency department quickly and to receive care rapidly once you get there." (Tr. 336). Between 1997 and 2001, the hospitals experiencing the highest percentage of ED visit increase, other than Health Central, were Florida Hospital East in Orange County and South Seminole Hospital in Seminole County. During the period between 1997 and 2001, although the population of Seminole County grew less than Orange County, Seminole County had a larger percentage of ED visits. Specifically, the population of Seminole County grew 12% but its ED visits increased 23%, twice its population growth. During the same period, the population of Orange County grew by 15% but its ED visits only increased by 17%. Closer examination of these statistics reveals that ED visits in the downtown area of Orlando, to include Orlando Regional Medical Center and Florida Hospital, were below the county average. However, suburban hospitals, or those in outlying areas, particularly near Oviedo, had much greater ED visit growth: ED visits grew 27% at Florida Hospital Apopka and 37% at Florida Hospital East. Florida Hospital East is the closest hospital in Orange County to the Oviedo area. Of the hospitals in Seminole County, South Seminole was the most severely affected by ED visit increase with a 38% increase of ED visits between 1997 and 2001. (ED visits in excess of 27,000 by area residents are projected in 2006.) In the Oviedo area there are unfortunate but not uncommon delays in emergency transport. More than 20% of emergency transports involve delays of in excess of 45 minutes after arrival at the hospital. These delays are serious because patient outcomes decline dramatically if definitive care is not delivered within the "golden hour," a concept that: reflects the fact that patient outcomes decline [dra]matically in terms of . . . mortality rates if definitive care is not delivered within one hour of the traumatic injury that has been sustained. In cardiology, they tend to . . . say "time is muscle," * * * the longer it takes for a patient to get definitive care following a major cardiovascular event, the more muscle mass is likely to be damaged. . . . [Y]ou can go on and talk about stroke victims, cerebral vascular patients and just a whole array of patients who [fare] much better in terms of morbidity and mortality if they receive definitive care within an hour of the episode. (Tr. 336). Part of the delay for patients in need of prompt emergency services is due to ambulance standing time. Standing time is the time a patient waits in the ambulance or hallway of the emergency department before the patient is seen by medical staff. This standing time does not include the time it takes the ambulance to respond to the call or the time the EMS personnel spend at the scene to stabilize the patient. Nor does it include the travel time to the hospital from the scene. Ambulance standing time for patients from the Oviedo area on average is between 42 and 47 minutes. When average travel times established in Mr. Tipton's study are combined with the standing times, there is not one existing provider of emergency services that can provide a patient from Florida Hospital's Oviedo Service Area or ORHS' PSA with emergency care within the "golden hour." This combination, moreover, as stated above, does not take into account the dispatch time and time of the ambulance at the scene. The typical types of emergency calls EMS personnel see in Oviedo include difficulty breathing, auto accidents, kids falling off bicycles, heart attacks, and drug overdoses. The largest majority of calls would go to a local community hospital as opposed to trauma center in downtown Orlando. Jeffrey M. Gregg, Chief of the Bureau of Health Facility Regulation, which includes the Certificate of Need Program for the Agency for Health Care Administration, testified that emergency room access is a problem that has gotten worse over time. Mr. Gregg also stated that a new hospital in the area will improve emergency access for people in the immediate area. A new hospital in Oviedo service area would also benefit and improve emergency access for patients in Orange County emergency rooms by lessening the emergency patient loads they experience. Wayne Martin, Fire Chief, Emergency Management Director, City of Oviedo, testified that the standing times and delays at the area hospital emergency rooms tie up Oviedo area ambulance services for an extended period of time. Emergency Medical Service ("EMS") staff must stay with their patient until the patient is taken into the emergency room and given medical care by emergency department staff. Because of these delays, EMS staff are out of their service area for extended periods of time. This decreases the level of service for the residents of the Oviedo area. One aspect of the problem influences another so as to create a compounding effect. Dr. Robert A. Schamberger, a family practitioner in Oviedo, testified that recently a patient went to the emergency room at an area hospital and it took 16 hours from the times she arrived until she was seen by the emergency room personnel. Dr. Schamberger tried to admit another patient of his in an area hospital on a recent Friday and was informed there were no beds. The hospital said they would call when they had an available bed. The patient was finally admitted on Monday. Emergency room waiting times across the entire community are several hours, which is an unacceptable care standard. Dr. Zulma Cintron practices internal medicine in Oviedo. Dr. Cintron testified that there is a "huge need" for a hospital in the Oviedo area. "We definitely need the beds." Dr. Cintron has had patients with chest pains who ended up waiting in the emergency room for four, five, and six hours before receiving care. Patients with less imminent needs have waited 12, 16 even 24 hours. Dr. Cintron's testimony for Florida Hospital was confirmed by the testimony produced by ORHS of Scott Greenwood, M.D., a cardiologist who heads a cardiology group. The evidence provided by Drs. Schamberger, Cintron And Greenwood, anecdotal though it may be, supports the existence of a problem with emergency services access in the Oviedo area that is shown by the analysis provided by the combination of Mr. Tipton's traffic study and ambulance standing time. So does projected volume for ED visits. Projected volume at Florida Hospital Oviedo in year two would be in excess of 27,000 visits. The Oviedo area has a population that "is adequate to support a hospital at high utilization levels within [a] short period of time and also will generate a significant number of emergency visits." (Tr. 1355). A new hospital facility in the Oviedo service area would help to alleviate the delays currently being experienced in the area hospital emergency departments. The Agency is not unaware of the problem and the solution that an Oviedo hospital would provide. The issue for AHCA is "[w]ould the improvement that would result for some people justify the construction of an new hospital?" (Tr. 726). The applicants claim that the three existing Seminole County hospitals are not appropriately located to provide emergency services required by the growing population of Oviedo. Put another way, within the sub-district and District 7, ORHS and Florida Hospital assert there is a mal-distribution of beds. Mal-distribution of Beds While population growth has increased dramatically in east Seminole the opening of health care facilities in the east part of the county has lagged behind; the area has more than 100,000 people but no hospital. The three acute care hospitals in Subdistrict 7-4 are all located in the western portion of Seminole County. People tend to use hospitals closest to them especially for emergency services. Because of the north/south nature of the road corridors in Seminole County and the congestion and distances involved in east/west travel in the county, the Oviedo area population's access to existing hospital service in the district is problematic. The population has better access to resources in Orange County, a different subdistrict, and, in fact, 66% of the Oviedo population take advantage of that better access. Consistent with the pattern of transportation development in Seminole County, all three hospitals in Seminole County are located between I-4 and U.S. Highway 17-92. Florida Hospital Altamonte is situated along the 436 corridor, whereas South Seminole Hospital is located further to the north on State Road 434, while Central Florida Regional Hospital is situated at the northern border of the county along the U.S. Highway 17-92 corridor. Dr. Rond had this to say about the locations of the three Seminole County hospitals in relation to the population in east Seminole County: The resources in the western part of the county are not situated in such a way that they are being utilized effectively by residents of [ORHS'] service area. Instead, they seek to move along the north/south corridor, primarily the Greenway, to utilize the services located in Orange County or … they take other routes of access to reach Winter Park Hospital, which is . . . in Orange County. (Tr. 319). The problem of distribution of hospitals is not restricted simply to inside the county. There is a mal- distribution in District 7 as well. Overall in the district, there are 2.3 beds per thousand. Orange County enjoys a ratio that is very high when compared to Seminole County's. Orange County's bed to population ratio is 2.7 beds per thousand, whereas Seminole County's is only 1.55 beds per thousand. The average bed ratio in Florida is 2.85 per thousand. Whether measured against the state ratio or the Orange County ratio, general acute care hospital beds per thousand population in Seminole County is low. The ratio comparison between Orange County and Seminole County will improve with an Oviedo Hospital although it makes the overall ratio only "a little closer; so that Orange County has beds per thousand and Seminole County would have 1.6 beds per thousand." (Tr. 316). The applicants intend to make that improvement with their proposed projects. The Proposed Projects ORHS' Orlando Regional proposes to construct a new 60-bed acute care hospital in the City of Oviedo. The location was described at hearing by Karl W. Hodges, ORHS vice president of Business Development: [T]he hospital [will be built] within a two- mile radius of . . . Highway 426, also called Loma and Mitchell Hammock Road which is also called Red Bug Road. [The CON Application] further stipulates we'll be east of 417. (Tr. 20). Within that area, ORHS proposes to build a three-story 155,000 square foot facility on approximately 35 acres of land. Although a site has not yet been purchased, there is at least one parcel of 35 acres of land available in the area that can be acquired by ORHS at a price of $7,000,000 or less, as indicated in its application. The bed complement of the proposed facility will be eight ICU beds, ten labor-delivery-recovery and post-partum ("LDRP") beds serving the obstetrics department, 15 telemetry monitored beds, and 27 medical/surgical acute care beds. The proposal will add 30 beds to the inventory of beds in the sub-district but it will not add beds to the inventory of District 7. The 60 beds will be transferred by ORHS from two facilities. Thirty of the beds will come from South Seminole Hospital (in Seminole County). By itself, moving the 30 beds within the sub-district "for the stated goal of enhancing access . . . is a non-controversial project" (tr. 627) that is not subject to a certificate of need methodology but that still requires CON review and approval. The other thirty beds will come from Orlando Regional Lucerne Hospital in Orange County. However attractive for its minimization of controversy, all 60 beds could not have been transferred from South Seminole because to do so would have raised its occupancy above 80%, "an untenable result." (Tr. 630). For the additional 30 beds, "Lucerne seemed like a logical choice, given its bed size and its utilization." (Tr. 628). The design of the proposed hospital is based on another ORHS facility: South Lake Hospital, a replacement facility that opened in January of 2000. Florida Hospital's Florida Hospital also proposes to construct a 60-bed acute care hospital in the City of Oviedo. Unlike ORHS, Florida Hospital owns the site, 15 acres at 8000 Red Bug Lake Road near an intersection with the Greenway. The site currently includes a two-story, 41,000 square foot medical office building and a one- story, 6,000 square foot urgent care center. A two-story, 161,000 square foot facility is proposed to be constructed on the remaining vacant space at the site that has been approved under the Development of Regional Impact process for a 120-bed hospital. Ownership of a DRI-approved site will save Florida Hospital time and expense entailed by permitting requirements. All 60 beds will be part of an innovative design referred to as a "universal room and universal care delivery model." For the present, Florida Hospital does not intend to provide obstetrics at the Oviedo facility but "all of the universal patient rooms are capable of being LDRP rooms" (tr. 1181) should Florida Hospital decide in the future to provide obstetric services at the hospital. Florida Hospital will transfer 60 beds from Orange County facilities so that Florida Hospital's proposal will increase the sub-district's bed inventory by 60 beds, 30 more than the increase that will be affected by ORHS' proposal. Just as with ORHS, Florida Hospital's proposal will not increase the bed inventory in District 7. Fifty beds will be transferred from Florida Hospital's Winter Park facility and 10 beds will transferred from Florida Hospital's Apopka facility. AHCA's View of the Proposals The Agency's conclusion that the applications did not demonstrate "not normal" circumstances was reached with difficulty. Review of the applications taxed the agency's decision-making process because of the challenging circumstances presented by the applicants. As Jeffrey Gregg testified for the Agency, when there is "no fixed-need pool," AHCA look[s] at applicants in terms of a unique set of circumstances that they present . . . and in this instance, The circumstances . . . in this case challenge the system, make it more difficult for [the Agency] to make a sound decision in the tradition of the CON program. (Tr. 723). However much in keeping or not with the tradition of the CON program, the determination that there were no "not normal" circumstances to justify need afforded a benefit to the Agency; it would not have to make the difficult choice between the applications. While it could have granted both applications, an option considered by the Agency (see tr. 729), no party contended in this proceeding that circumstances justify two new 60-bed hospitals in Oviedo. If need is proven for but one hospital, then a selection must be made. Yet, at every turn, AHCA has found one advantage held by an applicant to be defeated by another held by its opponent or one set of circumstances that would normally be an advantage neutralized by other considerations. For example, in view of the nature of the Orlando market, AHCA reasonably did not give much weight to ORHS' proposal to add fewer beds than Florida Hospital to the sub- district despite the fact that usually there would be advantage to a mere intra-sub-district move. In the absence of fixed need, for example, such a move would not have to be supported by "not normal" circumstances. To the contrary, however, from the point of view of practicality, it makes more sense "to take beds from a more urban setting [in Orange County, a different sub-district] where they are not being used [as proposed by Florida Hospital] and move them to a new rapidly growing area where there are not hospital beds." (Tr. 739). A sense of practicality guided AHCA throughout its CON review in this case. The Agency, in fact, approached the applications by "trying to be as practical as possible." (Id.) As explained by Mr. Gregg, again on behalf of AHCA: [The Agency] do[es] not give much weight to the fact that [the applicants] would be crossing subdistrict lines here and that one of them [ORHS] is in a position to . . . add fewer beds to the planning area. That's noted in the SAAR, but practically speaking, we are talking about a metropolitan area here. We are talking about in both cases large systems wanting to move beds from one part of their system to another part. So in many ways, . . . once again, [ORHS and Florida Hospital] are really well-matched and difficult to distinguish. (Tr. 724, emphasis supplied). The difficulty inherent in distinguishing between the applicants was repeatedly emphasized by the Agency. The point was brought home once more in questioning of Mr. Gregg by counsel at hearing: Q [W]ith regard to the minute distinctions between the applicants, at your deposition, some of the statements you made in that regard included [that ORHS and Florida Hospital] are both good citizens. All of these things in this case, coming up so close and so equal, that . . . in terms of CON analysis, it becomes very difficult . . . to make a distinction between the two of them. They are both just that good. And then also [the Agency] think[s] they compare very favorably, and very evenly, noting again and again and again that they are very, very close, very, very comparable. Is that still your position here today? A Yes. (Tr. 766-7). However close the Agency regards the two, there are differences in the applications. While some may not be of great benefit to a decision, others may serve to sustain a principled choice. Differences in the Applications Obstetrics The leading reason for hospitalization among area residents is the need for obstetrical services with births running at more than 2,000 per year. During the 12-month period ending June 2000, for example, childbirths accounted for 2,041 discharges. Of the top ten DRGs for discharges among area residents, uncomplicated vaginal delivery accounts for the most discharges, cesarean section ranks third and vaginal delivery with complications is seventh. In keeping with the demand for obstetrical services, the utilization patterns of the population in the Oviedo Service Area and the area's age composition, upon the opening of its facility, ORHS proposes to provide obstetrical services. The proposal is also due, in part, in response to the closing of the obstetric program at Florida Hospital East in May of 2001. There is physician support for ORHS' proposed obstetric services. Robert Bowles, M.D., testified by deposition that his group practice, Physician Associates of Florida, comprised of 14 obstetricians and gynecologists would cover obstetrics at an Oviedo hospital. While Dr. Bowles would not personally admit obstetrics patients at the new hospital, three of his partners would. Florida Hospital does not propose to provide obstetrics upon opening although it has designed its physical plant to provide an OB unit so that Florida Hospital would have the capability of initiating that service without a problem. In other words, Florida Hospital's proposed facility would be "OB- ready." (Tr. 725). Unlike ORHS, Florida Hospital does not have physician support for providing obstetric services at its proposed facility, a part of the reason for not offering OB. The basis for Florida Hospital's lack of physician support is a malpractice insurance crisis for obstetricians. Florida Hospital's proposed facility is not projected to open for another three years. If, during that time, the malpractice crisis eases and there is greater physician coverage availability, Florida Hospital could open obstetric services at the same the hospital opens since it will be OB-ready. Another reason that Florida Hospital has decided against offering obstetrics upon opening is that most maternity patients are more comfortable delivering babies in a setting that has neonatal intensive care services available. Two such settings are ORHS-Arnold Palmer and Florida Hospital's main campus. Indeed, a significant number of maternity patients from Oviedo are choosing to travel past multiple hospitals that offer obstetric services to have their babies delivered at one or the other of these two hospitals. Arnold Palmer, in fact, is the leading provider of obstetrical services to the residents of the Oviedo area's two most populous zip codes: 32708 and 32765, both more than 30 minutes driving time away from the hospital. Medicaid and Charity Care Conditions Approval of ORHS' CON is conditioned on a minimum of 7% of total annual patient days for Medicaid patients and 1% for charity care. Florida Hospital's application offers no conditions with regard to Medicaid or charity care. Like ORHS, Florida Hospital is one of the top ten providers in the State of indigent care, and a disproportionate share Medicaid provider. The Agency's view of the difference between ORHS' provision of indigent care conditions and Florida Hospital's decision to not condition its application was explained by Mr. Gregg: Conditions [such as those for indigent care] are important when it allows us to distinguish between applicants. They are less important when we have competing applicants, both of whom has such strong track records as these two do. . . . [W]e look at evidence of past performance relative to indigent care . . . . [I]n a case like this . . . both of these applicants have such good records in th[e] area [of indigent care]. They are both in the top ten statewide. . . . [A] promise of this condition or that condition [does not] give us particular concern one way or the other. They are both very good in that area [of Medicaid and charity care] and very tough to distinguish between. (Tr. 735-6). Architectural Design and Site The architectural plans of both applicants meet all codes that apply to a new hospital in the state of Florida. The ORHS design is tried and proven at ORHS' South Lake facility and will work on a 35-acre site. The size of Florida Hospital's site, 15 acres much smaller than ORHS', led to criticism of the site from ORHS experts. But the site is large enough to incorporate growth in the future. It can accommodate 320 beds and ancillary services. The design, moreover, takes these expansion capabilities into account. Related to the size of the site, the site's conservation area, comprised of wetlands and a forested upland buffer that will remain undeveloped indefinitely also produced criticism that the site is too cramped for a new hospital. But the conservation area, with its mature tree canopy, presents advantages. The hospital was designed to incorporate the view of the conservation area from hospital rooms because such a view is beneficial to the healing process. Furthermore, the conservation area can be used to satisfy water retention requirements. Florida Hospital's site is DRI-approved and part of a DRI master storm water plan that connects many ponds and wetlands. Surrounded by three roads, it has excellent access from existing roadways. Vehicular circulation is split to provide different public, service and emergency entrances. Innovation by Florida Hospital Unlike traditional hospital care models where the patient is moved from room to room depending on type and intensity of care, all care and services are provided to the patient in one "universal" room under the "universal delivery of care model." The model was developed by Florida Hospital. "The nursing leadership of the universal room design . . . was under the direction of Connie Hamilton." (Tr. 1080). Ms. Hamilton, accepted as an expert in nursing and nursing administration, explained at hearing that under the model, the room is designed to provide any type of care the patient might need. Whether the patient is admitted in acute care and then moves to intermediate care or med-surg, all care is provided within one "universal" room. Not only does the patient stay in one place, but as Ms. Hamilton testified, "[t]he nurses stay in one place in providing that care to [the patient] and the families know where the patient is and the physician knows where the patient is [at all times]." (Tr. 933). The universal care model streamlines the interactive processes of care of a patient. The care and attention of physicians, nursing staff and families devoted to moving the patient from room to room and keeping track of the patient as type and intensity of care changes is reduced to nearly zero if not eliminated entirely. The time, energy and resources formerly devoted to all that is entailed with changes in the patient's room is then free to be re-directed to care and attention paid to the patient. The result is enhancement of Florida Hospital's ability to provide "whole person" care consistent with Adventist principles of health care. The universal care delivery model is an innovative approach to the delivery of healthcare. Pioneered by Florida Hospital at Celebration Health, the universal care delivery model has been shown there to reduce medical error, reduce length of stay, reduce pharmacy costs, reduce nursing workload, reduce housekeeping work, and probably to reduce infection rates. Following the universal care model employed at Celebration Health, Florida Hospital has designed its proposed Oviedo hospital facility with universal rooms. Consistent with the universal care delivery model, the rooms are designed to improve the healing experience during hospitalization and minimize the patient's feeling of being in a hospital setting. Another benefit of the universal care model is high physician satisfaction due to continuity of nursing care and other factors. The physicians know where the patient is, that is, in the same location every day. Physicians, moreover, are not called at all hours of the day and night to effectuate patient transfers to other rooms. Kathleen Mitchell has studied the universal care model and published and submitted articles on the model to nursing journals. She has consulted with hospitals around the country interested in the model as well as the "health care arm of the Department of Defense, Air Force, Army, Navy, Veteran's Administration." (Tr. 1084). Ms. Mitchell, accepted as an expert in nursing amplified the testimony of Ms. Hamilton. With regard to the problem the universal care delivery model is designed to address, Ms. Mitchell testified: [T]ransferring patients for different levels of care . . . fractures continuum of care. It is . . . disruptive to everyone . . . involved . . . to the patient and their families . . ., to nursing, pharmacy, the physicians . . . . It creates a great deal of anxiety for patient and the families . . . even [those] who are getting better and moving to a lower acuity of care. One of the most significant things about transferring patients for different levels of care is it involves a great deal of work. Not only bundling the patient up, but the documentation and all the communication that goes along with securing a new location for the patient and expediting a transfer. And moving patients around creates a risk of medical error. The length of stay in hospitals has gotten so short and everybody is focused on reducing the length of stay that in the traditional model of care, nurses are turning over more than half their patient assignment daily . . . . [T]here is the confusion and risk that goes along with that. (Tr. 1086-1088). The benefits of the reduction and elimination of transfers produced by the universal care model were listed by Ms. Mitchell: increase in the continuity of care, reduction in nurse workload, high physician satisfaction, reduction in emergency room waiting time, family satisfaction, connectivity between patient, family and staff. Others were elaborated on by Ms. Mitchell. For example, reduction in pharmacy costs, probable reduction in infection and reduction in housekeeping costs: When you are meeting the needs of the patient in one location, you are not leaving medications behind or sending them to the wrong place, and there is work that nurses and pharmacists do with calling each other with ['] where is it, I can't find it, I sent it[',] all that goes away. We are demonstrating a low incidence of nosocomial infections because we expose our patients to one environment of organisms. This is a very difficult one to prove; even though we have a low incidence of nosocomial infections, we also have a fairly new facility [at Celebration], but it makes common sense that if you are reducing the transfer of the patient and the exposure . . . to different environments, you are reducing their exposure to organisms and will have a lower . . . infection rate. . . . [W]e don't strip linens off the beds and clean the beds where the bed was just made three hours ago, with all the patient transfers that are involved. So there is a reduction in . . . housekeeping work and . . . linen expense. (Tr. 1089-1090). Like the housekeeping efficiencies, the nursing staff benefits from the efficiencies associated with supplies. All of the supplies the nurse needs to care for the patient are close by, so the nurse saves time otherwise retrieving supplies from down the hall or in other areas of a hospital wing. Another benefit of the design is "connectivity to the outside world. The rooms have large windows . . . patients feel connected to the outside world . . . . " (Tr. 1091). This design feature will make use of the conservation area on the Florida Hospital site and the soothing vista it will provide to the patient, and assist in the healing process. Other Design Features Design drawings are a living and continually evolving process. The planning process of Florida Hospital for the design of its new Oviedo hospital involved specialty department experts and ancillary representatives discussing delivery of quality care for a patient throughout the system. The specialty experts and ancillary representative include radiology, emergency department, lab, pharmacy, and respiratory. The involvement of these people assures optimal patient flow throughout the system. In Florida Hospital's design plans, the patient flow and interaction between departments are well designed and well laid out so as to minimize the opportunity for confusion. In order to maximize efficiency, a larger number of beds in one nursing unit works better than smaller pockets. Florida Hospital's design plans have one 40-bed unit and one 38- bed unit. This design gives more flexibility and can expand or shrink more easily as needed. You don't have to open up another unit and staff it so often, when adding only one or two patients. Florida Hospital designed its facility specifically to take advantage of the economies of scale that being a satellite hospital in a larger system provide. For example, Florida Hospital's general storage, central lab, and other areas were purposely designed smaller than one would typically find because Florida Hospital operates a system-wide central warehouse, thus greatly reducing the need for central storage areas. Likewise, Florida Hospital operates a system-wide central clinical lab, thus minimizing the space necessary within a hospital like Oviedo for lab space. ORHS did not design its facility to take advantage of the economies scale of being part of a system. Presence in Oviedo Florida Hospital has had a presence in the Oviedo community since the 1970's, when it purchased land in the Red Bug corridor area. In the 1980's, Florida Hospital built a medical office facility in Oviedo and began to recruit and encourage physicians to practice in the area. When Florida Hospital acquired Winter Park Hospital, its commitment to the community of Oviedo increased by virtue of the fact that the Winter Park Hospital organization already had property and outpatient facilities in Oviedo. The result of Florida Hospital's early presence in Oviedo is that it has a high degree of physician support in place in the Oviedo community. Many of the primary care physicians in Oviedo refer their surgical cases to Florida Hospital. Florida Hospital purchased Winter Park Hospital on or about July 1, 2000. With that purchase, Florida Hospital acquired the hospital site in Oviedo. With the purchase of Winter Park Hospital, Florida Hospital also "purchased" Winter Park's plan to build a hospital in Oviedo. The Florida Hospital site has long been recognized as the "Hospital Site" in Oviedo. Immediately after purchasing Winter Park Hospital, Florida Hospital went to work on developing a plan to build a hospital in Oviedo. Florida Hospital began meeting with Oviedo city leaders in the fall of 2000 and early 2001; Florida Hospital also assembled a team of people from all areas of Florida Hospital including radiology, clinical services, marketing, finance, facilities, and engineering to work toward the development of a Certificate of Need application for a hospital on its site in Oviedo. Florida Hospital's two existing medical office buildings in Oviedo contain over 60,000 square feet of medical office space, in which are housed physicians practicing in a wide range of areas including Family Practice, Internal Medicine, General Surgery, Orthopedic Surgery, Urology, Radiology, Gastroenterology, Ear, Nose and Throat, OB/GYN, and Dental and Psychological Practitioners as well. These physicians are all currently on the staff of Florida Hospital. Also included in these facilities are a Florida Hospital owned and operated radiology center, outpatient rehabilitation center, and outpatient lab. The radiology center offers general radiology services, including CT scanning and ultrasound. The larger of the two medical facilities that Florida Hospital owns in Oviedo is located on the site where the new hospital will be located. This is the facility that includes the outpatient radiology, rehabilitation and laboratory services. An urgent care center is also located on the site. As a result, residents of Oviedo are used to coming to Florida Hospital's site for medical services and already recognize it as a medical facility site. The fact that Florida Hospital has such a significant presence in the Oviedo Community, and that a large number of staff physicians are already in place in Oviedo, is a great benefit because of the existing referral patterns in place between the physicians at the existing Florida Hospital facilities in Oviedo and specialists and sub-specialists on Florida Hospital's staff. In contrast, ORHS had an outpatient surgery center in Oviedo; however, it has been closed due to lack of physician support. Likewise, ORHS originally offered radiology diagnostics at its Oviedo office building, but has since sold that business to the radiologists. Finally, ORHS does not own the medical office building in Oviedo anymore, having sold it two weeks before this final hearing commenced. Dr. Joseph Portoghese, a Board Certified Surgeon, practicing in the Orlando area for over 13 years and president- elect of the Florida Hospital medical staff, testified that his group, Surgical Associates, which is made up of six surgeons, derives approximately 20% of their patients from the Oviedo area. In his opinion, Florida Hospital knows the Oviedo population best as evidenced by its "major presence" in Oviedo with its two facilities. Dr. Portoghese also testified that his group knows most of the primary care physicians in the Oviedo area and that a good many of them send their surgical cases to his group. Dr. Portoghese is on the staff of Florida Hospital, but not on the staff of Orlando Regional. Dr. Schamberger, a family practitioner who has practiced in Oviedo for 16 years and whose patients come primarily from the Oviedo, Chuluota, Winter Springs and East Orlando area testified that Florida Hospital has the best infrastructure for the provision of medical care in the Oviedo area. "The physicians who provide a great bulk of the care for that Oviedo, Chuluota, Winter Springs area practice at Florida Hospital. Their referral patterns are to Florida Hospital. Florida Hospital provides us with all the specialty and sub- specialty care we need for our patients." Dr. Schamberger is on the staff of Florida Hospital, but he is not on the staff of Orlando Regional. Dr. Schamberger further testified to the disruption in continuity of care that would occur for many Oviedo area patients whose physicians are on the staff at Florida Hospital if Orlando Regional were to be the only applicant approved to build a hospital in Oviedo: "[I]ts a negative impact for continuity of care. If I have been attending a patient for many years, the first thing that happens to a patient when they get in the hospital is that they have a history and physical examination done to establish what their underlying medical conditions are. I know a lot more about that from my patients than someone who doesn't see them and doesn't know them." (Tr. 1318) Dr. Cintron, a physician practicing in the area of Internal Medicine, whose main office is in Oviedo at the Florida Hospital site, testified that she has approximately 3,000 active files and 75% to 80% of those are in the Oviedo area. She has been practicing in Oviedo since 1994. Dr. Cintron testified that approximately 85% of her patients that get admitted to a hospital are admitted to one of Florida Hospital's facilities. Also, when she makes a referral to a specialist or a sub-specialist, approximately 85% of those patients go to a Florida Hospital facility. Competition "[T]he U.S. health care system is a competitively driven market . . . with some regulatory components and based on a managed care model." (Tr. 485). Rather than every insurance plan having a contract with every provider, the managed care model uses selective contracting. Competing health insurance plans select providers with which to contract for the provision of health care services to their subscribers. The ability of the competing insurance plans to engage in selective contracting requires providers such as the two hospitals in this case to compete along a number of dimensions including price. When successful, this competitive price model holds down price and maintains quality. The State of Florida has a "fairly well developed and active managed care sector." (Tr. 507). "[M]anaged care in and of itself [however] is not really able to save much money for consumers. . . . [T]he key ingredient in the ability of managed care plans to control health care cost increases is the competitiveness of the hospital market, the structure of the market in which they are negotiating on behalf of their health plan subscribers." (Tr. 500). The parties define the "market" differently. Florida Hospital uses the Elzinga-Hogarty ("EH") Test. The test, along with appropriate supplemental information, indicates that the market is all of Orange and Seminole Counties or the tri-county area that also includes Osceola County. Whether a two county or tri-county market, Florida Hospital refers to its market as the metropolitan Orlando market or the "overall Orlando market." Orlando Regional identified a smaller area as the relevant market, one that is more local to Oviedo. The reason for this more local market was explained by Glenn Alan Melnick, Ph.D., and an expert in health care economics who testified for ORHS: [I]n order for [managed care plans] to attract subscribers, they have to have a health plan that's attractive to people. And one of the features that people look for in their health plans is the availability of local hospital services. . . . [I]n order to make their products marketable, they have to include reasonably accessible hospitals . . . [I]f there is limited local competition, then the opportunities for them to generate price competition by leveraging competitive conditions . . . are very limited and [the managed care] model will not be successful. (Tr. 489). Dr. Melnick used the five and eight zip code Oviedo Service Areas as defined by the applicants as the market. He calculated Herfandahl-Hershman Index ("HHI") valuations for each zip code in the two Oviedo Service Areas. He also calculated HHI valuations for another seven zip codes in Orange County "to provide background to [his] understanding of the allocations in [the] area . . . . ." (Tr. 516). Dr. Melnick's calculations showed that Florida Hospital has a market share between 60 and 69% for the five zip codes in Florida Hospital's Oviedo Service Area and it showed a market share of between 25% and 59% for the three zip codes in ORHS' Oviedo Service Area that were not included in Florida Hospital's Oviedo Service Area. In each of the seven zip codes in the area outside the Oviedo Service Area, Florida Hospital's market share was higher: in excess of 70%. The analysis led Dr. Melnick to conclude that the market is highly concentrated in favor of Florida Hospital. Using the zip codes in the Oviedo Service (and it appears from the record the seven not in either applicant's Oviedo Service Area that Dr. Melnick had analyzed for background purposes), Dr. Melnick concluded that if the CON is awarded to Florida Hospital "[i]t would make an already concentrated market much more concentrated." (Tr. 524). Florida Hospital's relative market share would rise from 65.8% to 85.7%. Orlando Regional's would drop from 27.4% to 11.5%. The award of the CON to Florida Hospital would, moreover, "seal its already existing market power into the future." (Id.) Conversely, awarding the CON to ORHS led Dr. Melnick to conclude that the market as he defined it would be more competitive; Florida Hospital relative market share would drop to 51% and ORHS' would rise to 44%. What Dr. Melnick's relative market shares would have been had he not used the seven zip codes he selected outside the Oviedo Service Areas of the two applicants does not appear to have been shown by ORHS. Including the seven zip codes outside the Oviedo Service Areas for determining the relative market share that led to Dr. Melnick's conclusions runs counter to his premise that the market should be a local one, that is, an Oviedo market. It is not clear what relevance these seven zip codes had to his analysis since their inclusion runs counter to the underpinnings of his approach to the issue. If the overall Orlando market used by Florida Hospital is considered the market, the conclusion is that, whether a CON for an Oviedo hospital is awarded to ORHS or Florida Hospital, the impact on relative market share is minimal. As for pricing, there has been no significant pricing difference between Florida Hospital and ORHS for Oviedo residents. Furthermore, both Florida Hospital and ORHS contract with managed care companies on a system-wide basis; Florida Hospital, moreover, uses a single master charge structure for all of its Orlando area campuses. It is not likely that the presence of a hospital in Oviedo would enable either Florida Hospital or ORHS to control pricing.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency enter a final order on the basis of the facts found in this order concluding that "not normal" circumstances exist for the construction and operation of a new 60-bed hospital in Oviedo and that Florida Hospital's CON application be approved and ORHS' be denied. DONE AND ENTERED this 18th day of November, 2002, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 18th day of November, 2002. COPIES FURNISHED: Lealand McCharen, Agency Clerk Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 Valda Clark Christian, General Counsel Agency for Health Care Administration Fort Knox Building 3, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308-5403 James M. Barclay, Esquire Ruden, McClosky, Smith, Schuster & Russell, P.A. 215 South Monroe Street, Suite 815 Tallahassee, Florida 32301 Steven R. Bechtel, Esquire Mateer & Harbert, P.A. Post Office Box 2854 225 East Robinson Street, Suite 600 Orlando, Florida 32802 Stephen K. Boone, Esquire Boone, Boone, Boone, Hines & Koda, P.A. 1001 Avenida del Circo Post Office Box 1596 Venice, Florida 34284 Michael P. Sasso, Esquire Agency for Health Care Administration 525 Mirror Lake Drive, North Suite 310G St. Petersburg, Florida 33701
The Issue Whether Gulf Coast Rehabilitative Services Limited, d/b/a North Florida Institute of Rehabilitation submitted a valid letter of intent and partnership resolution to apply for a certificate of need to construct a 40-bed inpatient comprehensive medical rehabilitation hospital in Panama City, Florida, in Department of Health and Rehabilitative Services District II. If the letter of intent and resolution are valid, whether the certificate of need application should be approved.
Findings Of Fact Respondent, Gulf Coast Rehabilitative Services Limited ("Gulf Coast"), is a Florida limited partnership which owns North Florida Institute of Rehabilitation ("NFIR") in Panama City, Florida. NFIR is a licensed comprehensive outpatient medical rehabilitation facility, opened in 1986, and accredited by the Commission on Accreditation of Rehabilitation Facilities. Respondent, Department of Health and Rehabilitative Services ("HRS") is the agency responsible for administration of the certificate of need ("CON") statutes and rules. Petitioner, Capital Rehabilitation Corporation, d/b/a Capital Rehabilitation Hospital ("Capital Rehabilitation") is an existing 40-bed inpatient comprehensive medical rehabilitation ("CMR") hospital, with CON approval for an additional 30 beds, located in Tallahassee, Florida, in HRS District 2. Capital Rehabilitation Hospital is a wholly owned subsidiary of Rehabilitation Hospital Services Corporation, a wholly owned subsidiary of National Medical Enterprises. Capital Rehabilitation's primary service area is all of HRS District 2, with additional referrals from southwest Georgia and southeast Alabama. Two acute care hospitals are located in Panama City, both of which operate generally at 90% or above occupancy. They are Bay Medical Center ("Bay Medical") with 302-beds and Hospital Corporation of America Gulf Coast ("HCA") with 176 acute care beds. Panama City, Florida is also located in HRS District 2, acute care Subdistrict One. HRS District 2 encompasses fourteen counties from the eastern boundaries of the Madison and Taylor Counties to the eastern boundary of Walton County. The acute care subdistrict includes seven of those counties, Bay, Holmes, Washington, Jackson, Calhoun, Gulf and Franklin. The Rehabilitation Institute of West Florida ("West Florida") is a 58- bed inpatient CMR hospital, located in Pensacola, Florida, in HRS District 1. HRS District 1 encompasses Escambia, Santa Rosa, Okaloosa and Walton Counties. Gulf Coast, in the application at issue in this proceeding, proposes to construct a 50,804 square foot facility with 40 beds for inpatient CMR, at a total cost of $10,009,372. The proposed facility would be connected to the existing outpatient facility which is located on an approximately 10 1/2 acre site owned by Gulf Coast. With the existing facility on the site and two acres set aside for wetlands, Gulf Coast has 5 of the 7 buildable acres remaining. The service area proposed for Gulf Coast includes Bay, Gulf, Franklin, Calhoun, Holmes, Washington, and Jackson Counties in HRS District 2, and Walton and Okaloosa Counties in HRS District 1. Gulf Coast also expects to attract patients from southeast Alabama and southwest Georgia. Letters of Intent Gulf Coast submitted a letter of intent dated October 18, 1990, notifying HRS of its intent to file its application for the proposed 40-bed CMR hospital. Attached to this first letter of intent was a resolution of the partnership, dated October 10, 1990, reciting that approval to file the CON application was given by unanimous vote of the general partners at a meeting held on October 1, 1990. Finally, a list of partners was attached. HRS notified Gulf Coast that the letter of intent did not include a statement that the attached list of partners had a controlling interest in the applicant, as required by an HRS rule which became effective on January 31, 1991. On February 7, 1991, Gulf Coast submitted a second letter of intent which included a statement that the second letter will replace the first letter and a statement that the attached list of general partners held a controlling interest in the applicant. In January 1991, one additional person became a general partner in Gulf Coast, and was included in the list submitted with the February 7, 1991, letter. This additional partner and four others, who became general partners subsequent to February 7, 1991, did not participate in the authorizing resolution of October 1990. By letter dated March 5, 1991, HRS accepted the second letter of intent. The February 7, 1991, letter of intent was accompanied by a resolution stating that the partnership secretary, not the governing body of the applicant, authorized the applicant to incur the project expenses and to accomplish the project within the allowed time at or below the costs in the application. The October 18, 1990, letter of intent had an identical resolution of the secretary attached to it, but it also had one executed on October 10, 1990, which stated that the partnership authorized the applicant's actions, as required by Section 381.709(2)(c), Florida Statutes. HRS and Gulf Coast take the position that by combining the resolution submitted with the October letter of intent with the text and partnership list of the February letter, Gulf Coast submitted a valid letter of intent with the required resolution. Capital Rehabilitation takes the position that each letter must be taken as standing alone and independent of each other, particularly because Gulf Coast stated in the February letter that it replaced the October letter. Capital Rehabilitation also relies on Florida Administrative Code Rule 10-5.008(1)(h), which provides, in relevant part, that If rejected by the department, a letter of intent may not be amended or corrected but a new letter may be submitted if time allows. and, Rule 10-5.008(1)(b): Accompanying the letter of intent must be a certified copy of a resolution by the applicant's board of directors, or other governing authority if not a corporation. (emphasis added). Capital Rehabilitation submitted evidence proving that the 1990 and 1991 annual reports of the partnership, submitted to the Department of State and dated March 19, 1990, and October 24, 1990, respectively, included the name of another general partner, whose name does not appear on either list of partners provided by Gulf Coast to HRS. By the rebuttal testimony of the partnership secretary, who is custodian of the records, and Gulf Coast's Exhibit 18, Gulf Coast demonstrated that the filings with the Department of State were in error. The exhibit, a Withdrawal, Assignment and Indemnity Agreement, shows that the interest of the general partner, whose name was never given to HRS, was not required to be listed because the interest of that partner was terminated on April 4, 1989. Capital Rehabilitation objected to the testimony of the Gulf Coast rebuttal witness, because the secretary of the partnership was not listed on Gulf Coast's witness list. Gulf Coast asserted that its listing of "rebuttal witnesses as necessary" was sufficient. Capital Rehabilitation also challenged the introduction of Gulf Coast's Exhibit 18, the Withdrawal Agreement, which was not specifically listed on Gulf Coast's exhibit list, which stated "rebuttal exhibits as necessary." The parties agree that the applicable standard, established by the Florida Supreme Court in Binger v. King Pest Control, 401 So.2d 1310 (Fla. 1981), is whether it was reasonably foreseeable that the witness would be called to testify. The rebuttal witness, Michael Rohan, was set for deposition by counsel for Capital Rehabilitation, by notice dated November 20, 1991. Capital Rehabilitation's exhibit list included the following, 21. All documents filed by Gulf Coast Rehabilitation Services, Ltd. with the Florida Department of State, including but not limited to its 1989, 1990 and 1991 Annual Reports. In addition, Capital Rehabilitation's pre-hearing statement of position included its allegation . . . that the letters of intent filed by NFIR were not in compliance with the applicable statutory and rule requirements . . . On this basis, Gulf Coast could reasonably foresee the need to call Michael Rohan, secretary of the partnership and custodian of its records, to respond to any discrepancies in those records. The description of Rohan as one of the "rebuttal witnesses as necessary" is inadequate to justify Gulf Coast's use of his testimony under Binger, supra. In the Binger case, an undisclosed privately hired accident reconstruction expert testified as an impeachment witness to contradict the testimony of another expert. As distinguished from that factual situation in this case, Rohan was known to and previously scheduled for deposition by Capital Rehabilitation. Gulf Coast's and Capital Rehabilitation's witness lists also include "any persons whose depositions were taken in this action." Because this description more narrowly includes Rohan, because Capital Rehabilitation cannot claim surprise or any unfairness in Gulf Coast's use of Rohan to explain documents submitted by the partnership, and because Capital Rehabilitation could have also called Rohan as a witness, the legal conclusion in the Binger case is not applicable to this case. The rebuttal exhibit and testimony are received into evidence and are considered in this Recommended Order. Numeric Need Using the formula in Florida Administrative Code Rule 10-5.039, HRS published its determination that no need exists for additional inpatient rehabilitation beds for the January 1996 planning horizon, for which Gulf Coast's application was filed. In fact, if the rule formula is used, Capital Rehabilitation's 40 beds which are full, at approximately 92% occupancy, would constitute a 5 bed surplus for the district. The rule also authorizes the consideration of other factors to determine need, including the historic, current and projected incidence and prevalence of disabling conditions and chronic illness in the district population, and trends in the CMR-bed utilization. See, Rule 10-5.039(2)(b)1, Florida Administrative Code. Gulf Coast proposed to demonstrate need using the incidence and prevalence rates for illnesses and diseases which usually result in a specific percentage of patients who seek rehabilitation services. Using incidence and prevalence rates, as did Capital Rehabilitation in its September 1990 CON application number 6369 for its additional thirty beds, the parties agree that there is a need for not fewer than an additional 19-21 beds in District 2. Gulf Coast, using the incidence and prevalence methodology, asserts that a need exists for as many as an additional 53 CMR beds in District 2. To calculate bed need, Gulf Coast used the same formula as Capital Rehabilitation. However, Gulf Coast used population figures, which include all of District 2, Walton County, and ten percent of its two million tourists a year, or 200,000 people. In equating population to need for CMR beds, Gulf Coast's analysis would provide approximately 20 beds for the district residents, 28 more for 200,000 of two million tourists, and 5 for Walton County. The inclusion of Walton County population in computing District 2 bed need is inconsistent with Florida Administrative Code Rule 10-5.039(2)(b)1. which provides that (b) Other factors to be considered in determining a need for comprehensive medical rehabilitation services in addition to relevant statutory and rule criteria, include: 1. Historic, current and projected incidence and prevalence of disabling conditions and chronic illness in the population in the Department service district by age and sex group. (emphasis added). Gulf Coast has not established that 200,000 tourists should be included within its population to compute need. Although the rule may be construed to include tourists, or seasonal residents, who are counted "in the population in the Department service district," Gulf Coast did not establish a basis to determine what, if any, percentage of injured tourists who are released from acute care hospitals may reasonably be expected to choose rehabilitation services in District 2. It is, in fact, reasonable to assume that tourists may seek CMR services closer to their permanent residences for all of the same reasons advanced by Gulf Coast regarding the inconvenience of Capital Rehabilitation's services to Panama City residents. In addition, if some tourists should be included, their average lengths of stay as tourists in the Panama City area is a factor not established, but necessary to compute accurately their impact on the need for CMR beds in the area. In order to support the addition of 28 beds for 200,000 tourists, Gulf Coast would have had to establish that the 2 million tourists stay an average of 36.5 days. Assuming, as Capital Rehabilitation demonstrated by illustration, that the 2 million tourists stay an average of 7 days, and that tourists should be added to the district population, then the total number of additional beds needed for tourists is 5, not 28. The only data provided by Gulf Coast on average lengths of stay for tourists was that 27,000 tourists stay approximately 5 months. Using that data, 6 additional beds are needed for tourists in addition to the 20 needed for the district population, still less than the 40 beds Gulf Coast is requesting. Additional Standards and Criteria in Florida Administrative Code Rule 10-5.039 Unit Size. As required by the CMR rule, Gulf Coast is proposing to construct a 40-bed facility. Occupancy Standards. In compliance with the CMR rule requiring a projected minimum first year occupancy of sixty-five percent (65%), Gulf Coast reasonably projects an occupancy rate of seventy percent (70%) in the first year. Gulf Coast's projected utilization is based on attracting patients from its primary service area, which includes all or part of the seven western counties in HRS District 2, which are in acute care subdistrict one, and from its secondary service area of Walton and Okaloosa Counties in HRS District 1, southeast Alabama and southwest Georgia. In addition, the average annual occupancy rate for the existing CMR beds in the district, those at Capital Rehabilitation, exceeds the eighty-five percent (85%) threshold used as an indicator of additional need in the rule. HRS has consistently used 85% as a threshold for existing providers in the numeric need methodology, not as an occupancy standard for new providers. Accessibility. With regard to geographic accessibility, Florida Administrative Code Rule 10-5.039(2)(c)3., provides, in relevant part, 3. Accessibility. Applicants for comprehensive rehabilitation services should demonstrate that at least 90% of the target population resides within two hours driving time under average traffic conditions of the location of the proposed facility. HRS interprets the "target population" accessibility requirement as meaning that 90% of those in an applicant's service area, which may be all or part of a district. Accepting this interpretation as reasonable and applying it to the Gulf Coast proposal, the geographic accessibility standard is met. Gulf Coast's proposed service area is within two hours driving time under average traffic conditions of the Gulf Coast facility. Programs and Services. Gulf Coast has established that it will provide the required services by either its staff or by contractual arrangement. Gulf Coast also proposes to provide vocational rehabilitation services beyond those mandated in the rule. Transfer and Referral Agreements. Gulf Coast has letters of support from acute care hospitals in Panama City and Chipley. These letters, and a mutual assistance agreement with one of the hospitals, support a finding that the Gulf Coast will enter into the necessary transfer and referral agreements with acute care facilities. Criteria of Subsection 381.705(1)(a), Florida Statutes - State Health Plan The 1989 Florida State Health Plan is applicable and includes five preferences for CMR beds. The three criteria of the state health plan which are inapplicable to the proposed project are the preferences 1) for the conversion of underutilized acute care beds, 2) for projects at teaching hospitals, and 3) for hospitals which are disproportionate share providers of indigent care. The criterion of the state health plan which is not met is the preference for proposals for rehabilitation services not currently offered within the district. The one preference in the state health plan which the Gulf Coast proposal meets is the preference for existing comprehensive outpatient rehabilitation facility, or CORF, which will provide follow-up outpatient services. Criteria of Subsection 381.705(1)(a), Florida Statutes - District Health Plan At hearing, counsel for Capital Rehabilitation objected to testimony on and challenged the applicability of the District 2 health plan because HRS has failed to adopt by rule the elements of the plan proposed to be used as criteria for review of CON applications. See, Subsection 381.703(1)(b), Florida Statutes. Gulf Coast asserts that the use of the district plan as criteria in the CON review process is mandated by Subsection 381.705(1)(a). The Gulf Coast interpretation is rejected because that reading of Subsection 381.705(1)(a), would render Subsection 381.703(1)(b) meaningless. Subsection 381.705(1)(b) - accessibility, extent of utilization and adequacy of like and existing services within district; Subsection 381.705(1)(f) - accessibility in adjoining areas; Subsection 381.705(1)(h) - accessibility to all district residents; Subsection 381.705(2)(d) - problems in obtaining inpatient care. Gulf Coast asserts that inpatient CMR services available only at Capital Rehabilitation in Tallahassee, in District 2, and West Florida in Pensacola, in District 1, are not accessible under the statutory criteria as defined by HRS. Gulf Coast is currently the only facility between Tallahassee and Pensacola which provides complex interdisciplinary medical treatment and speech, physical and occupational therapies. Accessibility to Capital Rehabilitation, according to Gulf Coast, is affected adversely by Capital Rehabilitation's high occupancy rates. Gulf Coast asserts that access to both Capital Rehabilitation and West Florida is affected adversely by their geographic distances from Panama City. Accessibility Based on Occupancy Capital Rehabilitation, in its CON application for its approved additional 30 beds, submitted in September 1990, noted that it had been averaging over 93% occupancy, with a waiting time of 8.2 days. In fact, Capital Rehabilitation described its facility as ". . . operating at maximum capacity over the last 12 months," and included a waiting list ranging from a low of 6 patients in September 1989 to a high of 48 patients in September 1990. Capital Rehabilitation asserts that its 30 additional beds should be opened before another District 2 facility is approved. In projecting utilization of its additional beds, Capital Rehabilitation expected its 30 new beds to be 50% occupied in the first year. Assuming the continued accuracy of the project completion forecast on Table 26 of the 1990 CON application, these beds became available in July 1992. With continued 95% occupancy in the existing 40 beds, 50% occupancy in year one and 65% in year two in the 30 new beds, then overall occupancy is expected to be 76% in 1992-1993, and 83% in 1993-1994. Gulf Coast's application is for the January 1996 planning horizon. Table 26 in Gulf Coast's application shows that Gulf Coast anticipated opening in December 1993, if its CON application approval had become final agency action on July 8, 1991. With an approximate two and a half year time lag from final approval to initiation of service, Gulf Coast cannot expect to open before early 1995. See, Gulf Coast Exhibit 2 at p. 114. West Florida, the 58-bed CMR hospital in Pensacola, has experienced occupancy levels of approximately 67% in 1990. Capital Rehabilitation noted that West Florida is within two hours travel time of western Bay County. In addition, Capital Rehabilitation presented evidence that facilities in Alabama and Georgia also provide inpatient CMR services. West Florida does have the bed capacity to serve Panama City residents, if it is geographically accessible to them. Accessibility Due to Distance Gulf Coast, using Governor's Office projections, demonstrated the following population trends: (1) that 34% of the district population lives in Bay, Gulf, Holmes and Washington Counties; (2) that a 13% population increase is projected from 1991-1996 for Bay County; (3) that 10% of the Bay County population is over 65 years of age; (4) by contrast, an 11% population increase is projected for Leon County, and 7.5% of the Leon County population is over 65 years of age. Gulf Coast also demonstrated that it would reasonably expect to serve a large number of military personnel and veterans in its area. The Associate Executive Director of the Big Bend Health Council and the Northwest Florida Health Council, local health councils for HRS Districts 1 and 2, respectively, testified that the map Gulf Coast included in its application, was taken from his agencies' travel time studies. The studies are based on 18 to 20 trips done by various staff members. Those studies demonstrated that 23% of the District 2 population, in portions of Holmes, Washington, Gulf and all of Bay County, is beyond two hours travel time of either West Florida or Capital Rehabilitation in 1985. Gulf Coast's expert also conducted a travel time study and concluded that the areas beyond two hours of either the Pensacola or Tallahassee facilities include all of Bay County, except a small portion in the northeast, most of Washington and Holmes and all of Gulf County. Gulf Coast concluded that well over 10% of the district population is beyond two hour access of CMR beds. Gulf Coast's expert's methods and conclusions are questionable due to its inclusion of stops for gas and food. Capital Rehabilitation's expert, who conducted a travel time study, found that a large portion of Bay County is within two hours of Capital Rehabilitation Hospital, and that significant portions of western Bay County are within two hours of West Florida. The conclusion was that virtually all of District 2 residents are within two hours of one or the other facility. This study was not conducted in compliance with recognized procedures, including having been based, in part, on one trip in which the driver left Tallahassee at 4:00 p.m. The most reliable, objective travel time information, was that provided by the Associate Executive Director of the local health councils for Districts 1 and 2. His conclusion that 23% of the District 2 population is more than two hours driving time under average traffic conditions from Capital Rehabilitation or West Florida is accepted. On this basis, the two existing facilities are geographically inaccessible for almost one fourth of the District 2 population. Capital Rehabilitation asserted that the travel time standard in combination with the "target" population standard should be read to require that a facility be located within two hours average travel time of a least 90% of the total district population, not just the facility's target population. In fact, the wording of the proposed new CMR rule will adopt this interpretation. Given the deposition testimony of the HRS staff person responsible for the new CMR rule that the standard in the new rule will be different from, not a codification of the agency's current interpretation of the existing rule, the interpretation suggested by Capital Rehabilitation is rejected. Finally, Capital Rehabilitation was allowed to cross-examine the Associate Executive Director of the local health council on contradictory statements in the local health plan. For this limited purpose, statements in the local health plan are considered in arriving at this finding. Subsection 381.705(1)(b) - Quality of Care, Efficiency, Appropriateness of Like and Existing Health Care Services in the District and Subsection 381.705(2)(b) - Appropriate and Efficient Use of Existing Inpatient Facilities There was evidence of isolated complaints from Panama City doctors regarding Capital Rehabilitation's failure to timely provide them with discharge reports on patients, and of the disadvantages to patients' relatives having to travel between Panama City and Tallahassee. In spite of such isolated complaints, the evidence demonstrates that Capital Rehabilitation, the only inpatient comprehensive rehabilitation hospital in District 2, is providing excellent quality of care. Its ability to provide services efficiently, appropriately and adequately is compromised, as noted above, only by its current high occupancy levels and relative distance from extreme western portion of the District, the Panama City area. See, Findings of Fact 36-38 and 41-45. Subsection 381.705(1)(c) - Applicant Ability and Record on Quality of Care, Subsection 381.705(1)(l) - Construction Methods; and Subsection 381.705(2)(e) - Less Costly Alternatives The evidence demonstrates that the applicant provides good quality of care as an outpatient facility, and that it has the ability to do so as an inpatient facility. Capital Rehabilitation contends that Gulf Coast's construction costs are not reasonable and that Gulf Coast cannot provide quality rehabilitative programs and therapies in the spaces allocated on its schematic design. Gulf Coast has two patient lounges designated for one 20-bed wing, but none for the other; and no separately designated space for activities of daily living. Gulf Coast's total size and project costs are conceded to be adequate for a 40-bed CMR inpatient hospital. In some instances, Capital Rehabilitation also pointed out inconsistencies in Gulf Coast's proposed staffing patterns and schematic design, including seven offices for four speech therapists, six spaces for two social worker/psychologists, space for case management with no case managers, one community relations employee in an area capable of accommodating 5 to 6 people, and an x-ray suite despite its plan to provide that service initially by contract. The Gulf Coast application is not well prepared, but the sources relied upon in projecting construction costs are reliable and the resulting projection is reasonable. In addition, the excess spaces designated for non- existent positions support the conclusion that the redesignation of spaces on the next set of HRS-required construction documents can correct any defects in Gulf Coast's schematic design. Subsections 381.705(1)(b) and (d), Florida Statutes - Availability and Adequacy of Alternatives in the District; Subsection 381.705(2)(a) - Efficient Use of Other Inpatient Services; Subsection 381.705(2)(c) - Alternatives to New Construction Capital Rehabilitation is the only available inpatient facility in the district. As previously noted, its availability and adequacy for Panama City area residents is adversely affected by its current high occupancy and distance from the Gulf Coast target area. See Finding of Fact 47. Due to the difference in the needs for non-ambulatory rehabilitation patients, the intensity of the therapy provided in inpatient rehabilitation hospitals and the savings in avoiding readmissions to acute care hospitals, outpatient facilities are not an adequate alternative for some rehabilitation patients. Similarly, although a preference is given in the state health plan for the conversion of underutilized acute care beds, the Bay County acute care hospitals could not qualify for the preference due to their high occupancy rates. Capital Rehabilitation does indicate correctly that the acute care hospitals could be approved for a minimum size of 20 rather than 40 beds, but they are not applicants in this proceeding. Whether the acute care hospitals as CON applicants would be superior to the one at issue is speculative. Subsection 381.705(1)(e) - Economies From Operation of Joint Health Care Resources The proposal to establish an inpatient CMR hospital which is connected to an outpatient rehabilitation facility, in part, offers some of the advantages of providing joint health care services which use shared resources. For example, Gulf Coast has already spent $1,200,000 in equipment for its outpatient facility and will need an additional $760,000 in equipment to accommodate the demand as an inpatient facility. The total of almost $2 million is adequate. By contrast, according to Capital Rehabilitation, if Gulf Coast were proposing to construct a 40-bed inpatient facility without the existing outpatient component, it would spend from $25,000 to $30,000 per bed for equipment. The proposal by Gulf Coast may allow the use of equipment and staff in the area of greatest need at any given time. Subsection 381.705(1)(g) - Research and Educational Facilities No research or training programs are proposed in the Gulf Coast project. There was, however, testimony of a willingness to cooperate with the Florida State University Panama City campus, and to assist in establishing a physical therapy assistants program at a community college in the area. Subsection 381.705(1)(h) - Resources, Manpower and Management Gulf Coast currently employs many categories of professionals needed for an inpatient program. Gulf Coast demonstrated that its working conditions and desirable geographic locations are advantages in recruiting capable staff and management. Capital Rehabilitation asserts that Gulf Coast will need more than one public relations/marketing person. However, Capital Rehabilitation's experience is based on recruitment throughout District 2, while Gulf Coast will target approximately one-fourth of the district population. West Florida, however, which has a similar desirable coastal location, has been unable to recruit a medical director since 1989, even with the help of three consulting firms. Gulf Coast could be more successful than West Florida if its recruiters are instructed not to be xenophobic. 1/ Subsection 381.705(1)(j) - Special Needs of Health Maintenance Organizations There was no evidence to show that health maintenance organizations are affected by Gulf Coast's proposal. Subsection 381.705(1)(h) - Funds to accomplish project; Subsection 381.705(1)(i) - immediate and long-term financial feasibility Capital Rehabilitation challenged the Gulf Coast pro forma, asserting that the bottom line would be losses of $800,000 in the first year and $200,000 in the second year rather than $157,760 loss in the first year and $288,702 profit in the second year. Inaccuracies, according to Capital Rehabilitation, include under estimated 1) deductions from revenue, 2) interest, 3) depreciation, 4) equipment and supply costs, and 5) staff requirements and salaries. Gulf Coast estimated deductions from revenue at 29% of its charges. Capital Rehabilitation estimates that Gulf Coast will not recover between 32 and 38% of its charges. Capital Rehabilitation's estimate of deductions from revenue in its pro forma for its 30-bed expansion ranged from 27% for its first year to 29% for its second year. In addition, Gulf Coast demonstrated that hospitals reasonably expect to receive more favorable Medicare and Medicaid reimbursements in the first years of operation. On this basis, Gulf Coast's estimated deductions for revenue and projected charges are reasonable. Gulf Coast failed to calculate depreciation based on the list of assets included in its CON application. Capital Rehabilitation objected that Gulf Coast impermissibly sought to amend its application at hearing by introducing testimony correcting the mathematical inconsistencies within the application. Recalculating the information provided and based on Capital Rehabilitation's experts testimony that Gulf Coast has some flexibility in determining whether items are capitalized or listed as non-capitalized minor equipment or facilities, Gulf Coast has established that its corrected estimated depreciation ($290,000 a year, rather than $265,000 in year one and $344,000 in year two) is reasonable. Similarly, Gulf Coast's calculation of interest on a total project cost at a specified interest rate (9 %) which is included in its application yields a result inconsistent with the total project cost ($10 million) which is also listed in the application at hearing. At hearing, the inconsistent was resolved by a witness recomputing interest. Corrected figures are $948,248 in year one, and $941.000 in year two at 9 %. However, with declining interest rates, as of the date of the hearing in this case, at 7 %, interest would be between $770,000-775,000 a year. Gulf Coast's corrected interest estimate is reasonable, given declining interest rates since the time the application was filed. Gulf Coast's proposed equipment costs are reasonable, based on Capital Rehabilitation's estimate of the need for $25,000 to $30,000 per bed, with equipment available at NFIR and additional equipment purchases by Gulf Coast totaling in excess of $1.9 million, or approximately $48,000 per bed. Assuming that some of the existing equipment is not appropriate for use for inpatients, Gulf Coast's per bed equipment costs significantly exceeds the necessary minimum estimated by Capital Rehabilitation. Supply costs, projected in Gulf Coast's pro forma, are higher in year one than year two. Capital Rehabilitation contends that supplies needed are always proportionate to the beds occupied and, it is therefore, impossible to have rising occupancy and decreasing supply costs. Gulf Coast has demonstrated that items, listed as supplies because the value is below that for capitalized equipment, and those purchased in the first year but continuing to be used in the second year, can account for decreasing second year costs. Projected salaries are based on those actually paid at Gulf Coast for most of the same categories of employees and are reasonable. Finally, with regard to financial feasibility, Capital Rehabilitation asserts that Gulf Coast cannot obtain 100% financing and has no partnership funds available to commit to the project. Gulf Cost does have letters of interest in the project, one for up to $14 million. In addition, the financial history of the partnership demonstrates its reliance on equity contributions of the partners, and that such contributions have been made. Given the testimony of Capital Rehabilitation's expert that first year losses are not atypical and the reasonableness of Gulf Coast's projected fill rate, Gulf Coast has demonstrated that its proposal is financially feasible in the immediate and long term. With corrected interest and depreciation, the project continues to be profitable in the second year. Subsection 381.705(1)(e) - impact on costs of providing services proposed; effects of competition Capital Rehabilitation estimates that it will lose $617,000. The projected decline in patient days is 3%, the total number of patient days attributable to the Panama City area. Capital Rehabilitation also believes it will experience difficulty in recruiting specialized staff. Capital Rehabilitation, in its 1990 CON application, described a well- developed recruitment program in conjunction with Florida State University and Florida A & M University. Gulf Coast will target the Panama City Community College and Florida State University campus in Panama City. The independent recruitment sources indicate the reasonableness of adequate staff being available to both facilities. Assuming a decline of 3% in Capital Rehabilitation's patient days, if Gulf Coast could be operational, in December 1993, as originally projected, the impact would be minimal on Capital Rehabilitation's 1993-1994 projected occupancy rate of 83% and would not affect the qualify of care provided at Capital Rehabilitation, given the fact that 85% occupancy is a prima facia numeric indicator that additional CMR beds are needed in a district. Subsection 381.705(1)(n) - Medicaid and medically indigent services Gulf Coast provides approximately 6% indigent care, and is willing to have its CON application conditioned on providing 7% charity care and 5% Medicaid.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered approving certificate of need application number 6573 of Gulf Coast Rehabilitative Services Limited, d/b/a North Florida Institute, to establish a 40-bed inpatient comprehensive medical rehabilitation hospital in Panama City, Florida, conditioned upon the provision of 5% of total annual patient days to Medicaid patients and a minimum of 7% of total annual patient days to charity care patients. DONE and ENTERED this 29th day of September, 1992, at Tallahassee, Florida. ELEANOR M. HUNTER 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 29th day of September, 1992.
Recommendation Based upon the findings of fact and conclusions of law recited above, it is recommended that respondent's decision to deny petitioner's capital expenditure proposal to lease the Cambridge Nursing Home in New Port Richey be AFFIRMED. Respectfully submitted and entered this 9th day of September, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Art Forehand, Administrator Office of Community Medical Facilities Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301 Frank M. Gafford, Esquire Post Office Box 1789 Lake City, Florida 32055 Chriss Walker, Esquire Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32301
Findings Of Fact In April, 1987, DOA submitted recommendations to the Florida Legislature which included proposed changes in the state employees' group insurance program. Among the recommendations was a proposal that would require the Department to competitively bid HMO contracts in the state health program on the basis of cost, service area, plan benefits, and accessibility. The stated objective of the recommendation was to: encourage HMOs in a geographic location to structure their premiums to reflect actual cost experience and to provide the lowest possible cost for the state and state employees, while at the same time changing the current concept of the state's contributions to HMOs..." At the time of the DOA legislative recommendation, existing state law provided that persons eligible to participate in the state group health insurance program had the option to elect membership in any qualified HMO engaged in providing basic health services in the HMO service area where the employee resided in lieu of participating in the state self-insurance plan. Section 110.123(3)(d), Florida Statutes, Rule 22K-1.1003(21), F.A.C. A "qualified" HMO was defined as an entity qualified under the federal Public Health Service Act, 42 U.S.C. 300e-9, or certified under Part II of Chapter 641, Florida Statutes, which had entered into a contract with the State, and had achieved a designated level of participation by state employees. Rule 22K- 1.1003(21), F.A.C. Effective October 1, 1987, Chapter 87-156, Laws of Florida (now codified as Section 110.123(3)(d), Fla. Stat.) was amended to add the following: (3) STATE GROUP INSURANCE PROGRAM. -- * * * (d) * * * 2. Effective January 1, 1988, the Department of Administration shall, by rule, contract with health maintenance organizations to participate in the state group health insurance plan through the competitive bid process based on cost, service area, plan benefits, and accessibility. Effective January 1, 1988, all employees participating in the state group health insurance plan, irrespective of whether or not the member participates in a health maintenance organization, shall be subject to the same total premium, regardless of the state or employee's share. THE REQUEST FOR PROPOSALS Dennis Nye, then the DOA Director of the Office of State Employees Insurance and administrator of the state health insurance program, was directly responsible for implementing the new legislation regarding the HMO contracts. He initially determined that procurement of HMO contractual services was governed by Section 287.057, Florida Statutes. The Request For Proposals For Health Maintenance Organization Coverage was issued on July 31, 1987, as "Bid No. 88-05." It scheduled a presubmission conference on August 12, 1987, and established the deadline for receipt of proposals of August 28, 1987, with a contemplated date of award of contract on September 14, 1987, and an effective contract date of January 1, 1988. The Department clearly set forth the general purpose of the RFP in Section II as requiring each proposal to meet the benefit objectives and to provide high quality benefits and services to state employees. More specific objectives were as follows: A proactive approach to cost containment, including an emphasis on aggressive claims management, utilization review and superior statistical reporting Quality medical care which encourages health promotion, disease prevention, early diagnosis and treatment. Stability in the financial structure of offered health plans. Professional, high quality service in all administrative areas including claims processing, enrollment, membership services, grievances, and communications. Competitive premium rates which take into account the demographics and, if appropriate, the claims experience of State employees. DOA stated other objectives to be as follows: Have each county or contiguous group of counties be considered one service area. Award no more than two contracts per service area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Have reciprocal agreements between locations, if an HMO has multiple service areas. For example, an employee covered in Miami with a covered dependent living in Gainesville, should be provided similar services. Enter into a two year, non-experience rated contract. A provision will be included tying renewal action at each of the two renewals to the Consumer Price Index (CPI) for Medical Care Services. This will become part of the contract. Section III of the RFP stated that to be considered as a "qualified" HMO, the proposer must be licensed by the Department of Insurance pursuant to Part II of Chapter 641, Florida Statutes. Each proposer was required to submit the following: Form PUR 7033, properly completed and signed. The completed Questionnaires Requirements Section (Please answer questions in the same order as they appear in that Section; do not reformat). The completed Cost Proposal forms (Please use the enclosed form on page 43 and 44; do not reformat). The completed Statement of Compliance on page 47. Documentation in support of the above. Section III further provided in part as follows: Proposals are to be submitted only on the forms and formats provided in this RFP. All exhibits requested must be submitted with your proposal along with answers to all questions contained in this RFP. Section IV of the RFP provided that each contract would be for a 24 month term, beginning January 1, 1988. The Department reserved the right to renew the contracts on the same terms and conditions of the initial contract for two additional one-year periods. Section VI of the RFP, concerning "Required Benefits and Services," listed the minimum benefits that must be provided, and also required that a complete list of all other intended services for each service area be provided. Section IX specified the following criteria for evacuation of the proposals: Premium Cost Extensiveness of Service Areas by County and/or contiguous Counties. Note: The State's objective is to award no more than two contracts per services (sic) area; however, the awards will be based on the HMO's ability to respond to the needs of employees and on accessibility by employees. Plan Benefits as follows: Covered services Limitations and exclusions Co-payments, deductibles and co-insurance features Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Acessibility as follows: Reciprocal agreements Provider locations Number of primary care physicians and specialists, in relation to membership Completeness of proposals The RFP did not provide information on DOA's evaluation of the legislatively required criteria concerning the importance of price and other evaluation criteria. The Department weighed cost equal to benefits plus accessibility and determined accessibility was a part of the plan benefits. Section X was a questionnaire with forty-nine questions for the proposers to answer including questions regarding the proposer's license status, corporate structure, reserving practices, reinsurance contracts, service area, employee membership and staff, hospitals and other care facilities, participating physicians, utilization review, and other information regarding the proposer's case management, control mechanisms, statistical reporting, and the like. Each proposer was directed to submit audited financial statements for the last two fiscal years, together with financial statements for the first quarter of 1987. Section XI dealt with cost proposals and provided a form for completion as to proposed premium rates. In an undated addendum to the RFP, the Department added Question 50 to the RFP to provide information for use in a brochure which would allow state employees to compare the benefits offered by the various HMOs. In the pre-submission conference held on August 12, 1987, and attended by representatives of the HMOs, the participants were informed by Mr. Nye that the two criteria of cost and benefits would be weighted on an equal basis. He also advised that the State would enter into a two year, non-experience rated contract, subject to renewal which would tie rate increases to the Consumer Price Index for Medical Care Services. Proposers were told to quote a specific rate for the first year of the contract, and a percentage increase or decrease for each of the following three years. However, he noted that the State would evaluate cost solely on the basis of the premium for the first year. He indicated that two HMOs per service area would be awarded contracts based on the highest number of points received in the bid evaluation process, and not based upon the type of HMO, such as an individual practice association (IPA) or staff model. Then asked whether some factors would be weighted higher than others, Mr. Nye responded that benefits and cost would be weighted higher. THE PROPOSERS 15. Twelve HMOs submitted proposals to the Department for the South Florida area (Dade, Broward, and Palm Beach Counties) in response to the RFP by the deadline, and several of those submitted more than one proposal. There was, however, no prohibition on submitting multiple proposals, and prospective bidders were told that they had that option. In this proceeding, proposals were received from Health Options, Heritage, and Humana to serve Dade, Broward, and Palm Beach Counties, and a proposal from Gulfstream to serve Palm Beach County. Health Options is a for profit subsidiary of Blue Cross and Blue Shield of Florida, and is an individual practice association (IPA) model HMO. Health Options offers HMO services in Dade, Broward, and Palm Beach Counties. It has a total membership of 23,074 members, of which 517 are state employees and dependents. Heritage is a subsidiary of Heritage Health System, Inc., for profit Delaware Corporation, and is an IPA model HMO. Heritage offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 12,500 members, including 10 state employees and dependents. Humana is a for profit subsidiary of Humana, Inc., and is a combination staff/IPA model HMO. Humana offers HMO services in Dade, Broward, and Palm Beach Counties, and has a total membership of 91,217 members, including 3,273 state employees and dependents. Gulfstream, at the time its proposal was filed, was a limited partnership whose general partner was Equicor Holding Company and whose limited partner was H.C.A. Care of Florida, Inc. The limited and general partners were wholly owned subsidiaries of Equicor, Equitable H.C.A. Corporation, which is owned by Hospital Corporation of America and the Equitable Life Assurance Society of the United States. On January 1, 1988, Gulfstream converted to corporate form, and is now known as Equicor Health Plan of Florida. Gulfstream offers services in Palm Beach County and has a total membership of 12,335 members, including 933 state employees and dependents. THE EVALUATION PROCESS The evaluation of the proposals submitted by HMOs throughout the state for the seven service areas was initially accomplished by employee evaluation teams made up of employees in Dennis Nye's office. He was assisted in his selection by Marie Walker, a benefits analyst in his office. Dennis Nye and Ms. Walker decided which employees could best evaluate the proposals based on the criteria established in the law, including familiarity with benefits and the request for proposal process. The employees selected for these duties had varying degrees of knowledge concerning health plan benefits, HMOs, and bid evaluations. After the initial evaluation was completed, the Department determined that inconsistent methods had been used to score the proposals and further directed Dennis Nye to continue the evaluation process based upon an objective scoring system which limited subjectivity to the maximum extent possible. As Secretary, I was concerned with the financial soundness of each bidder and instructed Dennis Nye to keep that aspect in mind when making his final recommendation. The second or "final evaluation" of the proposals was solely based on the five criteria contained in the RFP, i.e., premium cost, extensiveness of service area, plan benefits, accessibility, and completeness of proposals. In his memorandum of October 6, 1987, Mr. Nye initially recommended that contracts be awarded in the Jacksonville, Pensacola, and Gainesville Service Areas to the two HMOs in each area that had received the top rankings. 1/ However, in the South Florida Service Area, he recommended awarding four contracts based on the need to provide one staff model and one IPA model HMO in each county in the service area. It was Mr. Nye's belief that federal law required that one HMO of each type be offered in each service area, if available. I was concerned about this issue and asked DOA's General Counsel, Augustus Aikens, to review it. He informed me that the federal requirement was not applicable because a state was not included within the definition of "employer" under the applicable federal law. On the bass of this legal advice, directed Mr. Nye to review his previous recommendations as they related to the need to retain one IPA model and one staff model HMO in each service area. In his memorandum of October 26, 1987, Mr. Nye recommended that contracts be awarded to Health Options and to Heritage on the bases that they were "the lowest, best bids for (the) service area." In his memorandum of October 30, 1987, he again recommended that contracts be awarded to Health Options and Heritage. Throughout the entire bidding process, it was my desire to avoid awarding a contract to an HMO which was not in compliance with state law or the rules of the Department of Insurance. I had written to the Department of Insurance seeking its assistance to determine the ability of each bidder to comply with the state law and to meet the needs of the state employees. By letter of October 23, 1987, the Department of Insurance informed DOA that it had approved the rates of Health Options and Heritage. EVALUATION OF THE PROPOSALS Premium Costs The Department specifically designed the RFP to require each proposer to list separate costs in categories of "employee only" and "family" for active employees and retired employees under sixty-five. Required rates for Medicare recipients were to be shown separately listing rates for retirees, retiree and spouse (both on Medicare), and retiree and spouse (one with Medicare, with or without other eligible dependents). A fixed premium cost was required for calendar year 1988 and a percentage of that rate was to be shown for the successive three years. Rates for those last three years were to be "established as a percentage of the first year's premiums" with the maximum increase "limited to the increase, if any, in the overall medical portion of the Consumer Price index." (RFP, Section XI) The rates bid by each HMO were as follows: 2/ A. Heritage (low bid): Employee Only Family Dade, Broward, 66.46 166.15 and Palm Beach B. Health Options (low bid) Dade and Broward: 78.00 195.00 Palm Beach: 75.00 185.00 C. Humana, Dade: 85.02 206.01 Broward: 83.01 199.22 Palm Beach: 77.44 185.86 D. Gulfstream, Palm Beach: 78.92 197.28 (The instructions provided that the total cost of the "family plan" shall not be greater than 2.5 times the total cost of the "employee only" plan.) DOA evaluators computed a "mean" premium cost by adding the premiums for all bidders, dividing by three, and comparing each premium to the "mean," which was then given five points. A premium above the mean gave a bidder less than five points while a premium below the mean gave the bidder more than five points. The same method was used for the "employee only" plan, the "family" plan and the three Medicare retiree groups. Based on the Department's estimate that active employees constituted 90 percent and retirees 10 percent of an HMO membership, the final point calculations were: A. Heritage (low bid): Combined (Dade, Broward and Palm Beach) 9.35 B. Health Options (low bid) Dade and Broward: 7.75 Palm Beach: 9.1 Combined (Dade, Broward and Palm Beach) 8.17 C. Humana Dade: 5.72 Broward: 6.26 Palm Beach: 8.65 Combined: 6.57 D. Gulfstream Palm Beach: 6.61 The Hearing Officer evaluated the above process and found that the Department's action was reasonable even though "the cost proposals were evaluated solely on the basis of premium for 1988." He based his conclusion on: First, Nye announced at the pre-bid conference that proposals would be evaluated solely on that basis. Second, premium costs in succeeding years were limited to the lower of the cost proposed or the future and presently unknown Consumer Price index for Medical Care Services. Accordingly, no meaningful evaluation could have resulted from a consideration of premium costs for succeeding years. (R.O., page 17) Extensiveness of Service Area At the pre-submission conference, proposers were told that they should designate their service areas and that bids would be awarded on the basis of the entire service area. DOA's evaluators awarded two points for each full county and one-half point for each partial county and proposers received 2, 4, or 6 base points depending on whether their proposal was being evaluated on one, two, or three county service area. Heritage submitted one proposal, and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal was evaluated on a composite or combined basis. Health Options submitted one proposal and designated its service area as Dade, Broward, and Palm Beach Counties. Its proposal contained two separate premium costs: one for Dade and Broward Counties, and one for Palm Beach County. The Department evaluated Health Options' proposal as it related to the individual counties of Dade, Broward, and Palm Beach County, and on a combined basis (Dade, Broward, and Palm Beach Counties). Humana submitted three separate proposals, which designated three separate service areas: Dade, Broward, and Palm Beach Counties. The Department evaluated Humana's proposal for each county and on a combined basis. Gulfstream submitted one proposal, and designated its service area as Palm Beach County. The Department evaluated Gulfstream's proposal for Palm Beach County. The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 35) ACCESSIBILITY The Department evaluated accessibility criterion on the basis of ten points each for reciprocal agreements provided statewide and national services, ten points for each county of the service area in which a hospital was located, two points for each specialty provider in each county, and one point for each provider physician and specialist. These raw scores were then evaluated further to obtain a "mean" score for each proposer as follows A. Heritage (low bid), Combined: 5.8 B. Health Options (low bid), Dade and Broward: 8.71 Palm Beach: 1.1 Combined: 9.51 C. Humana, Dade: 4.16 Broward: 3.32 Palm Beach: 1.31 Combined: 8.79 D. Gulfstream Palm Beach: 1.18 The Hearing Officer found that the above evaluation procedure "was reasonable and a valid exercise of the agency's discretion." (R.O., page 36) COMPLETENESS OF PROPOSALS The original statutory criteria contained in Chapter 87-156, Laws of Florida, included the areas of "cost, service area, plan benefits, and accessibility." To these criteria, DOA added the fifth criterion of completeness of proposals." The Hearing Officer ruled that "(t)he Department's inclusion of this criterion was reasonable." (R.O., page 22) TOTAL POINTS Total points were calculated by adding the base points to a weighted score. In deriving the weighted score, the criteria were weighted as follows: premium costs at 3.5 times, plan benefits at 2.5 times, accessibility at 1 time, extensiveness of service area at 1 time, and completeness of proposal at 1 time. In evaluating the proposals, the Department first evaluated bids solely against other bids for the same service area. For example, Gulfstream's bid was first evaluated against only those other bids that proposed to provide services in that county. In this manner, Gulfstream ranked fourth out of the five bidders in Palm Beach County, and thirteenth overall. The points and ranking assigned by the Department to the top six proposers and to Gulfstream were as follows: HMO Base Points Weights Total Points Rank Heritage (low bid): 35.34 34.15 70.5 1 Health Options Combined (low bid) 38.59 30.79 59.48 2 Av Med 38.95 24.875 63.825 3 Health Options Dade & Broward (low bid) 34.03 27.73 51.76 4 Heritage (high bid) 34.17 25.925 60.095 5 Humana Combined: 35.05 23.46 58.51 6 Gulfstream Palm Beach: 22.46 22.03 44.49 13 A review of this table shows that the weights altered the relative positions of each of the top six proposers. Mr. Nye testified that the weighting utilized did not affect the ranking of the bids of the proposers and only affected the ranking of one bidder, AV-Med. As the Hearing Officer concluded, the proof was contrary to Mr. Nye's testimony. His finding on this point is supported by competent substantial evidence and is hereby adopted. Based on the results of its evaluation the Department proposed to award the contracts to Heritage (low) and to Health Options (combined-low). HUMANA'S COST/BENEFIT ANALYSIS Humana introduced expert testimony to demonstrate that, benefits and cost were weighted equally, its cost-to-benefits ratio would be comparable to or better than the successful proposers. Two analyses were presented. One actuarial expert adjusted the different benefit patterns of Heritage and Health Options up to the Human a benefit level and adjusted their price according to actuarial information filed with the Department of Insurance. The testimony sought to place the proposers on the same co-payment/benefit level to compare premium costs. The result was that Humana's premium cost was the second lowest for the South Florida Service Area. The second analysis adjusted Humana's benefit pattern down to the benefit/co-payment levels of Heritage and Health Options, and adjusted Humana's premium cost down accordingly based on Humana's filed actuarials. This testimony sought to place the proposers on the same co- payment/benefit level to compare premium costs, and Humana' premium cost was comparable to or lower than the second lowest bidder. The Hearing Officer found that the analyses by the expert witness were not persuasive in demonstrating that Humana was the second lowest proposer in this case, or that its cost/benefits were the second lowest. (R.O., page 26) For example, the fitness did not evaluate the bids based on the five criteria contained in the RFP, nor did he include in the cost/benefit analysis all of the criteria utilized by the Department to evaluate benefits. The findings of the Hearing Officer on this point are supported by competent substantial evidence and are therefore adopted. Plan Benefits The criteria for the evaluation of all proposals was set out in Section IX of the RFP as follows: Covered services; Limitations and exclusions; Co-payments, deductibles and co-insurance features; Range of providers including specialists and number of hospitals Out of service area coverage Grievance procedures Three sections in the RFP requested information which was relevant to the plan benefits. Section VI listed the required minimum benefits and requested a complete list of all other services. Each provider was directed to specify co-insurance, deductible, co-payment and other features for all benefits and services for each service area, and to list all limitations and exclusions for all benefits and services for each service area. Section X was a questionnaire which required each propose to list information concerning hospital, ambulatory care facilities services, available physician specialties, programs for health status evaluation, screening and health promotion, limitations or restrictions relative to organ transplants, range of providers and number of hospitals, availability of skilled nursing benefits, a list of the proposer's physician panel, and out-of-service area coverage. Under the Department's Scoring system, each propose received the following scores: A. Heritage 398 B. Health Options Dade & Broward 308 Palm Beach 165 C. Humana Dade 210.5 Broward 161.5 Palm Beach 184.5 D. Gulfstream Palm Beach 203 Using a similar method to calculate a "mean" score as was needed in the premium cost criteria, the base points were as follows: A. Heritage (low bid), Combined: 7.19 B. Health Options (low), Dade and Broward: 5.57 Palm Beach: 2.28 Combined: 5.91 C. Humana, Dade: 3.38 Broward: 2.92 Palm Beach: 3.34 Combined: 4.59 D. Gulfstream, Palm Beach: 3.57 Limitation to Two Successful Bidders Humana and Gulfstream argued that they should not be excluded from being awarded a contract because there was no foundation which required the limitation of the contracts to two or to any number of HMOs. The Department had considered awarding contracts to more than two proposers but rejected doing so because such action best effectuated the general objectives of the RFP, including that of promoting competitive rates. The Hearing Officer agreed with the Department and correctly found that "there was no showing that the selected HMOs could not adequately satisfy the needs of the state employees." (R.O., page 35). He concluded: "While the statute did not specify a number, it did specify that the Department contract through the competitive bid process. If the contracts are not limited in number, there is no competitive bidding process. Accordingly, it is concluded the Department acted reasonably in limiting the award to two HMOs." (R.O., page 35) Employee Evaluation Teams Yet another contention of the Petitioners was that the DOA employee evaluation teams lacked the experience and knowledge in the health care services field and should have been disqualified as not meeting the requirements of Section 287.057(16), Fla. Stat., which states as follows "A selection team of at least three employees who have experience and knowledge in the program areas and service requirements for which contractual serviced are sought shall be appointed by the agency head to aid in the selection of contractors for contracts of more than the threshold amount provided in s. 287.017 for CATEGORY FOUR." After full consideration of the above provision, the Hearing Officer agreed with the Department and found that the employees met the minimum statutory criteria (R.O., page 35) and had sufficient experience and knowledge in the area to properly evaluate the proposals (R.O., pages 13, 14). Departure From RFP At the pre-submission conference, Mr. Nye announced that cost and benefits would be weighted equally. In its final evaluation, the Department weighted cost at 3.5 and benefits at 2.5. The remaining criteria, accessibility, extensiveness of service area, and completeness of proposal , were weighted at I each. The Hearing Officer found that the Department's final evaluation failed to conform to the weighting factors announced at the pre- submission conference. 45. He further stated that: 43. The Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. Such failure was a material departure from the RFP, as supplemented by the pre-bid conference, and adversely impacted the bid procurement process. ... Plan benefits and accessibility under Section 110.123(3)(d), Florida Statutes, and the RFP were distinct criteria upon which proposers formulated their responses. They were also distinct criteria when the Department told proposers that cost and benefits would be weighted equally, were distinct criteria when evaluated by the Departmen, and had a distinct impact upon the ranking of proposers. Under the circumstances, the Department's failure to accord them equal weight was arbitrary and capricious. Rather than acknowledge the disparity that existed between cost and benefits, the Department contended at hearing that accessibility was a part of benefits, and therefore cost and benefits were weighted equally. The Department's contention, and proof, was not persuasive and is rejected as not credible. (R.O., pages 24, 25) The Department finds that the above findings of fact are supported by competent, substantial evidence and adopts them in this final order. INTERVENORS' EXCEPTIONS TO RECOMMENDED ORDER Exceptions of Heritage Heritage filed six exceptions to the Recommended Order and each exception will be considered separately. Exception Number 1: Heritage argued that the Hearing Officer erred when he found that the Department's failure to accord equal weight to cost and benefits was arbitrary and capricious. While the Department agrees with the cases cited by Heritage which hold that administrative agencies have broad discretion in evaluating contracts for personal services such as health services, the Department is aware of its statutory responsibility to adhere to the bidding requirements of Section 287.057, Fla. Stat., and does not believe that it has the discretion to enter into contracts absent the competitive process. As to the testimony of Mr. Burbank, the Hearing Officer, as the trier of fact, was in the best position to assess his credibility and determine the weight to be accorded to his testimony. Koltay vs. Department of General Services, 374 So.2d 1386 (Fla. 2nd DCA 1979). The Department is unable to reject the Hearing Officer's findings in an area clearly within his responsibility. Exception Number 1 is rejected. Exception Number 2: Heritage next argues that the Hearing Officer erred in applying the arbitrary and capricious standard to the Department's actions relating to the weights given to various factors. The evidence shows that at the presubmission conference, Mr. Nye informed all proposers that the weights to be assigned to premium costs and to plan benefits would be equal. That information was clearly erroneous because, in the actual evaluations, the evaluators used a different weighting system, one that gave premium costs 40 percent greater weight than plan benefits. It is not the weights given to each category that makes the Department's actions arbitrary and capricious but its failure to adhere to and apply its announced weighting factors. On this basis, Exception Number 2 is rejected. Exception Number 3: Heritage urges that the Hearing Officer erred in concluding that the Department's failure to comply with the provisions of Section 287.012(11), Fla. Stat., was fundamental error. The above statute by its terms provides that "(r)equests for proposals shall state the relative importance of price and any other evaluation criteria." (emphasis added). According to the common usage of the term "shall", this language is mandatory (Fla. Tallow Corporation vs. Bryan, 237 So.2d 308 (Fla. 4th DCA 1970); S.R. vs. State, 345 So.2d 1018 (Fla. 1977) and requires that the weight of the criteria must be included in the RFP. Therefore, Exception Number 3 is rejected. Exception Number 4: Heritage argues that the Hearing Officer erred in granting standing to Gulfstream. In Preston Carroll vs. Fla. Keys Aqueduct Authority, 400 So.2d 524 (Fla. 3rd DCA 1981), an unsuccessful bidder who was third low bidder, attempted to overturn the award of the contract to the low bidder. The district court held that while a second low bidder to the award of a contract had the necessary "substantial interest" to contest the award. However, a third low bidder was unable to demonstrate that it was "substantially affected" and therefore lacked standing to protest the award of the contract to another bidder. Under the holding in this case, the Department concludes that Gulfstream did not have standing in this case since it ranked 13th in the ranking of low bidders. According, Exception Number 4 is accepted and included in the Conclusions of Law of this Order. Exception Number 5: Heritage argues that the Hearing Officer erred in concluding that Humana had standing to protest the Department's failure to state the relative importance of price and any other evaluation criteria in the RFP because Humana did not raise this point as an issue in its formal protest. If Humana did not have standing, then it was improperly permitted to protest the award of one of the contracts to Heritage. A review of Humana's protest shows that in Item 9, it argued that: "That the rejection of Humana's response to RFP #88-05, HMO coverage for State employees in Clay, Dade, Broward and Palm Beach Counties was not in accordance with all applicable rules, regulations, procedures, precedents and bid criteria." The rules of the Division of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) provide for the minimum filing requirements in initial pleadings and state as follows: "(3) All petitions should contain: The name and address of each agency affected and each agency's file or identification number, if known; The name and address of the petitioner or petitioners, and an explanation of how his/her substantial interests will be affected by the agency determinations; A statement of when and how petitioner received notice of the agency decision or intent to render a decision; A statement of all disputed issues of material fact. If there are none, the petition must so indicate; A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief; A demand for relief to which the petitioner deems himself entitled; and Other information which the petitioner contends is material." (emphasis added) The requirements of this rule are directory only and not mandatory and are not designed to deny petitioners a hearing in which their "substantial interests" are affected. Section 120.57, Fla. Stat., see Seminole County Board of County Commissioners vs. Long, 422 So.2d 938, 940 (Fla. 5th DCA 1982). The initial protest of Humana complied with the minimum filing requirements of Rule 22I-6.004(3), F.A.C., above, and was sufficient to place Heritage on notice of deficiencies alleged to be in the RFP. Exception Number 5 is rejected. Exception Number 6: Heritage argues that "(t)he Hearing Officer erred in concluding that the Department should invoke its right to reject all proposals." Contrary to Heritage's argument, the Department did not communicate how the criteria would be weighed in accordance with Section 287.012(11), Fla. Stat. It is not possible to cure the deficiency in the RFP by recalculating the proposals. The deficiency can be corrected by re-bidding for proposals for HMO medical services. On this basis, Exception Number 6 is rejected. HEALTH OPTIONS' EXCEPTION TO RECOMMENDED ORDER Health Options as one of the successful bidders filed an exception to the Hearing Officer's finding which stated that DOA had failed to state the relative importance of price and other criteria in the RFP. It argued that this issue was not presented by Humana or Gulfstream in the formal protests and thus could not be considered in the Recommended Order. Therefore, Health Options urged that the Department's award of the two HMO contracts was proper and should be upheld. As previously stated, Humana's protest argued that the rejection of its bid "was not in accordance with all applicable rules, regulations, procedures, precedents, and bid criteria." (Item 9 of Protest). Humana's protest complied with the minimum filing requirements of the Department of Administrative Hearings (Rule 22I-6.004(3), F.A.C.) which provide that petitions should contain: A statement of all disputed issues of material fact. If there are none, the petition must so indicate; A concise statement of the ultimate facts alleged, as well as the rules and statutes which entitle the petitioner to relief; A demand for relief to which the petitioner deems himself entitled; While Gulfstream's formal protest did not state that its protest was founded on the Department's failure to state the relative importance of price and other evaluation criteria in the RFP, all that was necessary for the Hearing Officer to rule on this issue was for one of the petitioner's to raise the issue in its initial protest. Since the issue was raised by Humana, the Exception of Health Options is rejected. DEPARTMENT'S EXCEPTIONS TO RECOMMENDED ORDER The Department also filed timely exceptions to the Recommended Order. After reviewing those exceptions, I find that to the extent they are not adopted and accepted herein, they are inappropriate findings of fact and have not been considered further in this Order.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department enter a final order rejecting all proposals submitted for the South Florida service area. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 22nd day of March, 1988. WILLIAM J. KENDRICK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of March, 1988.
