The Issue The ultimate issue is whether the application of Petitioner, University Medical Park, for a certificate of need to construct a 130-bed acute care hospital in northern Hillsborough County, Florida should be approved. The factual issues are whether a need exists for the proposed facility under the Department's need rule and, if not, are there any special circumstances which would demonstrate the reasonableness and appropriateness of the application notwithstanding lack of need. The petitioner, while not agreeing with the methodology, conceded that under the DHRS rule as applied there is no need because there is an excess of acute care beds projected for 1989, the applicable planning horizon. The only real factual issue is whether there are any special circumstances which warrant issuance of a CON. The parties filed post-hearing findings of fact and conclusions of law by March 18, 1985, which were read and considered. Many of those proposals are incorporated in the following findings. As indicated some were irrelevant, however, those not included on pertinent issues were rejected because the more credible evidence precluded the proposed finding. Having heard the testimony and carefully considered the Proposed Findings of Fact, there is no evidence which would demonstrate the reasonableness and appropriateness of the application. It is recommended that the application be denied.
Findings Of Fact General Petitioner is a limited partnership composed almost entirely of physicians, including obstetricians/gynecologists (OB/GYN) and specialists providing ancillary care, who practice in the metropolitan Tampa area. (Tr. Vol. 1, pp. 103-104). Petitioner's managing general partner is Dr. Robert Withers, a doctor specializing in OB/GYN who has practiced in Hillsborough County for over thirty years. (Tr. Vol. 1, pp. 24- 26, 28-29.) Dr. Withers was a prime moving force in the founding, planning and development of University Community Hospital and Women's Hospital. (Tr. Vo1. 1, pp. 26-28, 73; Vol. 4, pp. 547-548.) Petitioner seeks to construct in DHRS District VI a specialty "women's" hospital providing obstetrical and gynecological services at the corner of 30th Street and Fletcher Avenue in northern Hillsborough County and having 130 acute care beds. 1/ (Tr. Vol. 1, pp. 34, 74-75, Vol. 5, pp. 678-679, Northside Ex.-1, pp. 1-2, Ex.-4A.) The proposed hospital is to have 60 obstetrical, 66 gynecological and 4 intensive care beds. (Tr. Vol. 8, P. 1297, Northside Ex.-1 Table 17, Ex.-B.) DHRS District VI is composed of Hardy, Highlands, Hillsborough, Manatee and Polk counties. Each county is designated a subdistrict by the Local Health Council of District VI. Pasco County, immediately north of Hillsborough, is located in DHRS District V and is divided into two subdistricts, east Pasco and west Pasco. If built, Northside would be located in the immediate vicinity of University Community Hospital (UCH) in Tampa, Hillsborough County, Florida. Less than 5 percent of the total surgical procedures at UCH are gynecologically related, and little or no nonsurgical gynecological procedures arc performed there. (Tr. Vol. 4, p. 550.) There is no obstetrical practice at UCH, although it has the capacity to handle obstetric emergencies. The primary existing providers of obstetrical services to the metropolitan Tampa area are Tampa General Hospital (TGH) and Women's Hospital (Women's). (Tr. Vol. 1, p. 79, Northside Ex.-4, Tr. Vol. 7, pp. 1074-1075.) TGH is a large public hospital located on Davis Islands near downtown Tampa. (Tr. Vol. 1, pp. 47-48, Vol. 8, pp. 1356, 1358.) TGH currently has a 35 bed obstetrical unit, but is currently expanding to 70 beds as part of a major renovation and expansion program scheduled for completion in late 1985. (Tr. Vol. 7, pp. 1049, 1095, Vol. 8, pp. 1367-1368, Vol. 10, P. 1674, Northside Ex.- 2, P. 3.) In recent years, the overwhelming majority of Tampa General's admissions in obstetrics at TGH have been indigent patients. (Tr. Vol. 1, P. 61, Vol. 8, pp. 1375- 1379; Vol. 9, P. 1451; TGH Ex.-3.) Tampa General's internal records reflect that it had approximately 2,100 patient days of gynecological care compared with over 38,000 patient days in combined obstetrical care during a recent eleven month period. (TGH Ex.-3..) Women's is a 192 bed "specialty" hospital located in the west central portion of the City of Tampa near Tampa Stadium. (Tr. Vol. 1, pp. 63-64, 66-67; Vol. 10 P. 1564; Northside Ex.-4.) Women's Hospital serves primarily private-pay female patients. (Vol. 1, pp. 79, 88-89; Vol. 6, pp. 892-893.) Humana Brandon Hospital, which has a 16 bed obstetrics unit, and South Florida Baptist Hospital in Plant City, which has 12 obstetric beds, served eastern Hillsborough County. (Tr. Vol. 7, P. 1075; Northside Ex.-2, P. 3; Northside Ex.-4 and Tr. Vol. 1, P. 79; Northside Ex.-4.) There are two hospitals in eastern Pasco County, which is in DHRS District V. Humana Hospital, Pasco and East Pasco Medical Center, each of which has a six bed obstetric unit. Both hospitals are currently located in Dade City, but the East Pasco Medical Center will soon move to Zephyrhills and expand its obstetrics unit to nine beds. (Tr. Vol. 1, pp. 108- 109; Tr. Vol. 7, P. 1075; Vol. 8, pp. 1278-1281; Northside Ex.-4.) There are no hospitals in central Pasco County, DHRS District V. Residents of that area currently travel south to greater Tampa, or, to a lesser extent, go to Dade City for their medical services. (Tr. Vol. 2, pp. 266-267, 271-272; Vol. 7, p. 1038.) Bed Need There are currently 6,564 existing and CON approved acute care beds in DHRS District VI, compared with an overall bed need of 5,718 acute care beds. An excess of 846 beds exist in District VI in 1989, the year which is the planning horizon use by DHRS in determining bed need applicable to this application. (Tr. Vol. 7, pp. 1046-1047, 1163, 1165-66; DHRS Ex.-1.) There is a net need for five acute care beds in DHRS District V according to the Department's methodology. (Tr. Yolk. 7, pp. 1066, 1165; DHRS Ex.-1.) The figures for District VI include Carrollwood Community Hospital which is an osteopathic facility which does not provide obstetrical services. (Tr. Vol. 1, P. 158; Vol. 7, p. 1138; Vol. 8, P. 1291.) However, these osteopathic beds are considered as meeting the total bed need when computing a11 opathic bed need. DHRS has not formally adopted the subdistrict designations of allocations as part of its rules. (Tr. Vol. 7, pp. 1017-1017, 1019; Vol. 8, pp. 1176, 1187.) Consideration of the adoption of subdistricts by the Local Health Council is irrelevant to this application. 2/ Areas of Consideration in Addition to Bed Need Availability Availability is deemed the number of beds available. As set forth above, there is an excess of beds. (Nelson, Tr. Vol. VII, P. 1192.) Tampa General Hospital and Humana Women's Hospital offer all of the OB related services which UMP proposes to offer in its application. These and a number of other hospitals to include UCH, offer all of the GYN related services proposed by Northside. University Community Hospital is located 300 yards away from the proposed site of Northside. UCH is fully equipped to perform virtually any kind of GYN/OB procedure. Humana and UCH take indigent patients only on an emergency basis, as would the proposed facility. GYN/OB services are accessible to all residents of Hillsborough County regardless of their ability to pay for such services at TGH. (Williams, Tr. Vol. IX, P. 1469; Baehr, Tr. Vol. X, P. 1596; Splitstone, Tr. Vol. IV, P. 582; Hyatt, TGH Exhibit 19, P. 21.) Utilization Utilization is impacted by the number of available beds and the number of days patients stay in the hospital. According to the most recent Local Health Council hospital utilization statistics, the acute care occupancy rate for 14 acute care hospitals in Hillsborough County for the most recent six months was 65 percent. This occupancy rate is based on licensed beds and does not include CON approved beds which are not yet on line. This occupancy rate is substantially below the optimal occupancies determined by DHRS in the Rule. (DHRS Exhibit 4; Contis, Tr. Vol. VII, P. 1069.) Utilization of obstetric beds is higher than general acute care beds; however, the rules do not differentiate between general and obstetric beds. 3/ Five Hillsborough County hospitals, Humana Women's, St. Joseph's, Tampa General, Humana Brandon, and South Florida Baptist, offer obstetric services. The most recent Local Health Council utilization reports indicate that overall OB occupancy for these facilities was 82 percent for the past 6 months. However, these computations do not include the 35 C0N-approved beds which will soon be available at Tampa General Hospital. (DHRS Exhibit 4). There will be a substantial excess of acute care beds to include OB beds in Hillsborough County for the foreseeable future. (Baehr, Tr.w Vol. X, pp. 1568, 1594, 1597.) The substantial excess of beds projected will result in lower utilization. In addition to excess beds, utilization is lowered by shorter hospital stays by patients. The nationwide average length of stay has been reduced by almost two days for Medicare patients and one day for all other patients due to a variety of contributing circumstances. (Nelson, Tr. Vol. VII, P. 1192; Contis, Tr. Vol. VII, P. 1102; Baehr, Tr. Vol. X, pp. 1583-84; etc.) This dramatic decline in length of hospital stay is the result of many influences, the most prominent among which are: (1) a change in Medicare reimbursement to a system which rewards prompt discharges of patients and penalizes overutilization ("DGRs"), (2) the adaptation by private payers (insurance companies, etc.) of Medicare type reimbursement, (3) the growing availability and acceptance of alternatives to hospitalization such as ambulatory surgical centers, labor/delivery/recovery suites, etc. and (4) the growing popularity of health care insurance/delivery mechanisms such as health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), and similar entities which offer direct or indirect financial incentives for avoiding or reducing hospital utilization. The trend toward declining hospital utilization will continue. (Nelson, Tr. Vol. VII, pp. 1192-98; Baehr, Tr. Vol. X, pp. 1584-86; etc.) There has been a significant and progressive decrease in hospital stays for obstetrics over the last five years. During this time, a typical average length of stay has been reduced from three days to two and, in some instances, one day. In addition, there is a growing trend towards facilities (such as LDRs) which provide obstetrics on virtually an outpatient basis. (Williams, Tr. Vol. IX, P. 1456; Hyatt, Tr. Vol. IV, P. 644.) The average length of stay for GYN procedures is also decreasing. In addition, high percentage of GYN procedures are now being performed on an outpatient, as opposed to inpatient, basis. (Hyatt, Tr. Vol. IV, P. 644, etc.) The reduction in hospital stays and excess of acute care beds will lower utilization of acute care hospitals, including their OB components, enough to offset the projected population growth in Hillsborough County. The hospitals in District VI will not achieve the optimal occupancy rates for acute care beds or OB beds in particular by 1989. The 130 additional beds proposed by UMP would lower utilization further. (Paragraphs 7, 14, and 18 above; DHRS Exhibit 1, Humana Exhibit 1.) Geographic Accessibility Ninety percent of the population of Hillsborough County is within 30 minutes of an acute care hospital offering, at least, OB emergency services. TGH 20, overlay 6, shows that essentially all persons living in Hillsborough County are within 30 minutes normal driving time not only to an existing, acute care hospital, but a hospital offering OB services. Petitioner's service area is alleged to include central Pasco County. Although Pasco County is in District V, to the extent the proposed facility might serve central Pasco County, from a planning standpoint it is preferable to have that population in central Paso served by expansion of facilities closer to them. Hospitals in Tampa will become increasingly less accessible with increases in traffic volume over the years. The proposed location of the UMP hospital is across the street from an existing acute care hospital, University Community Hospital ("UCH"). (Splitstone, Tr. Vol. IV, P. 542.) Geographic accessibility is the same to the proposed UMP hospital and UCH. (Smith, Tr. Vol. III, P. 350; Wentzel, Tr. Vol. IV, p. 486; Peters, Tr. Vol. IX, P. 1532.) UCH provides gynecological services but does not provide obstetrical services. However, UCH is capable of delivering babies in emergencies. (Splitstone, Tr. Vol. IV, p. 563.) The gynecological services and OB capabilities at UCH are located at essentially the same location as Northside's proposed site. Geographic accessibility of OB/GYN services is not enhanced by UMP's proposed 66 medical-surgical beds. The accessibility of acute care beds, which under the rule are all that is considered, is essentially the same for UCH as for the proposed facility. As to geographic accessibility, the residents of Hillsborough and Pasco Counties now have reasonable access to acute care services, including OB services. The UMP project would not increase accessibility to these services by any significant decrease. C. Economic Accessibility Petitioner offered no competent, credible evidence that it would expand services to underserved portions of the community. Demographer Smith did not study income levels or socioeconomic data for the UMP service area. (Smith, TR. Vol. III, pp. 388, 389.) However, Mr. Margolis testified that 24 percent of Tampa General's OB patients, at least 90 percent of who are indigents, came from the UMP service area. (Margolis, Tr. Vol. X, P. 1695.) The patients proposed to be served at the Northside Hospital are not different than those already served in the community. (Withers, Tr. Vol. II, P. 344.) As a result, Northside Hospital would not increase the number of underserved patients. Availability of Health Care Alternative An increasing number of GYN procedures are being performed by hospitals on an outpatient basis and in freestanding ambulatory-surgical centers. An ambulatory-surgical center is already in operation at a location which is near the proposed UMP site. In fact, Dr. Hyatt, a UMP general partner, currently performs GYN procedures at that surgical center. (Withers, Tr. Vol. I, P. 150; Hyatt, Tr. Vol. IV, pp. 644, 646. Ambulatory surgical centers, birthing centers and similar alternative delivery systems offer alternatives to the proposed facility. Existing hospitals are moving to supply such alternatives which, with the excess beds and lower utilization, arc more than adequate to preclude the need for the UMP proposal. (Nelson, Tr. Vol. VII, P. 1204, 1205, 1206; Williams, Tr. Vol. IX, pp. 1453, 1469; Contis, Tr. Vol. VII, pp. 1154; Contis, Tr. Vol. VII, pp. 1151, 1154.) Need for Special Equipment & Services DHRS does not consider obstetrics or gynecology to be "special services" for purposes of Section 381.494(6)(c)6, Florida Statutes. In addition, the services proposed by UMP are already available in Hillsborough and Pasco Counties. (Nelson, Tr. Vol. VII, pp. 1162, 1210.) Need for Research & Educational Facilities USF currently uses Tampa General as a training facility for its OB residents. TCH offered evidence that the new OB facilities being constructed at Tampa General were designed with assistance from USF and were funded by the Florida Legislature, in part, as an educational facility. (Powers, Tr. Vol. IX, P. 1391; Williams, Tr. Vol. IX, pp. 1453-1455.) The educational objectives of USF for OB residents at Tampa General are undermined by a disproportionately high indigent load. Residents need a cross section of patients. The UMP project will further detract from a well rounded OB residency program at Tampa General by causing Tampa General's OB Patient mix to remain unbalanced. (Williams, Tr. Vol. IX, P. 1458; Margolis, Tr. Vol. X, P. 1695.) UMP offered no evidence of arrangements to further medical research or educational needs in the community. (Nelson, Tr. Vol. VII, P. 1213. UMP's proposed facility will not contribute to research and education in District VI. Availability of Resources Management UMP will not manage its hospital. It has not secured a management contract nor entered into any type of arrangement to insure that its proposed facility will be managed by knowledgeable and competent personnel. (Withers, Tr. Vol. I, p. 142.) However, there is no alleged or demonstrated shortage of management personnel available. Availability of Funds For Capital and Operating Expenditures The matter of capital funding was a "de novo issue," i.e., evidence was presented which was in addition to different from its application. In its application, Northside stated that its project will be funded through 100 percent debt. Its principal general partner, Dr. Withers, states that this "figure is not correct." However, neither Dr. Withers nor any other Northside witness ever identified the percentage of the project, if any, which is to be funded through equity contributions except the property upon which it would be located. (UMP Exhibit 1, p. 26; Withers, Tr. Vol. I, P. 134.) The UMP application contained a letter from Landmark Bank of Tampa which indicates an interest on the part of that institution in providing funding to Northside in the event that its application is approved. This one and one half year year old letter falls short of a binding commitment on the part of Landmark Bank to lend UMP the necessary funds to complete and operate its project and is stale. Dr. Withers admitted that Northside had no firm commitment as of the date of the hearing to finance its facility, or any commitment to provide 1196 financing as stated in its application. (UMP Exhibit I/Exhibit Dr. Withers, Tr. Vol. I, P. 138.) Contribution to Education No evidence was introduced to support the assertion in the application of teaching research interaction between UMP and USF. USF presented evidence that no such interaction would occur. (Tr. Vol. IX, P. 1329.) The duplication of services and competition for patients and staff created by UMP's facility would adversely impact the health professional training programs of USF, the state's primary representative of health professional training programs in District VI. (Tr. Vol. IX, pp. 1314-19; 1322-24; 1331-1336.) Financial Feasibility The pro forma statement of income and expenses for the first two years of operation (1987 and 1988) contained in the UMP application projects a small operating loss during the first year and a substantial profit by the end of the second year. These pro formas are predicated on the assumption that the facility will achieve a utilization rate of 61 percent in Year 1 and 78 percent in its second year. To achieve these projected utilization levels, Northside would have to capture a market share of 75-80 percent of all OB patient days and over 75% of all GYN patient days generated by females in its service area. (UMP, Exhibit 1; Withers, Tr. Vol. I, P. 145, Dacus; Tr. Vol. V, P. 750-755.) These projected market shares and resulting utilization levels are very optimistic. It is unlikely that Northside could achieve these market shares simply by making its services available to the public. More reasonable utilization assumptions for purposes of projecting financial feasibility would be 40-50 percent during the first year and 65 percent in the second year. (Margolis, Tr. Vol. X, P. 1700; Baehr, Tr. Vol. X, pp. 1578, 1579, 1601.) UMP omitted the cost of the land on which its facility is to be constructed from its total project cost and thus understates the income necessary to sustain its project. Dr. Withers stated the purchase price of this land was approximately $1.5 million and it has a current market value in excess of $5 million. (Withers, Tr. Vol. I, pp. 139, 140.) Dr. Withers admitted that the purchase price of the land would be included in formulating patient charges. As a matter of DHRS interpretation, the cost of land should be included as part of the capital cost of the project even if donated or leased and, as such, should be added into the pro formas. UMP's financial expert, Barbara Turner, testified that she would normally include land costs in determining financial feasibility of a project, otherwise total project costs would be understated (Withers, Tr. Vol. I, P. 141; Nelson, Tr. Vol. VII, pp. 1215, 1216; Turner, Tr. Vol. X, P. 1714.) In addition, the pro formas failed to include any amount for management expenses associated with the new facility. Dr. Withers admitted UMP does not intend to manage Northside and he anticipates that the management fee would be considerably higher than the $75,000 in administrator salaries included in the application. (Withers, Tr. Vol. I, pp. 143, 144.) Barbara Turner, UMP's financial expert, conceded that the reasonableness of the percent UMP pro formas is predicated on the reasonableness of its projected market share and concomitant utilization assumptions. These projections are rejected as being inconsistent with evidence presented by more credible witnesses. The UMP project, as stated in its application or as presented at hearing, is not financially feasible on the assumption Petitioner projected. VIII. Impact on Existing Facilities Approval of the UMP application would result in a harmful impact on the costs of providing OB/GYN services at existing facilities. The new facility would be utilized by patients who would otherwise utilize existing facilities, hospitals would be serving fewer patients than they are now. This would necessarily increase capital and operating costs on a per patient basis which, in turn, would necessitate increases in patient charges. (Nelson, Tr. Vol. VII, pp. 1217-1219; Baehr, Tr. Vol. X, P. 1587.) Existing facilities are operating below optimal occupancy levels. See DHRS Exhibit 4. The Northside project would have an adverse financial impact on Humana, Tampa General Hospital, and other facilities regardless of whether Northside actually makes a profit. See next subheading below. The Northside project would draw away a substantial number of potential private-pay patients from TGH. Residents of the proposed Northside service area constitute approximately 24 percent of the total number of OB patients served by TGH. The Northside project poses a threat to TGH's plans to increase its non- indigent OB patient mix which is the key to its plans to provide a quality, competitive OB service to the residents of Hillsborough County. (Nelson, Tr. Vol. VIII, P. 1225; Margolis, Tr. Vol. X, P. 1695.) Impact Upon Costs and Competition Competition via a new entrant in a health care market can be good or bad in terms of both the costs and the quality of care rendered, depending on the existing availability of competition in that market at the time. Competition has a positive effect when the market is not being adequately or efficiently served. In a situation where adequate and efficient service exists, competition can have an adverse impact on costs and on quality because a new facility is simply adding expense to the system without a concomitant benefit. (Baehr, Tr. Vol. X, p. 1650.) Competition among hospitals in Hillsborough County is now "intense and accelerating." (Splitstone, Tr. Vol. IV, p. 558.) Tampa General is at a competitive disadvantage because of its indigent case load and its inability to offer equity interests to physicians in its hospital. (Blair, Tr. Vol. VI, pp. 945, 947-948); Powers, Tr. Vol. IX, P. 1405.) Tampa General Hospital is intensifying its marketing effort, a physician office building under construction now at Tampa General is an illustration of Tampa General's effort to compete for private physicians and patients. (Powers, Tr. Vol. IX, pp. 1405-1406.) The whole thrust of Tampa General's construction program is to increase its ability to compete for physicians. (Nelson, Tr. Vol. VII, P. 1224; Powers, Tr. Vol. IX, p. 1442.) The Tampa General construction will create new competition for physicians and patients. (Contis, Tr. Vol. VII, p. 1099.) Patients go to hospitals where their doctors practice, therefore, hospitals generally compete for physicians. (Splitstone, Tr. Vol. IV, P. 563; Blair, Tr. Vol. VI, pp. 898, 928.) Because many of the UMP partners are obstetricians who plan to use Northside exclusively, approval of the Northside project would lessen competition. (Popp, TGH Exhibit 18, P. 11.) It is feasible for Tampa General to attract more private pay OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461.) At its recently opened rehabilitation center, Tampa General has attracted more private pay patients. (Powers, Tr. Vol. IX, pp. 1393-1396.) USF OB residents at Tampa General are planning to practice at Tampa General. (Williams, Tr. Vol. IX, pp. 1460-1461.) The state-of-the-art labor, delivery, recovery room to be used at Tampa General will be an attractive alternative to OB patients. (Williams, Tr. Vol. IX, pp. 1460- 1461); Popp, TGH Exhibit 18, p.26) IX. Capital Expenditure Proposals The proposed Northside hospital will not offer any service not now available in Tampa. (Hyatt, TGH Exhibit 19, p. 21).
Recommendation Petitioner having failed to prove the need for additional acute care beds to include OB beds or some special circumstance which would warrant approval of the proposed project, it is recommended that its application for a CON be DENIED. DONE and ORDERED this 25th day of June, 1985, in Tallahassee, Florida STEPHEN F. DEAN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of June, 1985.
The Issue Whether the certificate of need application to convert 30 acute care beds to 30 adult psychiatric beds at Broward General Medical Center meets the statutory and rule criteria for approval.
Findings Of Fact The North Broward Hospital District (NBHD) is a special taxing district established by the Florida Legislature in 1951 to provide health care services to residents of the northern two-thirds of Broward County. NBHD owns and operates four acute care hospitals: Coral Springs Medical Center, North Broward Medical Center, Imperial Point Medical Center (Imperial Point), and Broward General Medical Center (Broward General). NBHD also owns and/or operates primary care clinics, school clinics, urgent care centers, and a home health agency. FMC Hospital, Ltd., d/b/a Florida Medical Center (FMC) is a 459-bed hospital with 74 inpatient psychiatric beds, 51 for adults separated into a 25-bed adult unit and a 26-bed geriatric psychiatric unit, and 23 child/adolescent psychiatric beds. FMC is a public Baker Act receiving facility for children and adolescents and operates a mental health crisis stabilization unit (CSU) for children and adolescents. FMC also operates separately located facilities which include a partial hospitalization program, an adult day treatment program, and a community mental health center. At Florida Medical Center South, FMC operates another day treatment program and partial hospitalization program. The Agency for Health Care Administration (AHCA) is the state agency which administers the certificate of need (CON) program for health care services and facilities in Florida. The NBHD applied for CON Number 8425 to convert 30 acute care beds to 30 adult psychiatric beds at Broward General. Broward General operates approximately 550 of its total 744 licensed beds. It is a state Level II adult and pediatric trauma center and the tertiary referral center for the NBHD, offering Level II and III neonatal intensive care, pediatric intensive care, cardiac catheterization and open heart surgery services. Broward General has 68 adult psychiatric beds and is a public Baker Act receiving facility for adults. Public Baker Act receiving facilities have state contracts and receive state funds to hold involuntarily committed mental patients, regardless of their ability to pay, for psychiatric evaluation and short-term treatment. See Subsections 394.455(25) and (26), Florida Statutes. Although they serve different age groups, both FMC and Broward General are, by virtue of contracts with the state, public Baker Act facilities. When a Baker Act patient who is an indigent child or adolescent arrives at Broward General, the patient is transferred to FMC. FMC also typically transfers indigent Baker Act adults to Broward General. At Broward General, psychiatric patients are screened in a separate section of the emergency room by a staff which has significant experience with indigent mental health patients. If hospitalization is appropriate, depending on the patient's physical and mental condition, inpatient psychiatric services are provided in either a 38-bed unit on the sixth floor or a 30- bed unit on the fourth floor of Broward General. In July 1995, Broward General also started operating a 20-bed mental health CSU located on Northwest 19th Street in Fort Lauderdale. Prior to 1995, the County operated the 19th Street CSU and 60 CSU beds on the grounds of the South Florida State Hospital (SFSH), a state mental hospital. Following an investigation of mental health services in the County, a grand jury recommended closing the 60 CSU beds at SFSH because of "deplorable conditions." In addition, the grand jury recommended that the County transfer CSU operations to the NBHD and the South Broward Hospital District (SBHD). As a result, the SBHD assumed the responsibility for up to 20 CSU inpatients a day within its existing 100 adult psychiatric beds at Memorial Regional Hospital. The NBHD assumed the responsibility for up to 40 CSU inpatients a day, including 20 at the 19th Street location. The additional 20 were to be redirected to either the 68 adult psychiatric beds at Broward General or the 47 adult psychiatric beds at Imperial Point. CSU services for adult Medicaid and indigent patients in the NBHD service area were transferred pursuant to contracts between the NBHD and Broward County, and the NBHD and the State of Florida, Department of Children and Family Services (formerly, the Department of Health and Rehabilitative Services). Based on the agreements, the County leases the 19th Street building in which Broward General operates the CSU. The County also pays a flat rate of $1.6 million a year in monthly installments for the salaries of the staff which was transferred from the County mental health division to the NBHD. The County's contract with the NBHD lasts for five years, from December 1995 to September 2000. Either party may terminate the contract, without cause, upon 30 days notice. The State contract, unlike that of Broward County, does not provide a flat rate, but sets a per diem reimbursement rate of approximately $260 per patient per day offset by projected Medicaid revenues. The State contract is renewable annually, but last expired on June 30, 1997. The contract was being re-negotiated at the time of the hearing in November 1997. Based on actual experience with declining average lengths of stay for psychiatric inpatients, the contract was being re-negotiated to fund an average of 30, not a maximum of 40 patients a day. If CON 8425 is approved, NBHD intends to use the additional 30 adult psychiatric beds at Broward General to meet the requirements of the State and County contracts, while closing the 19th Street CSU and consolidating mental health screening and stabilization services at Broward General. NBHD proposes to condition the CON on the provision of 70 percent charity and 30 percent Medicaid patient days in the 30 new beds. By comparison, the condition applicable to the existing 68 beds requires the provision of 3 percent charity and 25 percent Medicaid. When averaged for a total of 98 beds, the overall condition would be 23.5 percent charity and 26.5 percent Medicaid, or a total of 51 or 52 percent. The proposed project will require the renovation of 10,297 gross square feet on the fourth floor of Broward General at a cost of approximately $450,000. The space is currently an unused section of Broward General which contains 42 medical/surgical beds. Twelve beds will be relocated to other areas of the hospital. The renovated space will include seclusion, group therapy, and social rooms, as well as 15 semi- private rooms. Twelve of the rooms will not have separate bathing/showering facilities, and seven of those will also not have toilets within the patients' rooms. Need in Relation to State and District Health Plans - Subsection 408.035(1)(a), Florida Statutes The District 10 allocation factors include a requirement that a CON applicant demonstrate continuously high levels of utilization. The applicant is given the following evidentiary guidelines: patients are routinely waiting for admissions to inpatient units; the facility provides significant services to indigent and Medicaid individuals; the facility arranges transfer for patients to other appropriate facilities; and the facility provides other medical services, if needed. Broward General does not demonstrate continuously high utilization by having patients routinely waiting for admission. Broward General does meet the other criteria required by allocation factor one. The second District 10 allocation factor, like criterion (b) of the first, favors an applicant who commits to serving State funded and indigent patients. Broward General is a disproportionate share Medicaid provider with a history of providing, and commitment to continue providing, significant services to Medicaid and indigent patients. In fact, the NBHD provides over 50 percent of both indigent and Medicaid services in District 10. See also Subsection 408.035(1)(n), Florida Statutes. Allocation factor three for substance abuse facilities is inapplicable to Broward General which does not have substance abuse inpatient services. Allocation factor 4 for an applicant with a full continuum of acute medical services is met by Broward General. See also Rule 59C-1.040(3)(h), Florida Administrative Code. Broward General complies with allocation factor 5 by participating in data collection activities of the regional health planning council. The state health plan includes preferences for (1) converting excess acute care beds; (2) serving the most seriously mentally ill patients; (3) serving indigent and Baker Act patients; (4) proposing to establish a continuum of mental health care; (5) serving Medicaid-eligible patients; and (6) providing a disproportionate share of Medicaid and charity care. Broward General meets the six state health plan preferences. See also Rule 59C-1.040(4)(e)2., Florida Administrative Code, and Subsection 408.035(1)(n), Florida Statutes. Broward General does not meet the preference for acute care hospitals if fewer than .15 psychiatric beds per 1000 people in the District are located in acute care hospitals. The current ratio in the District is .19 beds per 1,000 people. Rule 59C-1.040(4)(3)3, Florida Administrative Code, also requires that 40 percent of the psychiatric beds needed in a district should be allocated to general hospitals. Currently, approximately 51 percent, 266 of 517 licensed District 10 adult inpatient psychiatric beds are located in general acute care hospitals. On balance, the NBHD and Broward General meet the factors and preferences of the health plans which support the approval of the CON application. See also Rule 59C- 1.040(4)(e)1. and Rule 59C-1.030, Florida Administrative Code. Numeric Need The parties stipulated that the published fixed need pool indicated no numeric need for additional adult inpatient psychiatric hospital beds. In fact, the numeric need calculation shows a need for 434 beds in District 10, which has 517 beds, or 83 more than the projected numeric need. In 1994- 1995, the District utilization rate was approximately 58 percent. The NBHD asserts that the need arises from "not normal" circumstances, specifically certain benefits from closing the 19th Street CSU, especially the provision of better consolidated care in hospital-based psychiatric beds, and the establishment of a County mental health court. The NBHD acknowledges that AHCA does not regulate CSU beds through the CON program and that CSU beds are not intended to be included in the calculation of numeric need for adult psychiatric beds. However, due to the substantial similarity of services provided, NBHD contends that CSU beds are de facto inpatient psychiatric beds which affect the need for CON- regulated psychiatric beds. Therefore, according to the NBHD, the elimination of beds at SFSH and at the 19th Street CSU require an increase in the supply of adult psychiatric beds. The NBHD also notes that approval of its CON application will increase the total number of adult psychiatric hospital beds in Broward County, but will not affect the total number of adult mental health beds when CSU and adult psychiatric beds are combined. After the CSU beds at SFSH closed, the total number of adult mental health beds in the County has, in fact, been reduced. NBHD projected a need to add 30 adult psychiatric beds at Broward General by combining the 1995 average daily census (ADC) of 48 patients with its assumption that it can add up to 10, increasing the ADC to 58 patients a day in the existing 68 beds. Based on its contractual obligation to care for up to 40 CSU inpatients a day, the NBHD projects a need for an additional 30 beds. The projection assumed that the level of utilization of adult inpatient psychiatric services at Broward General would remain relatively constant. With 40 occupied beds added to the 48 ADC, NBHD predicted an ADC of 88 in the new total of 98 beds, or 90 percent occupancy. The assumption that the ADC would remain fairly constant is generally supported by the actual experience with ADCs of 48.1, 51.5, and 45.8 patients, respectively, in 1995, 1996, and the first seven months of 1997. NBHD's second assumption, that an ADC of 40 CSU patients will be added is not supported by the actual experience. Based on the terms of the State and County contracts, up to 20 CSU patients have already been absorbed into the existing beds at the Imperial Point or Broward General, which is one explanation for the temporary increase in ADC in 1996, while up to 20 more may receive services at the 19th Street location. In 1996 and 1997, the ADC in the 19th Street CSU beds was 15.3 and 14.2, respectively, with monthly ranges in 1997 from a high of 17 in April to a low of 12 in June. The relatively constant annual ADCs in psychiatric and CSU beds are a reflection of increasing admissions but declining average lengths of stay for psychiatric services. The NBHD also projects that it will receive referrals from the Broward County Mental Health Court, established in June 1997. The Court is intended to divert mentally ill defendants with minor criminal charges from the criminal justice system to the mental health system. Actual experience for only three months of operations showed 7 or 8 admissions a month with widely varying average lengths of stay, from 6 to 95 days. The effect of court referrals on the ADC at Broward General was statistically insignificant into the fall of 1997. Newspaper reports of the number of inmates with serious mental illnesses do not provide a reliable basis for projecting the effect of the mental health court on psychiatric admissions to Broward General, since it is not equipped to handle violent felons. One of Broward General's experts also compared national hospital discharge data to that of Broward County. The results indicate a lower use rate in Broward County in 1995 and a higher one in 1996. That finding was consistent with the expert's finding of a growth in admissions and bed turnover rate which measures the demand for each bed. The expert also considered the prevalence of mental illness and hospitalization rates. The data reflecting expected increases in admissions, however, was not compared to available capacity in the County nor correlated with declining lengths of stay. The District X: Comprehensive Health Plan 1994 includes an estimate of the need for 10 CSU beds per 100,000 people, or a total of 133 CSU beds needed for the District. FMC argues that the calculation is incorrect because only the adult population should be included. Using only adults, FMC determined that 116 CSU beds are needed which, when added to 434 adult psychiatric beds needed in the February 1996 projection, gives a bed need for all mental health beds of 550. That total is less than the actual combined total number of 567 mental health beds, 517 adult psychiatric beds plus 50 CSU beds in 1995. Whatever population group is appropriate, the projection of the need for CSU beds is not reliable based on the evidence that, since the end of 1995, CSU services have been and, according to NBHD, should continue to be absorbed into hospital- based adult psychiatric units. For the same reason, the increase in adult psychiatric bed admissions from 1995 to 1996 does not establish a trend towards increasing psychiatric utilization, but is more likely attributable to the closing of CSU beds at SFSH. FMC's expert's comparison of data from three selected months in two successive years is also not sufficient to establish a downward trend in utilization at the 19th Street CSU, neither is the evidence of a decline in ADC by one patient in one year. Utilization is relatively static based on ADCs in existing Broward County adult psychiatric beds and in CSU beds. FMC established Broward General's potential to decrease average lengths of stay by developing alternative non-inpatient services as FMC has done and Broward General proposes to do. See Finding of Fact 37. Based on local health council reports, FMC's data reflects a rise in the ADC at Broward General to 52.7 in 1996, and a return to 46 in the first seven months of 1997. Using a 14.2 ADC for the 19th Street CSU, FMC projects that Broward General will reach an ADC of approximately 60 in the first year of operations if the CON is approved, not 88 as projected. Broward General acknowledged its capacity to add 10 more patients to the ADC without stress on the system. Having already absorbed 20 of up to 40 CSU patients at Imperial Point and Broward General in 1996 and 1997 resulting in an ADC of 48, and given the capacity to absorb 10 more, the NBHD has demonstrated a need to accommodate an ADC of 10 more adult psychiatric patients at Broward General, or a total ADC of 68 patients. The need to add capacity to accommodate an additional 10 patient ADC was not shown to equate to a need for 30 additional beds, which would result in an ADC of 68 patients in 98 beds, or 69 or 70 percent occupancy. Special Circumstances - Rule 59C-1.040(4)(d) The psychiatric bed rule provides for approval of additional beds in the absence of fixed numeric need. The "special circumstance" provision applies to a facility with an existing unit with 85 percent or greater occupancy. During the applicable period, the occupancy at Broward General was 74.15 percent. However, occupancy rates have exceeded 95 percent in the CSU beds on 19th Street. If up to 20 patients on 19th Street are added to the 48 ADC at Broward General, the result is that the existing 68 beds will be full. A full unit is operationally not efficient or desirable and allows no response to fluctuations in demand. Therefore, the state has established a desirable standard of 75 percent occupancy for psychiatric units, a range which supports the addition of 10 to 15 psychiatric beds at Broward General. Available Alternatives - Subsection 408.035(1)(b) and (d), Florida Statutes, and Rule 59C-1.040(4)(e)4., Florida Administrative Code The psychiatric bed rule provides that additional beds will "not normally" be added if the district occupancy rate is below 75 percent. For the twelve months preceding the application filing, the occupancy rate in 517 adult psychiatric beds in District 10 was approximately 58 percent. FMC's expert noted that each day an average of 200 adult psychiatric beds were available in District 10. Broward General argues that the occupancy rate is misleading. Five of the nine facilities with psychiatric beds are freestanding, private facilities, which are ineligible for Medicaid participation. Historically, the freestanding hospitals have also provided little charity care. One facility, University Pavilion, is full. Of the four acute care hospitals with adult psychiatric beds, Memorial Hospital in the SBHD, is not available to patients in the NBHD service area. Imperial Point, the only other NBHD facility with adult psychiatric beds, is not available based on its occupancy rate for the first seven months of 1997 of approximately 81 percent, which left an average of 9 available beds in a relatively small 47-bed unit. That leaves only Broward General and FMC to care for Medicaid and indigent adult psychiatric patients. FMC is the only possible alternative provider of services, but Broward General was recommended by the grand jury and was the only contract applicant. The occupancy rate in FMC's 51 adult beds was approximately 80 percent in 1995, 73 percent in 1996, and 77 percent for the first seven months in 1997. FMC has reduced average lengths of stay by having patients "step down" to partial hospitalization, day treatment and other outpatient services of varying intensities. The same decline in average lengths of stay is reasonably expected when Broward General implements these alternatives. Adult psychiatric services are also accessible in District 10 applying the psychiatric bed rule access standard. That is, ninety percent of the population of District 10 has access to the service within a maximum driving time of forty- five minutes. The CSU license cannot be transferred to Broward General. Broward County holds the license for CSU beds which, by rule, must be located on the first floor of a building. Although Broward General may not legally hold the CSU license and provide CSU services on the fourth floor of the hospital, there is no apparent legal impediment to providing CSU services in psychiatric beds. Quality of Care - Subsection 408.035(1)(c), Florida Statutes and Rule 1.040(7), Florida Administrative Code Broward General is accredited by the Joint Commission on Accreditation of Health Care Organizations. The parties stipulated that Broward General has a history of providing quality care. Broward General provides the services required by Rule 59C-1.040(3)(h), Florida Administrative Code. Services Not Accessible in Adjoining Areas; Research and Educational Facilities; Needs of HMOs; Services Provided to Individuals Beyond the District; Subsections 408.035(1)(f),(g),(j), and (k), Florida Statutes Broward General does not propose to provide services which are inaccessible in adjoining areas nor will it provide services to non-residents of the district. Broward General is not one of the six statutory teaching hospitals nor a health maintenance organization (HMO). Therefore, those criteria are of no value in determining whether this application should be approved. Economics and Improvements in Service from Joint Operation - Subsection 408.035(1)(e), Florida Statutes The consolidation of the psychiatric services at Broward General is reasonably expected to result in economies and improvements in the provision of coordinated services to the mentally ill indigent and Medicaid population. Broward General will eliminate the cost of meal deliveries and the transfer of medically ill patients, but that potential cost-saving was not quantified by Broward General. Staff and Other Resources - Subsection 408.035(1)(h), Florida Statutes The parties stipulated that NBHD has available the necessary resources, including health manpower, management personnel, and funds to implement the project. Financially Feasibility - Subsection 408.035(1)(h) and (i), Florida Statutes The parties stipulated that the proposed project is financially feasible in the immediate term. The estimated total project cost is $451,791, but NBHD has $500,000 in funds for capital improvements available from the County and $700,000 from the Florida Legislature. As stipulated by the parties, NBHD has sufficient cash on hand to fund the project. Regardless of the census, the County's contractual obligation to the NBHD remains fixed at $1.6 million. The State contract requires the prospective payment of costs offset by expected Medicaid dollars. If the number of Medicaid eligible patients decreases, then state funding increases proportionately. The state assumed that 20 percent of the patients would qualify for Medicaid, therefore it reimburses the per diem cost of care for 80 percent of the patients. One audit indicated that 30 percent of the patients qualified for Medicaid, so that State payments for that year were higher than needed. The State contract apparently makes no provision to recover excess payments. The application projects a net profit of $740,789 for the first year of operations, and a net profit of $664,489 for the second year. If the State contract with NBHD is renewed to contemplate an average of 30 patients per day as opposed to up to 40 patients per day, then annual revenue could be reduced up to $400,000. Projected net profit will, nevertheless, exceed expenses when variable expenses are reduced correspondingly. If 20 state funded patients are already in psychiatric beds, and 20 more could be transferred from 19th Street, the result is an ADC of 68. Based on the funding arrangements, there is no evidence that the operation of a total of 98 beds could not be profitable, even with an ADC of 68, although it would be wasteful to have 30 extra beds. Impact on Competition, Quality Assurance and Cost-Effectiveness - Subsection 408.035(1)(l), Florida Statutes With a maximum of 68 inpatients or more realistically, under the expected terms of a renegotiated State contract, 58 to 60 inpatients in 98 beds, Broward General will reasonably attempt to expand the demand for its inpatient psychiatric services. Within the NBHD's legal service area, one-third of adult psychiatric patients not admitted to Broward General are admitted to FMC. Assuming a proportionate impact on competitors, FMC's expert projected that one-third of approximately 30 unfilled beds at Broward General will be filled by patients who would otherwise have gone to FMC. The projection of a loss of 9 patients from the ADC of FMC is reasonably based on an analysis showing comparable patient severity in the most prevalent diagnostic category. Given the blended payor commitment of approximately 51 or 52 percent total for Medicaid and charity in 98 beds, Broward General will be able to take patients from every payor category accepted at FMC. The loss of 9 patients from its ADC can reduce revenues by $568,967 at FMC. The impact analysis is reasonably based on lost patient days since most payers use a per diem basis for compensating FMC. For example, although Medicare reimbursement is usually based on diagnosis regardless of length of stay, it is cost-based for the geriatric psychiatric unit. Net profit at FMC, for the year 1996-1997, was expected to be approximately $4.5 million. FMC will also experience increased costs in transporting indigent patients from FMC to Broward General for admission and treatment. Because of the additional distance, the cost to transfer indigent patients is $20 more per patient from FMC to Broward General than it is from FMC to the 19th Street CSU. FMC typically stabilizes indigent adult psychiatric inpatients, then transfers them to either the 19th Street CSU or Broward General. From March through September of 1997, FMC transported approximately 256 indigent patients from FMC to the 19th Street CSU. In terms of quality assurance, the consolidation of psychiatric services at Broward General will allow all patients better access to the full range of medical services available at Broward General. The NBHD's operation of the 19th Street CSU is profitable. Approval of the CON application should reasonably eliminate all costs associated with operation of the 19th Street facility, and shift more revenues from the State and County contracts to Broward General. Some savings are reasonably expected from not having meal deliveries to 19th Street or patient transfers for medical care. The NBHD did not quantify any expected savings. Costs and Methods of Construction - Subsection 408.035(1)(m), Florida Statutes Broward General will relocate 12 of 42 medical/surgical beds and convert 30 medical/surgical beds to 30 adult psychiatric beds on one wing of the fourth floor, which is currently unused. Fifteen semi-private medical/surgical patient rooms will be converted into semi-private adult psychiatric rooms. Existing wards will be converted to two social rooms, one noisy and one quiet. With the removal of the walls of some offices, the architect designed a group therapy room. An existing semi-private room will be used as a seclusion room. Of the fifteen semi-private rooms, twelve will not have bathing or showering facilities and seven will not have toilets within the patients' rooms. At the time the hospital was constructed, the state required only a lavatory/sink in each patient room. AHCA's architect agreed to allow Broward General to plan to use central bathing and toilet facilities to avoid additional costs and diminished patient room sizes. Because the plan intentionally avoids construction in the toilets, except to enlarge one to include a shower, there is no requirement to upgrade to Americans With Disabilities Act (ADA) standards. Therefore, the $23,280 construction cost contingency for code compliance is adequate. Although the projected construction costs are reasonable and the applicable architectural code requirements are met, the design is not the most desirable in terms of current standards. Patient privacy is compromised by the lack of toilets for each patient room. Past and Proposed Provision of Services to Promote a Continuum of Care in a Multi-level System - Subsection 408.035(1)(o), Florida Statutes Broward General is a tertiary acute care facility which provides a broad continuum of care. Because it already operates the CSU and provides CSU services in adult psychiatric beds, the proposal to relocate patients maintains but does not further promote that continuum of care. Broward General's plan to establish more alternatives to inpatient psychiatric care does promote and enhance its continuum of care. Capital Expenditures for New Inpatient Services - Subsection 408.035(2), Florida Statutes Broward General is not proposing to establish a new health service for inpatients, rather it is seeking to relocate an existing service without new construction. The criteria in this Subsection are inapplicable. Factual Conclusions Broward General did not establish a "not normal" circumstance based on the grand jury's findings and recommendations. The grand jury did not recommend closing 19th Street facility. Broward General did generally establish not normal circumstances based on the desirability of consolidating mental health services at Broward General to provide a single point of entry and to improve the quality of care for the 19th Street facility patients. Broward General failed to establish the need to add 30 beds to accomplish the objective of closing the 19th Street facility. Although the existing beds at Broward General may reasonably be expected to be full as a result of the transfer of 19th Street patients, the addition of 30 beds without sufficient demand results in an occupancy rate of 69 or 70 percent, from an ADC of 68 patients in 98 beds. Broward General has requested approximately twice as many beds as it demonstrated it needs. Broward General's CON application on balance satisfies the local and state health plan preferences. In general, FMC is the only alternative facility in terms of available beds, but is not the tax-supported public facility which the grand jury favored to coordinate mental health services. Broward General meets the statutory criteria for quality of care, improvements from joint operations, financial feasibility, quality assurance, cost-effectiveness, and services to Medicaid and indigent patients. The proposal is not the most desirable architecturally considering current standards. More importantly, Broward General did not demonstrate that it can achieve its projected occupancy without an adverse impact on FMC. The NBHD proposal will add too many beds to meet the targeted state occupancy levels in relatively a static market. Broward General's application does not include a partial request for fewer additional beds which would have allowed the closing of 19th Street, while maintaining some empty beds for demand fluctuations and avoiding an adverse impact on FMC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration deny the application of the North Broward Hospital District for Certificate of Need Number 8425 to convert 30 medical/surgical beds to 30 adult psychiatric beds at Broward General Medical Center. DONE AND ENTERED this 21st day of April, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 21st day of April, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul Vazquez, Esquire Agency For Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301
The Issue Whether the Agency for Health Care Administration (AHCA or the Agency) should approve the application for certificate of need (CON) 7700 filed by Miami Beach Healthcare Group, LTD. d/b/a Miami Heart Institute (Miami Heart or MH).
Findings Of Fact The Agency is the state agency charged with the responsibility of reviewing and taking action on CON applications pursuant to Chapter 408, Florida Statutes. The applicant, Miami Heart, operates a hospital facility known as Miami Heart Institute which, at the time of hearing, was comprised of a north campus (consisting of 273 licensed beds) and a south campus (consisting of 258 beds) in Miami, Florida. The two campuses operate under a single license which consolidated the operation of the two facilities. The consolidation of the license was approved by CON 7399 which was issued by the Agency prior to the hearing of this case. The Petitioner, Mount Sinai, is an existing health care facility doing business in the same service district. On February 4, 1994, AHCA published a fixed need pool of zero adult inpatient psychiatric beds for the planning horizon applicable to this batching cycle. The fixed need pool was not challenged. On February 18, 1994, Miami Heart submitted its letter of intent for the first hospital batching cycle of 1994, and sought to add twenty adult general inpatient psychiatric beds at the Miami Heart Institute south campus. Such facility is located in the Agency's district 11 and is approximately two (2) miles from the north campus. Notice of that letter was published in the March 11, 1994, Florida Administrative Weekly. Miami Heart's letter of intent provided, in pertinent part: By this letter, Miami Beach Healthcare Group, Ltd., d/b/a Miami Heart Institute announces its intent to file a Certificate of Need Application on or before March 23, 1994 for approval to establish 20 hospital inpatient general psychiatric beds for adults at Miami Heart Institute. Thus, the applicant seeks approval for this project pursuant to Sections 408.036(1)(h), Florida Statutes. The proposed capital expenditure for this project shall not exceed $1,000,000 and will include new construction and the renovation of existing space. Miami Heart Institute is located in Local Health Council District 11. There are no subsdistricts for Hospital Inpatient General Psychiatric Beds for Adults in District 11. The applicable need formula for Hospital General Psychiatric Beds for Adults is contained within Rule 59C-1.040(4)(c), F.A.C. The Agency published a fixed need of "0" for Hospital General Psychiatric Beds for Adults in District 11 for this batching cycle. However, "not normal" circumstances exist within District which justify approval of this project. These circumstances are that Miami Beach Community Hospital, which is also owned by Miami Beach Healthcare Group, Ltd., and which has an approved Certificate of Need Application to consol- idate its license with that of the Miami Heart Institute, has pending a Certificate of Need Application to delicense up to 20 hospital inpatient general psychiatric beds for adults. The effect of the application, which is the subject of this Letter of Intent, will be to relocate 20 of the delicensed adult psychiatric beds to the Miami Heart Institute. Because of the "not normal" circumstances alleged in the Miami Heart letter of intent, the Agency extended a grace period to allow competing letters of intent to be filed. No additional letters of intent were submitted during the grace period. On March 23, 1994, Miami Heart timely submitted its CON application for the project at issue, CON no. 7700. Notice of the application was published in the April 8, 1994, Florida Administrative Weekly. Such application was deemed complete by the Agency and was considered to be a companion to the delicensure of the north campus beds. On July 22, 1994, the Agency published in the Florida Administrative Weekly its preliminary decision to approve CON no. 7700. In the same batch as the instant case, Cedars Healthcare Group (Cedars), also in district 11, applied to add adult psychiatric beds to Cedars Medical Center through the delicensure of an equal number of adult psychiatric beds at Victoria Pavilion. Cedars holds a single license for the operation of both Cedars Medical Center and Victoria Pavilion. As in this case, the Agency gave notice of its intent to grant the CON application. Although this "transfer" was initially challenged, it was subsequently dismissed. Although filed at the same time (and, therefore, theoretically within the same batch), the Cedars CON application and the Miami Heart CON application were not comparatively reviewed by the Agency. The Agency determined the applicants were merely seeking to relocate their own licensed beds. Based upon that determination, MH's application was evaluated in the context of the statutory criteria, the adult psychiatric beds and services rule (Rule 59C-1.040, Florida Administrative Code), the district 11 local health plan, and the 1993 state health plan. Ms. Dudek also considered the utilization data for district 11 facilities. Mount Sinai timely filed a petition challenging the proposed approval of CON 7700 and, for purposes of this proceeding only, the parties stipulated that MS has standing to raise the issues remaining in this cause. Mount Sinai's existing psychiatric unit utilization is presently at or near full capacity, and MS' existing unit would not provide an adequate, available, or accessible alternative to Miami Heart's proposal, unless additional bed capacity were available to MS in the future through approval of additional beds or changes in existing utilization. Miami Heart's proposal to establish twenty adult general inpatient psychiatric beds at its Miami Heart Institute south campus was made in connection with its application to delicense twenty adult general inpatient psychiatric beds at its north campus. The Agency advised MH to submit two CON applications: one for the delicensure (CON no. 7474) and one for the establishment of the twenty beds at the south campus (CON no. 7700). The application to delicense the north campus beds was expeditiously approved and has not been challenged. As to the application to establish the twenty beds at the south campus, the following statutory criteria are not at issue: Section 408.035(1)(c), (e), (f), (g), (h), (i), (j), (k), (m), (n), (o) and (2)(b) and (e), Florida Statutes. The parties have stipulated that Miami Heart meets, at least minimally, those criteria. During 1993, Miami Heart made the business decision to cease operations at its north campus and to seek the Agency's approval to relocate beds and services from that facility to other facilities owned by MH, including the south campus. Miami Heart does not intend to delicense the twenty beds at the north campus until the twenty beds are licensed at the south campus. The goal is merely to transfer the existing program with its services to the south campus. Miami Heart did not seek beds from a fixed need pool. Since approximately April, 1993, the Miami Heart north campus has operated with the twenty bed adult psychiatric unit and with a limited number of obstetrical beds. The approval of CON no. 7700 will not change the overall total number of adult general inpatient psychiatric beds within the district. The adult psychiatric program at MH experiences the highest utilization of any program in district 11, with an average length of stay that is consistent with other adult programs around the state. Miami Heart's existing psychiatric program was instituted in 1978. Since 1984, there has been little change in nursing and other staff. The program provides a full continuum of care, with outpatient programs, aftercare, and support programs. Nearly ninety-nine percent of the program's inpatient patient days are attributable to patients diagnosed with serious mental disorders. The Miami Heart program specializes in a biological approach to psychiatric cases in the diagnosis and treatment of affective disorders, including a variety of mood disorders and related conditions. The Miami Heart program is distinctive from other psychiatric programs in the district. If the MH program were discontinued, the patients would have limited alternatives for access to the same diagnostic and treatment services in the district. There are no statutes or rules promulgated which specifically address the transfer of psychiatric beds or services from one facility owned by a health care entity to another facility also owned by the same entity. In reviewing the instant CON application, the Agency determined it has the discretion to evaluate each transfer case based upon the review criteria and to consider the appropriate weight factors should be given. Factors which may affect the review include the change of location, the utilization of the existing services, the quality of the existing programs and services, the financial feasibility, architectural issues, and any other factor critical to the review process. In this case, the weight given to the numeric need criteria was not significant. The Agency determined that because the transfer would not result in a change to the overall bed inventory, the calculated fixed need pool did not apply to the instant application. In effect, because the calculation of numeric need was inapplicable, this case must be considered "not normal" pursuant to Rule 59C-1.040(4)(a), Florida Administrative Code. The Agency determined that other criteria were to be given greater consideration. Such factors were the reasonableness of the proposal, the ability to afford access, the applicant's ability to provide a quality program, and the project's financial feasibility. The Agency determined that, on balance, this application should be approved as the statutory and other review criteria were met. Although put on notice of the other CON applications, Mount Sinai did not file an application for psychiatric beds at the same time as Miami Heart or Cedars. Mount Sinai did not claim that the proposed delicensures and transfers made beds available for competitive review. The Agency has interpreted Rule 59C-1.040, Florida Administrative Code, to mean that it will not normally approve an application for beds or services unless the statutory and rule criteria are met, including the need determination criteria. There is no list of circumstances which are routinely considered "not normal" by the Agency. In this case, the proposed transfer of beds was, in itself, considered "not normal." The approval of Miami Heart's application would allow an existing program to continue. As a result, the overhead to maintain two campuses would be reduced. Further, the relocation would allow the program to continue to provide access, both geographically and financially, to the same patient service area. And, since the program has the highest utilization rate of any adult program in the district, its continuation would be beneficial to the area. The program has an established referral base for admissions to the facility. The transfer is reasonable for providing access to the medically under-served. The quality of care, while not in issue, would be expected to continue at its existing level or improve. The transfer would allow better access to ancillary hospital departments and consulting specialists who may be needed even though the primary diagnosis is psychiatric. The cost of the transfer when compared to the costs to be incurred if the transfer is not approved make the approval a benefit to the service area. If the program is not relocated, Medicaid access could change if the hospital is reclassified from a general facility to a specialty facility. The proposed cost for the project does not exceed one million dollars. If the north campus must be renovated, a greater capital expenditure would be expected. The expected impact on competition for other providers is limited due to the high utilization for all programs in the vicinity. The subject proposal is consistent with the district and state health care plans and the need for health care facilities and services. The services being transferred is an existing program which is highly utilized and which is not creating "new beds." As such, the proposal complies with Section 408.035(1)(a), Florida Statutes. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing services in the district will not be adversely affected by the approval of the subject application. The proposed transfer is consistent with, and appropriate, in light of these criteria. Therefore, the proposal complies with Section 408.035(1)(b), Florida Statutes. The subject application demonstrates a full continuum of care with safeguards to assure that alternatives to inpatient care are fully utilized when appropriate. Therefore, the availability and adequacy of other services, such as outpatient care, has been demonstrated and would deter unnecessary utilization. Thus, Miami Heart has shown its application complies with Section 408.035(1)(d), Florida Statutes. Miami Heart has also demonstrated that the probable impact of its proposal is in compliance with Section 408.035(1)(l), Florida Statutes. The proposed transfer will not adversely impact the costs of providing services, the competition on the supply of services, or the improvements or innovations in the financing and delivery of services which foster competition, promote quality assurance, and cost-effectiveness. Miami Heart has taken an innovative approach to promote quality assurance and cost effectiveness. Its purpose, to close a facility and relocate beds (removing unnecessary acute care beds in the process), represents a departure from the traditional approach to providing health care services. By approving Miami Heart's application, overhead costs associated with the unnecessary facility will be eliminated. There is no less costly, more efficient alternative which would allow the continuation of the services and program Miami Heart has established at the north campus than the approval of transfer to the south campus. The MH proposal is most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. The renovation of the medical surgical space at the south campus to afford a location for the psychiatric unit is the most practical and readily available solution which will allow the north campus to close and the beds and services to remain available and accessible. In totality, the circumstances of this case make the approval of Miami Heart's application for CON no. 7700 the most reasonable and practical solution given the "not normal" conditions of this application.
Recommendation Based on the foregoing, it is, hereby, RECOMMENDED: That the Agency for Health Care Administration enter a final order approving CON 7700 as recommended in the SAAR. DONE AND RECOMMENDED this 5th day of April, 1995, in Tallahassee, Leon County, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of April, 1995. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-4755 Note: Proposed findings of fact are to contain one essential fact per numbered paragraph. Proposed findings of fact paragraphs containing multiple sentences with more than one statement of fact are difficult to review. In reviewing for this case, where all sentences were accurate and supported by the recorded cited, the paragraph has been accepted. If the paragraph contained mixed statements where one sentence was an accurate statement of fact but the others were not, the paragraph has been rejected. Similarly, if one sentence was editorial comment, argument, or an unsupported statement to a statement of fact, the paragraph has been rejected. Proposed findings of fact should not include argument, editorial comments, or statements of fact mixed with such comments. Rulings on the proposed findings of fact submitted by Petitioner, Mount Sinai: Paragraphs 1 through 13 were cited as stipulated facts. Paragraph 14 is rejected as irrelevant. With regard to paragraph 15 it is accepted that Miami Heart made the business decision to move the psychiatric beds beds from the north campus to the south campus. Any inference created by the remainder of the paragraph is rejected as irrelevant. Paragraph 16 is rejected as irrelevant. Paragraph 17 is rejected as irrelevant. Paragraph 18 is accepted. Paragraph 19 is rejected as irrelevant. Paragraph 20 is rejected as contrary to the weight of the credible evidence. Paragraph 21 is rejected as contrary to the weight of the credible evidence. Paragraph 22 is accepted. Paragraph 23 is rejected as irrelevant. Paragraph 24 is accepted. Paragraph 25 is rejected as repetitive, or immaterial, unnecessary to the resolution of the issues. Paragraph 26 is rejected as irrelevant or contrary to the weight of the credible evidence. Paragraph 27 is rejected as comment or conclusion of law, not fact. Paragraph 28 is accepted but not relevant. Paragraphs 29 and 30 are accepted. Paragraphs 31 through 33 are rejected as argument, comment or irrelevant. Paragraph 34 is rejected as comment or conclusion of law, not fact. Paragraph 35 is rejected as comment or conclusion of law, not fact, or irrelevant as the FNP was not in dispute. Paragraph 36 is rejected as irrelevant. Paragraph 37 is rejected as repetitive, or comment. Paragraph 38 is rejected as repetitive, comment or conclusion of law, not fact, or irrelevant. Paragraph 39 is rejected as argument or contrary to the weight of credible evidence. Paragraph 40 is accepted. Paragraph 41, 42, and 43 are rejected as contrary to the weight of the credible evidence and/or argument. Paragraph 44 is rejected as argument and comment on the testimony. Paragraph 45 is rejected as argument, irrelevant, and/or not supported by the weight of the credible evidence. Paragraph 46 is rejected as argument. Paragraph 47 is rejected as comment or conclusion of law, not fact. Paragraph 48 is rejected as comment, argument or irrelevant. Paragraph 49 is rejected as comment on testimony. It is accepted that the proposed relocation or transfer of beds is a "not normal" circumstance. Paragraph 50 is rejected as argument or irrelevant. Paragraph 51 is rejected as argument or contrary to the weight of credible evidence. Paragraph 52 is rejected as argument or contrary to the weight of credible evidence. Paragraph 53 is rejected as argument, comment or recitation of testimony, or contrary to the weight of credible evidence. Paragraph 54 is rejected as irrelevant or contrary to the weight of credible evidence. Paragraph 55 is rejected as irrelevant, comment, or contrary to the weight of credible evidence. Paragraph 56 is rejected as irrelevant or argument. Paragraph 57 is rejected as irrelevant or argument. Paragraph 58 is rejected as contrary to the weight of credible evidence. Paragraph 59 is rejected as irrelevant. Paragraph 60 is rejected as contrary to the weight of credible evidence. Paragraph 61 is rejected as argument or contrary to the weight of credible evidence. Paragraph 62 is rejected as argument or contrary to the weight of credible evidence. Paragraph 63 is accepted. Paragraph 64 is rejected as irrelevant. Mount Sinai could have filed in this batch given the not normal circumstances disclosed in the Miami Heart notice. Paragraph 65 is rejected as irrelevant. Paragraph 66 is rejected as comment or irrelevant. Paragraph 67 is rejected as argument or contrary to the weight of credible evidence. Paragraph 68 is rejected as argument or irrelevant. Paragraph 69 is rejected as argument, comment or irrelevant. Paragraph 70 is rejected as argument or contrary to the weight of credible evidence. Rulings on the proposed findings of fact submitted by the Respondent, Agency: Paragraphs 1 through 6 are accepted. With the deletion of the words "cardiac catheterization" and the inclusion of the word "psychiatric beds" in place, paragraph 7 is accepted. Cardiac catheterization is rejected as irrelevant. Paragraph 8 is accepted. The second sentence of paragraph 9 is rejected as contrary to the weight of credible evidence or an error of law, otherwise, the paragraph is accepted. Paragraph 10 is accepted. Paragraphs 11 through 17 are accepted. Paragraph 18 is rejected as conclusion of law, not fact. Paragraphs 19 and 20 are accepted. The first two sentences of paragraph 21 are accepted; the remainder rejected as conclusion of law, not fact. Paragraph 22 is rejected as comment or argument. Paragraph 23 is accepted. Paragraph 24 is rejected as argument, speculation, or irrelevant. Paragraph 25 is accepted. Rulings on the proposed findings of fact submitted by the Respondent, Miami Heart: Paragraphs 1 through 13 are accepted. The first sentence of paragraph 14 is accepted; the remainder is rejected as contrary to law or irrelevant since MS did not file in the batch when it could have. Paragraph 15 is accepted. Paragraph 16 is accepted as the Agency's statement of its authority or policy in this case, not fact. Paragraphs 17 through 20 are accepted. Paragraph 21 is rejected as irrelevant. Paragraph 22 is rejected as irrelevant. Paragraphs 23 through 35 are accepted. Paragraph 36 is rejected as repetitive. Paragraphs 37 through 40 are accepted. Paragraph 41 is rejected as contrary to the weight of the credible evidence to the extent that it concludes the distance to be one mile; evidence deemed credible placed the distance at two miles. Paragraphs 42 through 47 are accepted. Paragraph 48 is rejected as comment. Paragraphs 49 through 57 are accepted. COPIES FURNISHED: Tom Wallace, Assistant Director Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, Florida 32303 R. Terry Rigsby Geoffrey D. Smith Wendy Delvecchio Blank, Rigsby & Meenan, P.A. 204 S. Monroe Street Tallahassee, Florida 32302 Lesley Mendelson Senior Attorney Agency for Health Care Administration 325 John Knox Road, Suite 301 Tallahassee, Florida 32303-4131 Stephen Ecenia Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. 215 South Monroe Street Suite 420 Tallahassee, Florida 32302-0551
The Issue The issue in this case is whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D- 1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious? Mercy has also raised one issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact Introduction. The HCCB and Its Hospital Grouping Function. The HCCB was formed pursuant to Part II of Chapter 395, Florida Statutes (1979). The HCCB was created pursuant to the specific authority of Section 395.503, Florida Statutes (1979), in order to further the accomplishment of legislative intent contained in Section 395.5025, Florida Statutes (1984 Suppl.): It is the intent of the Legislature to assure that adequate health care is affordable and accessible to all the citizens of this state. To further the accomplishment of this goal, the Hospital Cost Containment Board is created to advise the Legislature regarding health care costs; inflationary trends in health care costs; the impact of health care costs on the state budget; the impact of hospital charges and third-party reimbursement mechanisms on health care costs; and the education of consumers and providers of health care services in order to encourage price competition in the health care marketplace. The Legislature finds and declares that rising hospital costs and cost shifting are of vital concern to the people of this state because of the danger that hospital services are becoming unaffordable and thus inaccessible to residents of the state. It is further declared that hospital costs should be contained through improved competition between hospitals and improved competition between insurers, through financial incentives which foster efficiency instead of inefficiency, and through sincere initiatives on behalf of providers, insurers, and consumers to contain costs. As a safety net, it is the intent of the Legislature to establish a program of prospective budget review and approval in the event that competition-oriented methods do not adequately contain costs and the access of Floridians to adequate hospital care becomes jeopardized because of unaffordable costs. As a part of its responsibilities the HCCB is required, "after consulting with appropriate professional and governmental advisory bodies and holding public hearings, and considering existing and proposed systems of accounting and reporting utilized by hospitals," to specify a uniform system of financial reporting for hospitals. Section 395.507(1), Florida Statutes Suppl.) to: In order to allow "meaningful comparisons" of data reported by hospitals under the uniform system of financial reporting, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.) to group hospitals according to characteristics, including, but not limited to, a measure of the nature and range of services provided, teaching hospital status, number of medical specialties represented on the hospital staff, percentage of Medicare inpatient days, average daily census, geographical differences, and, when available, case mix. In providing for grouping of hospital, the HCCB is required to establish ten general hospital groups and additional speciality groups "as needed." Section 395.507(2), Florida Statutes (1984 Suppl.). No hospital group can contain fewer than five hospitals, however. Id. Grouping is to be provided by rule. Id. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file its budget with the HCCB for "approval." The budget is required to be filed on forms adopted by the HCCB and based on the uniform system of financial reporting. Section 395.507(6), Florida Statutes (1984 Suppl.). To determine whether a hospital's budget is to be approved, all hospitals in Florida are to be placed in groups. A hospital's budget is then compared to the budgets of the hospitals assigned to its group. Hospital groups for this purpose are established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The provisions of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), are identical to Section 395.507(2), Florida Statutes (1984 Suppl.). In determining whether a hospital's budget is to be approved, Section 305.509(2), Florida Statutes (1984 Suppl.), establishes two initial "screens" which a hospital must meet based upon the hospital's gross revenue per adjusted admission. The term "gross revenue" is defined as: the sum of daily hospital service charges, ambulatory service charges, ancillary service charges, and other operating revenue. Gross revenues do not include contributions, donations, legacies, or bequests made to a hospital without restriction by the donors. Section 395.502(11), Florida Statutes (1984 Suppl.). "Adjusted admission" is defined by Section 395.502(1), Florida Statutes (1984 Suppl.), as: the sum of acute admissions and intensive care admissions divided by the ratio of inpatient revenues generated from acute, intensive, ambulatory, and ancillary patient services to gross revenues. Gross revenues per adjusted admission (hereinafter referred to as "GRAA") is therefore the total hospital ambulatory and ancillary service charges and other operating revenue for all acute and intensive care admissions divided by the ratio of inpatient revenues from acute, intensive, ambulatory and ancillary patient services to gross revenue; or, stated more simply , inpatient revenue per admission. The "screens" which must be met in order for a hospital's budget to be approved upon initial determination are: (1) the hospital's GRAA must not be in the upper 20th percentile of the hospitals within its group; and (2) the rate of increase in a hospital's GRAA as contained in its current budget compared to the hospital's GRAA as reported in its most recently approved budget must not exceed a "maximum allowable rate of increase" if the hospital's GRAA is in the 50th to 79th percentile of the hospitals in its group. If a hospital's GRAA is in the 49th percentile or less of the hospitals in its group, its budget is automatically approved. In determining whether a hospital's GRAA fails the screens, Section 395.509(2), Florida Statutes (1984 Suppl.), provides: Percentile values for gross operating revenue per adjusted admission shall be determined monthly by the board for each group established pursuant to s. 395.507(2) by ranking projected gross operating revenues per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. In determining the applicability of paragraph (a) or paragraph (b), the board shall consider the basis of the projections by the hospital, including consideration of the following factors: any increase in patient admissions caused by the creation of preferred provider organizations or health maintenance organiza- tions, population increases, changes in the hospital case mix or in services offered, changes in technology, or other similar factors. If a hospital's GRAA fails either of the screens (its GRAA is in the upper 20th percentile of its group or its GRAA rate of increase is excessive and its GRAA is in the 50th to 79th percentile of its group) that hospital's budget must be reviewed by the HCCB "to determine whether the rate of increase contained in the budget is just, reasonable, and not excessive." Section 395.509(5), Florida Statutes (1984 Suppl.). Pursuant to Section 395.509(6), Florida Statutes (1984 Suppl.), the HCCB is authorized, if it first determines under Section 395.509(5), Florida Statutes (1984 Suppl.), that the hospital's rate of increase is not just, reasonable and not excessive, to amend or disapprove any hospital's budget which does not meet the two screens of Section 395.509(2), Florida Statutes (1984 Suppl.), to establish a rate of increase which is "just, reasonable, and not excessive." The HCCB's authority under Section 395.509(6), Florida Statutes (1984 Suppl.), applies only if the HCCB first complies with the following pertinent provisions of Section 395.509(5), Florida Statutes (1984 Suppl.): The board shall disapprove any budget, or part thereof, as excess that contains a rate of increase which is not necessary to maintain the existing level of services of the hospital or, if the hospital increases its existing level of services, any amount not necessary to accomplish that increase. In making such deterioration . . . the board shall consider the following criteria: The efficiency, sufficiency, and adequacy of the services and facilities provided by the hospital. The cost of providing services and the value of the services to the public. The ability of the hospital to improve services and facilities. The ability of the hospital to reduce the cost of services. The ability of the hospital to earn a reasonable rate of return. The accuracy of previous budget submissions by the hospital compared to the actual experience of the hospital the The number of patient days reimbursed by Medicare or Medicaid. The number of patient days attributable to the medically indigent. The research and educational services provided by the hospital if it is a teaching hospital. The projected expenditures or revenues for or from construction of facilities or new services which are subject to regulation under s. 381.494 may not be included in the budget of a hospital until the construction or services are approved or authorized by the state health planning agency. The cost of opening a new hospital, for first 3 years. The Challenged Rules. In carrying out its duty to establish a uniform system of financial reporting, the HCCB adopted Section 4D- 1.03, F.A.C., which provides: The Board, pursuant to Section 395.505, Florida Statutes, hereby adopts and establishes a uniform system for hospitals to file the prior year audited actual data report, the interim report of financial and statistical information. This system is described and the forms, instructions, and definitions therefor are contained in the Board's publication entitled Hospital Uniform Reporting System Manual. The Chart of Accounts adopted pursuant to Section 395.507(1), Florida Statutes, and this Chapter 4D-1, and as hereafter modified, shall be utilized by each hospital for submitting the prior year audited actual data report, the interim report and the budget report. In order to determine whether a hospital's budget should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), the HCCB adopted Section 4D-1.12, F.A.C. Sections 4D-1.12(1) and (2), F.A.C., provide: The staff shall review the budget report based upon the hospital's ranking for gross revenue per adjusted admission within its group and upon its rate of change in gross revenue per adjusted admission in the proposed budget as required in Section 395.507(6), Florida Statutes, and the most recently Board approved budget. As part of the budget report review process, groupings of hospitals shall be established according to the characteristics and methodology as outlined in Chapter V, Section B, Hospital Unit Uniform Reporting System Manual and as outlined in Section 395.507(2), Florida Statutes. Percentile values for gross revenue per adjusted admission shall be determined monthly for each group by ranking projected gross revenue per adjusted admission contained in the most recently approved or submitted budgets for the hospitals in each group, including any hospital that is contesting its grouping assignment. 12. Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., are the rules challenged by Mercy. These rules, as quoted herein, were effective as of November 5, 1984. The rules were originally adopted effective June 30, 1980. The rules were amended to their present wording in response to "major" legislation enacted in 1984 which amended Part II, Chapter 395, Florida Statutes (1983), and granted authority to the HCCB for the first time to approve, disapprove or amend hospital budgets under certain circumstances. Chapter 79-106, Laws of Florida. The challenged rules essentially provide that the HCCB, when grouping of hospitals for purposes of the uniform system of financial reporting and for purposes of reviewing and comparing budgets to determine if they should be automatically approved under Section 395.509(2), Florida Statutes (1984 Suppl.), will apply the grouping methodology outlined in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). Section 4D-1.18, F.A.C., also adopted effective November 5, 1984, incorporates by reference the Manual within each rule in Chapter 4D-1, F.A.C., which references the Manual. This rule has not been challenged in this proceeding. The Hospital Grouping Methodology and Its Development. Generally, Chapter V, Section B of the Manual, sets out the objective of the grouping methodology, the procedure for forming groups, a list of the variables considered in forming groups and the weight to be accorded each variable. The goals of the grouping methodology, as provided in the Manual, are to "facilitate comparison of hospitals with similar patient mix and market conditions" and to "develop groups of sufficient size . . . to assure statistically valid comparisons." Based upon the procedure for forming groups contained in the Manual, hospitals are grouped into nine, non-teaching, short-term hospital groups, one Major teaching hospital group and a number of specialty hospital groups. It is the method of grouping hospitals into nine short-term hospital groups which is at issue in this proceeding. Assignment of hospitals to the nine short-term hospital groups is accomplished through the use of the "McQueen's K-means clustering algorithm included in the cluster analysis t computer program package CLAN developed by T.D. Klastorin and Robert Ledingham (June, 1980 version)." A clustering analysis is a method of grouping a set of objects (in this case, hospitals) into relatively homogeneous groups. The goal of a clustering algorithm is to minimize the differences between the members of the group. The objects are grouped based upon a set of variables which are considered significant for purposes of comparing the objects. In order to account for the significance of each variable, the variables are weighted. The variables have a numerical score and after weighing, the weighted sum of the variables for each object is compared and the objects are grouped based upon their variable scores. There are a number of clustering algorithms which can be used to group hospitals. The HCCB chose to use the "McQueen's K-means" clustering algorithm. The use of McQueens K-means clustering algorithm has not bean challenged in this proceeding. Nor does the evidence establish that the selection of McQueen's K-means clustering algorithm is arbitrary and capricious. The clustering algorithm is performed by computer. The computer program utilized by the HCCB to perform the algorithm is called "CLAN" and was developed by T.D. Klastorin and Robert Ledingham. The evidence at the hearing supports a finding that the selection of this computer program is reasonable. Once hospitals are grouped, they are notified of their group designation and allowed to request reconsideration of their group assignment. The request must made within thirty days after notification. Following the creation of the HCCB in 1979, Price Waterhouse & Company was engaged by the HCCB as a consultant to assist in still establishing an appropriate hospital grouping methodology. The HCCB also created an advisory committee to assist the HCCB and Price Waterhouse & Company in developing the grouping methodology. This committee, designated as the Technical Advisory Committee (hereinafter referred to as the "TAC") was comprised of individuals from the hospital industry and academia and certified public accountants. The TAC worked with Price Waterhouse & Company in developing the grouping methodology and the uniform reporting system. Because of time constraints, the TAC's involvement with evaluating the methodology was limited. The HCCB ultimately decided to pattern the grouping methodology it adopted after the grouping methodology then being used by the State of Washington, as recommended by Price Waterhouse & Company. The Washington system was not adopted exactly; a number of changes to Washington's methodology were made to the grouping methodology adopted by the HCCB. Mercy has proposed several findings of fact beginning on page 35 and ending on page 38 of its proposed order concerning the "Differences in Washington Hospital Characteristics and Grouping Methodology Model." Those proposed findings of fact can be and are hereby disposed of by the following finding of fact: because of differences in the hospital industries of the States of Florida and Washington and other differences between the two States, Florida's grouping methodology cannot be justified solely on the basis that Washington's grouping methodology was used as a starting point in developing Florida's grouping methodology. Those differences, however, do not support a finding of fact that Florida's grouping methodology is arbitrary and capricious since the Washington system was not adopted without substantial modifications, including a reduction of Washington's eighteen variables initially to fourteen and ultimately to seven, and the use of unequal weighting of the variables. The TAC reviewed and discussed the grouping methodology initially approved by the HCCB prior to its approval. Some of Mercy's witnesses, who were members of the TAC, indicated during their testimony that the TAC never decided anything because no "vote" was ever taken of TAC members and that the TAC did not advise the HCCB but instead advised the staff of the HCCB. Their testimony in this regard has been given little weight. The fact that no formal "vote" was taken of TAC members does not mean that the TAC did not take a position on matters it discussed. The consensus of the TAC could be, and was, gleaned from its discussions. The staff of the HCCB in fact reported decisions of the TAC to the HCCB verbally and by minutes of TAC meetings. Although the accuracy of staff's reports was sometimes questioned, no question was raised about whether TAC had taken positions. The fact that the HCCB staff reported TAC actions to the HCCB also disputes the testimony to the effect that TAC did not advise the HCCB but instead advised the staff of the HCCB. While it may be true that TAC did not deal directly with the HCCB, its analysis was reported, to the HCCB. The HCCB ultimately adopted rules effective June 30, 1980, which incorporated by reference to the Manual, the general outline of the grouping methodology adopted by the HCCB. The TAC ceased to exist following adoption of the HCCB's initial rules. Two new advisory committees were formed: a Technical Advisory Panel (hereinafter referred to as "TAP") on grouping and a TAP for financial analysis. The grouping TAP was made up of individuals from the hospital industry. The grouping TAP met in November and December of 1980 and reviewed the results of test runs of the grouping methodology initially adopted by the HCCB. The results of the initial run were described as "bizarre." This run used equal weighting of the variables. Equal weighting was abandoned and three to four more test runs were made and reviewed by the grouping TAP. After each run the variable weights were adjusted until the results appeared to be "reasonable." The HCCB also established a committee consisting of members of the HCCB designated as the Research and Development Committee (hereinafter referred to as the "R & D Committee"). The R & D Committee reviewed the results of test runs and also found the final groups reasonable. The HCCB met in January, 1981, and adopted the grouping methodology with the adjusted variable weights arrived at as a result of the test runs for use in establishing hospital groups for use in 1981. The grouping methodology was reviewed every year after its initial adoption in 1980. The methodology was reviewed by the HCCB, HCCB's staff, the TAP's and the R & D Committee each year. Throughout the period from 1980 to the present, criticisms of the grouping methodology have been made. Some of these criticisms were agreed with and others were rejected by the HCCB or its staff. Following review of the grouping methodology by the TAP's and the R & D Committee in 1981, the original fourteen variables were reduced to eight. In January, 1982, the weight of one of the variables was changed and one variable was replaced by another variable. In December, 1982, a variable was deleted; seven variables remained. In 1983, clustering analysis was limited in its application to the formation of short-term acute care general hospital groups. In 1984, following the significant amendment of Chapter 395, Florida Statutes (1983), the HCCB adopted the present challenged rules. The rules were effective November 5, 1984. The only change in the grouping methodology approved by the HCCB was the substitution of the Florida price level index variable for percent of population over age 65. The weight assigned to the Florida price level index was the same as the weight that had been assigned to the percent of population over age 65. The changes made to the grouping methodology in 1984 were first suggested by the staff of the HCCB to the grouping TAP in June of 1984. The grouping TAP met on July 11, 1984 and considered and discussed the proposed changes. A number of problem areas were discussed. Although no test run results were presented at this TAP meeting, they were provided to TAP members before the HCCB adopted the grouping methodology changes. Concerns about the geographic or exogenous variables expressed at the grouping TAP meeting suggested a belief that too much or too little emphasis was being placed on geographic considerations. Mercy has proposed a number of findings of fact beginning on page 33 and ending on page 35 of its proposed order concerning the significance of the changes made by the Legislature in 1984 to Part II of Chapter 395, Florida Statutes (1983). Those proposed findings of fact essentially deal with the fact that the powers of the HCCB after the 1984 amendments may have a more significant impact on hospitals and that, therefore, the grouping methodology is of greater interest to hospitals. Mercy's proposed findings of fact are not, however, relevant in determining whether the challenged rules are arbitrary and capricious. The fact that the effect of the grouping methodology on a hospital may now be different does not mean that the use of the grouping methodology, as modified after the 1984 legislative changes to the law, which was developed when the purpose of grouping was different, is not an appropriate methodology. The evidence does not support such a conclusion. Therefore, to the extent that Mercy's proposed findings of fact under Section II, A, of its proposed order have not already been made, they are rejected as unnecessary. Mercy and the HCCB have proposed findings of fact as to whether Mercy has ever questioned the HCCB's grouping methodology since it was first adopted prior to instituting this proceeding. Those proposed findings of fact are not deemed relevant in determining whether the grouping methodology is arbitrary and capricious. If the grouping methodology is in fact arbitrary and capricious, the fact that Mercy did not challenge the methodology when it was first adopted will not make it any less arbitrary and capricious today. Mercy's Challenge. A. Introduction. Mercy is a not-for-profit, general acute care hospital with 550 licensed beds located in Dade County, Florida. Mercy has raised a number of points in this proceeding and its proposed order in challenging the rules in question. All of those points, according to Mercy, prove that the rules are an invalid exercise of delegated legislative authority. In determining whether the facts support such a conclusion, the following standard must be kept in mind: [I]n a 120.54 hearing, the hearing officer must look to the legislative authority for the rule and determine whether or not the proposed rule is encompassed within the grant. The burden is upon one who attacks the proposed rule to show that the agency, if it adopts the rule, would exceed its authority; that the requirements of the rule are not appropriate to the ends specified in the legislative act; that the requirements contained in the rule are not reasonably related to the purpose of the enabling legislation or that the proposed rule or the requirements thereof are arbitrary or capricious. A capricious action is one which is taken without thought or reason or irrationally. An arbitrary decision is one not supported by facts or logic or despotic. Administrative discretion must be reasoned and based upon competent substantial evidence. Competent substantial evidence has been described as such evidence as a reasonable person would accept as adequate to support a conclusion. Agrico Chemical Company v. State, Department of Environmental Regulation, 365 So.2d 759, 763 (Fla. 1st DCA 1978), cert. denied, 376 So.2d 74 (1979). Additionally, the following must be kept in mind: The well recognized general rule is that agencies are to be accorded wide discretion in the exercise of their lawful rulemaking authority, clearly conferred or fairly implied and consistent with the agencies' general statutory duties. . . . An agency's construction of the statute it administers is entitled to great weight and is not to be overturned unless clearly erroneous. . . . Where, as here, the agency's interpretation of a statute has been promulgated in rulemaking proceedings, the validity of such rule must be upheld if it is reasonably related to the purposes of the legislation interpreted and it is not arbitrary and capricious. The burden is upon petitioner in a rule challenge to show by a preponderance of the evidence that the rule or its requirements are arbitrary and capricious. . . . Moreover, the agency's interpretation of a statute need not be the sole possible interpretation or even the most desirable one; it need only be within the range of possible interpretations. Department of Professional Regulation v. Durrani, 455 So. 2d 515, 517 (Fla. 1st DCA 1984). The witnesses who testified in this proceeding who were accepted as experts were qualified in a number of different areas. Those witnesses qualified as experts in statistical analysis or related areas and health care finance rendered opinions as to the appropriateness of the HCCB's grouping methodology. The method of grouping hospitals adopted by the HCCB is a statistical method. Therefore, the determination of whether the HCCB's methodology is arbitrary and capricious depends largely upon whether the methodology is statistically sound. Mercy and the HCCB therefore presented the testimony of witnesses qualified in the area of statistics: Rick Zimmerman, Ph.D., an expert in statistical analysis and social science statistics (for Mercy), and Duane Meeter, Ph.D., an expert in economics and applied statistical analysis and Frank Fox, Jr., Ph.D., an expert in applied statistics (for the HCCB). All three witnesses were knowledgeable and credible. Dr. Zimmerman testified that the HCCB's grouping methodology was "clearly inappropriate." Dr. Zimmerman's opinion was based upon a three step analysis in which he determined: (1) whether the variables selected by the HCCB are appropriate; (2) whether the weights assigned to the variables by the HCCB are appropriate; and, (3) the effect changing the variables and/or weights would have on hospital groups. The results of Dr. Zimmerman's analysis, which formed the basis for his opinion that the HCCB's grouping methodology is not appropriate, are discussed, infra. Mercy has proposed a number of findings of fact in its proposed order concerning the credibility of Dr. Meeter's and Dr. Fox's testimony. Some of those proposed findings of fact have been considered in determining the weight given to their testimony. Both Dr. Meeter and Dr. Fox were, however, knowledgeable and credible. In addition to the opinion of its statistical expert, Mercy presented the testimony of three witnesses who were accepted as experts in health care finance: Messrs. Lawrence R. Murray, Jerry A. Mashburn and Anthony Krayer. All three are certified public accountants. All testified that it was his opinion that the HCCB's grouping methodology was arbitrary. The bases for their opinions are discussed, infra. Selection of "Seed" Hospitals. In order to use a clustering algorithm, a starting point is needed; the first object (hospital) to be placed in each group must be selected. The first objects selected are called "seed" objects. Mercy has attached the HCCB's method of selecting the nine "seed" hospitals in initially performing the McQueen's K-means clustering algorithm. Mercy has proposed the following findings of fact with regard to this point: While none of the parties challenged the use of McQueen's and the CLAN program, no support was offered during the hearing for the method by which the HCCB had selected the nine seed hospitals as initial clustering points. The HCCB's own statistician criticized the HCCB's selection method. The Rankis-Zimmerman report indicates that the final groupings based upon the HCCB's seed hospitals were vastly different than groupings based upon the utilization of seed hospitals selected on a statistical basis. Both the HCCB's and Mercy's statisticians proposed statistically sound methods for selecting seed hospitals, which had not been employed by the HCCB in the Grouping Methodology. [Citations omitted] These proposed findings of fact are not relevant to this proceeding. The burden is on Mercy to show that the selection of "seed" hospitals was arbitrary and capricious; the HCCB is not required to show "support" for its method of selecting the seed hospitals. Additionally, whether there are other methods of selecting seed hospitals is not the test. The HCCB's interpretation of the statute need not be the sole interpretation or even the most desirable one; it only needs to be within the range of possible interpretations. Durrani, supra. Therefore, even if the Rankis-Zimmerman report does indicate that the final groupings of hospitals of the HCCB were vastly different than groupings based upon other methods of selecting seed hospitals, it does not automatically follow that the HCCB's method of selecting seed hospitals was not "within the range of possible interpretations. The weight of the evidence does not prove that the HCCB's method of selecting seed hospitals was arbitrary and capricious. Selection of the Variables. In delegating legislative authority to the HCCB to establish a grouping methodology, the Legislature provided that the following relevant characteristics are to be taken into account: A measure of the nature and range of services provided; Number of medical specialties represented on the hospital staff; Percentage of Medicare inpatient days; Average daily census; Geographic differences; and Case mix, "when available." In response to the Legislature's mandate, the HCCB has adopted seven variables or characteristics. The variables selected by the HCCB include five hospital- specific (endogenous) variables and two geographic (exogenous variables). The variables are as follows: Endogenous Variables: Average occupied beds. Available services. Physician mix. Number of residents. Percent Medicare days. Exogenous Variables: Florida price level index. Personal income. The following findings of fact are made with regard to each of the specific characteristics required to be taken into account by the Legislature and the variables adopted by the HCCB: 1. A measure of the nature and range of services provided. The HCCB has provided in the Manual that "available services" or a service index will be considered. The specific services considered are listed on Table B, Chapter V, of the Manual. Table B also weights or provides a score for each of the various services listed. Each hospital gets the specified score if it has a particular service available. The available services listed are based upon a survey of hospital administrators and chief financial officers in New York, New York, made in the 1970's. Problems with the list of available services have been pointed out to the HCCB and its staff. The primary problem is that the volume of services provided is not taken into account. The problems with the service index, however, relate to the fact that the service index is a proxy for case mix. To date, there is no alternative available which would be a better proxy for case mix. The Legislature contemplated this fact by providing that a measure of the services provided by a hospital will be considered and that case mix will be taken into account "when available." Therefore, while there are "problems" with the service index, consideration of available services is mandated by the Legislature and there are no acceptable alternatives available use for by the HCCB. 2. Number of medical specialties represented on the hospital staff. 52. The HCCB has provided that a physician specialties mix be considered in grouping hospitals. This physician specialties mix is based upon a list of twenty- six specialties for which a hospital gets a single credit for each specialty available regardless of the number of physician specialists available in each specialty or the volume of patients admitted by a physician. 52. Like the service index, the physician specialties mix is a proxy for ease mix and has problems associated with its use. Also like the service index, consideration of this factor is mandated and there are no acceptable alternatives available for use by the HCCB. 3. Percentage of Medicare inpatient days. 53. The HCCB has provided that "percentage Medicare days be considered in grouping hospitals. Consideration of this variable has not been shown to be arbitrary and capricious. 4. Average daily census. 53. The HCCB has provided that "average occupied beds" is to be considered in grouping hospitals. It does not appear that this variable's use was proper, as discussed, infra. 5. Geographic differences. The HCCB has provided that geographic differences be considered in grouping hospitals by providing for the inclusion of the Florida price level index, by county, and median income, by county, as variables to be considered. The only thing that the evidence established with regard to these variables was that they are not "very good" predictors, that "if" they are intended as a measure of input prices they are "poor substitutes," and that there may be "better" measures of the cost of doing business. The evidence does not, however, show that the use of these variables is arbitrary and capricious. Mercy has proposed a number of findings of fact concerning geographic influences in part II, H of its proposed order. The proposed findings of fact begin on page 29 and end on page 33. Most of these proposed findings of fact are not made in this Final Order because they are not deemed relevant or material and are unnecessary to the resolution of this proceeding. The proposed findings of fact contained in part II, H of Mercy's proposed order purportedly show that the HCCB has inadequately accounted for geographic influences. The evidence does establish that the financial characteristics of Florida hospitals and GRAA are affected by the geographic location of a hospital. This is especially true in Florida because of the impact on parts of the State from tourism, language barriers, the number of elderly residents, the available labor markets, and competition. It is also true that the combined weights of the two geographic variables the HCCB has selected for consideration in the grouping methodology--the Florida price level index and median income--is only one-seventh of the combined weights of all the HCCB's variables. It is also true that the grouping methodology results in hospitals from different areas of the State being grouped together, i.e., Mercy's hospital group includes twenty- three hospitals, four of which are located in Dade County and three of which are located in Escambia County. It does not necessarily follow, however, that the HCCB has been arbitrary and capricious in designating only two variables to take into account geographic differences between hospitals. The evidence also does not support a conclusion that it was not proper for the HCCB to limit the weight of the geographic variables to one-seventh of the total weight of the variables. Nor does the evidence demonstrate that the inclusion of hospitals from different areas of the State in the same group is not a proper result just because geographic influences are important. The fact that a large percentage of Dade County and south Florida hospitals do not qualify for automatic approval of their budgets under Section 395.509(2), Florida Statutes (1984 Suppl.), because they are in the upper 20th and the upper 50th to 79th percentiles does not necessarily prove that geographic influences have not been adequately accounted for either, as suggested be Mercy on page 30 of its proposed order. The evidence simply does not support such a conclusion. Nor does it necessarily follow that because Dade County hospitals are "efficient" in the minds of some of Mercy's witnesses and yet are unable to achieve automatic approval of their budgets that the grouping methodology does not adequately account for geographic influences, as suggested by Mercy on pages 30 and 31 of its proposed order. First, the Legislature has provided that factors other than geographic differences are to be considered, which the HCCB has provided for. It may therefore be that some Dade County hospitals do not achieve automatic approval of their budgets because of the other variables. The fact that not all Dade County hospitals fail to achieve automatic approval of their budgets supports such a conclusion. Also, even though a hospital's budget is not automatically approved it does not necessarily mean that it is considered inefficient. If that were the case, its budget would probably be subject automatically to amendment or disapproval. That is not the case. If a hospital's budget is not automatically approved its budget is subject to further review under Section 395.509(5), Florida Statutes (1984 Suppl.). It may still be determined that the hospital is "efficient" based upon this review. The Legislature, in enacting Part II of Chapter 395, Florida Statutes, did indicate that it intended to promote competition and efficiency among hospitals in order to contain hospital costs. Section 395.5025, Florida Statutes (1984 Suppl.). The grouping methodology and, in particular, the comparison of hospitals' GRAA under Section 395.509(2), Florida Statutes (1984 Suppl.), does not alone achieve that intent. Therefore the opinion of several of Mercy's witnesses that Dade County hospitals and in particular, Mercy, are efficient does not support a conclusion that the methodology is arbitrary and capricious or that geographic influences are not adequately considered. On pages 31 and 32 of its proposed order, Mercy suggests that Dade County hospitals only compete with other Dade County hospitals and therefore grouping hospitals from all sections of the State is illogical. In support of this suggestion, Mercy proposes findings of fact to the effect that the HCCB has recognized that consumers are interested in comparing hospital charges on a regional basis and has provided information about hospital cost on a county-by- county basis in the past. Mercy's proposed findings of fact are not accepted for essentially the same reasons that its proposed findings of fact with regard to the efficiency of hospitals were rejected. These proposed findings of fact do not support a finding that the HCCB's grouping methodology is arbitrary and capricious or that geographic differences have not been adequately taken into account. Mercy's has also proposed findings of fact with regard to geographic differences to the effect that after the Legislature specifically required that "geographic differences" be considered in an amendment to Chapter 395, Florida Statutes (1981), in 1982, the HCCB has not added any additional geographic factors to be considered. Although no additional geographic variables have been added, geographic variables have been reviewed and have been changed since 1982. More importantly, these proposed findings of fact do not prove that the existing variables are not adequate. 6. Case Mix. 66. Case mix is to be taken into account "when available." The evidence does not establish that case mix is available at this time. 7. Other variables. The HCCB is not limited to a consideration of the factors which the Legislature specifically provided are to be considered. Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.). The only other variable the HCCB has provided for consideration is "number of residents." No evidence of significance concerning this variable was presented at the hearing. There was testimony at the hearing that there are other variables which would be appropriate for consideration in grouping hospitals. The evidence does not, however, establish that failure to consider other variables means that the grouping methodology adopted by the HCCB is arbitrary and capricious. Dr. Zimmerman opined that he had determined that the variables selected by the HCCB were not appropriate. Dr. Zimmerman based his opinion upon the fact that he had conducted a "multiple regression analysis." According to Dr. Zimmerman, a "multiple regression analysis is a statistical procedure used to evaluate the relationship of a given set of independent, predictor variables (the HCCB's seven variables) to a single dependent variable (GRAA)." Based upon his application of multiple regression analysis, Dr. Zimmerman concluded that three of the variables used in the HCCB's grouping methodology are not statistically significant predictors of GRAA: available services, average occupied beds and median income. Two of these variables (available services and average occupied beds) are required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), to be taken into account in the grouping methodology. These Sections also require that geographic factors, which median income is, be taken into account. This does not, however, mean that median income must be included as a variable by the HCCB. Dr. Meeter testified that the statistical significance of the HCCB's variables can be determined by the use of "log transformation." Based upon Dr. Meeter's use of log transformation, median income and available services are statistically significant variables; average occupied beds is not statistically significant. Although the HCCB was required to include "average daily census" as a factor in grouping hospitals, the HCCB was not required to use "average occupied beds." Based upon Dr. Zimmerman's and Dr. Meeter's testimony, the use of average occupied beds as a variable was not proper. Whether the use of available services and median income as variables was proper depends upon whether log transformation is a proper method of determining the statistical significance of variables. Although the evidence on this question was in conflict, it appears that the use of log transformation was proper. The inclusion of available services and median income is therefore not arbitrary and capricious. A second problem with the variables used by the HCCB suggested by Dr. Zimmerman involves the correlation between the seven predictor variables or "multicollinearity." The existence of multicollinearity can invalidate a clustering program. Dr. Zimmerman determined that the correlation between the physician mix, available services and average occupied beds variables and between the Florida price level index and median income variables is large enough that there is a "potential" problem. Dr. Zimmerman's determination that there is a "potential" problem was made through two techniques. He first used "paired correlation." Based upon paired correlation, Dr. Zimmerman used a "rule of thumb" that a paired correlation of 0.7 or higher should be looked at closer. Finding a paired correlation between physician mix, available services and average occupied beds of .74 and between the Florida price level index and median income of .71, Dr. Zimmerman then calculated "R squared" to determine if a potential problem did in fact exist. Dr. Zimmerman indicated that the calculation of R squared is the most highly recommended method of determining if multicollinearity is a problem but agreed there are other methods of making such a determination. Dr. Meeter indicated that Dr. Zimmerman's rule of thumb that based upon paired correlations of 0.7 or higher indicates the problem should be looked at more closely is too strict. Other than Dr. Zimmerman's "experience" (which according to Dr. Zimmerman, consisted of a class he took), Dr. Zimmerman did not cite any authority which supported his rule of thumb. The only other source Dr. Zimmerman referred to--the "SPSS" manual--only indicates that the .82-1.0 range indicates that extreme collinearity exists. Another problem raised by Dr. Meeter with Dr. Zimmerman's conclusions as to multicollinearity, involves the use of "variance inflation factors" (hereinafter referred to as VIF is another technique used by statisticians to determine if multicollinearity is a problem. Dr. Zimmerman did not look at VIF. VIF can be determined by transforming R squared: VIF 1/1- R2. A VIF in excess of 5 or 10 is an indication that multicollinearity exists. One source quoted by Dr. Meeter even indicates that a much higher VIF is necessary to conclude that multicollinerity exists. Transforming Dr. Zimmerman's R squared calculations indicates that VIF is in excess of 5 in only one instance. As discussed more fully, infra, Dr. Zimmerman used a number of alternative methods of grouping hospitals which he designated as "Schemes." Based upon Dr. Zimmerman's "Scheme 3," Dr. Zimmerman found an R squared value of .819. The VIF for an R squared value of .819 is in excess of 5. Scheme 3, however, is not an application of the HCCB's grouping methodology; it is a grouping methodology in which the variables are assigned different weights. As indicated by Dr. Meeter, the weights used in grouping can effect the correlation of the variables. Therefore, the fact that Scheme 3 indicates a possible multicollinearity problem does not prove that multicollinearity is in fact a problem with the HCCB's grouping methodology. Based upon the foregoing it is found that multicollinearity does not exist sufficiently to conclude that the variables used by the HCCB are arbitrary and capricious. Dr. Zimmerman only testified that there was a "potential" problem. Additionally, although multicollinearity may invalidate a clustering program, the evidence does not prove that the HCCB's clustering program is in fact invalid because of any existing "potential" problem. In light of the foregoing findings of fact, it is clear that the HCCB's variables are appropriate with the exception of average occupied beds. The fact that this one variable is not statistically significant, however, does not by itself support a finding that the grouping methodology is inappropriate. The Lack of Testing of the Grouping Methodology. A third point raised by Mercy is entitled "Lack of Testing" in its proposed order and includes several proposed findings of fact on pages 17 and 18 of Mercy's proposed order. Mercy has essentially proposed findings of fact that: (1) it had been recommended to the HCCB when it originally adopted its grouping methodology in 1980 that a statistician be hired to test the grouping methodology; (2) that the failure to do so had been criticized in the past; that it had been recommended that the HCCB obtain assistance of individuals knowledgeable in Florida hospital characteristics to evaluate the grouping process but had failed to do so; (4) that the HCCB had not, until just prior to the hearing of this case, hired a statistician; (5) that the HCCB has not used multiple regression analysis or within-cluster co- variance weighting; and, (6) that the State of Washington's State Hospital Commission has employed a statistician to test its methodology and has effectively been advised by individuals knowledgeable with Washington's hospital characteristics. These proposed findings of fact do not establish that the grouping methodology adopted by the HCCB is arbitrary and capricious even if they were all correct findings of fact. All that these proposed findings of fact show is that the HCCB may not have gone about the adoption of its grouping methodology in the most appropriate manner. Any such shortcomings, based upon 20/20 hindsight, in the manner in which the methodology was adopted do not prove that the grouping methodology itself is not appropriate. Additionally, the evidence does not support all of these proposed findings. In particular, as was discussed, supra, the HCCB did in fact look to individuals knowledgeable in Florida hospital characteristics to evaluate its grouping methodology. The Weight of the Variables. The most significant and troublesome challenge made by Mercy to the HCCB's grouping methodology involves the weights assigned to the variables considered in grouping hospitals. The weights assigned by the HCCB to the seven HCCB variables are: Variable Weight Endogenous: Average occupied beds. 1.0 Available services. 2.0 Physician mix. 0.5 Number of residents. 0.5 Percent Medicare days. 2.0 Exogenous: Florida price level index. 0.5 Personal income. 0.5 The determination of whether the weights selected by the HCCB are arbitrary and capricious depends largely upon the evidence presented at the hearing by those witnesses knowledgeable in the field of statistics. Three witnesses were qualified as experts in statistically related fields. All three were well qualified in their fields and were credible and persuasive. According to Dr. Zimmerman, "the weights used currently by the HCCB are clearly inappropriate." In Mercy exhibit 17, Dr. Zimmerman reaches the following conclusion with regard to the HCCB's variable weights: These weights clearly do not reflect the relationship of the various variables to GRAA and thus appear as arbitrary and inappropriate for use in clustering hospitals on the basis of cost-related variables. Dr. Zimmerman's opinion is based upon the use of "multiple regression analysis," which, according to Mercy exhibit 17, "assesses the relationship of each of the predictor variables to the dependent measure (GRAA)." The evidence, however, does not support a finding of fact that multiple regression analysis is the only statistically valid method of establishing weights to be used in clustering analysis. In fact, there are a number of statistically valid methods of establishing variable weights. One of those acceptable methods is the "subjective" method which was used by the HCCB. Doctors Meeter and Fox substantiated this finding of fact. The use of the subjective method involves the participation of individuals knowledgable in the Florida hospital industry in reviewing and commenting on the weights used. The evidence clearly supports a finding that individuals with such knowledge participated in the process of developing the HCCB's grouping methodology including the selection of variable weights. Even one of Mercy's witnesses provided testimony which supports this conclusion: Mr. Kenneth G. McGee testified that "[i] t was just a trial and error process of changing weights until we ended up with something that people considered more reasonable than what had been produced in the past." Mercy has questioned Dr. Meeter's testimony with regard to the use of the subjective method of weighting variables based upon a number of proposed findings of fact. First, Mercy has proposed findings of fact to the effect that Dr. Meeter indicated that the subjective method is "bad" if not carefully applied. What Dr. Meeter actually said was that any method should be applied carefully. Secondly, Mercy has proposed a finding of fact that in a book relied upon by Dr. Meeter in rendering his opinion about the subjective method--John Hardigan's 1975 book, Clustering Algorithms--the author describes the subjective method as an "unsatisfactory" one. What Dr. Meeter's testimony proves is that Hardigan's comment was a tongue- in-cheek comment that there are several appropriate methods of weighting variables all of which are unsatisfactory, including regression analysis (used by Dr. Zimmerman) and the subjective method (use by the HCCB). Dr. Meeter also relied upon other statistical literature in rendering his opinion as to the use of the subjective method in determining variable weights. Finally, Mercy has suggested that Dr. Meeter did not undertake any independent "statistical" analysis which would support his opinions. Based upon the nature of Dr. Meeter's testimony, it does not appear that such a statistical analysis is a prerequisite to concluding that the use of the subjective method is an acceptable method of determining variable weights. Mercy has proposed a finding that the subjective method of weighting is inappropriate based upon Dr. Zimmerman's testimony. Dr. Zimmerman was asked the following questions and gave the following responses concerning the subjective method: Q Now, in your understanding of how the Board arrived at its weights, is it your opinion that that is totally inappropriate methodology for clustering? Yes or no or maybe? A I am looking to counsel for counsel here. MR. PARKER: Do you understand the questions? THE WITNESS: I do understand the question. And let me give you my full answer as I best understand it. The weights -- and I think what I have commented on at great length -- the weights used by the Hospital Cost Containment Board are clearly on statistical grounds inappropriate. There's no question about that. BY MR. COLLETTE: Now, on these clustering grounds, you testified as to your familiarity with clustering grounds, on clustering grounds, are they totally inappropriate? A If the question is -- I wouldn't say that. Hearing that there is no objection, I will continue. I would rule out the use of a purely subjective weighting scheme as a final solution for cluster analysis. I think it might be one that would be considered at a very early step, but never used, as kind of a preliminary idea. However, I would clearly rule out the use of a purely subjective weighting scheme as something to be proud of and actually put into application. So, if that means yes to your question, I guess yes in that specific way. Dr. Zimmerman's responses are not totally clear with regard to whether the subjective method is, in his opinion, an acceptable method of determining variable weights. Nor would his response, if totally clear, overcome the weight of the evidence in support of a conclusion that the HCCB's method of determining variable weights is not arbitrary and capricious. Alternative Methods of Grouping Hospitals. Mercy has proposed a number of findings of fact under a section of its proposed order entitled "Alternative Variables and Weights Indicated by Statistical Analyses." Pages 22 to 29 of Mercy's proposed order. Some of the proposed findings included therein have been dealt with in other portions of this Final Order, including those findings of fact dealing with the use of multiple regression analysis and multicollinearity. In Dr. Zimmerman's report (Mercy exhibit 17) and during his testimony a number of alternative methods of grouping hospitals were tested and evaluated. Dr. Zimmerman concluded that a number of these alternative methods would be preferable to the methodology adopted by the HCCB. Dr. Zimmerman tested twelve different methods (referred to as "Schemes" by Dr. Zimmerman): the HCCB's, the State of Washington's and ten other methods which used some or all of the seven variables designated by the HCCB. Scheme 3 used all seven variables selected by the HCCB but with different weights. Dr. Zimmerman rejected this scheme because of multicollinearity. In Scheme 4, Dr. Zimmerman used only the four variables which he found to be statistically significant: physician specialties mix, number of residents, percent Medicare days and the Florida price level index. Dr. Zimmerman recognized that this Scheme was not acceptable because of the statutory mandate as to the types of factors which must be taken into account. In order to recognize the requirement of Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), that certain variables be taken into account and to alleviate the purported multicollinearity problem, Dr. Zimmerman combined the variables he considered highly correlated into two "scales." "Scale 1" combined physician specialties mix, available services and average occupied beds and "Scale 2" combined the Florida price level index and median income. The weights assigned to these scale were based upon the weights Dr. Zimmerman felt were more appropriate as discussed, supra. Dr. Zimmerman then used multiple regression analysis and a variety of combinations of variables and Scales in Schemes 6-12. Of these Schemes, Dr. Zimmerman testified that Schemes 6 and 10 were preferable, if Scheme 4 could not be used. Scheme 6 involved the use of all of the variables: percent Medicare days, number of residents and Scales 1 and 2. Scheme 10 involved the use of all of the variables except median income: percent Medicare days, number of residents, the Florida price level index and Scale 1. Dr. Zimmerman compared the results of using the HCCB's grouping methodology to the results from using Schemes 3,4,6 and 10. The results showed that more Dade County hospitals had GRAA's, in comparison to the hospitals in the resulting groups under Schemes 3,4,6 and 10, which would result in automatic approval of their budgets than under the HCCB's methodology. Mercy's position within its group also improved as a result of using Schemes 3,4,6 and 10. These proposed findings of and Mercy's proposed findings of fact concerning alternatives considered by Dr. Meeter do not prove that the HCCB's grouping methodology is arbitrary and capricious. As found, supra, six of the seven variables selected by the HCCB are reasonable. The weights assigned to those variables have also been found to be reasonable and Mercy's suggested findings of fact with regard to multicollinearity have been rejected. Mercy has failed to prove that the HCCB's grouping methodology is arbitrary and capricious. Therefore, any alternative methods or Schemes and the results of using such methods cannot and do not overcome such findings. Conclusions. Based upon the foregoing, it is clear that the bases for the opinions that the HCCB's grouping methodology is inappropriate are not supported by a preponderance of the evidence. Dr. Zimmerman's opinion, which was based upon a number of conclusions, was only supported by the fact that one of the variables selected by the HCCB is not proper. The evidence, however, does not support a finding that this fact alone means that the grouping methodology adopted by the HCCB is inappropriate. The facts do not support a conclusion that the grouping methodology adopted by the HCCB is arbitrary and capricious.
The Issue At issue in this proceeding is whether Respondent’s denial of Petitioner’s Level II appeal should be upheld or whether the inpatient residential mental health services provided to R.H. by McLean Hospital’s 3 East Dialectical Behavior Therapy (“DBT”) program from September 9, 2015, through September 22, 2015, and again from October 15, 2015, through December 11, 2015, were “medically necessary” and therefore covered under the terms of the State Employees’ PPO Group Health Insurance Plan.
Findings Of Fact DSGI is the state agency responsible for administration of the state group insurance program, pursuant to section 110.123, Florida Statutes. Petitioner, A.H., is a State of Florida employee and was insured through the State Employees’ PPO Group Health Insurance Plan (the “Plan”). R.H., the child of A.H., was eligible for coverage under A.H.’s health insurance policy as of September 1, 2015. Pursuant to contract, Florida Blue acts as DSGI’s third-party medical claims administrator for employee health insurance benefits. New Directions is Florida Blue’s subcontractor and third-party administrator for mental health and substance abuse reviews and authorizations. “Utilization management” is the process of reviewing a service claim to determine whether the service is a covered benefit under the Plan and whether the service is “medically necessary” as that term is defined in the Plan. In cases involving mental health or substance abuse services, the service must also satisfy the more detailed and specific coverage guidelines, titled “Medical Necessity Criteria,” established by New Directions.1/ Consistent with general practice in the field, the “medical necessity” criteria of the New Directions document observe the following levels of care, in increasing order of intensity: psychiatric outpatient; psychiatric intensive outpatient; psychiatric partial hospitalization; psychiatric residential; and psychiatric acute residential. In the interests of conserving medical resources and preserving patient liberty, safety, and dignity, every effort is made to place patients in the least intensive level of care consistent with effective treatment of their presenting condition. R.H., a female who was 15 years old during the period relevant to this proceeding, has been diagnosed with borderline personality disorder and has a history of eating disorders. Her treating psychologist in Florida, Nicolle Arbelaez Lopez, noted that R.H. was also being treated for generalized anxiety disorder. R.H. had an inpatient admission to the Renfrew Center in Florida for eating disorder treatment in May 2015. R.H. transitioned to partial hospitalization over the summer, followed by a step down to the Renfrew Center's intensive outpatient program, then by a step up back to partial hospitalization when her eating disorder behaviors worsened. Though less intensive than a full residential admission, intensive outpatient treatment and partial hospitalization allow patients to receive comparatively intensive treatment while remaining in their home environment.2/ R.H.’s final discharge from the Renfrew Center was on August 21, 2015. At the time she was admitted to McLean Hospital’s 3 East DBT program, R.H. had a recent history of engaging in superficial cutting of her arm. On August 30, 2015, R.H. intentionally hit herself in the hand with a hammer. R.H.’s mother took her to the emergency room for treatment and told the treating personnel that R.H. had fallen down some stairs. The hammer blow caused swelling and bruising but no broken bones. R.H. was also continuing to purge and restrict her food intake. R.H.’s treating psychiatrist, Dr. Thania V. Quesdada, and her psychologist, Ms. Lopez, both urged that she be admitted to one of three nationally-recognized immersion DBT programs. Her family chose the program at McLean Hospital. DBT is a cognitive behavioral treatment that was originally developed to treat chronically suicidal individuals diagnosed with borderline personality disorder, though it is now employed for treatment of other conditions, including eating disorders. DBT teaches behavioral coping skills such as mindfulness, distress tolerance, interpersonal effectiveness, and emotional regulation. At the hearing, DSGI did not dispute the general efficacy of DBT treatment. However, DSGI did dispute whether R.H.’s presentation merited “immersion” DBT, i.e., a residential inpatient admission. McLean Hospital’s 3 East DBT program is self-pay and requires a minimum stay of 28 days. The program does not accept insurance and does not assist patients with insurance reimbursement efforts. Because of its stance on insurance, the 3 East DBT program is obviously not an in-network provider under the Plan. Prior to admission, Petitioner was aware that the 3 East DBT program did not accept insurance. R.H. was in residential treatment at McLean Hospital from September 9, 2015, through September 22, 2015. While at McLean Hospital, R.H. engaged in restricting and purging behaviors that led to medical instability. She was discharged to Cambridge Eating Disorder Center on September 23, 2015. She remained at the Cambridge Center until October 15, 2015. R.H.’s stay at the Cambridge Center was pre-certified by New Directions and is not at issue in this proceeding. On October 15, 2015, R.H. returned to McLean Hospital, again as a residential inpatient admission. She remained at McLean Hospital until her discharge on December 11, 2015. The total billed amount for R.H.’s two stays at McLean Hospital was $96,950, which was paid by the family out-of- pocket. Section 3-5 of the Plan sets forth the following under the heading “Mental Health and Substance Dependency Services”: “Physician office visits, Intensive Outpatient Treatment, Inpatient and Partial Hospitalization and Residential Treatment Services are covered based on medical necessity.” The general definition of “Medically Necessary” is set forth at section 15-4 of the Plan: [s]ervices required to identify or treat the Illness, injury, Condition, or Mental and Nervous Disorder a Doctor has diagnosed or reasonably suspects. The service must be: consistent with the symptom, diagnosis and treatment of the patient’s Condition; in accordance with standards of good medical practice; required for reasons other than convenience of the patient or the Doctor; approved by the appropriate medical body or board for the illness or injury in question; and at the most appropriate level of medical supply, service, or care that can be safely provided. The fact that a service, prescription drug, or supply is prescribed by a Doctor does not necessarily mean that the service is Medically Necessary. Florida Blue, CVS/Caremark, and DSGI determine whether a service, prescription drug, or supply is Medically Necessary. New Directions’ Medical Necessity Criteria guidelines provided the following admission criteria for psychiatric residential admissions: Must meet all of the following: A DSM diagnosis is the primary focus of active, daily treatment. There is a reasonable expectation of reduction in behaviors/symptoms with treatment at this level of care. The treatment is not primarily social, custodial, interpersonal, or respite care. The member has documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three (3) of the following areas: primary support social/interpersonal occupational/educational health/medical compliance ability to maintain safety for either self or others Must have one of the following: The member’s family members and/or support system demonstrate behaviors that are likely to undermine goals of treatment, such that treatment at a lower level of care is unlikely to be successful. This lack must be situational in nature and amenable to change as a result of the treatment process and resources identified during a residential confinement. The member has a documented history of an inability to be managed at an intensive lower level of care. There is a recent (in the last six months) history of multiple brief acute inpatient stays without a successful transition to a lower level of care, and at risk of admission to inpatient acute care. New Directions’ Medical Necessity Criteria guidelines provided the following admission criteria for eating disorder residential admissions: Must meet 1-4 and either 5, 6, or 7 A DSM diagnosis found in the Feeding and Eating Disorder section is the primary focus of active, daily treatment. There is a reasonable expectation of reduction in behaviors/symptoms with treatment at this level of care. The treatment is not primarily social, custodial, interpersonal, or respite care. The member has documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three (3) of the following areas: primary support social/interpersonal occupational/educational health/medical compliance ability to maintain safety for either self or others Must have one of the following: The member’s family members and/or support system demonstrate behaviors that are likely to undermine goals of treatment, such that treatment at a lower level of care is unlikely to be successful. This lack must be situational in nature and amenable to change as a result of the treatment process and resources identified during a residential confinement. The member has a documented history of an inability to be managed at an intensive lower level of care. There is a recent (in the last six months) history of multiple brief acute inpatient stays without a successful transition to a lower level of care, and at risk of admission to inpatient acute care. There are active biomedical complications that require 24-hour care, including, but not limited to: Adults Children/Adolescents Pulse <40 <50 Blood Pressure <90/60 <80/50 Orthostatic changes in BP Systolic: >20 point drop Systolic: > 20 point drop (Supine to standing) Diastolic: > 10 point drop Diastolic: > 10 point drop Potassium < 3 meq/l Hypokalemia Body temperature < 97 F Abnormal core temperature Electrolytes/ serum chemistry Significant deviation from normal Significant deviation from normal Must have either a. or b.: A low body weight that can reasonably lead to instability in the absence of intervention as evidenced by one of the following: Less than 85% of IBW or a BMI less than 16.5. Greater than 10% decrease in body weight within the last 30 days. In children and adolescents, greater than 10% decrease in body weight during a rapid growth cycle. Persistence or worsening of eating disorder behavior despite recent (with [sic] the last three months), appropriate therapeutic intervention in a structured eating disorder treatment setting. If PHP or IOP is contraindicated, documentation of the rationale supporting the contraindication is required. One of the following must be present: Compensatory behaviors (binging, purging, laxative abuse, excessive exercise, etc.) have caused significant physiological complications. Compensatory behaviors occur multiple times daily and have failed to respond to treatment at a lower level of care and acute physiologic imbalance can reasonably be expected. New Directions’ contact notes for this case indicate that it was called by someone named “Rachelle” on behalf of A.H.’s family on September 3, 2015. This person asked about the authorization process for McLean Hospital. No witness was presented who had direct knowledge of the contents of this conversation. The note indicates that “Rachelle” was advised that any authorization process must be initiated with New Directions by McLean Hospital. On September 9, 2015, the day R.H. was admitted to McLean Hospital, Florida Blue received what its notes reference as a “critical inquiry” message regarding this admission. A Florida Blue employee phoned the number attached to the message but discovered it was not for A.H. but for “someone at AllState Insurance who is out of the office.” (This person turned out to be Pearl Harrison, R.H.’s grandmother and qualified representative in this proceeding, who had not yet obtained a release to receive confidential medical information concerning R.H.). No number for A.H. could be found. Florida Blue contacted New Directions, which confirmed that no request for pre-authorization3/ had been received from McLean Hospital or the member. R.H.’s stays at McLean Hospital were not emergency admissions. The term “medical emergency” was not specifically defined in the 2015 Plan, but expert testimony at the hearing established that it is a term of common meaning and usage in the medical community. An emergency situation is one in which there is an immediate risk of death, serious bodily harm, or creation of an irreversible condition. If care is not administered immediately, the person will harm herself or someone else. Michael Shaw, the utilization management team leader for New Directions, explained that emergency care is not provided at the residential level of care, but in an inpatient setting under lock and key. The medical records indicated that R.H.’s last incident of self-harming behavior occurred about a week prior to her admission to McLean Hospital. Her injuries were superficial and she was in no immediate danger or risk of irreversible damage. Section 7-1 of the Plan provides for hospital admissions, including the following pertinent language as to non-emergency admissions to non-network hospitals and pre- certification for stays at non-network hospitals: Non-Network Hospital: Non-emergency Admission Every non-emergency admission to a non- network Hospital must be pre-certified. This means that before services are provided Florida Blue must certify the Hospital admission and provide the number of days for which certification is given. Precertification of non-network Hospital stays is your responsibility, even if the Doctor admitting you or your dependent to the Hospital is a Network Provider. Failure to obtain pre-certification will result in penalties (higher out-of-pocket costs). For more information on penalties, see “If You Do Not Pre-Certify Your Stay” within this section below. To pre-certify your stay in a non-network Hospital, ask your Doctor to call Florida Blue at (800) 955-5692 before your Hospital admission and provide the reason for hospitalization, the proposed treatment or surgery, testing, and the number of Hospital days anticipated. Florida Blue will review your Doctor’s request for admission certification and immediately notify your Doctor or the Hospital if your admission has been certified and the number of days for which certification has been given. If the admission is not certified, your Doctor may submit additional information for a second review. If your Hospital stay is certified and you need to stay longer than the number of days for which certification was given, your Doctor must call Florida Blue to request certification for the additional days. Your Doctor should make this call as soon as possible. * * * If You Do Not Pre-Certify Your Stay: Non- Network Hospital Benefits for covered services will be reduced by 25 percent of the covered charges, not to exceed a maximum benefit reduction of $500 IF you are admitted to a participating Hospital (Payment for Hospital Services or PHS Provider)[4/] that is not part of the Preferred Patient Care (PPC) Network and admission certification has not been requested on your behalf or the request is denied. This Plan will not pay room and board benefits for your first two days of hospitalization IF your non-network Hospital admission is denied, but you are admitted to a non-network Hospital anyway. This Plan will not pay room and board benefits for your entire Hospital stay IF you are admitted to a non-network Hospital without having your Doctor call prior to the admission. This Plan will not pay room and board benefits for the additional days that were not certified IF your non-network Hospital admission is certified but your stay is longer than the number of days for which the admission was certified. The Plan’s pre-certification requirement was not met. Neither A.H. nor McLean Hospital requested pre-certification. Mr. Shaw testified that he spoke to three different people at McLean Hospital, all of whom stated that the 3 East DBT program does not accept or work with insurance. Mr. Shaw was unable to generate the paperwork needed to begin the pre-certification process because McLean Hospital declined to share with him the necessary clinical information about R.H.5/ Although pre-certification was not obtained for R.H.’s stays at McLean Hospital, Florida Blue conducted a post-service review to determine whether the claim was eligible for reimbursement. Petitioner submitted a request for a Level I appeal pursuant to Section 12 of the Plan, under which a person denied benefits or payment of a claim for medical services may obtain a review by Florida Blue. Petitioner submitted a package of R.H.’s medical records for review. Prest & Associates, Inc., a URAC-approved independent review organization,6/ was retained to conduct an independent review of Petitioner’s claim. Dr. Barbara Center, a staff psychiatrist with Prest & Associates, performed a review designed to determine the medical necessity of R.H.’s stays at McLean Hospital. Dr. Center is board-certified in General Psychiatry, Child and Adolescent Psychiatry, and Addiction Medicine. Dr. Center reviewed the claim in terms of the New Directions criteria for psychiatric residential admissions and for eating disorder residential admissions. She performed two reviews, one for the admission starting on September 9, 2015, and another for the admission starting on October 15, 2015. Dr. Center stated that the McLean Hospital medical records provided by Petitioner gave a detailed description of R.H.’s history of present illness, past psychiatric history, and other elements of her history that were adequate for making a medical necessity determination. As to the September 9 admission, Dr. Center concluded that medical necessity criteria were not met for either a psychiatric residential or an eating disorder residential admission. As to the psychiatric residential criteria, Dr. Center concluded that R.H.’s admission failed to satisfy criteria 3, 4, and 5. Dr. Center testified that criterion 4 looks at symptoms and behaviors that represent a significant deterioration from the patient’s baseline functioning in several areas. R.H.’s primary support structures were stable. Her mother was clearly involved in her care and had the support of other family members. Dr. Center stated that the medical records showed no sign of substantial social or interpersonal deterioration, aside from some typical difficulty in starting high school. R.H. was having no medical instability at the time of admission. She was not at a dangerously low body weight. She had a recent onset of self-harming behaviors, but there was no documentation of acute risk issues that warranted placement in 24-hour care. As to criterion 5, Dr. Center testified that the records showed no indication that R.H.’s family and support system was unsupportive or unable to take her to treatment and participate in her care. There was no documentation that R.H. could not progress in a less intensive level of care. Dr. Center noted that R.H.’s prior treatment for eating disorders had been at varying levels of care and that R.H. had not had multiple brief acute inpatient stays. Criterion 3 is a diagnosis of exclusion, meaning that if there is no apparent medical necessity for the residential placement, then the reason must be “primarily social, custodial, interpersonal or respite care.” Dr. Center found in the records no support for a 24-hour residential placement. She noted that R.H.’s self-injury was of a recent onset and that McLean Hospital had ruled out any immediate prospect of self-injury or serious threat to other people. Cutting is not uncommon among adolescents and does not rise to the level of requiring residential care. Mental health providers distinguish between self-injurious behaviors and suicidal ideation, and McLean Hospital did not describe R.H. as suicidal. Dr. Center testified that, at the request of Mr. Shaw, she also reviewed R.H.’s admission in terms of the New Directions eating disorder residential criteria. Dr. Center noted that R.H. was not at a dangerous body weight (122 pounds, with a BMI of 22.2) at the time of her admission on September 9. There was no indication of medical instability or of out-of- control eating disorders requiring 24-hour care. Dr. Center testified that DBT is routinely taught on an outpatient basis and that she recommended outpatient treatment for the stay beginning on September 9. She opined that R.H. did not meet numbers 3 through 7 of the New Directions eating disorder residential criteria. As to the McLean Hospital admission beginning on October 15, 2015, Dr. Center recommended intensive outpatient treatment. Dr. Center knew that R.H. had been transitioned from McLean Hospital to the Cambridge Center to address the eating disorder as her primary symptom. Dr. Center felt that continuing R.H. in an intensive outpatient setting would help her stabilize and maintain the progress she had made at the Cambridge Center. Dr. Center stated that a basic tenet of medical care, and especially psychiatric care, is that the patient be treated in the least restrictive setting possible under the circumstances. She stated that it is always best to treat people in the environment they live in. Treatment in the 24- hour residential setting removes the patient from the stressors she will have to deal with when she goes home. Upon her readmission to the McLean Hospital from Cambridge Center, R.H. denied suicidal ideation and homicidal ideation, and the record disclosed nothing to indicate suicidal thoughts. R.H. denied auditory or visual hallucinations and her mood was described as “euthymic,” i.e., essentially normal. Dr. Center acknowledged that the medical record showed that R.H. had been in intensive outpatient treatment for her eating disorder at the Renfrew Center in Florida from July 23 through August 21, 2015, with limited success. Dr. Center stated that the issue for R.H. had recently changed from her eating disorder to her self-harming behavior and believed that an intensive outpatient program focusing on skills to deal with self-injurious behaviors would be the appropriate placement under the circumstances. Dr. Center also acknowledged that her review did not include the records of R.H.’s treating psychiatrist and therapist during her stay at Renfrew, and that their notes indicated that R.H.’s condition had regressed while in intensive outpatient care. Dr. Center testified that these records might have persuaded her to recommend a higher level of care, such as a partial hospital program, but that she still would not have recommended residential placement. After Dr. Center rendered her opinion that R.H.’s residential stays at McLean Hospital were not medically necessary, the claim was reviewed by Dr. Frank Santamaria, Florida Blue’s care management medical director. In rendering his opinion, Dr. Santamaria reviewed the medical records sent by Petitioner and McLean Hospital, the log of contact notes kept by New Directions, and Dr. Center’s report.7/ He testified that the available records were adequate to allow him to render an opinion as to medical necessity. Dr. Santamaria concluded that, as to the New Directions criteria for psychiatric residential admissions, R.H. failed to meet criteria 3, 4, and 5. He opined generally that when assessing the need for a residential stay, he is looking for someone who is at risk of self-harm or harming others or who has an acute severe psychiatric condition such as a psychotic disorder that requires confinement. Dr. Santamaria noted that R.H.’s eating disorder was not the primary concern at the time of her admissions to McLean Hospital; however, because the eating disorder was occurring at the same time as the psychiatric problem, he was also looking for medical manifestations of the eating disorder, such as severe weight loss affecting blood chemistry. Criterion 4 requires documented symptoms and/or behaviors that are a significant deterioration from baseline functioning and create a significant functional impairment in at least three of five listed areas. Under area 4a, “primary support,” Dr. Santamaria noted that R.H. had good support from her mother and grandmother. He did not believe that primary support was a problem.8/ As to area 4b, “social/interpersonal,” the notes indicated that R.H. recently had an altercation with a friend. Dr. Santamaria did not find such an altercation out of the ordinary for a 15-year-old and thus found no functional impairment under 4b. Area 4c, “occupational/educational,” appeared to pose no problem because the records indicated that R.H. was an A-B student, despite her rocky first week of high school. As to area 4d, “health/medical compliance,” Dr. Santamaria noted that R.H. had been compliant with medical instructions and her family had been good about seeking care for her. As to area 4e, “ability to maintain safety for either self or others,” Dr. Santamaria acknowledged that R.H. had hit her hand with a hammer and acted in other self-injurious ways, chiefly superficial cutting. He testified that such behaviors are not uncommon in younger populations and do not necessarily make the person a candidate for residential care. Self-injury alone does not satisfy the criterion, unless there is a concern for suicide or homicide. The hammer incident occurred in August, at least one week before R.H.’s admission to McLean Hospital. The McLean Hospital admission note of September 9, 2015, indicates no reported history of suicidal thinking. Dr. Santamaria found no documentation to indicate R.H. was aggressive against herself or others. She had no acute conditions such as psychotic disorders. Dr. Santamaria noted that even if area 4e were deemed to have been met, criterion 4 requires significant functional impairment and degradation from baseline functioning in at least three of the listed areas, and that R.H. at most satisfied one area of the criterion. Criterion 5 of the New Directions psychiatric residential criteria requires that one of three conditions relating to the patient’s support system or treatment history be met. Dr. Santamaria concluded that none of the three conditions were met. Condition 5c requires a recent history of multiple brief acute inpatient stays without a successful transition to a lower level of care. Dr. Santamaria conceded that the record he examined disclosed little information about prior therapies that had been tried with R.H., but he concluded that the record was sufficient to confirm that R.H. did not have multiple brief inpatient stays. He was reasonably confident that McLean Hospital would have documented such stays had they occurred because they would be a very significant part of her history. Dr. Santamaria also noted that R.H. had been able to transition to an intensive outpatient program from her inpatient admission to the Renfrew Center in May 2015. Condition 5a requires that family members or the patient’s support system demonstrate behaviors that are likely to undermine the goals of treatment, such that treatment at a lower level of care is unlikely to be successful. The record disclosed that R.H.’s mother, who was her custodial guardian, had a history of substance abuse but had gone through a rehabilitation program, attended Narcotics Anonymous regularly, and had been sober for one year at the time of R.H.’s October 15, 2015, admission to McLean Hospital. Dr. Santamaria testified that if R.H.’s mother were currently using drugs and R.H. had nowhere else to go, then condition 5a might be met. However, the actual situation presented by the medical record did not establish that R.H. was living in an unsafe environment that could undermine her treatment. As to condition 5b, a documented history of an inability to be managed at an intensive lower level of care, Dr. Santamaria concluded that R.H. had responded to various therapies in the past. As noted above, criterion 3 of the New Directions psychiatric residential criteria is exclusionary, i.e., if the placement appears not to be medically necessary, then one begins to seek another motivation, such as the desire for a change of pace or a respite for the family. Dr. Santamaria noted that DBT does not require placement at the residential level. It can be done at an intensive outpatient or partial hospitalization level, both of which are lower levels of care than residential.9/ This fact made Dr. Santamaria suspect that the prime motive for R.H.’s placement may have been custodial. Dr. Santamaria testified that he also analyzed R.H.’s admission under the New Directions eating disorder residential criteria. He stated that he could not be certain from the record whether McLean Hospital was treating R.H.’s eating disorder, as well as providing DBT, but he knew that McLean Hospital was mindful of the eating disorder. He also knew that R.H.’s transfer to the Cambridge Center was partly because her eating disorder was becoming worse. Dr. Santamaria concluded that R.H. did not satisfy criteria 3 through 7 for an eating disorder residential admission. Dr. Santamaria testified that R.H. did not meet eating disorder residential criteria 3 through 5 for the same reasons she did not meet the identical criteria 3 through 5 of the psychiatric residential criteria. Criterion 6 concerns biomedical complications of an eating disorder. Dr. Santamaria reviewed the medical records and concluded that R.H. presented none of the complications that would require 24-hour care at the time of her admission on September 9, 2015. Dr. Santamaria likewise found that R.H. satisfied neither factor 7a nor 7b of Criterion 7. As to 7a, R.H. did not present with a low body weight and there was no documentation that she had lost 10 percent of her body weight in the last 30 days. As to 7b, there was no evidence that R.H.’s “compensatory behaviors,” i.e., binging and purging, had caused “significant physiological complications” or that such behaviors occurred multiple times daily and did not respond to treatment “at an intensive lower level of care.” Dr. Santamaria testified that his analysis as to the October 15, 2015, admission was identical to that for the September 9, 2015, admission. As to both admissions, he believed that intensive outpatient was the appropriate level of care. Dr. Santamaria defined “intensive outpatient” as three hours of intensive therapy for at least three days per week. He believed that this level of care could address all of R.H.’s issues, including her self-injurious behavior. Dr. Santamaria concluded that if R.H. tried the intensive outpatient level of care and failed, then a higher level could be considered. Like Dr. Center, he stated that he might have recommended a partial hospitalization setting had he known that intensive outpatient had been tried and failed, but he still would not have recommended a 24-hour residential admission. Petitioner’s presentation implied that Florida Blue and/or Prest & Associates base their coverage decisions on financial considerations rather than strictly on the merits of the claims. Dr. Center and Dr. Santamaria both testified that they had no incentive, financial or otherwise, to deny a claim for reimbursement. Their testimony on this point is credible. Petitioner offered no direct evidence that Florida Blue or Prest & Associates directly pressure their physician employees to reject meritorious claims, and there is no evidence that Dr. Santamaria or Dr. Center based their recommendations on anything other than their assessment of R.H.’s medical records in light of the relevant medical necessity criteria. Petitioner raised questions about the completeness of the records examined by Dr. Santamaria and Dr. Center and sounded a skeptical note as to the diligence of the physicians’ efforts to obtain additional documentation. As found above, both Dr. Santamaria and Dr. Center testified that they had adequate documentation to render an opinion as to medical necessity in this case. Both physicians stated that in other cases they have taken additional steps to obtain missing information, including making peer-to-peer calls to the treating physicians or reaching out to the case managers, but that no such steps were necessary in this case. Both physicians conceded that not all of the medical records were available to them at the time of their reviews. They did not have records from R.H.’s stays at the Renfrew Center and the Cambridge Center or the notes of R.H.’s treating physicians in Florida. Both Dr. Center and Dr. Santamaria credibly testified that nothing in these additional records would have changed their opinion as to the medical necessity of residential treatment for R.H. Section 12 of the Plan, which sets forth the appeal process for a denied claim, expressly states: “Your appeal may include any additional documentation, information, evidence or testimony that you would like reviewed and considered during the appeal process.” This language is included in the explanations for both the Level I and Level II appeals. Nothing prevents the member from providing any documentation whatsoever during the appeal process. Dr. Center and Dr. Santamaria are physician reviewers, not medical investigators. If something Petitioner asserted to be relevant to the decision was missing from the files, it was not the fault of the reviewing physicians. It is ultimately the member’s responsibility to provide appropriate documentation for review. By letter dated April 5, 2016, Florida Blue notified Petitioner that it “remains unable to approve additional coverage and/or payment for the Residential Treatment.” The letter set forth the following rationale for the denial: Per the State Employees’ PPO Plan Booklet and Benefits Document page 5-5: “Services or supplies that are not Medically Necessary, as determined by Florida Blue and/or CVS Caremark clinical staff and Division of State Group Insurance, are non- covered.” Specifically, coverage for the Mental Health (Eating Disorder) Residential stays is denied as it does not meet the definition of medical necessity. This is for hospital stay on and after 09/09/2015 and 10/15/2015. The final decision to proceed with the requested services is between the provider and the member. Records show that the member was not deemed to be a present risk to self or to others. Though the member had a preoccupation with weight sand [sic] eating, there was no evidence of inability to adequately care for self with functioning in multiple sphere areas, including stabilization of the eating disorder issues. There was no report of medical instability or psychosis. The member was in a body weight range. The member was described as having her eating disorder symptoms under control. From the clinical evidence, this member could have been safely treated at each occasion at a lesser level of care such as in an eating disorder intensive outpatient setting. This review was done using New Directions Clinical Care criteria and is based on the opinion of a board certified psychiatrist. Services that are not medically necessary are not covered under your health benefit plan. The denial letter provided Petitioner with information regarding the Level II appeal process to DSGI, including a reference to the pertinent section of the Plan. The denial letter reiterated that Petitioner could submit any information or documentation that Petitioner believed could assist in DSGI’s review of the appeal. Petitioner submitted a request for a Level II appeal to DSGI on May 23, 2016. The Level II appeal was reviewed by DSGI’s legal nurse coordinator, Kathy Flippo. Ms. Flippo reviewed all of the documents reviewed by Dr. Center and Dr. Santamaria, plus additional records submitted by Petitioner with the Level II appeal request. Ms. Flippo determined that the stays at issue were non-emergency admissions that required pre-certification and that the pre-certification requirements of the Plan were not met. Ms. Flippo reached the same conclusions as Dr. Center and Dr. Santamaria regarding the New Directions psychiatric residential criteria. Ms. Flippo concluded that R.H. did not meet criteria 3, 4, or 5. Ms. Flippo testified that she did not review the case pursuant to the New Directions eating disorder residential criteria because Petitioner’s Level II appeal addressed only the psychiatric issues and because R.H.’s eating disorder stay at the Cambridge Center was covered by Florida Blue. By letter dated July 29, 2016, signed by Tami Fillyaw, director of DSGI, Petitioner was informed that the Level II appeal had been denied. The letter informed Petitioner of his rights under the Plan to file a petition for a formal or an informal hearing contesting the denial of the appeal and/or to request a binding external review from an Independent Review Organization (“IRO”).10/ Petitioner requested both an administrative hearing and an external review.11/ The external review was conducted under the auspices of the Medical Review Institute of America, Inc. (“MRIoA”), a URAC-accredited external review network. The MRIoA assigned a physician whom it stated is board-certified by the American Board of Psychiatry and Neurology in the specialties of General Psychiatry and Child & Adolescent Psychiatry.12/ The external review upheld the adverse determinations regarding coverage for the McLean Hospital stays. In its decision letter dated November 11, 2016, the MRIoA provided the following relevant clinical summary and findings: At the time in question, the patient was a 15 year old female with a variety of difficulties related to depression, anxiety, eating disorder symptoms, and symptoms of obsessive compulsive disorder (OCD) with self-harming behaviors. This review has to do with a question of whether residential treatment center (RTC) level of care (LOC) for two episodes of service 9/9/15-9/22/15 and 10/15/15-12/11/15 met the plan criteria for medical necessity. It is noted that the patient was treated in a special eating disorders program on the dates between these two episodes. * * * The patient’s presentation did not meet the plan criteria for medical necessity for the dates in question. Specifically, the patient did not meet criteria #5 of the Admission Criteria. The patient is noted to have a caring and effective support system that would have supported a less intensive level of care. There was no recent history of inability to be effectively treated at an intensive level of service below residential treatment center (RTC) level of care (LOC), and there was no recent history of inability to transition from inpatient treatment into a less intensive level of care. At the time of admission to residential treatment, it is clear that the patient struggled with mood dysregulation along with episodes of food restriction and self- harming behaviors. She was not responding to attempts at outpatient treatment. The residential program in question was sought out specifically due to its approach to the utilization of DBT (dialectical behavior therapy). However, there is no indication that the patient could not have responded to attempts to escalate her treatment in the outpatient setting through the use of either intensive outpatient or partial hospitalization services. In particular, the patient could have been involved in a formal DBT program without utilization of residential treatment. Her symptom severity for the dates in question was not of a severity to require the use of round the clock observation and treatment. As a result, there was no medical necessity for residential treatment center (RTC) level of care (LOC). * * * The appeal letters from the patient’s family, outpatient providers, and residential facility discuss the need for residential treatment due to the patient’s symptoms severity, particularly the patient’s episodes of self-harming behavior and the need for her to participate in the immersive DBT program utilized at the residential program in question. The patient’s need for more intensive treatment is acknowledged. However, the patient’s recent treatment history was one of outpatient treatment with a previous history of residential treatment for eating disorder symptoms. For the DOS in question, the patient could have obtained appropriate and effective DBT in a less restrictive setting, such as either a partial hospitalization program (PHP) or an intensive outpatient program (IOP). Based on the above, the previous determination has been upheld. At the hearing, Petitioner complained that, prior to receiving the letter denying the Level II appeal, he had no inkling that medical necessity determinations were based on criteria produced by New Directions. The Plan’s definition of “medically necessary” does not reference the fact that Florida Blue relies on the New Directions criteria for medical necessity determinations in psychiatric and eating disorder admissions. Petitioner basically argues that not having the precise language of the New Directions medical necessity criteria deprived him and the medical providers of the ability to frame the coverage requests in such a way as to satisfy the criteria. The record evidence shows Florida Blue does not make the New Directions medical necessity criteria directly available to its members. In fact, New Directions is nowhere mentioned in the Plan. Witnesses for DSGI correctly stated that anyone can download the criteria from the New Directions website, but Petitioner pointed out that one must be aware the criteria exist before one can download them. If this case is typical, it appears that a Florida Blue member must be denied coverage and go through the appeal process before Florida Blue makes him aware of precisely how the determination of medical necessity is made. Dr. Santamaria testified that Florida Blue does not expect its members to have any knowledge of the New Directions criteria or to “understand all the medical jargon.” The member is expected to present Florida Blue with the best and most accurate medical information available (preferably before the services are rendered) and rely on Florida Blue to make the decision. Dr. Santamaria stated, “Your role is not to do the utilization management. That’s my role. Your role is, if you disagree with a coverage determination, to appeal it and to even have your doctor speak on your behalf or write a letter or do whatever. It’s not your role to access the documents and to use them on your own. That--that’s not what they were created for.” Dr. Santamaria emphasized that the member’s “role” is not to “meet criteria” but to provide Florida Blue with information sufficient to allow its experts to apply the criteria. While his phrasing may be condescending, Dr. Santamaria’s statement is basically accurate: the medical records determine whether the criteria have been met. Petitioner’s awareness of the particulars of the criteria would not change the substance of the medical record. The undersigned tends to agree with Petitioner that Florida Blue’s process could be more transparent. However, Petitioner failed to show how the outcome would have been different if the New Directions medical necessity criteria had been available to him or McLean Hospital. Every expert who examined the medical records agreed that R.H. did not meet the criteria for medical necessity. Their opinions are credited. Ms. Flippo emphasized that Florida Blue did not deny coverage merely because McLean Hospital’s 3 East DBT program was self-pay. If the member had been able to obtain pre- certification for hospitalization and a proper bill had been presented to Florida Blue, it would have been covered at the allowable non-network coverage amount. Ms. Flippo also stated that even if pre-certification had been obtained, Florida Blue would certainly not have covered the 70 days that R.H. spent in McLean Hospital. Ms. Flippo had never seen more than 15 days at a time approved, even for members who were floridly psychotic and admitted under the Baker Act. With modern treatments and medications, it is seldom necessary to keep patients at a residential level of care for months at a time. All of the experts agreed that DBT is more commonly provided on an outpatient basis. Additionally, Mr. Shaw pointed out that the ability of the insurer to pay the non-contracted, non-network rate to the hospital is contingent on the hospital’s willingness to accept insurance payments. McLean Hospital’s 3 East DBT program did not accept insurance. Mr. Shaw succinctly stated, “We’re not obligated to pay you back because you made the choice to go to a facility that takes your money but not ours.”
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Management Services, Division of State Group Insurance, issue a final order denying Petitioner’s claim for coverage under the State Employees’ PPO Plan for R.H.’s residential treatment at McLean Hospital from September 9, 2015, to September 30, 2015, and October 15, 2015, to December 11, 2015. DONE AND ENTERED this 17th day of May, 2017, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of May, 2017.
Findings Of Fact The Parties The Applicant, LMHS The applicant, LMHS, is a public, not-for-profit health care system, created in 1968 by special act of the Legislature. A ten-member publicly elected board of directors is responsible for overseeing LMHS on behalf of the citizens of Lee County. LMHS does not have taxing power. LMHS is the dominant provider of hospital services in Lee County. LMHS operates four hospital facilities under three separate hospital licenses. The four hospital campuses are dispersed throughout Lee County: borrowing the sub-county area descriptors adopted by LMHS’s health planning expert, LMHS operates one hospital in northwest Lee County, one hospital in central Lee County, and two hospitals in south Lee County.1/ At present, the four hospital campuses are licensed to operate a total of 1,423 hospital beds. The only non-LMHS hospital in Lee County is 88-bed Lehigh Regional Medical Center (Lehigh Regional) in northeast Lee County, owned and operated by a for-profit hospital corporation, Health Management Associates, Inc. (HMA). LMHS has a best-practice strategy of increasing and concentrating clinical specialties at each of its existing hospitals. The LMHS board has already approved which specialty service lines will be the focus at each of its four hospitals. Although there is still some duplication of specialty areas, LMHS has tried to move more to clinical specialization concentrated at a specific hospital to lower costs, better utilize resources, and also to concentrate talent and repetitions, leading to improved clinical outcomes. Currently licensed to operate 415 hospital beds, Lee Memorial Hospital (Lee Memorial) is located in downtown Fort Myers in central Lee County. The hospital was initially founded in 1916 and established at its current location in the 1930s. In the 1960s, a five-story clinical tower was constructed on the campus, to which three more stories were added in the 1970s. The original 1930s building was demolished and its site became surface parking. Today, Lee Memorial provides a full array of acute care services, plus clinical specialties in such areas as orthopedics, neurology, oncology, and infectious diseases. Lee Memorial’s licensed bed complement includes 15 adult inpatient psychiatric beds (not in operation), and 60 beds for comprehensive medical rehabilitation (CMR), a tertiary health service.2/ Lee Memorial is a designated stroke center, meaning it is a destination to which EMS providers generally seek to transport stroke patients, bypassing any closer hospital that lacks stroke center designation. Lee Memorial operates the only verified level II adult trauma center in the seven-county region designated AHCA district 8. Lee Memorial also is home to a new residency program for medical school graduates. At its peak, Lee Memorial operated as many as 600 licensed beds at the single downtown Fort Myers location. In 1990, when hospital beds were still regulated under the CON program, Lee Memorial transferred its right to operate 220 beds to establish a new hospital facility to the south, HealthPark Medical Center (HealthPark). One reason to shift some of its regulated hospital beds to the south was because of the growing population in the southern half of Lee County. Another reason was to ensure a paying patient population by moving beds away from Lee Memorial to a more affluent area. That way, LMHS would have better system balance, and be better able to bear the financial burden of caring for disproportionately high numbers of Medicaid and charity care patients at the downtown safety-net hospital. That was a reasonable and appropriate objective. HealthPark, located in south Lee County ZIP code 33908, to the south and a little to the west of Lee Memorial, now operates 368 licensed beds--320 general acute care and 48 neonatal intensive care beds. HealthPark’s specialty programs and services include cardiac care, open heart surgery, and urology. HealthPark is a designated STEMI3/ (heart attack) center, a destination to which EMS providers generally seek to transport heart attack patients, bypassing any closer hospital lacking STEMI center designation. HealthPark also concentrates in specialty women’s and children’s services, offering obstetrics, neonatal intensive care, perinatal intensive care, and pediatrics. HealthPark is a state-designated children’s cancer center. HealthPark’s open heart surgery, neonatal and perinatal intensive care, and pediatric oncology services are all tertiary health services. In 1996, LMHS acquired its third hospital, Cape Coral Medical Center (Cape Coral), from another entity.4/ The acquisition of Cape Coral was another step in furtherance of the strategy to improve LMHS’s overall payer mix by establishing hospitals in affluent areas. Cape Coral is located in northwest Lee County, and is licensed to operate 291 general acute care beds. Cape Coral’s specialty concentrations include obstetrics, orthopedics, gastroenterology, urology, and stroke treatment. Cape Coral recently achieved primary stroke center designation, making it an appropriate destination for EMS transport of stroke patients, according to Lee County EMS transport guidelines. The newest LMHS hospital, built in 2007-2008 and opened in 2009, is Gulf Coast Medical Center (Gulf Coast) in south Lee County ZIP code 33912.5/ With 349 licensed beds, Gulf Coast offers tertiary services including kidney transplantation and open heart surgery, and specialty services including obstetrics, stroke treatment, surgical oncology, and neurology. Gulf Coast is both a designated primary stroke center and a STEMI center. NCH NCH is a not-for-profit system operating two hospital facilities with a combined 715 licensed beds in Collier County, directly to the south of Lee County. Naples Community Hospital (Naples Community) is in downtown Naples. NCH North Naples Hospital Campus (North Naples) is located in the northernmost part of Collier County, near the Collier-Lee County line.6/ The Petitioner in this case is NCH doing business as North Naples. North Naples is licensed to operate 262 acute care beds. It provides an array of acute care hospital services, specialty services including obstetrics and pediatrics, and tertiary health services including neonatal intensive care and CMR. AHCA AHCA is the state health planning agency charged with administering the CON program pursuant to the Health Facility and Services Development Act, sections 408.031-408.0455, Florida Statutes (2013).7/ AHCA is responsible for the coordinated planning of health care services in the state. To carry out its responsibilities for health planning and CON determinations, AHCA maintains a comprehensive health care database, with information that health care facilities are required to submit, such as utilization data. See § 408.033(3), Fla. Stat. AHCA conducts its health planning and CON review based on “health planning service district[s]” defined by statute. See § 408.032(5), Fla. Stat. Relevant in this case is district 8, which includes Sarasota, DeSoto, Charlotte, Lee, Glades, Hendry, and Collier Counties. Additionally, by rule, AHCA has adopted acute care sub-districts, originally utilized in conjunction with an acute care bed need methodology codified as Florida Administrative Code Rule 59C-1.038. The acute care bed need rule was repealed in 2005, following the deregulation of acute care beds from CON review. However, AHCA has maintained its acute care sub-district rule, in which Lee County is designated sub-district 8-5. Fla. Admin. Code R. 59C-2.100(3)(h)5. The Proposed Project LMHS proposes to establish a new 80-bed general hospital on the southeast corner of U.S. Highway 41 and Coconut Road in Bonita Springs (ZIP code 34135),8/ in south Lee County. The CON application described the hospital services to be offered at the proposed new hospital in only the most general fashion--medical- surgical services, emergency services, intensive care, and telemetry services. Also planned for the proposed hospital are outpatient care, community education, and chronic care management --all non-hospital, non-CON-regulated services. At hearing, LMHS did not elaborate on the planned hospital services for the proposed new facility. Instead, no firm decisions have been made by the health system regarding what types of services will be offered at the new hospital. The proposed site consists of three contiguous parcels, totaling approximately 31 acres. LMHS purchased a 21-acre parcel in 2004, with a view to building a hospital there someday. LMHS later added to its holdings when additional parcels became available. At present, the site’s development of regional impact (DRI) development order does not permit a hospital, but would allow the establishment of a freestanding emergency department. The proposed hospital site is adjacent to the Bonita Community Health Center (BCHC). Jointly owned by LMHS and NCH, BCHC is a substantial health care complex described by LMHS President James Nathan as a “hospital without walls.” This 100,000 square-foot complex includes an urgent care center, ambulatory surgery center, and physicians’ offices. A wide variety of outpatient health care services are provided within the BCHC complex, including radiology/diagnostic imaging, endoscopy, rehabilitation, pain management, and lab services. Although LMHS purchased the adjacent parcels with the intent of establishing a hospital there someday, representatives of LMHS expressed their doubt that “someday” has arrived; they have candidly admitted that this application may be premature. CON Application Filing LMHS did not intend to file a CON application when it did, in the first hospital-project review cycle of 2013. LMHS did not file a letter of intent (LOI) by the initial LOI deadline to signify its intent to file a CON application. However, LMHS’s only Lee County hospital competitor, HMA, filed an LOI on the deadline day. LMHS learned that the project planned by HMA was to replace Lehigh Regional with a new hospital, which would be relocated to south Lee County, a little to the north of the Estero/Bonita Springs area. LMHS was concerned that if the HMA application went forward and was approved, that project would block LMHS’s ability to pursue a hospital in Bonita Springs for many years to come. Therefore, in reaction to HMA’s LOI, LMHS filed a “grace period” LOI, authorized under AHCA’s rules, to submit a competing proposal for a new hospital in south Lee County. But for the HMA LOI, there would have been no grace period for a competing proposal, and LMHS would not have been able to apply when it did. Two weeks later, on the initial application filing deadline, LMHS submitted a “shell” application. LMHS proceeded to quickly prepare the bulk of its application to file five weeks later by the omissions response deadline of April 10, 2013. Shortly before the omissions response deadline, Mr. Nathan met with Jeffrey Gregg, who is in charge of the CON program as director of AHCA’s Florida Center for Health Information and Policy Analysis, and Elizabeth Dudek, AHCA Secretary, to discuss the LMHS application. Mr. Nathan told the AHCA representatives that LMHS was not really ready to file a CON application, but felt cornered and forced into it to respond to the HMA proposal. Mr. Nathan also discussed with AHCA representatives the plan to transfer 80 beds from Lee Memorial, but AHCA told Mr. Nathan not to make such a proposal. Since beds are no longer subject to CON regulation, hospitals are free to add or delicense beds as they deem appropriate, and therefore, an offer to delicense beds adds nothing to a CON proposal. LMHS’s CON application was timely filed on the omissions deadline. A major focus of the application was on why LMHS’s proposal was better than the expected competing HMA proposal. However, HMA did not follow through on its LOI by filing a competing CON application. The LMHS CON application met the technical content requirements for a general hospital CON application, including an assessment of need for the proposed project. LMHS highlighted the following themes to show need for its proposed new hospital: South Lee County “should have its own acute care hospital” because it is a fast-growing area with an older population; by 2018, the southern ZIP codes of Lee County will contain nearly a third of the county’s total population. The Estero/Bonita Springs community strongly supports the proposed new hospital. Approval of the proposed new hospital “will significantly reduce travel times for the service area’s residents and will thereby significantly improve access to acute care services,” as shown by estimated travel times to local hospitals for residents in the proposed primary service area and by Lee County EMS transport logs. LMHS will agree to a CON condition to delicense 80 beds at Lee Memorial, which are underutilized, so that there will be no net addition of acute care beds to the sub-district’s licensed bed complement. AHCA’s Preliminary Review and Denial AHCA conducted its preliminary review of the CON application in accordance with its standard procedures. As part of the preliminary review process for general hospital applications, the CON law now permits existing health care facilities whose established programs may be substantially affected by a proposed project to submit a detailed statement in opposition. Indeed, such a detailed statement is a condition precedent to the existing provider being allowed to participate as a party in any subsequent administrative proceedings conducted with respect to the CON application. See § 408.037(2), Fla. Stat. North Naples timely filed a detailed statement in opposition to LMHS’s proposed new hospital. LMHS timely filed a response to North Naples’ opposition submittal, pursuant to the same law. After considering the CON application, the North Naples opposition submittal, and the LMHS response, AHCA prepared its SAAR in accordance with its standard procedures. A first draft of the SAAR was prepared by the CON reviewer; the primary editor of the SAAR was AHCA CON unit manager James McLemore; and then a second edit was done by Mr. Gregg. Before the SAAR was finalized, Mr. Gregg met with the AHCA Secretary to discuss the proposed decision. The SAAR sets forth AHCA’s preliminary findings and preliminary decision to deny the LMHS application. Mr. Gregg testified at hearing as AHCA’s representative, as well as in his capacity as an expert in health planning and CON review. Through Mr. Gregg’s testimony, AHCA reaffirmed its position in opposition to the LMHS application, and Mr. Gregg offered his opinions to support that position. Statutory and Rule Review Criteria The framework for consideration of LMHS’s proposed project is dictated by the statutory and rule criteria that apply to general hospital CON applications. The applicable statutory review criteria, as amended in 2008 for general hospital CON applications, are as follows: The need for the health care facilities and health services being proposed. The availability, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. * * * (e) The extent to which the proposed services will enhance access to health care for residents of the service district. * * * (g) The extent to which the proposal will foster competition that promotes quality and cost-effectiveness. * * * (i) The applicant’s past and proposed provision of health care services to Medicaid patients and the medically indigent. § 408.035(1), Fla. Stat.; § 408.035(2), Fla. Stat. (identifying review criteria that apply to general hospital applications). AHCA has not promulgated a numeric need methodology to calculate need for new hospital facilities. In the absence of a numeric need methodology promulgated by AHCA for the project at issue, Florida Administrative Code Rule 59C-1.008(2)(e) applies. This rule provides that the applicant is responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory and rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and Market conditions. Florida Administrative Code Rule 59C-1.030 also applies. This rule elaborates on “health care access criteria” to be considered in reviewing CON applications, with a focus on the needs of medically underserved groups such as low income persons. LMHS’s Needs Assessment LMHS set forth its assessment of need for the proposed new hospital, highlighting the population demographics of the area proposed to be served. Theme: South Lee County’s substantial population The main theme of LMHS’s need argument is that south Lee County “should have its own acute care hospital” because it is a fast-growing area with a substantial and older population. (LMHS Exh. 3, p. 37). LMHS asserts that south Lee County’s population is sufficient to demonstrate the need for a new hospital because “by 2018, the southern ZIP codes of Lee County will contain nearly a third of the county’s total population.” Id. LMHS identified eight ZIP codes--33908, 33912, 33913, 33928, 33931, 33967, 34134, and 34135--that constitute “south Lee County.” (LMHS Exh. 3, Table 4). Claritas population projections, reasonably relied on by the applicant, project that by 2018 these eight ZIP codes will have a total population of 200,492 persons, approximately 29 percent of the projected population of 687,795 for all of Lee County. The age 65-and-older population in south Lee County is projected to be 75,150, approximately 40 percent of the projected 65+ population of 185,655 for all of Lee County. A glaring flaw in LMHS’s primary need theme is that the eight-ZIP-code “south Lee County” identified by LMHS is not without its own hospital. That area already has two of the county’s five existing hospitals: Gulf Coast and HealthPark. In advancing its need argument, LMHS selectively uses different meanings of “south Lee County.” When describing the “south Lee County” that deserves a hospital of its own, LMHS means the local Estero/Bonita Springs community in and immediately surrounding the proposed hospital site in the southernmost part of south Lee County. However, when offering up a sufficient population to demonstrate need for a new hospital, “south Lee County” expands to encompass an area that appears to be half, if not more, of the entire county. The total population of the Estero/Bonita Springs community is 76,753, projected to grow to 83,517 by 2018--much more modest population numbers compared to those highlighted by the applicant for the expanded version of south Lee County. While the rate of growth for Estero/Bonita Springs is indeed fast compared to the state and county growth rates, this observation is misleading because the actual numbers are not large. LMHS also emphasizes the larger proportion of elderly in the Estero/Bonita Springs community, which is also expected to continue to grow at a fast clip. Although no specifics were offered, it is accepted as a generic proposition that elderly persons are more frequent consumers of acute care hospital services. By the same token, elderly persons who require hospitalization tend to be sicker, and to present greater risks of potential complications from comorbidities, than non-elderly patients. As a result, for example, as discussed below, Lee County EMS’s emergency transport guidelines steer certain elderly patients to hospitals with greater breadth of services than the very basic hospital planned by LMHS, “as a reasonable precaution.” Projections of a Well-Utilized Proposed Hospital Mr. Davidson, LMHS’s health planning consultant, was provided with the proposed hospital’s location and number of beds, and was asked to develop the need assessment and projections. No evidence was offered regarding who determined that the proposed hospital should have 80 beds, or how that determination was made. Mr. Davidson set about to define the proposed primary and secondary service areas, keeping in mind that section 408.037(2) now requires a general hospital CON application to specifically identify, by ZIP codes, the primary service area from which the proposed hospital is expected to receive 75 percent of its patients, and the secondary service area from which 25 percent of the hospital’s patients are expected. Mr. Davidson selected six ZIP codes for the primary service area. He included the three ZIP codes comprising the Estero/Bonita Springs community. He also included two ZIP codes that are closer to existing hospitals than to the proposed site, according to the drive-time information he compiled. In addition, he included one ZIP code in which there is already a hospital (Gulf Coast, in 33912). Mr. Davidson’s opinion that this was a reasonable, and not overly aggressive, primary service area was not persuasive;9/ the criticisms by the other expert health planning witnesses were more persuasive and are credited. Mr. Davidson selected six more ZIP codes for the secondary service area. These include: two south Lee County ZIP codes that are HealthPark’s home ZIP code (33908) and a ZIP code to the west of HealthPark (33931); three central Lee County ZIP codes to the north of HealthPark and Gulf Coast; and one Collier County ZIP code that is North Naples’ home ZIP code. Mr. Davidson’s opinion that this was a reasonable, and not overly aggressive, secondary service area was not persuasive; the criticisms by the other expert health planning witnesses were more persuasive and are credited. As noted above, the existing LMHS hospitals provide tertiary-level care and a number of specialty service lines and designations that have not been planned for the proposed new hospital. Conversely, there are no services proposed for the new hospital that are not already provided by the existing LMHS hospitals. In the absence of evidence that the proposed new hospital will offer services not available at closer hospitals, it is not reasonable to project that any appreciable numbers of patients will travel farther, and in some instances, bypass one or more larger existing hospitals with greater breadth of services, to obtain the same services at the substantially smaller proposed new hospital. As aptly observed by AHCA’s representative, Mr. Gregg, the evidence to justify such an ambitious service area for a small hospital providing basic services was lacking: So if we were to have been given more detail[:] here’s the way we’re going to fit this into our system, here’s -- you know, here’s why we can design this service area as big as we did, even though it would require a lot of people to drive right by HealthPark or right by Gulf Coast to go to this tiny basic hospital for some reason. I mean, there are fundamental basics about this that just make us scratch our head. (Tr. 1457). The next step after defining the service area was to develop utilization projections, based on historic utilization data for service area residents who obtained the types of services to be offered by the proposed hospital. In this case, the utilization projections suffer from a planning void. Mr. Nathan testified that no decisions have been made regarding what types of services, other than general medical- surgical services, will be provided at the proposed new hospital. In lieu of information regarding the service lines actually planned for the proposed hospital, Mr. Davidson used a subtractive process, eliminating “15 or so” service lines that the proposed hospital either “absolutely wasn’t going to provide,” or that, in his judgment, a small hospital of this type would not provide. The service lines he excluded were: open heart surgery; trauma; neonatal intensive care; inpatient psychiatric, rehabilitation, and substance abuse; and unnamed “others.” His objective was to “narrow the scope of available admissions down to those that a smaller hospital could reasonably aspire to care for.” (Tr. 671-672). That objective is different from identifying the types of services expected because they have been planned for this particular proposed hospital. The testimony of NCH’s health planner, as well as Mr. Gregg, was persuasive on the point that Mr. Davidson’s approach was over-inclusive. The historic data he used included a number of service lines that are not planned for the proposed hospital and, thus, should have been subtracted from the historic utilization base. These include clinical specialties that are the focus of other LMHS hospitals, such as infectious diseases, neurology, neurosurgery, orthopedics, and urology; cardiac care, such as cardiac catheterization and angioplasty that are not planned for the proposed hospital; emergency stroke cases that will be directed to designated stroke centers; pediatric cases that will be referred to HealthPark; and obstetrics, which is not contemplated for the proposed hospital according to the more credible evidence.10/ Mr. Davidson’s market share projections suffer from some of the same flaws as the service area projections: there is no credible evidence to support the assumption that the small proposed new hospital, which has planned to offer only the most basic hospital services, will garner substantial market shares in ZIP codes that are closer to larger existing hospitals providing a greater breadth of services. In addition, variations in market share projections by ZIP code raise questions that were not adequately explained.11/ Overall, the “high-level” theme offered by LMHS’s health planner--that it is unnecessary to know what types of services will be provided at the new hospital in order to reasonably project utilization and market share--was not persuasive. While it is possible that utilization of the proposed new hospital would be sufficient to suggest it is filling a need, LMHS did not offer credible evidence that that is so. Bed Need Methodology for Proposed Service Area Mr. Davidson projected bed need for the proposed service area based on the historic utilization by residents of the 12 ZIP codes in the service lines remaining after his subtractive process, described above. Other than using an over-inclusive base (as described above), Mr. Davidson followed a reasonable approach to determine the average daily census generated by the proposed service area residents, and then applying a 75 percent occupancy standard to convert the average daily census into the number of beds supported by that population. The results of this methodology show that utilization generated by residents of the six-ZIP code primary service area would support 163 hospital beds; and utilization generated by residents of the six-ZIP code secondary service area would support 225 beds in the secondary service area. The total gross bed need for the proposed service area adds up to 388 beds. However, the critical next step was missing: subtract from the gross number of needed beds the number of existing beds, to arrive at the net bed need (or surplus). In the primary service area, 163 beds are needed, but there are already 349 beds at Gulf Coast. Thus, in the primary service area, there is a surplus of 186 beds, according to the applicant’s methodology. In the secondary service area, 225 beds are needed, but there are already 320 acute care beds at HealthPark and 262 acute care beds at North Naples. Thus, in the secondary service area, there is a surplus of 357 beds, according to the applicant’s methodology. While it is true that Gulf Coast and HealthPark use some of their beds to provide some tertiary and specialty services that were subtracted out of this methodology, and all three hospitals presumably provide services to residents outside the proposed service area, Mr. Davidson made no attempt to measure these components. Instead, the LMHS bed need methodology ignores completely the fact that there is substantial existing bed capacity--931 acute care beds--within the proposed service area. Availability and Utilization of Existing Hospitals LMHS offered utilization data for the 12-month period ending June 30, 2012, for Lee County hospitals. Cape Coral’s average annual occupancy rate was 57.6 percent; HealthPark’s was 77.5 percent; Lee Memorial’s was 55.9 percent; Lehigh Regional’s was 44 percent; and Gulf Coast’s was 79.8 percent. Mr. Davidson acknowledged that a reasonable occupancy standard to plan for a small hospital the size of the proposed hospital is 75 percent. For a larger operational hospital, 80 percent is a good standard to use, indicating it is well-utilized. Judged by these standards, only HealthPark and Gulf Coast come near the standard for a well-utilized hospital. As noted in the CON application, these annual averages do not reflect the higher utilization during peak season. According to the application, HealthPark’s occupancy was 88.2 percent and Gulf Coast’s was 86.8 percent for the peak quarter of January-March 2012. LMHS did not present utilization information for North Naples, even though that hospital is closest to the proposed hospital site and is within the proposed service area targeted by the applicant. For the same 12-month period used for the LMHS hospitals, North Naples’ average annual occupancy rate was 50.97 percent and for the January-March 2012 “peak season” quarter, North Naples’ occupancy was 60.68 percent. At the final hearing, LMHS did not present more recent utilization data, choosing instead to rely on the older information in the application. Based on the record evidence, need is not demonstrated by reference to the availability and utilization of existing hospitals in the proposed service area or in the sub-district. Community Support LMHS argued that the strong support by the Estero/Bonita Springs community should be viewed as evidence of need for the proposed new hospital. As summarized in the SAAR, approximately 2,200 letters of support were submitted by local government entities and elected officials, community groups, and area residents, voicing their support for the proposed hospital. LMHS chose not to submit these voluminous support letters in the record. The AHCA reviewer noted in the SAAR that none of the support letters documented instances in which residents of the proposed service area needed acute care hospital services but were unable to obtain them, or suffered poor or undesirable health outcomes due to the current availability of hospital services. Two community members testified at the final hearing to repeat the theme of support by Estero/Bonita Springs community residents and groups. These witnesses offered anecdotal testimony about traffic congestion during season, population growth, and development activity they have seen or heard about. They acknowledged the role their community organization has played in advocating for a neighborhood hospital, including developing and disseminating form letters for persons to express their support. Consistent with the AHCA reviewer’s characterization of the support letters, neither witness attested to any experiences needing acute care hospital services that they were unable to obtain, or any experiences in which they had poor or undesirable outcomes due to the currently available hospital services. There was no such evidence offered by any witness at the final hearing. Mr. Gregg characterized the expression of community support by the Estero/Bonita Springs community as typical “for an upper income, kind of retiree-oriented community where, number one, people anticipate needing to use hospitals, and number two, people have more time on their hands to get involved with things like this.” (Tr. 1433). Mr. Gregg described an extreme example of community support for a prior new hospital CON application, in which AHCA received 21,000 letters of support delivered in two chartered buses that were filled with community residents who wanted to meet with AHCA representatives. Mr. Gregg identified the project as the proposed hospital for North Port, which was ultimately denied following an administrative hearing. In the North Port case, the Administrative Law Judge made this apt observation with regard to the probative value of the overwhelming community support offered there: “A community’s desire for a new hospital does not mean there is a ‘need’ for a new hospital. Under the CON program, the determination of need for a new hospital must be based upon sound health planning principles, not the desires of a particular local government or its citizens.” Manatee Memorial Hospital, L.P. v. Ag. for Health Care Admin., et al., Case Nos. 04-2723CON, 04-3027CON, and 04- 3147CON (Fla. DOAH Dec. 15, 2005; Fla. AHCA April 11, 2006), RO at 26, ¶ 104, adopted in FO. That finding, which was adopted by AHCA in its final order, remains true today, and is adopted herein. Access The statutory review criteria consider access issues from two opposing perspectives: from the perspective of the proposed project, consideration is given to the extent to which the proposal will enhance access to health care services for the applicant’s service district; without the proposed project, consideration is given to the accessibility of existing providers of the health care services proposed by the applicant. Addressing this two-part access inquiry, LMHS contends that the proposed hospital would significantly reduce travel times and significantly enhance access to acute care services. Three kinds of access are routinely considered in CON cases: geographic access, in this case the drive times by individuals to hospitals; emergency access, i.e., the time it takes for emergency ground transport (ambulances) to deliver patients to hospitals; and economic access, i.e., the extent to which hospital services are provided to Medicaid and charity care patients. Geographic Access (drive times to hospitals) For nearly all residents of the applicable service district, district 8, the proposed new hospital was not shown to enhance access to health care at all. The same is true for nearly all residents of sub-district 8-5, Lee County. LMHS was substantially less ambitious in its effort to show access enhancement, limiting its focus on attempting to prove that access to acute care services would be enhanced for residents of the primary service area. LMHS did not attempt to prove that there would be any access enhancement to acute care services for residents of the six-ZIP code secondary service area. As set forth in the CON application, Mr. Davidson used online mapping software to estimate the drive time from each ZIP code in the primary service area to the four existing LMHS hospitals, the two NCH hospitals, and another hospital in north Collier County, Physicians Regional-Pine Ridge. The drive-time information offered by the applicant showed the following: the drive time from ZIP code 33912 was less to three different existing LMHS hospitals than to the proposed new hospital; the drive time from ZIP code 33913 was less to two different existing LMHS hospitals than to the proposed new hospital; and the drive time from ZIP code 33967 was less to one existing LMHS hospital than to the proposed hospital site. Thus, according to LMHS’s own information, drive times would not be reduced at all for three of the six ZIP codes in the primary service area. Not surprisingly, according to LMHS’s information, the three Estero/Bonita Springs ZIP codes are shown to have slightly shorter drive times to the proposed neighborhood hospital than to any existing hospital. However, the same information also suggests that those residents already enjoy very reasonable access of 20-minutes’ drive time or less to one or more existing hospitals: the drive time from ZIP code 33928 is between 14 and 20 minutes to three different existing hospitals; the drive time from ZIP code 34134 is between 18 and 20 minutes to two different existing hospitals; and the drive time from ZIP code 34135 is 19 minutes to one existing hospital. In terms of the extent of drive time enhancement, the LMHS information shows that drive time would be shortened from 14 minutes to seven minutes for ZIP code 33928; from 18 minutes to 12 minutes for ZIP code 34134; and from 19 minutes to 17 minutes for ZIP code 34135. There used to be an access standard codified in the (now-repealed) acute care bed need rule, providing that acute care services should be accessible within a 30-minute drive time under normal conditions to 90 percent of the service area’s population. Mr. Davidson’s opinion is that the former rule’s 30-minute drive time standard remains a reasonable access standard for acute care services. Here, LMHS’s drive time information shows very reasonable access now, meeting an even more rigorous drive-time standard of 20 minutes. The establishment of a new hospital facility will always enhance geographic access by shortening drive times for some residents. For example, if LMHS’s proposed hospital were established, another proposed hospital could demonstrate enhanced access by reducing drive times from seven minutes to four minutes for residents of Estero’s ZIP code 33928. But the question is not whether there is any enhanced access, no matter how insignificant. Instead, the appropriate consideration is the “extent” of enhanced access for residents of the service district or sub-district. Here, the only travel time information offered by LMHS shows nothing more than insignificant reductions of already reasonable travel times for residents of only three of six ZIP codes in the primary service area. The drive-time information offered in the application and at hearing was far from precise, but it was the only evidence offered by the applicant in an attempt to prove its claim that there would be a significant reduction in drive times for residents of the primary service area ZIP codes. No travel time expert or traffic engineer offered his or her expertise to the subject of geographic accessibility in this case. No evidence was presented regarding measured traffic conditions or planned roadway improvements. Anecdotal testimony regarding “congested” roads during “season” was general in nature and insufficient to prove that there is not reasonable access now to basic acute care hospital services for all residents of the proposed service area. The proposed new hospital is not needed to address a geographic access problem. Consideration of the extent of access enhancement does not weigh in favor of the proposed new hospital. Emergency Access LMHS also sought to establish that emergency access via EMS ambulance transport was becoming problematic during the season because of traffic congestion. In its CON application, LMHS offered Lee County EMS transport logs as evidence that ambulance transport times from the Estero/Bonita Springs community to an existing hospital were higher during season than in the off-season months. LMHS represented in its CON application that the voluminous Lee County EMS transport logs show average transport times of over 22 minutes from Bonita Springs to a hospital in March 2012 compared to 15 minutes for June 2012, and average transport times of just under 22 minutes from Estero to a hospital in March 2012 compared to over 17 minutes for June 2012. LMHS suggested that these times were not reasonable because these were all emergency transports at high speeds with flashing lights and sirens. LMHS did not prove the accuracy of this statement. The Lee County EMS ordinance limits the use of sirens and flashing lights to emergency transports, defined to mean transports of patients with life- or limb-threatening conditions. According to Lee County EMS Deputy Chief Panem, 90 to 95 percent of ambulance transports do not involve such conditions. Contrary to the conclusion that LMHS urges should be drawn from the EMS transport logs, the ambulance transport times summarized by LMHS in its application do not demonstrate unreasonable emergency access for residents of Estero/Bonita Springs. The logs do not demonstrate an emergency access problem for the local residents during the season, as contended by LMHS; nor did LMHS offer sufficient evidence to prove that the proposed new hospital would materially improve ambulance transport times. LMHS’s opinion that the ambulance logs show a seasonal emergency access problem for Estero/Bonita Springs residents cannot be credited unless the travel times on the logs reflect patient transports to the nearest hospital, such that establishing a new hospital in Bonita Springs would result in faster ambulance transports for Estero/Bonita Springs residents. Deputy Chief Panem testified that ambulance transport destination is dictated in the first instance by patient choice. In addition, for the “most serious calls,” the destination is dictated by emergency transport guidelines with a matrix identifying the most “appropriate” hospitals to direct patients. For example, as Deputy Chief Panem explained: In the case of a stroke or heart attack, we want them to go to a stroke facility or a heart attack facility[;] or trauma, we have a trauma center in Lee County as well . . . Lee Memorial Hospital downtown is a level II trauma center. (Tr. 378). The emergency transport matrix identifies the hospitals qualified to handle emergency heart attack, stroke, or trauma patients. In addition, the matrix identifies the “most appropriate facility” for emergency pediatrics, obstetrics, pediatric orthopedic emergencies, and other categories involving the “most serious calls.” Of comparable size to the proposed new hospital, 88-bed Lehigh Regional is not identified as an “appropriate facility” to transport patients with any of the serious conditions shown in the matrix. Similar to Lehigh Regional, the slightly smaller proposed new hospital is not expected to be identified as an appropriate facility destination for patients with any of the conditions designated in the Lee County EMS emergency transport matrix. The Lee County EMS transport guidelines clarify that all trauma alert patients “will be” transported to Lee Memorial as the Level II Trauma Center. In addition, the guidelines provide as follows: “Non-trauma alert patients with a high index of suspicion (elderly, etc.) should preferentially be transported to the Trauma Center as a reasonable precaution.” (emphasis added). For the elderly, then, a condition that would not normally be considered one of the most serious cases to be steered to the most appropriate hospital may be reclassified as such, as a reasonable precaution because the patient is elderly. The Lee County EMS transport logs do not reflect the reason for the chosen destination. The patients may have requested transport to distant facilities instead of to the nearest facilities. Patients with the most serious conditions may have accepted the advice of ambulance crews that they should be transported to the “most appropriate facility” with special resources to treat their serious conditions; or those patients may have been unable to express their choice due to the seriousness of their condition, in which case the patients would be taken to the most appropriate facility, bypassing closer facilities. Elderly patients may have been convinced to take the reasonable precaution to go to an appropriate facility even if their condition did not fall into the most serious categories. Since the transport times on the EMS logs do not necessarily reflect transport times to the closest hospital, it is not reasonable to conclude that the transport times would be shorter if there were an even closer hospital, particularly where the closer hospital is not likely to be designated as an appropriate destination in the transport guidelines matrix. The most serious cases, categorized in the EMS transport matrix, are the ones for which minutes matter. For those cases, a new hospital in Estero/Bonita Springs, which has not planned to be a STEMI receiving center, a stroke center, or a trauma center, is not going to enhance access to emergency care, even for the neighborhood residents. The evidence at hearing did not establish that ambulance transport times are excessive or cause an emergency access problem now.12/ In fact, Deputy Chief Panem did not offer the opinion, or offer any evidence to prove, that the drive time for ambulances transporting patients to area hospitals is unreasonable or contrary to any standard for reasonable emergency access. Instead, Lee County EMS recently opposed an application for a certificate of public convenience and necessity by the Bonita Springs Fire District to provide emergency ground transportation to hospitals, because Lee County EMS believed then, and believes now, that it is providing efficient and effective emergency transport services to the Bonita Springs area residents. At hearing, LMHS tried a different approach by attempting to prove an emergency access problem during season, not because of the ambulance drive times, but because of delays at the emergency departments themselves after patients are transported there. The new focus at hearing was on EMS “offload” times, described as the time between ambulance arrival at the hospital and the time the ambulance crews hand over responsibility for a patient to the emergency department staff. According to Deputy Chief Panem, Lee County hospitals rarely go on “bypass,” a status that informs EMS providers not to transport patients to a hospital because additional emergency patients cannot be accommodated. No “bypass” evidence was offered, suggesting that “bypass” status is not a problem in Lee County and that Lee County emergency departments are available to EMS providers. Deputy Chief Panem also confirmed that North Naples does not go on bypass. The North Naples emergency department consistently has been available to receive patients transported by Lee County EMS ambulances, during seasonal and off- season months. Offload times are a function of a variety of factors. Reasons for delays in offloading patients can include inadequate capacity or functionality of the emergency department, or inadequate staffing in the emergency department such that there may be empty treatment bays, but the bays cannot be filled with patients because there is no staff to tend to the patients. Individual instances of offload delays can occur when emergency department personnel prioritize incoming cases, and less-emergent cases might have to wait while more-emergent cases are taken first, even if they arrived later. Offload times are also a function of “throughput” issues. Approximately 20 to 25 percent of emergency department patients require admission to the hospital, but there can be delays in the admission process, causing the patient to be held in a treatment bay that could otherwise be filled by the next emergency patient. There can be many reasons for throughput delays, including the lack of an available acute care bed, or inadequate staffing that prevents available acute care beds from being filled. No evidence was offered to prove the actual causes of any offload delays. Moreover, the evidence failed to establish that offload times were unreasonable or excessive. Deputy Chief Panem offered offload time data summaries that reflect very good performance by LMHS hospitals and by North Naples. Deputy Chief Panem understandably advocates the shortest possible offload time, so that Lee County EMS ambulances are back in service more quickly. Lee County EMS persuaded the LMHS emergency departments to agree to a goal for offload times of 30 minutes or less 90 percent of the time, and that is the goal he tracks. Both Lee Memorial and North Naples have consistently met or exceeded that goal in almost every month over the last five years, including during peak seasonal months. Cape Coral and Gulf Coast sometimes fall below the goal in peak seasonal months, but the evidence did not establish offload times that are excessive or unreasonable during peak months. HealthPark is the one LMHS hospital that appears to consistently fall below Lee County EMS’s offload time goal; in peak seasonal months, HealthPark’s offload times were less than 30 minutes in approximately 70 percent of the cases. No evidence was offered to prove the extent of offload delays at HealthPark for the other 30 percent of emergency cases, nor was evidence offered to prove the extent of offload delays at any other hospital. Deputy Chief Panem referred anecdotally to offload times that can sometimes reach as high as two to three hours during season, but he did not provide specifics. Without documentation of the extent and magnitude of offload delays, it is impossible to conclude that they are unreasonable or excessive. There is no persuasive evidence suggesting that this facet of emergency care would be helped by approval of the proposed new hospital, especially given the complicated array of possible reasons for each case in which there was a delayed offload.13/ Staffing/professional coverage issues likely would be exacerbated by approving another hospital venue for LMHS. Pure physical plant issues, such as emergency department capacity and acute care bed availability, might be helped to some degree, at least in theory, by a new hospital, but to a lesser degree than directly addressing any capacity issues at the existing hospitals. For example, HealthPark’s emergency department has served as a combined destination for a wide array of adult and pediatric emergencies. However, HealthPark is about to break ground on a new on-campus children’s hospital with its own dedicated emergency department. There will be substantially expanded capacity both within the new dedicated pediatric emergency department, and in the existing emergency department, where vacated space used for pediatric patients will be freed up for adults. Beyond the emergency departments themselves, there will be substantial additional acute care bed capacity, with space built to accommodate 160 dedicated pediatric beds in the new children’s hospital. The existing hospital will have the ability to add more than the 80 acute care beds proposed for the new hospital. This additional bed capacity could be in place within roughly the same timeframe projected for opening the proposed new hospital. To the extent additional capacity would improve emergency department performance, Cape Coral is completing an expansion project that increases its treatment bays from 24 to 42, and Lee Memorial is adding nine observation beds to its emergency department. No current expansion projects were identified for Gulf Coast, which just began operations in 2009, but LMHS has already invested in design and construction features to enable that facility to expand by an additional 252 beds. In Mr. Kistel’s words, Gulf Coast has a “tremendous platform for growth[.]” (Tr. 259). Mr. Gregg summarized AHCA’s perspective in considering the applicant’s arguments of geographic and emergency access enhancement, as follows: [I]n our view, this community is already well served by existing hospitals, either within the applicant’s system or from the competing Naples system, and we don’t think that the situation would be improved by adding another very small, extremely basic hospital. And to the extent that that would mislead people into thinking that it’s a full-service hospital that handles time-sensitive emergencies in the way that the larger hospitals do, that’s another concern. (Tr. 1425). * * * The fact that this hospital does not plan to offer those most time-sensitive services means that any – on the surface, as I said earlier, the possible improvement in emergency access offered by any new hospital is at least partially negated in this case because it has been proposed as such a basic hospital, when the more sophisticated services are located not far away. (Tr. 1431). Mr. Gregg’s opinion is reasonable and is credited. Economic Access The Estero/Bonita Springs community is a very affluent area, known for its golf courses and gated communities. As a result of the demographics of the proposed hospital’s projected service area, LMHS’s application offers to accept as a CON condition a commitment to provide 10 percent of the total annual patient days to a combination of Medicaid, charity, and self-pay patients. This commitment is less than the 2011-2012 experience for the primary service area, where patient days attributable to residents in these three payer classes was a combined 16.3 percent; and the commitment is less than the 2011- 2012 experience for the total proposed service area, where patient days in these three categories was a combined 14.4 percent. Nonetheless, LMHS’s experts reasonably explained that the commitment was established on the low side, taking into account the uncertainties of changes in the health care environment, to ensure that the commitment could be achieved. In contrast with the 10 percent commitment and the historic level of Medicaid/charity/self-pay patient days in the proposed service area, Lee Memorial historically has provided the highest combined level of Medicaid and charity patient days in district 8. According to LMHS’s financial expert, in 2012, Lee Memorial downtown and HealthPark, combined for reporting purposes under the same license, provided 31.5 percent of their patient days to Medicaid and charity patients--a percentage that would be even higher, it is safe to assume, if patient days in the “self- pay/other” payer category were added. At hearing, Mr. Gregg reasonably expressed concern with LMHS shifting its resources from the low-income downtown area where there is great need for economic access to a very affluent area where comparable levels of service to the medically needy would be impossible to achieve. Mr. Gregg acknowledged that AHCA has approved proposals in the past that help systems with safety-net hospitals achieve balance by moving some of the safety net’s resources to an affluent area. As previously noted, that sort of rationale was at play in the LMHS project to establish HealthPark, and again in the acquisitions of Cape Coral and Gulf Coast. However, LMHS now has three of its four hospitals thriving in relatively affluent areas. To move more LMHS resources from the downtown safety-net hospital to another affluent area would not be a move towards system balance, but rather, system imbalance, and would be contrary to the economic access CON review criteria in statute and rule. Missing Needs Assessment Factor: Medical Treatment Trends The consistent testimony of all witnesses with expertise to address this subject was that the trend in medical treatment continues to be in the direction of outpatient care in lieu of inpatient hospital care. The expected result will be that inpatient hospital usage will narrow to the most highly specialized services provided to patients with more serious conditions requiring more complex, specialized treatments. Mr. Gregg described this trend as follows: “[O]nly those services that are very expensive, operated by very extensive personnel” will be offered to inpatients in the future. (Tr. 1412). A basic acute care hospital without planned specialty or tertiary services is inconsistent with the type of hospital dictated by this medical treatment trend. Mr. Gregg reasonably opined that “the ability of a hospital system to sprinkle about small little satellite facilities is drawing to a close.” (Tr. 1413). Small hospitals will no longer be able to add specialized and tertiary services, because these will be concentrated in fewer hospitals. LMHS’s move to clinical specialization at its hospitals bears this out. Another trend expected to impact services within the timeframe at issue is the development of telemedicine as an alternative to inpatient hospital care. For patients who cannot be treated in an outpatient setting and released, an option will be for patients to recover at home in their own beds, with close monitoring options such as visual monitoring by video linking the patient with medical professionals, and use of devices to constantly measure and report vital signs monitored by a practitioner at a remote location. Telemedicine offers advantages over inpatient hospitalization with regard to infection control and patient comfort, as well as overall health care cost control by reducing the need for capital-intensive traditional bricks-and- mortar hospitals. A medical treatment trend being actively pursued by both LMHS and NCH is for better, more efficient management of inpatient care so as to reduce the average length of patient stays. A ten-year master planning process recently undertaken by LMHS included a goal to further reduce average lengths of stay by 0.65 days by 2021, and thereby reduce the number of hospital beds needed system-wide by 128 beds. LMHS did not address the subject of medical treatment trends as part of its needs assessment. The persuasive evidence demonstrated that medical treatment trends do not support the need for the proposed new facility; consideration of these trends weighs against approval. Competition; Market Conditions The proposed new hospital will not foster competition; it will diminish competition by expanding LMHS’s market dominance of acute care services in Lee County. AHCA voiced its reasonable concerns about Lee Memorial’s “unprecedented” market dominance of acute care services in a county as large as Lee, which recently ranked as the eighth most populous county in Florida. LMHS already provides a majority of hospital care being obtained by residents of the primary service area. LMHS will increase its market share if the proposed new hospital is approved. This increase will come both directly, via basic medical-surgical services provided to patients at the new hospital, and indirectly, via LMHS’s plan for the proposed new hospital to serve as a feeder system to direct patients to other LMHS hospitals for more specialized care.14/ The evidence did not establish that LMHS historically has used its market power as leverage to demand higher charges from private insurers. However, as LMHS’s financial expert acknowledged, the health care environment is undergoing changes, making the past less predictive of the future. The changing environment was cited as the reason for LMHS’s low commitment to Medicaid and charity care for the proposed project. There is evidence of LMHS’s market power in its high operating margin, more than six percent higher than NCH’s operating margin between 2009 and 2012. LMHS’s financial expert’s opinion that total margin should be considered instead of operating margin when looking at market power was not persuasive. Of concern is the market power in the field of hospital operations, making operating margin the appropriate measure. Overall, Mr. Gregg reasonably explained the lack of competitive benefit from the proposed project: I think that this proposal does less for competition than virtually any acute care hospital proposal that we’ve seen. As I said, it led the Agency to somewhat scratch [its] head in disbelief. There is no other situation like it. . . . This is the most basic of satellites. This hospital will be referring patients to the rest of the Lee Memorial system in diverse abundance because they are not going to be able to offer specialized services. And economies of scale are not going to allow it in the future. People will not be able to duplicate the expensive services that hospitals offer. So we do not see this as enhancing competition in any way at all. (Tr. 1416-1417). The proposed hospital’s inclusion of outpatient services, community education, and chronic care management presents an awkward dimension of direct competition with adjacent BCHC, the joint venture between LMHS and NCH. BCHC has been a money-losing proposition in a direct sense, but both systems remain committed to the venture, in part because of the indirect benefit they now share in the form of referrals of patients to both systems’ hospitals. Duplication of BCHC’s services, which are already struggling financially, would not appear to be beneficial competition. While this is not a significant factor, to the extent LMHS makes a point of the non-hospital outpatient services that will be available at the proposed new hospital, it must be noted that that dimension of the project does nothing to enhance beneficial competition. Adverse Impact NCH would suffer a substantial adverse financial impact caused by the establishment of the proposed hospital, if approved. A large part of the adverse financial impact would be attributable to lost patient volume at North Naples, an established hospital which is not well-utilized now, without a new hospital targeting residents of North Naples’ home zip code. The expected adverse financial impact of the proposed new hospital was reasonably estimated to be $6.4 million annually. Just as LMHS cited concerns about the unpredictability of the health care environment as a reason to lower its Medicaid/charity commitment for the proposed project, NCH has concerns with whether the substantial adverse impact from the proposed hospital will do serious harm to NCH’s viability, when added to the uncertain impacts of the Affordable Care Act, sequestration, Medicaid reimbursement, and other changes. LMHS counters with the view that if the proposed hospital is approved, in time population growth will offset the proposed hospital’s adverse impact. While consideration of medical treatment trends may dictate that an increasing amount of future population growth will be treated in settings other than a traditional hospital, Mr. Gregg opined that over time, the area’s population growth will still tend to drive hospital usage up. However, future hospital usage will be by a narrower class of more complex patients. Considering all of the competing factors established in this record, the likely adverse impact that NCH would experience if the proposed hospital is established, though substantial enough to support the standing of Petitioner North Naples, is not viewed as extreme enough to pose a threat to NCH’s viability. Institution/System-Specific Interests LMHS’s proposed condition to transfer 80 beds from Lee Memorial downtown is not a factor weighing in favor of approval of its proposed hospital. At hearing, LMHS defended the proposed CON condition as a helpful way to allow LMHS to address facility challenges at Lee Memorial. The evidence showed that to some extent, this issue is overstated in that, by all accounts, Lee Memorial provides excellent, award-winning care that meets all credentialing requirements for full accreditation. The evidence also suggested that to some extent, there are serious system issues facing LMHS that will need to be confronted at some point to answer the unanswered question posed by Mr. Gregg: What will become of Lee Memorial? Recognizing this, LMHS began a ten-year master planning process in 2011, to take a look at LMHS’s four hospitals in the context of the needs of Lee County over a ten-year horizon, and determine how LMHS could meet those needs. A team of outside and in-house experts were involved in the ten-year master planning process. LMHS’s strategic planning team looked at projected volumes and population information for all of Lee County over the next ten years and determined the number of beds needed to address projected needs. Recommendations were then developed regarding how LMHS would meet the needs identified for Lee County through 2021 by rearranging, adding, and subtracting beds among the four existing hospital campuses. A cornerstone of the master plan assessment by numerous outside experts and LMHS experts was that Lee Memorial’s existing physical plant was approaching the end of its useful life. Options considered were: replace the hospital building on the existing campus; downsize the hospital and relocate some of the beds and services to Gulf Coast; and the favored option, discontinue operations of Lee Memorial as an acute care hospital, removing all acute care beds and reestablishing those beds and services primarily at the Gulf Coast campus, with some beds possibly placed at Cape Coral. All of these options addressed the projected needs for Lee County through 2021 within the existing expansion capabilities of Gulf Coast and Cape Coral, and the expansion capabilities that HealthPark will have with the addition of its new on-campus children’s hospital. Somewhat confusingly, the CON application referred several times to LMHS’s “ten-year master plan for our long-term facility needs, which considers the changing geographic population trends of our region, the need for additional capacity during the seasonal months, and facility challenges at Lee Memorial[.]” (LMHS Exh. 3, pp. 12, 57). The implication given by these references was that the new hospital project was being proposed in furtherance of the ten-year master plan, as the product of careful, studied consideration in a long-range planning process to address the future needs of Lee County. To the contrary, although the referenced ten-year master plan process was, indeed, a long- range deliberative planning process to assess and plan for the future needs of Lee County, the ten-year master plan did not contemplate the proposed new hospital as a way to meet the needs in Lee County identified through 2021.15/ The ten-year master planning process was halted because of concerns about the options identified for Lee Memorial. Further investigation was to be undertaken for Lee Memorial and what services needed to be maintained there. No evidence was presented to suggest that this investigation had taken place as of the final hearing. The proposed CON condition to transfer 80 beds from Lee Memorial does nothing to address the big picture issues that LMHS faces regarding the Lee Memorial campus. According to different LMHS witnesses, either some or nearly all of those licensed beds are not operational or available to be put in service, so the license is meaningless and delicensing them would accomplish nothing. To the extent any of those beds are operational, delicensing them might cause Lee Memorial to suddenly have throughput problems and drop below the EMS offload time goal, when it has been one of the system’s best performers. The proposed piecemeal dismantling of Lee Memorial, without a plan to address the bigger picture, reasonably causes AHCA great concern. As Mr. Gregg explained, “[I]t raises a fundamental concern for us, in that the area around Lee Memorial, the area of downtown Fort Myers is the lower income area of Lee County. The area around the proposed facility, Estero, Bonita, is one of the upper income areas of Lee County.” (Tr. 1410). The plan to shift resources away from downtown caused Mr. Gregg to pose the unanswered question: “[W]hat is to become of Lee Memorial?” Id. Recognizing the physical plant challenges faced there, nonetheless AHCA was left to ask, “[W]hat about that population and how does [the proposed new hospital] relate? How does this proposed facility fit into the multihospital system that might exist in the future?” (Tr. 1410-1411). These are not only reasonable, unanswered questions, they are the same questions left hanging when LMHS interrupted the ten-year master planning process to react to HMA’s LOI with the CON application at issue here. Balanced Review of Pertinent Criteria In AHCA’s initial review, when it came time to weigh and balance the pertinent criteria, “It was difficult for us to come up with the positive about this proposal.” (Tr. 1432). In this case, AHCA’s initial review assessment was borne out by the evidence at hearing. The undersigned must agree with AHCA that the balance of factors weighs heavily, if not entirely, against approval of the application.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue a Final Order denying CON application no. 10185. DONE AND ENTERED this 28th day of March, 2014, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 2014.
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The Petitioner, St. Joseph's Hospital, Inc., d/b/a St. Joseph's Hospital (Petitioner, Applicant, or St. Joseph's) filed Certificate of Need (CON) Application No. 9833 with the Agency for Health Care Administration (Agency or AHCA). The application seeks authority to establish a 90-bed acute care satellite hospital in southeastern Hillsborough County, Florida. St. Joseph's intends to transfer 90 acute care beds from its existing location in Tampa to the new facility. The issue in this case is whether the Agency should approve the CON application.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily denied St. Joseph's CON application No. 9833. The Petitioner is the applicant for the CON in this case. The Petitioner is a not-for-profit organization licensed to operate St. Joseph's Hospital, a general acute care facility located in the urban center of Tampa, Florida. It was originally founded by a religious order and has grown from approximately 40 beds to a licensed bed capacity of 883 beds. St. Joseph's provides quality care in a comprehensive range of services. Those services include tertiary and Level II trauma services. St. Joseph's provides services to all patients regardless of their ability to pay. To meet its perception of the growing healthcare needs of the greater Hillsborough County residents, St. Joseph's has proposed to construct a satellite hospital on a site it purchased in the mid-1980s. According to St. Joseph's, the satellite hospital, together with its main campus, would better address the growing community needs for acute care hospital services. To that end, St. Joseph's filed CON application No. 9833 and seeks approval of its satellite facility. It proposes to transfer 90 of its acute care beds from its current hospital site to the new satellite facility. The main hospital will offer support services as may be necessary to the satellite facility. Tampa General is an 877-bed acute care hospital located on Davis Island in urban Tampa, Florida. Prior to 1997, it was a public hospital operated by the Hillsborough County Hospital Authority but has since been operated and managed by a non- profit corporation, Florida Health Sciences, Inc. Tampa General provides quality care in a wide range of services that include tertiary and Level I trauma. Tampa General addresses the medical needs of its patients without consideration of their ability to pay. It is a "safety net" provider and is the largest provider of services to Medicaid and charity patients in the AHCA District 6/Subdistrict 1. Medicaid has designated Tampa General a "disproportionate share" provider. Tampa General is also a teaching hospital affiliated with the University of South Florida's College of Medicine. Recently, Tampa General has undergone a major construction project that brings on line a new emergency trauma center as well as additional acute care beds, a women's center, a cardiovascular center and a digestive diagnostic and treatment center. Tampa General opposes the CON request at issue. South Bay and Brandon also oppose St. Joseph's CON application. South Bay is a 112-bed community acute care hospital located in Sun City Center, Florida. South Bay has served the community for about 25 years and offers quality care but does not provide obstetrical services primarily because its closest population and patient base is a retirement community restricted to persons over 55 years of age. In contrast, Brandon is an acute care hospital with 367 beds located to South Bay's north in Brandon, Florida. Brandon provides quality care with a full range of hospital services including obstetrics, angioplasty, and open-heart surgery. Brandon also has neonatal intensive care (NICU) beds to serve Level II and Level III needs. It is expected that Brandon could easily add beds to its facility as it has empty "shelled-in" floors that could readily be converted to add 80 more acute care beds. Both Brandon and South Bay are owned or controlled by Hospital Corporation of America (HCA) and are part of its West Florida Division. The Proposal St. Joseph's has a wide variety of physicians on its medical staff. Those physicians currently offer an array of general acute care services as well as medical and surgical specialties. St. Joseph's provides Levels II and III NICU, open heart surgery, interventional radiology, primary stroke services, oncology, orthopedic, gynecological oncology, and pediatric surgical. Based upon its size, reputation for quality care, and ability to offer this wide array of services, St. Joseph's has enjoyed a well-deserved respect in its community. To expand its ties within AHCA's District 6/Subdistrict 1 healthcare community, St. Joseph's affiliated with South Florida Baptist Hospital a 147-bed community hospital located in Plant City, Florida. This location is east of the main St. Joseph Hospital site. Further, recognizing that the growth of greater Hillsborough County, Florida, has significantly increased the population of areas previously limited to agricultural or mining ventures, St. Joseph's now seeks to construct a community satellite hospital located in the unincorporated area of southeastern Hillsborough County known as Riverview. The Petitioner owns approximately 50 acres of land at the intersection of Big Bend Road and Simmons Loop Road. This parcel is approximately one mile east of the I-75 corridor that runs north-south through the county. In relation to the other parties, the proposed site is north and east of South Bay, south of Brandon, and east and south of Tampa General. South Florida Baptist Hospital, not a party, is located to the north and farther east of the proposed site. The size of the parcel is adequate to construct the proposed satellite as well as other ancillary structures that might compliment the hospital (such as medical offices). If approved, the Petitioner's proposal will provide 66 medical-surgical beds, 14 beds within an intensive care unit, and 10 labor and delivery beds. All 90 beds will be "state-of- the-art" private rooms along with a full-service emergency department. The hospital will be fully digital, use an electronic medical record and picture archiving system, and specialists at the main St. Joseph's hospital will be able to access images and data at the satellite site in real time. A consultation would be, theoretically, as close as a computer. In reaching its decision to seek the satellite hospital, St. Joseph's considered input from many sources; among them: HealthPoint Medical Group (HealthPoint) and BayCare Health System, Inc. (BayCare). HealthPoint is a physician group owned by an affiliate of St. Joseph's. HealthPoint has approximately 80 physicians who operate 21 offices throughout Hillsborough County. All of the HealthPoint physicians are board certified. At least five of the HealthPoint offices would have quicker access to the proposed satellite hospital than to the main St. Joseph's Hospital site. The HealthPoint physicians support the proposal so that their patients will have access to, and the option of choosing, a St. Joseph facility in the southeastern part of the county. BayCare is an organization governed by a cooperative agreement among nonprofit hospitals. Its purpose is to assist its member hospitals to centralize and coordinate hospital functions such as purchasing, staffing, managed care contracting, billing, and information technology. By cooperatively working together, its members are able to enjoy a cost efficiency that individually they did not enjoy. The "synergy" of their effort results in enhanced quality of care, efficient practices, and a financial savings to their operations. The proposed St. Joseph's satellite would also share in this economy of efforts. Understandably, BayCare supports the proposal. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: ...If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to St. Joseph's, "need" is evidenced by a large and growing population in the proposed service area (PSA), sustained population growth that exceeds the District and state average, highly occupied and seasonally over capacity acute care beds at the existing providers, highly occupied and sustained increases in demand for hospital services, a scarcity of emergency medical service resources within the PSA compounded by budget cuts, increases in traffic congestion and travel times to the existing hospitals, the lack of a nonprofit community hospital near the proposed site, and the lack of local obstetrical services. In this case the Petitioner has identified the PSA as a 10 zip code area with 7 being designated the "primary" area of service (PSA) and 3 zip codes to the north being identified as the "secondary" area of service (SSA). The population of this PSA is projected to reach 322,913 by the year 2011 (from its current 274,696). All parties used Claritas data to estimate population, the PSA growth, and various projections. Claritas is a conservative estimator in the sense that it relies on the most recent U. S. census reports that may or may not track the most recent growth indicators such as building starts or new home sales. Nevertheless, if accurate, the estimated 17.5 percent population growth expected in the new satellite hospital's PSA exceeds the rate of growth estimated for AHCA District 6 as well as the projected State of Florida growth rate. From the 7 primary zip codes within the PSA alone the area immediately adjacent to the subject site is estimated to grow by 14,900 residents between 2006 and 2011. Over the last 20 years the PSA has developed from rural farming and mining expanses with scattered housing and trailer parks to an area characterized by modern shopping centers, apartment complexes, housing subdivisions, churches, libraries, and new schools. Physicians in the area now see as many as 60 patients per day and during the winter peak months may admit up to 20 patients per week to hospitals. Travel times from the southern portion of the PSA to St. Joseph's Hospital, Tampa General, or Brandon, can easily exceed 30 minutes. Travel times to the same providers during "rush" or high traffic times can be longer. All of the opponent providers have high occupancy rates and experience seasonal over capacity. During the winter months visitors from the north and seasonal residents add significant numbers to the population in Hillsborough County. These "snow birds" drive the utilization of all District 6/Subdistrict 1 hospitals up. Further, increased population tends to slow and congest traffic adding to travel times within AHCA District 6/Subdistrict 1. Both Brandon and Tampa General have recently added beds to address the concerns of increased utilization. Additionally, Tampa General has expanded its emergency department to provide more beds. South Bay has elected to not increase its bed size or emergency department. South Bay has experienced difficulty staffing its emergency department. When faced with capacity problems, South Bay "diverts" admissions to other hospitals. When the emergency rooms of the Opponent providers are unable to accommodate additional patients, the county emergency transport is diverted to other facilities so that patients have access to emergency services. During the winter season and peak flu periods this diversion is more likely to occur. Another hospital in the southeastern portion of the county, within St. Joseph's satellite PSA, would alleviate some of the crowding. More specifically, South Bay's annual occupancy rate in 2006 was 80.1 percent. For the first seven months of 2007, South Bay's average occupancy rate was 88.4 percent. These rates indicate that South Bay is operating at a high occupancy. Operating at or near capacity is not recommended for any hospital facility. Long term operation at or near occupancy proves to be detrimental to hospital efficiencies. Similarly, Brandon operates at 70 percent of its bed capacity. Even though it has recently added beds it intends to add more beds to address continuing increases in admissions. Brandon's emergency room is also experiencing overcrowded conditions. When Brandon's emergency room diverts patients their best option may be to leave District 6/Subdistrict 1 for care. Tampa General is a large complex and its emergency department has been expanded to attempt to address an obvious need for more services. It is unknown whether the new emergency department will adequately cure the high rates of diversion Tampa General experienced in 2007. New beds were added and an improved emergency department was designed and constructed with the expectation that Tampa General's patients would be better served. Based upon Tampa General's expansion and its projected growth, Tampa General could experience an occupancy rate over 75 percent by 2011. If so, Tampa General could easily return to the utilization problems previously experienced. There are no obstetrical services offered south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer obstetrics and has designated a 10-bed unit to accommodate those patients. There are no nonprofit hospitals south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer patients in the PSA with the option of using such a hospital. Section 408.035(2), Florida Statutes (2007), requires the consideration of the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. As previously stated, all of the parties provide quality care to their patients. Although delays in emergency departments may inconvenience patients, the quality of the medical care they receive is excellent. Similarly, hospital services are available and can be accessed in AHCA District 6/Subdistrict 1. The parties provide a full range of healthcare service options that address the medical and surgical needs of the residents of AHCA District 6 Subdistrict 1. An additional hospital would afford patients with another choice of provider in the southeastern portion of the county. The St. Joseph satellite hospital would afford such patients with a hospital option within 30 minutes of the areas within the PSA. This access would promote shorter wait times and less crowded facilities. Section 408.035(3), Florida Statutes (2007), mandates review of CON applications in light of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As previously stated St. Joseph's has a well-deserved reputation for providing quality care within a wide range of hospital services to its patients. It is reasonable to expect the satellite hospital would continue in the provision of such care. The management team and affiliations established by St. Joseph's will continue to pursue quality care to all its patients regardless of their ability to pay. Section 408.035(4), Florida Statutes (2007), considers the availability of resources for project accomplishment and operation. Resources that must be considered include healthcare personnel, management personnel, and funds for capital and operating expenditures. St. Joseph's has the resources to accomplish and operate the satellite hospital proposed. St. Joseph's has a successful history of recruiting and retaining healthcare personnel and management personnel. The estimates set forth in its CON application for these persons were reasonable and conservative. Salaries and benefits for healthcare personnel and management personnel should be within the estimated provisions set forth in the application. Although there is a nationwide shortage of nursing personnel and physicians in certain specialties, St. Joseph's has demonstrated it has a track record of staffing its facility to meet appropriate standards and provide quality care. There is no reason to presume it will not be similarly successful at the satellite facility. St. Joseph's has also demonstrated it has the financial ability to construct and operate the proposed satellite hospital. The occupancy rates projected for the new hospital will produce a revenue adequate to make the hospital financially feasible. Further, if patients who reside closer to the satellite facility use it instead of the main St. Joseph Hospital, a lower census at the main hospital will not adversely impact the financial strength of the organization. There will be adequate growth in the healthcare market for this PSA to support the new facility as well as the existing providers. It must be noted, however, that construction costs for the satellite hospital will exceed the amounts disclosed by the CON application. Some of the increases in cost are significant. For example, the estimate for the earthwork necessary for site preparation has risen from $417,440 to $1,159,296. Additionally, most of the unit prices for construction have gone up dramatically in the past couple of years. Hurricanes and the resulting increased standards for building codes have also driven construction costs higher. More stringent storm water provisions have resulted in higher construction costs. For this project it is estimated the storm water expense will be $500,000 instead of the original $287,000 proposed by the CON application. In total these increases are remarkable. They may also signal why development in AHCA's District 6/Subdistrict 1 has slowed since the CON application was filed. Regardless, St. Joseph's should have the financial strength to construct and operate the project. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require a CON applicant to demonstrate that the existing acute care providers within the PSA are failing in order to approve a satellite hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a satellite hospital would be appropriate or inappropriate. In fact, AHCA has approved satellite hospitals when residents of the PSA live within 20 minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case the proposed satellite hospital will provide a convenience to residents of southeastern Hillsborough County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the satellite hospital. Patients who would not benefit from the convenience of the proposed satellite hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C- 1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of AHCA District 6/Subdistrict 1 will continue to use the existing providers who offer those services. The approval of the St. Joseph satellite will not adversely affect the tertiary providers in AHCA District 6/Subdistrict 1 in terms of their ability to continue to provide those services. The new satellite will not compete for those services. Tampa General has a unique opportunity to provide tertiary services and will continue to be a strong candidate for any patient in the PSA requiring such services. As a teaching hospital and major NICU and trauma center, Tampa General offers specialties that will not be available at the satellite hospital. If non-tertiary patients elect to use the satellite hospital, Tampa General should not be adversely affected. Tampa General has performed well financially of late and its revenues have exceeded its past projections. With the added conveniences of its expanded and improved facilities it will continue to play a significant roll in the delivery of quality health care to the residents of the greater Tampa area. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new satellite hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The satellite hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. AHCA's District 6/Subdistrict 1 enjoys a varied range of healthcare providers. From the teaching hospital at Tampa General to the community hospital at South Bay, all demonstrate strong financial stability and utilization. A new satellite hospital will promote continued quality and cost-effectiveness. As a member of the BayCare group the satellite will benefit from the economies of its group and provide the residents of its PSA with quality care. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. The costs, however, are not accurate in that most have gone up appreciably since the filing of the CON application. No more effective method of construction has been proposed but the financial soundness of the proposal should cover the increased costs associated with the construction of the project. The delays in resolving this case have worked to disadvantage the Applicant in this regard. Unforeseeable acts of nature, limitations of building supplies, and increases inherent with the passage of time will make this project more costly than St. Joseph's envisioned when it filed the CON application. Further, it would be imprudent to disregard the common knowledge that oil prices have escalated while interest rates have dropped. These factors may also impact the project's cost. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. St. Joseph's has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The satellite hospital would be expected to continue this tradition. Moreover, as a provision of its CON application, St. Joseph's has represented it will provide 12.5 percent of its patient days to Medicaid/Medicaid HMO/Charity/Indigent patients. 57 Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Opposition The SAAR set forth the Agency's rationale for the proposed denial of the CON application. The SAAR acknowledged that the proposal had received 633 letters of support (80 from physicians, 365 from St. Joseph employees, and 191 from members of the community); that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the Applicant meets its projected occupancy levels; that the project would have a marginally positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule "seems to be reasonable" for the project. Notably in opposition to the CON application, the SAAR represented that: It is not clear that projected population growth for this area will outpace the ability of subdistrict facilities to add beds to accommodate population growth. The subdistrict's most recent average utilization rate was 63.40 percent, and an additional facility has already been approved for this applicant in this county for the purpose of handling forecasted growth. Growth projected for females aged 15-44 is not significantly higher for the county than for the district or state, and it is not demonstrated that need exists for obstetric services in the subdistrict. The foregoing analysis did not credit the projected population growth for the PSA applicable to this proposal heavily. The population growth expected for the PSA will support the utilization necessary for the proposed project. Applying the Agency's assessment, all existing hospital providers could add beds to meet "need" for a Subdistrict and thereby eliminate the approval of any satellite community facility that would address local concerns. Also, South Bay has conceded it will not add beds at its location. Additionally, the SAAR stated: While both South Bay Hospital and Brandon Regional Hospital have occupancy rates such that the introduction of a competing facility would not likely inhibit their abilities to maintain operations, the same cannot be stated for Tampa General Hospital, the only designated Disproportionate Share Hospital in this subdistrict. Any impact on Tampa General Hospital as a result of the proposed project would likely be negative, limiting Tampa General's ability to offset its Medicaid and charity care services. The applicant facility does not currently have a significant presence in the proposed market, and would have to gain market share in this PSA in order to meet its projected occupancy levels. Much of the market share gained by the applicant with the proposed facility would likely be at the expense of existing facilities in this area, most notably Tampa General due to its lower occupancy level and higher Medicaid and charity care provisions. In reaching its decision, the Agency has elected to protect Tampa General from any negative impact that the proposed satellite hospital might inflict. Tampa General has invested $300 million in improvements. It is a stand-alone, single venue hospital that has not joined any group or integrated system. It relies on its utilization levels, management skill and economies of practice to remain solvent. Tampa General considers itself a unique provider that should be protected from the financial risks inherent in increased competition. It is the largest provider of services to indigent patients in AHCA District 6/Subdistrict. Brandon opposes the proposed satellite hospital in part because it, too, has expanded its facility and does not believe additional beds are needed in AHCA District 6/Subdistrict 1. Nevertheless when a related facility sought to establish a satellite near the St. Joseph's site, Brandon supported the project. Brandon provides excellent quality of care and has a strong physician supported system. It will not be adversely affected in the long run by the addition of a satellite hospital in St. Joseph's PSA. Similarly, South Bay opposes the project. South Bay will not expand and does not provide obstetric services. It has had difficulty staffing its facility and believes the addition of another competitor will exacerbate the problem. Nevertheless, South Bay has a strong utilization level, a track record of financial strength, and will not likely be adversely impacted by the St. Joseph satellite. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new satellite hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9833 with the conditions noted. DONE AND ENTERED this 13th day of May, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 13th day of May, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Holly Benson, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P. A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32304-0551 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308
Findings Of Fact The facts, as stipulated to by the parties and as set forth above, are hereby adopted.
