Findings Of Fact Introduction Orlando General Hospital applied in April, 1987, for a certificate of need to allow it to convert 24 existing medical-surgical beds to short term psychiatric beds. O.G. Ex. 2, p. 1. It did not explicitly apply for beds limited to serve adults. It did, however, state that adolescent care would not be provided "at this time," leaving open the use of the 24 beds in the future for possible adolescent use. Id. at p. 5. Charter Medical-Orange County, Inc., applied for a certificate of need for a 50 bed short term psychiatric specialty hospital. It explicitly applied for a specialty hospital having 50 beds of "short term adult psychiatric care." C.M. Ex. 1, application, section I. In the executive summary, it characterized its proposal as a specialty hospital "for adults." Id. at p. 1. Charter does not intend to treat child or adolescent short term psychiatric patients. T. 23. The applications were filed in early 1987 to meet need in the January, 1992, planning horizon. The rule that applies in this case is the one contained in the prehearing stipulation. T. 392. It is rule 10-5.011(1)(o), Fla. Admin. Code. A copy of the rule is contained in O.G. Ex. 7, p. 33. The provisions of the local health plan at issue in this case are accurately reproduced in the State Agency Action Report (SAAR) which is C.M. Ex. 5. Net Short Term Psychiatric Bed Need (Numeric Need) Rule 10-5.011(1)(o)4a-c, Fla. Admin. Code, provides that the projected number of beds shall be based on a bed need ratio of .35 beds per 1,000 population projected five years into the future and based, in this case, on the January, 1987, projections for January, 1992. That 1992 population for District VII is projected to be 1,505,564, and thus the gross short term psychiatric bed need is 527 beds. For this batching cycle, the inventory of licensed and approved short term psychiatric beds was 410. These were: General Hospitals Florida Hospital-Altamonte 20 Florida Hospital-Orlando 85 Orlando Regional Med. Center 32 Wuesthoff Memorial Hospital 25 Subtotal 162 Specialty Hospitals Brevard Mental Health Center 52 CPC Palm Bay (began 10/86) 40 Laurel Oaks (began 10/86) 60 Lynnhaven (approved only) 39 Park Place (approved only) 17 West Lake 40 Subtotal 248 TOTAL (Licensed and approved) 410 TOTAL (Licensed only) 354 Thus, there is a net need for 117 short term psychiatric beds In District VII by 1992. The rule further specifies that a minimum of .15 per 1,000 population should be allocated to hospitals holding a general license, and that .20 per 1,000 of the beds may be located in either speciality hospitals or hospitals holding a general license. HRS interprets the word "should" in the rule with respect to .15 per 1,000 allocated to hospitals with a general license as being mandatory. C.M. Ex. 5, pp. 13-14. This is a reasonable construction of the rule. By 1992 there must be 226 short term psychiatric beds located in hospitals holding a general license. Since currently there are 162 beds in such hospitals, there is a net need by January, 1992, for 64 short term psychiatric beds to be opened in hospitals holding a general license. The remainder of the net bed need, 53 beds, may be located in either a specialty hospital or a hospital holding a general license. T. 500-02. The Occupancy Rate for "All Existing Adult Short Term Inpatient Psychiatric Beds" Rule 10-5.011(1)(o)4e, Fla. Admin. Code, provides in part that "no additional short term inpatient hospital adult psychiatric beds shall normally be approved unless the average annual occupancy rate for all existing adult short term inpatient psychiatric beds in a service district is at or exceeds 75 percent for the preceding 12 month period." (E.S.). Calendar year 1986 is the period of time accepted by all parties as the "preceding 12 month period" as specified by the rule, that is, the period of time to calculate the occupancy rate for this batching cycle. See, e.g., T. 285; C.M. Ex. 5. The State Agency Action Report Occupancy Rate The State Agency Action Report computed the occupancy rate for all licensed short term psychiatric beds in District VII in calendar year 1986 at 70.13 percent. C.M. Ex. 5, p. 10. This figure was based upon data as to patient days as reported by District hospitals to the District VII local health council and was based upon 354 licensed beds in the District during the full calendar year, but excluded 56 beds the re approved but not opened. O.G. Ex. 7, p. 6. Exclusion of CPC Palm Bay and Laurel Oaks CPC Palm Bay and Laurel Oaks have been designated by certificate of need issued by HRS to serve only children and adolescents. T. 507. Since those facilities by law cannot serve adults, their beds are not "adult beds," their patient days are not adult patient days, and their occupancy rate is not an adult occupancy rate. T. 1128. If CPC Palm Bay and Laurel Oaks were excluded from the calculation of the occupancy rate in the SAAR, the occupancy rate would be 73.7 percent. This rate is a weighted average based upon a 86,779 patient days that were possible at 100 percent occupancy of all licensed short term psychiatric beds in District VII in 1986, excluding Palm Bay and Laurel Oaks. C.M. Ex. 17, p. 11, fn. 9. How Many Adult Patient Days and Beds? HRS often issues certificates of need without age restrictions, allowing the facility to provide short term psychiatric treatment to everyone, regardless of age. Such hospitals can and do serve all ages, and their licensed short term psychiatric beds are not designated as, or restricted to, adults. T. 1128-29. With the exception of Palm Bay and Laurel Oaks, none of the other licensed short term psychiatric hospitals in the District are restricted by HRS by patient age. HRS does not have data to enable it to determine which short term psychiatric beds were used by adult patients in the District in 1986. T. 1169. Use of beds for age cohorts can dramatically and continuously change during a calendar year, and 41 has no reliable means to know about such changes. T. 1229-30. Hospitals issued certificates of need without limitation as to the age of the patient are not required by HRS to report the number of patient days served by the hospital by age or age group of the patient. See T. 1218-19; HRS Ex. 2. HRS Ex. 2. Consequently, the reported short term psychiatric patient days for District VII for calendar year 1986 mix adult patient days with patient days for children and adolescents. Thus, with the exception of Laurel Oaks and Palm Bay, it is impossible in this case for the applicants and other parties in this batching cycle to untangle pure adult psychiatric patient days from the available data. T. 392, 353, 287, 291, 371, 1169-71. It is impossible on this record to make a finding of fact as to what would happen to the mixed occupancy rate all patient days attributable to adolescents and children could be excluded from the adult patient days. The only bit of evidence is found in C.M. Ex. 17, the data from Florida Hospital, which shows for that hospital that the 16 adolescent unit in 1986 had an occupancy rate of 60.92 percent, and the open adult unit had an occupancy rate of 82.42 percent. C.M. Ex. 17, p. 3. But that percentage is more a reflection of Florida Hospital's choice in how it set up the beds in the two programs than it is a reflection of need. For example, had Florida Hospital chosen to allocate only 12 beds to its adolescent program, instead of 16, the 1986 occupancy rate for that unit, based on 3,558 patients a day, would have been 81.23 percent. One wonders why Florida Hospital did not simply allocate a lower number of beds to the adolescent unit, since it had only 13 admissions to that unit in 1986. In any event, since a hospital like Florida Hospital has discretion as to how it sets up its beds with respect to the ages of patients. In those beds, the fact that it had an occupancy rate of 60.92 percent in the subunit it called the adolescent unit in 1986 is relatively meaningless when trying to predict which way a pure adult occupancy rate might change if adolescent and child patient days could be excluded. In summary, there is no accurate count of beds licensed only as adult beds, there is no accurate count of beds used only as adult beds, and there is no accurate count of adult patient days. The Problem of West Lake Hospital The record has an additional data problem with respect to calculation of the occupancy rate of adult short term psychiatric beds. West Lake Hospital is licensed for 40 short term beds (not restricted by age), and 30 long term psychiatric beds. Data for calendar year 1986, the only year relevant in this case, is a mixture of short term and long term patient days. C.M. Ex. 17. As will be discussed ahead, additional evidence as to the patient days at West Lake Hospital was excluded from evidence for failure to comply with the prehearing order. The Problem of Short Term Psychiatric Patient Days Occurring in General Hospitals Without Licensed Short Term Psychiatric Beds A general hospital with no licensed short term psychiatric care can lawfully provide temporary and sporadic short term psychiatric care in its medical-surgical beds. T. 1191. In calendar year 1986, Orlando General Hospital reported to the Hospital Cost Containment Board that it provided 4,969 psychiatric (MDC 19) patient days of care. O.G. Ex. 7, p. 11. By 1988, it had over 30 psychiatric patients in the hospital at any given time. T. 753. Orlando General Hospital does not have any beds licensed for short term psychiatric care, or for long term psychiatric care, for that matter. Orlando General Hospital's psychiatric patients are currently receiving inpatient psychiatric care that is substantially the same as would be provided in a licensed short term psychiatric bed, with the exception that the care is osteopathic in nature. See T. 797, 1355-58, 1360-62, 788-90, 792-93. HRS Policy as to the Data Problems HRS stated that it "... would not attempt to fix a specific occupancy for a specific age cohort" in this case, T. 1220. A good faith attempt was made, however. Following a new policy, HRS argued that the adult bed occupancy rate should exclude the beds and patient days of hospitals having certificates of need explicitly limited to service of the needs of children and adolescents (Palm Bay and Laurel Oaks), but should include all of the licensed short term psychiatric beds at any other facility that is not restricted by patient age. T. 1127-29. It was acknowledged that the information is faulty, but the Department urges that it is the best that it can do under the circumstances. T. 1174. With respect to patient days, HRS also urges that only the patient days reported to the local health council by hospitals having licensed adult short term psychiatric beds should be counted in the mixed rate. In particular, HRS argues that it should not use patient day data reported to the Hospital Cost Containment Board because such data is not limited to hospitals having "designated" psychiatric units. T. 1126-27. This argument is not reasonable. Hospitals that are legally authorized to provide short term psychiatric care to adults (i.e., having a certificate of need and a license) can provide such care in any licensed bed in the hospital, even though the bed is not licensed as a psychiatric bed. Moreover, a general hospital with no licensed short term psychiatric care, according to HRS witnesses, can lawfully provide temporary and sporadic short term psychiatric care in its medical-surgical beds. It may even provide such care on a continuous, ongoing basis, as in the case of Orlando General Hospital, although the legality of doing so is questioned by HRS. The critical question is not whether these licensed hospitals have legal authority to provide short term psychiatric care, but whether the care in fact given results in a short term psychiatric patient day in the District. If the care given is essentially the same as if the patient had been in a licensed short term psychiatric bed, it would be unreasonable not to treat the resulting statistic as a short term psychiatric patient day. What is at stake is a true measurement of District capacity. If tomorrow all of the District short term psychiatric patients and the patient days generated by such patients transferred to the District licensed short term psychiatric beds, these short term psychiatric patient days would certainly be counted in the occupancy rate. When trying to assess the real extent of availability of District capacity, a false picture of excess and unused capacity would be shown if real short term psychiatric patient days are occurring somewhere in the District, but are not counted in determining the occupancy rate. On the other hand, if the facility is not even a licensed hospital, it is presumptively providing an alternative kind of inpatient psychiatric care that is different from a licensed psychiatric hospital. Thus, its patient days are irrelevant absent some specific proof that the care given in such a bed is essentially the same as a short term psychiatric patient day in a licensed general or specialty hospital. What is an "Existing" Adult Short Term Bed? Rule 10-5.011(1)(o)4e, Fla. Admin. Code, calls for the occupancy rate for "all existing" adult short term psychiatric beds in the service district, and does not define the word "existing." Petitioners assert that "existing" adult beds of the facility for purposes of determining occupancy rate is the number of beds characterized by the facility as having been in fact used for psychiatric care during the year, but only if that number is less than the number of licensed short term psychiatric beds. T. 391, 354-55. The Respondent and the Intervenor argue that "existing" adult beds is fixed by the number of licensed short term psychiatric beds granted to the facility by the state if available to serve adult patients. Normally, to be licensed a bed must be available within 24 hours. T. 1121. Orlando Regional Medical Center In calendar year 1986, Orlando Regional Medical Center had 32 licensed short term psychiatric beds. T. 348. These 32 beds were not restricted by patient age. In calendar year 1986, Orlando Regional Medical Center characterized as "in service" 32 beds for the first 7 months of 1986, 22 beds for the month of August, 18 beds for the month of September, and 12 beds for the remaining 3 months of the year. The figure of 25 beds used by the Petitioners is the weighted average. T. 348. These licensed short term psychiatric beds at Orlando Regional Medical Center were temporarily not in service because of the construction of new facilities at the hospital. Orlando Regional Medical Facility intended to reopen those beds in the future because the hospital reminded the party seeking discovery that it had 32 licensed beds, and characterized the missing beds as having been "warehoused," that is, saved for future use. T. 509-10; O.G. Ex. 7, appendix 3. Thus, all 32 of Orlando Regional Medical Center's licensed beds would be available and would be used for adult short term psychiatric care if demand existed. Florida Hospital Florida Hospital has two facilities relevant to this case, one in Orlando, in Orange County, and one in Altamonte Springs, in Seminole County. In calendar year 1986, Florida Hospital had 105 beds licensed as short term psychiatric beds. Florida Hospital would serve patients of any age in these 105 beds. C.M. Ex. 18 is a document which was obtained from Florida Hospital through discovery. T. 286. The document is entitled "Florida Hospital Center for Psychiatry Monthly Operating Statistics," and thus was assumed by Charter's expert to be Florida Hospital's characterization of its data as psychiatric data. T. 289. C.M. Ex. 18 could not have been obtained by Charter at the time it made application. It was obtainable only through the discovery process after commencement of section 120.57(1), Fla. Stat., proceedings. T. 314-16, 386-87. Florida Hospital reported in discovery that in calendar year 1986, it had 113 beds operating in its "Center for Psychiatry." Of these, 16 were substance abuse beds, 13 were beds in an eating disorders unit, and 16 were adolescent beds. That left 24 beds in the intensive care unit, 24 beds in an open unit, and 20 beds at a unit at Altamonte Springs. C.M. Ex. 18. The 16 substance abuse beds clearly were not psychiatric beds. If the 13 eating disorders beds were short term psychiatric beds, Florida Hospital had 97 of its 105 licensed short term psychiatric beds in actual operation in 1986. If they were not, Florida Hospital had 84 of its 105 licensed short term psychiatric beds in actual operation in 1986. There is no evidence in this record that Florida Hospital could not and would not have readily opened 8 more short term psychiatric beds during 1986 if demand for those beds had existed, thus having "open" all 105 of its licensed beds. There is no evidence in this record that in 1986, Florida Hospital could not have closed its 16 bed adolescent unit and devoted all of those beds to adult short term psychiatric care, had there been a need. Indeed, it appears that generally speaking, that is how Florida Hospital operates: by shifting beds to other uses within its licensed authority according to demand. See T. 1322-26. Thus, all 105 of Florida Hospital's licensed beds would have been available and would have been used for adult short term psychiatric patients if the demand existed. Counting Patient Days - Are Eating Disorder Patient Days Psychiatric Patient Days? Florida Hospital reported in discovery that it had 2,982 patient days in its eating disorder unit, and that the unit operated with 13 beds. C.M. Ex. 18, P. 3, lines 8 and 26. The eating disorder unit reports to the administrative director of the Florida Hospital Center for Psychiatry. T. 977. The administrative director could not explain why the unit reported to the Center for Psychiatry. T. 977. The unit has co-directors, one a psychiatrist, and the other a specialist in internal medicine. Id. The administrative director of the Center for Psychiatry characterizes the 13 eating disorders beds as medical-surgical beds, and classifies patients in those beds as primarily having a medical problem, T. 976, but the psychiatrist co-director of the program hedged, and would not say whether the primary diagnosis is medical or psychiatric. T. 1315. The patients typically are, however, very ill from a medical point of view. T. 1314. Florida Hospital's characterization of the nature of the care given in its eating disorders unit, as summarized in the preceding paragraph, in view of the manner in which the witnesses were unclear as to how to characterize the eating disorder unit, is not evidence that the care given in that unit is not psychiatric care in view of Florida Hospital's interest in these cases in opposition to the applications. Charter's expert concluded from C.M. Ex. 18 that Florida Hospital was serving short term psychiatric patients in its eating disorders unit at Altamonte Springs. T. 287. He characterized this as a short term psychiatric service in medical-surgical beds. T. 289. But he also characterized the 13 beds as psychiatric beds. T. 287-88. HRS has issued a certificate of need to a short term psychiatric hospital limiting that certificate of need to treatment of eating disorders, thereby recognizing treatment of eating disorders in that case as a form of psychiatric treatment. T. 1191. From testimony at the hearing, it would appear that HRS's expert would view the eating disorder unit at Altamonte Springs as a short term psychiatric program. T. 1191-1192, 1194. It is concluded that the preponderance of the evidence shows that the care rendered to patients in the eating disorders unit was psychiatric care. The unit is administratively a part of the hospital's Center for Psychiatry. While the patients are very ill, medically speaking, they also have substantial mental health problems. Finally, and most persuasive, HRS has previously characterized such care as short term psychiatric care. If these 2,982 eating disorder patient days are counted as psychiatric patient days in 1986 for District VII, and if the number of beds at Florida Hospital remains as it was in the SAAR calculation (105 licensed beds), then the total patient days for the District changes from 63,976 to 66,958. The result is that the occupancy rate for District VII for 1986 for adult and mixed short term psychiatric beds changes from 73.72 percent to 77.16 percent. C.M. Ex. 17, p. 13. This calculation is the result of a weighted average discussed above. Psychiatric Patient Days Reported to the Hospital Cost Containment Board Orlando Regional Medical Center and Florida Hospital report patient days by Medicare major diagnostic categories (MDC). MDC 19 is the category for psychiatric care. T. 512; O.G. Ex. 7. The data collected in this record was for calendar year 1986. T. 603-604. Relying upon MDC 19 statistics for calendar year 1986, Florida Hospital (Orlando and Altamonte Springs combined) had 28,372 MDC 19 patient days, and Orlando Regional Medical Center had 7,328 MDC 19 patient days. The Florida Hospital MDC 19 patient days shown in table 6, O.G. Ex. 7, are very close to the number of patient days shown on C.M. Ex. 18, the operating statistics from the "Center for Psychiatry" obtained from Florida Hospital in discovery. The MDC 19 patient days, 28,372, exceed the "Center for Psychiatry" reported data by only 452. The Orlando Regional Medical Center's MDO 19 patient days, 7,328, is 618 patient days greater than the patient days reported by Orlando Regional Medical Center to the local health council. If these MDC 19 patient days are assumed to be short term adult psychiatric patient days, following the same mathematical calculation used by HRS both in the SAAR and in testimony during the hearing (with the same weighted averages), the occupancy rate for adult and mixed short term psychiatric care in District VII, using licensed beds, was 78.39 percent in calendar year 1986. O.G. Ex. 7, table 6. This calculation uses the same weighted average (86,779 patient days at 100 percent occupancy) as used by all the other parties. C.M. Ex. 17, p. 11, fn. 9. There is no evidence in the record that the foregoing MDC 19 patient days are limited to short term psychiatric days, or the extent to which the data considers long term patient days as well. Of course, there is also no evidence available to separate the MDC 19 patient days into adult patient days and patient days attributable to children and adolescents. Westlake Hospital Data as to Short Term Psychiatric Patient Days in 1986 The Intervenor, Florida Hospital, has renewed its effort to have F.H. Ex. 3, and testimony based upon that exhibit admitted, into evidence. The exhibit and testimony involves data as to short term psychiatric patient days for 1986 at Westlake Hospital, located in Seminole County. Florida Hospital argues that the ruling excluding F.H. Ex. 3 from evidence, as well as testimony related to that exhibit, is inconsistent with the ruling that allowed Charter Medical to introduce C.M. Ex. 19. It is argued that the only difference is that in the case of Charter Medical, the witness first testified as to the contents of the exhibit, whereas in Florida Hospital's case, the exhibit was admitted, the witness testified, and then the exhibit was excluded. Florida Hospital argues that as a result of this sequence of events, its witness was not afforded an opportunity to present the same evidence from memory without the exhibit. From a review of the sequence of events, it is apparent that there is a substantial difference between the two exhibits, as well as a substantial difference in the procedures used by counsel, and that difference necessitates the two rulings. C.M. Ex. 19 is nearly identical to C.M. Ex. 17, with three exceptions. In C.M. Ex. 19 the patient days at the Florida Hospital eating disorder unit were moved from the Orlando facility to the Altamonte Springs facility. C.M. Ex. 19 also excluded adolescent patient days from the Florida Hospital count changed the number of "existing" beds at Orlando Regional Medical Center to 25 instead of 32. T. 295. C.M. Ex. 19 made no other changes to C.M. Ex. 17 with respect to patient days or number of beds. Two objections were made by Florida Hospital to the admission of C.M. Ex. 19, that C.M. Ex. 19 had not been provided to opposing counsel at the exchange of exhibits, in violation of the prehearing order, and that C.M. Ex. 19 was an impermissible amendment to Charter Medical's application for certificate of need. T. 295-296. Only the first objection is the subject of Florida Hospital's renewed argument. The Hearing Officer at the time overruled the first objection because it was determined that C.M. Ex. 19 merely summarized the testimony of Dr. Luke as to changes he would make to C.M. Ex. 17. That ruling was correct, and should not be changed at this time. All of the underlying data for the expert analysis in C.M. Ex. 19 came into evidence without objection that it had not been exchanged among the parties. C.M. Ex. 18 contained the data as to adolescent patient days and eating disorder patient days at Florida Hospital in 196. That data came into evidence without objection that it had not been exchanged. T. 316. Dr. Luke's testimony that Orlando Regional Medical Center had only 25 beds operational in 1986 came into evidence without objection. T. 292. Dr. Luke's testimony concerning the location of the eating disorders unit at Altamonte Springs came into evidence without objection. T. 287, 291. Both of these latter evidentiary matters were of a type that easily could have been known to Dr. Luke without reference to a document to refresh his memory. Additionally, the parties were well aware of the argument that Orlando Regional Medical Center had only 25 operational beds in 1986, and that Florida Hospital had only 48 adult beds in operation in 1986, since that evidence and argument was a fundamental part of Orlando General Hospital's basic bed need exhibit, O.G. Ex. 7, and the testimony of Ms. Horowitz. Moreover, the type of analysis of the data contained in C.M. Ex. 19 is the same as that of Ms. Horowitz in O.G. Ex. 7. Thus, Florida Hospital was not caught by surprise by C.M. Ex. 19. The exhibit did not contain new data or new modes of analysis. Florida Hospital's attempt to introduce data as to the actual number of short term psychiatric patient days at Westlake Hospital in 1986 was quite different. The data as to patient days at Westlake had not been produced during the deposition of Florida Hospital's witness, although similar data for 1987 and 1988 was produced. T. 867. Had it been made available in discovery, the failure to exchange the data as an exhibit as required by the prehearing order would have been less serious. But the exhibit had not been given by Florida Hospital to opposing parties, in violation of the prehearing order. T. 869. F.H. Ex. 3 did not reorganize data that otherwise was exchanged between the parties. It attempted to introduce new raw statistical data that had not been furnished opposing counsel as required by the prehearing order. The Hearing Officer initially ruled that F.H. Ex. 3 should be admitted into evidence and allowed the witness to testify concerning the data contained in the document. T. 870-871. That initial ruling was in error. The data contained in F.H. Ex. 3 is not at all simple. The document consists of four pages of numbers representing monthly statistics in 1986 at Westlake Hospital for each of its units. It is highly unlikely that a witness could have remembered all of that data presented the data in testimony without reliance upon the exhibit. Indeed, the witness testified that all of his testimony was based upon F.H. Ex. 3. T. 907. The witness had apparently given a different impression as to Westlake's occupancy rate in 1986 during his deposition, and did so without the benefit of F.H. Ex. 3. T. 910. Florida Hospital could have asked the witness if he could have presented his testimony without reference to F.H. Ex. 3, but it did not ask the witness that critical question. In sum, the witness could not have presented his analysis from memory. He had to have F.H. Ex. 3 in front of him as he testified. On December 2, 1987, an order was entered setting this case for formal administrative hearing beginning on July 11, 1988. That order established prehearing procedures. Paragraph 3 of that order requires counsel to meet no later than 10 days before the hearing to, among other things, "examine and number all exhibits and documents proposed to be introduced into evidence at the hearing." Later in the same paragraph is the requirement that the parties file a prehearing stipulation containing a list of all exhibits to be offered at the hearing. Paragraph 3D of the prehearing order states in part that failure to comply with the requirements of the order "may result in the exclusion of testimony or exhibits." The first time that opposing counsel were given the opportunity to see the data in F.H. Ex. 3 was in the middle of the formal administrative hearing. The exhibit contained detailed raw statistical data. C.M. Ex. 19 did not try to present new raw statistical data. For these reasons, F.H. Ex. 3 and all testimony related to that exhibit by Mr. Menard was excluded from evidence. Later in the hearing, Florida Hospital sought to introduce the same data through the testimony of Wendy Thomas, the planning director and data manager for the local health council. T. 1050. Counsel for Florida Hospital first attempted to show the witness the document that had been excluded from evidence, and counsel for the other parties objected. T. 1047-1049. The Hearing Officer suggested to counsel that counsel should first ask the witness whether she had made a computation and then ask what was the basis of the computation, rather than show the witness the document. T. 1049. Counsel then attempted to do that. But when counsel asked the witness for her computation, it was still unclear whether the witness based her calculation upon data in the excluded document. T. 1053. After a number of other questions, it still was unclear whether the data in the excluded document was the basis for the calculation. T. 1053-1055. The Hearing Officer then asked the witness if she could identify F.H. Ex. 3. The witness said that F.H. Ex. 3 contained the exact type of information that she had in her own files, and that her document looked like F.H. Ex. 3, except it was photocopied smaller. T. 1056. During all of this exchange, the witness was never asked by counsel for Florida Hospital if she ever had an independent memory of the details of the underlying data, or whether, if that memory now had faded, looking at F.H. Ex. 3 would refresh her memory. Since it was apparent that the basis for the witness's calculation was the same raw statistical data as contained in F.H. Ex. 3, the Hearing Officer granted the motion to exclude the testimony. Later, in cross examination of the proffered testimony, the witness testified that the basis for her calculation was the use of a document containing the same data as F.H. Ex. 3. T. 1087-1088, 1091. Thus, counsel for Florida Hospital did not lay a proper predicate for attempting to use F.H. Ex. 3 to refresh the memory of either witness. As discussed above, had it done so, it is unlikely that either witness could have testified from memory as to the statistics because the data contained in F.H. Ex. 3 was too detailed to have ever been in the memory of either witness. Florida Hospital argued that Ms. Thomas's calculation should be admitted because the raw data had been in her possession for over a year. That argument is unpersuasive. The raw data was in the possession of Westlake Hospital as well. The issue is not whether opposing parties might have discovered the data on their own, but compliance with the prehearing order requiring exchange of important exhibits. For these reasons, the Hearing Officer's rulings as to exclusion of the foregoing evidence will remain unchanged. The Local Health Plan Applicability No part of the District VII local health plan was adopted by HRS as a rule when these applications were and reviewed. T. 1214. Several years ago, with respect to applications for certificates of need for short term psychiatric beds, HRS considered need and occupancy rates only on a district-wide basis. T. 1184. See e.g. C.M. Ex. 20, where HRS did not refer to the local health plan as to these issues in District VII. HRS has now changed that policy, however, and considers need and occupancy at the district level and by portions of the District if those issues are effectively required by the local health plan. T. 1184. For purposes of planning for short term psychiatric services, the local health plan divides District VII into county "planning areas." Orange County is thus a local health plan planning area. The local health plan does not use planning areas for substance abuse planning, and it does not explain why there is a difference in planning. Orlando General and Charter both propose to locate their proposed short term adult psychiatric beds in Orange County if granted certificates of need. Counties are convenient units for health planning purposes because population data exists by county. T. 1180. Census tracts and zip code areas are also convenient geographical units for health planning. T. 1180-81. If a proposed facility is to be located very close to the county line, it would make no difference which side of the line it was on with respect to the ability of the facility to serve patients originating in either county. T. 1181. Allocation of Net Need to Orange County The local health plan, policy 3, provides that if the application of rule 10-5.011(1)(o) indicates a need (at the District level), the need is to be allocated among the counties in the district using the state numeric need method by county. T. 1027-29; C.M. Ex. 5. Applying all of the age calculations for the projected populations and bed inventory of Orange County only, the local health plan allocates 55 new short term psychiatric beds to Orange County by 1992. However, applying the allocation ratios of the rule, there is an excess of 18 short term psychiatric beds in general hospitals, and thus none of the 55 beds would be mainly allocable to a general hospital. There is, nonetheless, a potential allocation of need of 73 beds in either a specialty or a general hospital, and the net need of 55 beds could be allocated to either a specialty hospital or a general hospital. The Orange County Mixed Occupancy Rate The local health plan, policy 4, applies the 75 percent occupancy standard to the county level. The policy explicitly calls for an average annual occupancy rate for all existing facilities in the planning area with respect to adult short term psychiatric beds. C.M. Ex. 5. Relying upon the calculation in the SAAR, but deleting Laurel Oaks, the mixed occupancy rate for Grange County in 1986 was less than 58.4 percent. This calculation only includes the beds at Florida Hospital (Orlando) and Orlando Regional Medical Center. The calculation is based upon 18,696 patient days at Florida Hospital (Orlando) in 85 beds, and 6,242 patient days in Orlando Regional Medical Center in 32 beds. There were 4,969 MDC 19 patient days occurring at Orlando General Hospital in 1986. There were 7,328 MDC 19 patient days occurring at Orlando Regional Medical Center in 1986. The eating disorder patient days occurred in Seminole County (Altamonte springs) and should not be counted in an Orlando occupancy rate. The only data as to patient days at Florida Hospital, Orlando only, is that found in C.M. Ex. 18, which is the same as the SAAR, which reports 18,696 patient days. (The MDC 19 data mixes the two units.) The number of licensed short term psychiatric beds in Orange County in 1986 was 117. All of these beds were licensed the entire year, and thus there was no need to do a weighted average of potential patient days for these beds. See C.M. Ex. 17, p. 11; O.G. Ex. 7, table 6. Using all of the foregoing patient days, the number of patient days was 30,993, the number of licensed short term psychiatric beds was 117, and the mixed occupancy rate for Orange County for 1986 was 72.6 percent. If it is not appropriate to count the 4,969 patient days at Orlando General Hospital in the Orange County occupancy rate, the 1986 Orange County occupancy rate was only 60.09 percent. Conversion of Existing Beds and Service to Indigent Patients Policy 5 of the local health plan states that excess bed capacity in, among other types of beds, medical/surgical beds, should be eliminated by reallocation of beds among the services, including psychiatric services. Policy 6 of the local health plan states that primary consideration should be given for project approval to applicants who satisfy to the greatest extent the following priorities: The first priority is to applicants who commit to serving "underserved client groups," including Medicaid, Baker Act, and medically indigent patients. The second priority is to applicants who convert underutilized existing beds. As will be discussed in the conclusions of law, Orlando General's application satisfies these priorities, and Charter Medical's application does not. Other Evidence as to Future Need Historically, health care providers have been reimbursed on a fee- for-service basis. The more services provided, the greater the payment. These insurance arrangements had little incentive to decrease the level of services. T. 720. In the last three or four years, the health insurance industry has changed its methods of providing insurance. A very large percentage of insured patient care is now managed by use of flat rates based upon a per person count (capitation). The rates do not increase related to utilization. Managed health care reimbursement uses a system whereby the health care provider is paid a flat rate annually for each insured person, and agrees to provide for the health care needs of all such persons generally without considering the degree of utilization during the year. T. 722-723. Under the capitation system, the provider has the incentive to provide only such care that, in intensity or duration, is the minimum that is clinically acceptable. T. 724. Psychiatric services have been included in the movement of the industry toward managed health care reimbursement rather than fee-for-service reimbursement. T. 722. The health care industry now offers competitive managed health care plans in central Florida, and the trend is for an increase in the availability of such methods of reimbursement in central Florida. T. 726-727. It is now 40 percent of the insurance market, and in the early 1990's, the percentage of managed health care may be twice that percentage. T. 727. The effect of the new reimbursement system is to substantially lower the length of stay, and to lower the rate of admission as well, at short term psychiatric hospitals. T. 724-725, 881-882, 1319-1320. Orlando General Hospital projected that its average length of stay would be 30 days in 1992. It has discovered from current experience that its average length of stay is about 15 days. T. 433, 464. District VII has recently experienced an increase in the availability of community based mental health facilities. These facilities provide a variety of mental health services, including brief inpatient care. The facilities do not require a certificate of need. T. 1046-1047, 1319. The Nature of the Proposed Programs Orlando General Hospital General Orlando General is a 197 bed acute care general osteopathic hospital located in Orlando, Florida, in Orange County. Orlando General proposes to convert a 35 bed medical-surgical unit to 24 short term psychiatric beds at a capital cost of $689,272. It would relocate 11 of its medical-surgical beds, and convert the remainder to short term psychiatric beds. Orlando General Hospital is located in the southeast portion of Orange County. T. 1107. It is the most eastward facility in Orange County with the exception of a long term psychiatric hospital now under construction. T. 1107. The primary service area of Orlando General by location of physicians offices is the southern half of Seminole County and the northern portion of Orange County. In particular, the hospital serves northeastern Orange County through the location of its physicians' offices. T. 412; O.G. Ex. 2, p. 27. The program of treatment described in Orlando General's application is no longer an accurate description of Orlando General's current program or of the intended program. T. 453. The treatment programs planned for the new short term psychiatric unit are comparable to the programs planned by Charter Medical-Orange County, Inc., and are adequate and appropriate programs for short term psychiatric care. Psychiatric Care for the Elderly Orlando General Hospital would provide adequate and appropriate specialized short term psychiatric care for elderly patients, but would not provide such care in a unit physically separated from other patients. There currently is a split of professional opinion as to whether or not geriatric patients should be treated in a psychiatric unit separated (physically as well as programmatically) from other patients. There are benefits from both approaches. T. 1315-1317, 68, 74-76, 43-45, 770. Various Charter Medical hospitals do it both ways. T. 70. Osteopathic Medicine at Orlando General Hospital Osteopathic medicine differs from allopathic medicine in its emphasis upon viewing the interaction of all parts of the body, rather than a single part, and the use of muscular and skeletal manipulation. T. 1349, 753-754. Orlando General Hospital is an osteopathic hospital and has been osteopathic in nature since the 1960's. It was founded by osteopathic physicians, and the hospital abides by osteopathic philosophies. The Board of Trustees at the hospital are all osteopathic physicians. Although it has medical doctors on staff, the majority are osteopathic physicians Orlando General Hospital is accredited by the American Osteopathic Association to train osteopathic physicians, and has such training programs, primarily in family medicine. T. 412-414, 755. There are about 80 osteopathic physicians in Orange County, and the vast majority are on the staff at Orlando General Hospital. T. 760. Patients who prefer osteopathy, and osteopathic physicians, prefer an osteopathic hospital. Osteopathic physicians believe that they deliver better care to their patients in an osteopathic facility rather than an allopathic facility. About 30 percent of the psychiatric patients treated by Dr. Greene at Orlando General Hospital receive manipulation as a therapy. T. 1351. There is a shortage of osteopathic psychiatrists. T. 756. Other than Randall Greene, D.O., there are no osteopathic psychiatrists in the Orange County area. Id. There is a shortage of places for psychiatric resident training. There is no osteopathic psychiatric residency in Florida, and only a few in the country. T. 764, 1349. Consequently, osteopaths seeking to become psychiatrists often have to go to allopathic hospitals for residencies. T. 1349 Residency in an allopathic hospital is often not approved by the American College of osteopathic psychiatrists. Thus the osteopath who has had his or her residency in an allopathic hospital and lacks such approval will not be readily accepted as an osteopathic psychiatrist on the staff of an osteopathic hospital. T. 1350. Orlando General Intends to have a residency program in osteopathic psychiatric for at least two positions if it is granted a certificate of need. T. 762, 415. The Evolution of Osteo-Psychiatric Care at Orlando General Hospital Dr. Randall Greene came to Orlando in 1982. He is an osteopathic physician and psychiatrist. He initially was on the staff at four hospitals but soon discovered that other osteopathic physicians were referring patients needing psychiatric care to Orlando General Hospital because it was an osteopathic hospital. These physicians frequently asked Dr. Greene to provide psychiatric care at Orlando General. T. 754. Osteopathic physicians who referred their patients to Dr. Greene and to Orlando General Hospital continued to treat the physical ailments of those patients at Orlando General Hospital. T. 760. Dr. Greene now limits his psychiatric practice to Orlando General Hospital because of the large number of psychiatric patients being treated at the hospital. T. 756. Thirty to forty percent of the psychiatric patients come to Orlando General via the emergency room. T. 421, 445. Additionally, patients admitted to the new substance abuse program often need psychiatric care. T. 407. Orlando General has difficulty transferring its psychiatric patients to other hospitals. A number of the patients have no insurance or have only Medicaid coverage. T. 420. Orlando General Hospital is located in a lower economic area, and thus attracts patients of this type. Id. Patients who prefer osteopathic treatment also prefer not to be transferred to an allopathic hospital. T. 759. The increase in numbers of psychiatric patients served at Orlando General Hospital in medical-surgical beds helped to offset the hospital's loss of medical-surgical patient days during the same period. T. 452 Due to the large number of psychiatric patients, and the decline in need for medical-surgical beds, Orlando General hospital decided to apply for the instant certificate of need. Due to the osteopathic nature of the hospital, physicians, patients and the hospital prefer to keep these patients at Orlando General Hospital rather than refer them to an allopathic hospital. It is HRS's position that if a hospital does not advertise itself as having a distinct psychiatric unit and does not organize within itself a distinct psychiatric unit, the admission and treatment of psychiatric patients to medical-surgical beds on an "random" and unplanned basis is proper even the hospital does not have licensed psychiatric beds. T. 1191. Orlando General hospital does not hold itself out to the public through advertising as having a separate psychiatric unit. T. 468. Patient Mix & Commitment to Charity Care Orlando General Hospital currently provides a large portion of charity care for Orange County. T. 1100. In its 26 bed chemical dependency unit, Orlando General reserves 2 beds for indigents. T. 785. The unit also sets aside, as needed, one bed for any Florida nurse whose license is in jeopardy due to chemical dependence and who has no financial means to pay for treatment. Id. Orlando General Hospital typically has a larger amount of bad debt and charity care (for people who do not pay) than other hospitals in the area. T. 423. In 1987, Orlando General Hospital reported to the Hospital Cost Containment Board that it had $141,404 in charity care, and that it had $3,244,530 in bad debt. T. 657, 660. Bad debt constituted 9.7 percent of gross revenue. T. 660. Since it is very difficult to determine at admission whether the patient realistically can pay for services, a lot of this bad debt is, in a functional sense, charity care. T. 659-660. It is concluded from the foregoing that Orlando General Hospital has a genuine commitment to providing health care to persons who cannot pay. T. 422, 662. Orlando General Hospital projects that it will in its proposed 24 bed short term psychiatric unit 5 percent indigent patients, 8 percent Medicaid patients, 20 percent Medicare patients, 50 percent insured patients, and 17 percent private pay patients. These projections are reasonable and are consistent with Orlando General Hospital's current experience. T. 662-664; O.G. Ex. 2, p. 16. Charter Medical-Orange County, Inc. General Charter Medical proposes to construct a 50 bed free standing short term psychiatric hospital in Orange County, Florida. The capital cost of the proposed project would $5,85,000. C.M. Ex. 1. Charter Medical would offer adult and geriatric short term psychiatric services in the proposed short term beds. As a free standing specialty hospital devoted entirely to short term psychiatric care, Charter Medical's proposal should be able to provide more space and additional therapies than would typically be found at a general hospital with a short term psychiatric unit. T. 47-50, 890-91. Charter Medical would provide adequate geriatric short term psychiatric care in a separate unit with separate programs consisting of the latest techniques for caring for the mentally ill elderly patient. Charter Medical's proposed facility would not be able to treat short term psychiatric patients who also have serious medical problems, which undoubtedly will include elderly patients. Charter Medical would have adequate transfer arrangements with a general hospital to serve the medical needs of its patients, and would have adequate staffing and equipment within the free standing specialty hospital to meet the routine and emergency medical needs of its patients. Staffing Orlando General and Charter Medical would be able to recruit, train, and retain adequate staff to operate its proposed short term psychiatric unit. T. 635-648, 849-852, T. 137-143. Lone Term Financial Feasibility Orlando General Hospital Charges When these applications were filed, HRS did not have standards for the contents of a pro forma of income and expenses. Orlando General Hospital initially projected a charge rate of $350 in 1987 and $375 in 1988. This charge rate was based upon the charge rate for Orlando General's substance abuse unit at that time, compared with a survey of five other hospitals having short term psychiatric beds. T. 425; O.G. Ex. 2, p. 24, 49. As of the summer of 1988, the Medicaid program reimbursed Orlando General Hospital for its MDC 19 (psychiatric) patients at the rate of $418 per day. T. 585. Charter Medical proposes to charge $475 per day during 1988. Florida Hospital currently charges between $425 and $445 per short term psychiatric patient day, and these charges do not include ancillary charges. T. 992. Westlake Hospital currently charges about $550 per short term psychiatric patient day. T. 888. Winter Park Pavilion is a freestanding psychiatric hospital with 39 adult psychiatric beds. The record does not indicate whether it is licensed for short or long term care. The facility charges about $500 per patient day, which does not include ancillary costs. T. 913, 918. Crossroads University Behavioral Center is a freestanding 100 bed long term psychiatric hospital that is under construction. T. 808. Crossroads has considered charges in the range of $500 to $600 per day, but has not definitely settled on the rate. T. 832-833. The charges proposed by Orlando General Hospital in its application are very reasonable, if not very conservative. Projected Utilization Orlando General Hospital's MDC 19 patient days (psychiatric patient days) have increased steadily from 1986. In 1986, the hospital had 4,969 MDC 19 patient days; in 1987, it had 7,779 MDC 19 patient days; and extrapolating (multiplying by 4) from the data for the first three months of 196, Orlando General could reasonably expect 11,804 MDC 19 patient days in 1988. O.G. Ex. 2, p. 11; T. 516. Since a 24 bed unit at 100 percent occupancy would only generate 8,760 patient days, it is unreasonable to use 11,804 as the estimate of patient days in 1988. However, it is concluded that Orlando General Hospital would have no difficulty at all in very quickly filling its proposed 24 bed unit to capacity. Expenses Orlando General Hospital's application estimated that direct expenses of the proposed 24 bed short term psychiatric unit would be $801,505 in 1987, $839,080. In 1988, and $887,030 in 1989. O.G. Ex. 2. These are reasonable projections of direct expenses. The pro forma filed by Orlando General Hospital in its application did not include an estimate of allocated expenses. The allocated expenses would typically have been 60 percent of total expenses, and the direct expenses only 40 percent of total expenses. T. 698. The projected direct expenses for 1988 in Orlando General Hospital's application were $839,080. Since that is only 40 percent of the total expense, the total projected expense (including 60 percent for indirect allocated expense) would be $2,097,700. Long Term Financial Feasibility If Orlando General Hospital charged $375 per patient day in 1988, and had 8,760 patient days, as is reasonable to expect, given its actual experience, Orlando General would have $3,285,000 in gross revenue for 1988. Assuming that net revenue, after additions and after accounting for contractuals and bad debt, will be the same percentage of gross revenue as shown in Orlando General's application, which was 76.74 percent, this would generate a net revenue of $2,520,909. This net revenue would entirely cover not only the direct expenses but also the allocated expenses, and would leave profit of $423,209. All of the remaining issues raised by the parties as to the accuracy of Orlando General's estimates of nursing expense or bad debt are irrelevant given the large amount of leeway Orlando General would have, if necessary, to raise its charges from $375 to something closer to the charges of other area hospitals. In summary, Orlando General Hospital's proposal is financially feasible in the long term. Charter Medical-Orange County, Inc. Charter Medical's proposed charges include charges for physicians who admit patients, perform histories and physicals, and make daily medical rounds. The proposed charges are reasonable. If there were need, Charter Medical's proposal would be financially feasible in the long term. The need for Charter Medical's proposed facility has not been proven by a preponderance of the evidence, however. See the Conclusions of Law herein. While the numerical need rule as applied to Orange County shows a need for 55 beds, in actual practice that need is a need for osteopathic psychiatric care. The thirty or so patients currently treated on a daily basis at Orlando General Hospital ended up at that hospital, rather than Orlando Regional Medical Center or Florida Hospital, primarily because the patients preferred osteopathic care and were admitted to Orlando General Hospital by osteopathic physicians. Absent action by HRS to stop Orlando General Hospital from treating these patients, the patients would not be available to Charter Medical in its proposed facility. This would leave Charter Medical in a situation of opening a new 50 bed facility when the county occupancy rate in 1986 was 60 percent in the only two licensed facilities in the area. It would also leave Charter Medical in a situation of opening a new facility in the face of the trend to managed health care and the certainty that the average length of stay for short term psychiatric care by 1992 will decrease from current levels. For these reasons, Charter Medical has not proven financially feasibility in the long term by a preponderance of the evidence. Quality of Care Orlando General Hospital Orlando General Hospital would provide care of good quality comparable to care that would be provided by Charter Medical. Charter Medical-Orange County, Inc. Charter Medical Corporation is a large corporation that has experience in the operation of a large number of psychiatric hospitals. That expertise would be available to insure that the care provided in Orange County would be of good quality. Charter Medical-Orange County, Inc., would provide care of good quality comparable to care that would be provided by Orlando General. Comparative Review as to Important Differences The Orlando General Hospital Application Orlando General Hospital intends to convert 24 underutilized medical and surgical beds to 24 short term psychiatric beds. T. 517. Since the project calls for conversion of existing facilities, the capital cost is $700,000, and does not include the construction of new buildings. T. 517. Since the capital cost is relatively low, the project will not drain away a large amount of reimbursement from reimbursement funding sources, thus making those funds available to other health care facilities. T. 1223. As a licensed general hospital, Orlando General Hospital's patients including the patients that would be served by the proposed short term psychiatric unit, would be eligible for Medicaid reimbursement T. 1224. Orlando General Hospital has a good record in Orange County of serving indigent patients, and currently is providing care to a large portion of the indigents cared for by Orange County. T. 1099-1100. As discussed in the section concerning osteopathic care, Orlando General Hospital's proposal for a short term psychiatric unit would have a number of benefits to the practice of osteopathic medicine in the region, and the availability of osteopathic care to patients desiring that form of care. Patients in the short term psychiatric unit at Orlando General Hospital could be transferred to a medical bed when a medical need arises without having to be transported by an ambulance. The Charter Medical Application Charter Medical-Orange County, Inc., is a wholly owned subsidiary of Charter Medical Corporation. Charter Medical Corporation has been in existence for 20 years and has 81 hospitals. Of these, 68 are psychiatric or substance abuse facilities. Charter Medical thus has extensive resources and experience to provide very good psychiatric care at the proposed facility. As a free standing hospital dedicated solely to short term psychiatric care, it is reasonable to expect that Charter Medical's facility will tend to provide more space, more varied programs, and more intensive patient care than a general hospital. This would occur because in a general hospital, the psychiatric unit must compete with medical units for allocation of resources, and in some hospitals, the psychiatric unit is given a lower priority due to the tendency of such hospitals to emphasize the medical aspect of their services. T. 47-49. Charter Medical's facility would not treat Medicaid patients, and it proposes to serve a very small percentage of indigent patients. Charter proposes in future years after the second year to provide 1.5 percent of gross revenue as charity care, and 5 percent as bad debt. T. 377-79, 197. Charter Medical's facility would serve primarily private pay and insured patients, thus draining away these paying patients from other hospitals, to the detriment of other hospitals. T. 971. The Substantial Interest of Florida Hospital If a certificate of need were granted to Charter Medical, Florida Hospital would suffer an adverse impact by loss of patients and additional competition for staff. T. 971-972, 1318-1321, 1327.
Recommendation For these reasons, it is recommended in case number 87-4748 that a final order be entered denying the application of Charter Medical-Orange County, Inc., to construct and operate a new 50 bed short term psychiatric hospital, and in case number 87-4753 that a final order be entered granting the application of Orlando General Hospital to convert 24 medical-surgical beds to short term psychiatric beds. DONE and ENTERED this 28th day of November, 1988, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of November, 1988. APPENDIX 1 TO RECOMMENDED ORDER, CASE NOS. 87-4748 and 87-4753 The following are rulings upon proposed findings of fact which have either been rejected or which have been adopted by reference. The numbers used are the numbers used by the parties. Statements of fact in this appendix or proposed findings of fact adopted by reference in this appendix are additional findings of fact. Findings of fact proposed by Charter Medical: 3-5. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The need is for beds in either a specialty or a general hospital. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The operational use of the beds is not relevant to the occupancy rate. Had the beds been restricted as a matter of licensure to children, like Palm Bay or Laurel Oaks, the beds would not have been potentially available for adults. Only in that case would exclusion of these beds have been proper. The operational use of the beds is not relevant to the occupancy rate. The testimony regarding the use of the word "existing" in the health planning field has been rejected as not persuasive. The context of such use was not explained, and thus a finding cannot be made that the use of the word is properly applicable to the way HRS intends the word to be used in its occupancy rule. The equation of "existing" with "operational" confuses capacity and need as discussed elsewhere in this recommended order. The HRS interpretation is the most reasonable construction of the word, and leads to a meaning far more consistent with the purposes of the certificate of need regulatory law than does the equation of "existing" with merely being operational. The certificate of need law is aimed at determining need five years into the future. How a hospital may temporarily operate its licensed beds during that period to respond to fluctuations in demand and operational idiosyncrasies at the particular hospital is irrelevant to the question of whether HRS should grant certificates of need and additional licensed capacity within the District. Dr. Luke's calculation was conservative and correct, but a better calculation is the one by Orlando General's expert (78 percent) that uses MDC 19 patient days. The only relevant count is 105 licensed beds at the two facilities. The last sentence is rejected for lack of credible evidence from which to draw that inference, as explained elsewhere in this recommended order. 20-21. The only relevant count is licensed beds. 22. Orlando General's average daily census was 13.6 based upon 4,969 MDC 19 patient days in 1986. 23-24. The only relevant count is licensed beds. 28. These are matters of law, and thus not appropriate as proposed findings of fact. 30. It is true that the health care needs of the metropolitan Orlando impact counties adjacent to Orange County due to the sprawl of that urban area across several county lines. But there is sufficient expert evidence in this record to conclude that generally speaking, the local health council has not acted arbitrarily and capriciously in its choices of counties as health planning areas for purposes of allocation of bed need and for purposes of applying occupancy rates. Nonetheless, the that the urban extent of the metropolitan Orlando area is important has been accepted in this recommended order with respect to the conclusion that the factor that the Orange County occupancy rate is only slightly below 75 percent is entitled to less weight in this case. 32, 33, 35, 37-63. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 64 (first sentence). It is realistically expected that Charter Medical will devote 1.5 percent of its gross patient revenue to barity care. T. 377- 379. 65-70. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 71-72. Financial feasibility has not been shown due to lack of need. Lack of need will result in insufficient occupancy and revenue. 73-74. The extrapolation from the actual trend of increase in patient days in District VII for the years 1983-1987 to create a projection of patient days in 1988 through 1992 would have been a valid and important way to show need, and would have been accepted had the projection accounted for the trend in the industry toward shorter lengths of stay due to changes in methods of payments for mental health care. The extrapolation simply assumes that the past will continue. In this case, there is substantial reason to believe that the past will not continue, that the base data, 1983-1987, is not valid for predicting patient days in 1992 because the patient days in 1992 will largely be paid for under a new system, a system that discourages inpatient stays beyond that which is absolutely necessary from a clinical point of view. Charter Medical projects that it will rely upon insurance for payment 67 percent of the time, so the changes in insurance payments will substantially affect patient days in 1992 at its proposed facility. 75-85. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 89. While osteopathic psychiatric care is essentially the same as allopathic psychiatric care, there are two critical differences. Osteopathic medicine in general emphasizes consideration of the functioning of the body as a whole; allopathic medicine does not. Secondly, osteopathic medicine utilizes muscular and skeletal manipulation in treatment, including psychiatric treatment, and allopathic medicine does not. These two differences are sufficiently marked for patients to have a preference for one or the other approach. 91-92. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 93-94. These proposed findings are true and are adopted by reference, but the findings do not prove that the quality of care at Orlando General Hospital would not be adequate in 1992. It was apparent that Dr. Greene's heavy caseload was not an optimum circumstance. However, at the time of the , Orlando General had four staff psychiatrists. T. 1355. Dr. Greene testified that the care was "basically" the same, but his testimony clearly reflected his opinion that the "deeper" differences were significant. T. 756, 1350-1354. The record cited does not support a finding that the majority of the patients transferred were indigent. That question was not asked. This proposed finding places the cart before the horse. Osteopathic physicians gravitate to Orlando General Hospital to practice osteopathy. In the practice of osteopathy, they achieve many job satisfactions, including care of patients and making money. 98-99. These proposed findings of fact are irrelevant because based upon the past, not upon a future having more staff psychiatrists. Moreover, it is clinically acceptable for other professionals to provide therapy and counseling. These proposed findings of fact are irrelevant. The program description in the application was superseded by evidence during the formal administrative hearing. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Orlando General Hospital is an existing hospital that already has these functions. It may need some augmentation of staff in these areas, but if it does, it would be an unreasonable conclusion to make that it would fail to add such 103-106. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The only exception is the last sentence in proposed finding 106. The number 18 is not supported by the record cited. This method has not been shown to be unreasonable. It is true that it was the method used. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. There was an accounting for bad debt. O.G. Ex. 2, p. 48. The point is essentially irrelevant. A 10 percent increase based upon 1987 salaries would be only about 20,000. Moreover, Charter Medical stipulated in the prehearing stipulation that the salaries of all personnel are reasonable. The proposed finding of fact is true but irrelevant. A pro forma does not have to comport with generally accepted accounting principles. Even with the addition of these charges, the resultant charge is comparable to charges of other area hospitals, including. Charter Medical's proposed charge of $475, which with inflation would increase rapidly to $500. 113-122, 124. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 125-127. Proof that an existing health care program is in sound financial condition is essentially irrelevant to the question of whether that program has a substantial interest sufficient to permit intervention into a section 120.57(1), Fla. Stat., formal proceeding. Proof of competition for the same patients in the same service area is sufficient to show that the existing program will be "substantially affected" to entitle it to intervene. Section 381.709(5)(b), Fla. Stat. (1987). Florida Hospital has proven its substantial interest by showing that the addition of new short term psychiatric beds, particularily a new facility like proposed by Charter Medical, will increase competition in Orange County for patients and staff. T. 881, 883, 649, 855-856. 128-129. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference 130. Mr. Holton's testimony was not only based upon consideration of the data mentioned in this proposed finding of fact, but also his experience in general with managed health care plans and the effect such plans have had upon the market place. The proposed finding that his testimony was not credible is rejected. 131 (first two sentences), 132-133. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. Findings of Fact proposed by Orlando General Hospital: 7-12, 17, 19, 29. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The statement is true only from the perspective of the osteopathic psychiatrist and with respect to osteopathic care. Allopathic physicians disagree. The second sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 34. The second sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 38-49, 51-60. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The proposition that separate geriatric units offer no benefits to geriatric patients is contrary to the preponderance of the evidence. The proposition that there is no problem in mixing the elderly with younger patients, or that an elderly patient does much better in a mixed population, is contrary to the preponderance of the evidence. The second and third sentences are contrary to the preponderance of the evidence. 67-71, 73-80. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 86-87. While these proposed findings of fact are true, they are only marginally relevant since the ratio is measured as of 1992, not 1988. These are matters of law, and thus not appropriate as proposed findings of fact. It is unclear when Dr. Greene meant when he testified that his census was 35 to 40 patients. For the first 90 days of 1988, the hospital had 2,951 MDC 19 patient days, or 32.8 patients per day. The analysis with respect to "existing" beds and the county analysis have been rejected as explained in this recommended order. The last sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 97-102. The legal argument that beds temporarily not in operation are not "existing" has been rejected as explained in this recommended order. Thus, these findings are not relevant. 105, 107 (last sentence). These are matters of law, and thus not appropriate as proposed findings of fact. 109. The second sentence is rejected as a finding of fact because the health planning context was not adequately explained. 110-111. These are matters of law, and thus not appropriate as proposed findings of fact. 114-115. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 117. These are matters of law, and thus not appropriate as proposed findings of fact. 118-120. These proposed findings of fact are irrelevant. 122. These are matters of law, and thus not appropriate as proposed findings of fact. 123, 124, 126, 127, 129-131, 133. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The proposed finding of fact is true, but has not been shown to impact the financial feasibility of the Charter Medical proposal. The indirect costs within a single hospital are more relevant to long term financial feasibility of the proposed project than the indirect costs to a single hospital from a parent corporation that has over 60 such hospitals. 136, 147, 151, 152. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The patient body count for the first three months of 1988 was 32.8. O.G. Ex. 2, p. 11. The "consciousness" of a corporation is difficult . Orlando General Hospital was well aware that its medical-surgical census was decreasing and its psychiatric population was increasing. It is true that the increase of its psychiatric population was largely due to causes outside the control of the hospital, however, and not due to marketing efforts by the hospital. 161 (last sentence), 162. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. These are matters of law, and thus not appropriate as proposed findings of fact. This proposed finding of fact is only marginally relevant because the result could be an average caused a minority of states who do things differently. Moreover, there Is no evidence that Florida is like this. The third sentence is subordinate to findings of fact that have been adopted. It is true, however, and is adopted by reference. 167. The statement is true only if HRS allows Orlando General Hospital to continue to serve this large number of psychiatric patients without having a certificate of need. If the practice were discontinued, some of the patients would be served by other hospitals in the District, including Florida Hospital. These are matters of law, and thus not appropriate as proposed findings of fact. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 174, 176. These are matters of law, and thus not appropriate as proposed findings of fact. 177. The current state of access to short term psychiatric services in eastern Orange County was not credibly proven. 179. These are matters of law, and thus not appropriate as proposed findings of fact. Findings of fact proposed by HRS: 1, 2, 3, 4. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. 5, 6. These are matters of law, and thus not appropriate as proposed findings of fact. 13. The number should be 64, not 63. 22. The occupancy rate is a mathematical attempt to measure the degree to which the District VII capacity to serve adult short term psychiatric patients has been used up. The theory implicit in the rule is that, with respect to adult capacity, the decision to add new capacity should be delayed until the old capacity is at least 75 percent or more used up. The rate has a numerator (patient days) and a denominator (the real capacity). Any argument that tries to ignore real patient days occurring in the District, or real capacity to serve those patients, is unreasonable. Findings of fact proposed by Florida Hospital: The second sentence is true, but the issue is not she license of the beds is, but what type of patient day is generated by that service. The preponderance of the evidence is that those were short term psychiatric patient days. The first sentence is rejected for the reasons stated above. 19-21. These are matters of law, and thus not appropriate as proposed findings of fact. 20-27. F.H. Ex. 3 was excluded from evidence, and the testimony related to that exhibit was also excluded from evidence for the reasons stated elsewhere in this recommended order. 28. This proposed finding fails to consider the MDC 19 evidence of patient days at Florida Hospital and Orlando Regional Medical Center. 29-30. These proposed findings of fact are true, and the reasoning therein is part of the reason why the denominator of the fraction that is the occupancy rate must be licensed beds. 31. A correction to the number of patient days at Westlake Hospital is legally appropriate, but the evidence for such a correction has been excluded from the record for reasons having nothing to do with the legal propriety of such a correction. 33. These are matters of law, and thus not appropriate as proposed findings of fact. 34-39. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The fact that existing facilities may have beds available to treat future patients is not inconsistent with a decision to grant a certificate of need for additional licensed beds. The occupancy rate threshold in the rule is 75 percent occupancy, not 100 percent occupancy. It is to be expected that the District will have 25 percent or less of its beds unoccupied when new beds are approved. 41, 43-44, 46-47. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. This proposed finding of fact is contrary to the credible evidence. These proposed findings of fact are irrelevant. See section 381.705(1)(g) and (h), Fla. Stat. (1987). This proposed finding of fact is contrary to the credible evidence. This proposed finding of fact is contrary to the credible evidence. To the contrary, where need exists, these are grounds for determining which of the competing applicants should be approved. 60. A conclusion that the occupancy rates are "stable" cannot be made from data based only upon calendar year 1986, which was two years ago, and six years from 1992, the time when need is projected. 61-69. These findings of fact are true. Even where there is need, the opening of the new facility normally lures some patients away from existing facilities. But if need exists sufficient to grant a certificate of need, this short term harm to existing providers is irrelevant. Finally, health care costs would not increase if there is need. While it is true that the Charter Medical utilization projections were initially prepared without a close analysis of District VII, the projections are nonetheless reasonable as discussed elsewhere in this recommenced order. Inflation of expenses without projection of inflation in revenues is an incomplete and unreasonable mode of projection. T. 229-230. Given the size of the Charter Medical Corporation and the number of hospitals it owns and operates, the condition of one more hospital will not Increase home office expenses. Those expenses will exist whether this project exists or not. The financial feasibility of the project in Orlando, therefor, need not consider home office expenses. T. 242-244. These proposed findings of fact are subordinate to findings of fact that have been adopted. They are true, however, and are adopted by reference. The quantitative relevancy of this proposed finding of fact has not been shown. The proposed finding of fact is otherwise true. Orlando General Hospital's current patient census is a sufficient basis for a finding that its projected occupancy rate is reasonable. Charges proposed in an application for a certificate of need are not promises binding upon the applicant. In future years, the applicant is reasonably expected to make substantial changes in its charge structure based upon market conditions. Proposed charges, as well as proposed changes to charges to meet altered contingencies beyond the control of the applicant, is entirely appropriate for analysis in a certificate of need case. The only relevant question is whether the altered charge compares favorably with competing applicants. 81-83. Florida Hospital proved that the market for staff is competitive and that hiring staff is difficult at the moment. But it did not prove that the applicants would fail to hire adequate staff to operate their proposed facilities. T. 1327. 92-102. These proposed findings of fact summarize proposed findings of fact which have previously been addressed. APPENDIX 2 TO RECOMMENDED ORDER, CASE NOS. 87-4748 and 87-4753 Rule 10-5.008(3), Fla. Admin. Code, provides that "[s]ubsequent to an application being deemed complete by the Office of Health Planning and Development, no further information or amendment will be accepted by the Department." (E.S.) The rule states that the Department will accept no information after the application is deemed complete. The words used are not ambiguous or unclear. Thus, if normal rules of construction were to be followed, the conclusion would be drawn $ha the Department is bound by its own clear rule, and cannot, by interpretation, add exceptions. But an equally valid rule of construction is that absurd results must be avoided. Certificate of need cases, particular ones like the case at bar, are highly competitive and complicated. It would be unreasonable to require the applicants to prove applications that have become erroneous due to the passage of time. While the question is a close one, the Hearing Officer has concluded that it would be better to ignore the clear words of the rule, and attempt to apply the evolving interpretative policy of the Department to avoid an absurd result. The following appear to be the existing final orders of the Department interpreting rule 10-5.008(3), and its predecessor, published in the Florida Administrative Law Reports. Health Care and Retirement Corporation of America, d/b/a Heartland of Palm Beach, 8 F.A.L.R. 4650 (September 24, 1986); Arbor Health Care Company, Inc., d/b/a Martin Health Center, Inc., v. Department of Health and Rehabilitative Services et al., 9 F.A.L.R. 709 (October 13, 1986); Mease Hospital and Clinic v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 159 (October 13, 1986); Health Care and Retirement Corporation of America, d/b/a Heartland of Collier County v. Department of Health and Rehabilitative Services, 8 F.A.L.R. 5883 (December 8, 1986); Health Care and Retirement Corporation of America, d/b/a Nursing Center of Highlands County, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1081 (December, 1986); Manatee Mental Health Center, Inc. d/b/a Manatee Crisis Center v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1430 (February 2, 1987); Health Care and Retirement Corporation of America, d/b/a Heartland of Hillsborouh, v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1630 (February 5, 1987); Manor Care, Inc. v. Department of Health and Rehabilitative Services, 9 F.A.L.R. 1628 (March 2, 1987); Psychiatric Institutes of America, Inc., d/b/a Psychiatric Institute of Orlando v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 1626a (March 5, 1987) ; Manor Care, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2139 (March 24, 1987); Wuesthoff Health Services, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2110 (April 17, 1987); Hialeah Hospital, Inc. v. Department of Health and Rehabilitative Services, et al., 9 F.A.L.R. 2363 (May 1, 1987); Palms Residential Treatment Center, Inc., d/b/a Manatee Palms Residential Treatment Center v. Department of Health and Rehabilitative Services, et al., 10 F.A.L.R. 1425 (February 15, 1988). These final orders contain the following statements concerning the Department's interpretation of rule 10-5.008(3) and its evolving policy with respect to changes to applications for certificates of need during section proceedings and admissibility of new information not contained in the original applications: Health Care and Retirement, supra, 8 F.A.L.R. 1081: During 120.57 proceedings, an application may be updated to address facts extrinsic to the application such as interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories. An applicant is not allowed to update by adding additional services, beds, construction, or other concepts not initially reviewed by HRS. Manatee Mental Health Center, supra, 9 F.A.L.R. at 1431: ... HRS has authority by statute to issue a CON for an identifiable portion of . Section 381.4C4(8), Florida Statutes. MMHC's "amended" proposal reduced the number of beds sought, and was properly considered during the 120.57 proceedings. Manor Care. Inc., supra, 9 F.A.L.R. at 1628: The amended applications [amended to address needs of Alzheimer's disease patients] changed the scope and character of the proposed facilities and services and thus, must be reviewed initially at HRS... [ limited the denovo concept by requiring that evidence of changed circumstances be considered only if relevant to the application. Hialeah Hospital, Inc., 9 F.A.L.R. at 2366: It is recognized that more than a year may pass between the free form decision by HRS and the final 120.57 hearing and this passage of time may require updating an application by evidence of changed circumstances such as the' effect of inflation on interest and construction costs. For the sake of clarity HRS would avoid the use of the word "amendment" to describe such updating. Such evidence of changed circumstances beyond the control of the applicant is relevant to the original application and is admissible at the 120.57 hearing. Taking the easiest first, those items explicitly listed by the Department in the first Health Care and Retirement case, "interest rates, inflation of construction costs, current occupancies, compliance with new state or local health plans, and changes in bed or service inventories," which change after the application is initially filed, are permitted. Not permitted are "additional services, beds, construction, or other concepts not initially reviewed by HRS." The remainder of the Department's incipient policy, as presently articulated, is obscure. The word "extrinsic" without the list of examples is of little guidance. The application is only an idea on paper. Anything new, other than the bare words on the paper as originally filed, is literally "extrinsic" thereto. The concept of whether the new information changes the "scope and character of the facilities and services" originally reviewed in free form action by the Department is similarly of little guidance because the phrase "scope and character" can mean practically anything. Of fundamental difficulty is whether this phrase is intended to select substantial changes to the original application, or all changes. For example, if the original application proposes separate shower stalls and tubs for double rooms, but the amended application proposes a combination shower and tub, has the "scope and character" of the "facilities and services" changed? The phrase "additional services, beds, construction, or other concepts not initially reviewed by HRS" is similarly vague. What is a service or construction or a concept not originally reviewed? Would this include the change in bathing equipment discussed above? The concept of "control" of the applicant over the information that goes into the original application is the only phrase that gives applicants any guidance. The word "control" probably is intended as a "knew or reasonably should have "known" standard. If the applicant reasonably should have known about the information and should have provided the Department with the information as a part of its original application, then the new information cannot be considered during the formal administrative hearing. The Hearing Officer will be guided, thus, by the explicit list of items provided by the Department in the Health Care and Retirement case, and by the concept of "control" provided by the Hialeah case. COPIES FURNISHED: For Agency HRS Theodore D. Mack. Esquire Department of Health and Rehabilitative Services 2727 Mahan Drive Fort Knox Executive Building Tallahassee, Florida 32308 (904) 488-8673 Charter Medical-Orange County, Inc. Fred W. Baggett, Esquire Stephen A. Ecenia, Esquire Roberts, Baggett, LaFace & Richard 101 East College Avenue Post Office Drawer 1838 Tallahassee, Florida 32301 (904) 222-6891 William D. Hoffman, Jr., Esquire Deborah J. Winegard, Esquire King & Spalding 2500 Trust Company Tower Atlanta, GA 30303 (404) 572-4600 Orlando Regional Medical Center, Inc. Steven R. Bechtel, Esquire Mateer, Harbert & Bates, P. A. 100 East Robinson Street Post Office Box 2854 Orlando, Florida 32802 (305) 425-9044 Orlando General Hospital, Inc. Eric J. Haugdahl, Esquire 1363 East Lafayette Street Suite C Tallahassee, Florida 32301 (904) 878-0215 Florida Hospital Stephen K. Boone, Esquire Robert P. Mudge, Esquire Boone, Boone, Klingbeil & Boone, P. A. 1001 Avenida del Circo Post Office Box 1596 Venice, Florida 34284 (813) 488-6716 Gregory L. Coler, Secretary Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 John Miller, General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Sam Power, Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 =================================================================
The Issue 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
Findings Of Fact On December 6, 1975 deputies from the Lee County Sheriff's Department entered the apartment of Helen Riggin and found marijuana and prescription drugs not issued to Respondent. Respondent admitted to the deputies that the drugs were in her possession without authority and that some of them had been prescribed for patients but converted by her for her own use. Miss Riggin immediately called the hospital to advise the Assistant Vice President of Nursing that she had been arrested by the Sheriff's Department. Riggin was advised not to come to work over the weekend, but to report to the Vice President of Nursing on Monday morning. At the Monday, December 8, 1975 meeting at the hospital Miss Riggin advised the Vice President of Nursing of the facts and circumstances surrounding her arrest the previous Saturday, and of the charges preferred against her. She was then suspended from further duty at Lee County Memorial Hospital. During the next three and one half to four months Miss Riggin worked as a waitress in Ft. Myers. Prior to the time Riggin's trial in the courts of Lee County was to be heard a Motion to Suppress the Evidence Seized was granted by the Circuit Court on the ground that the search was illegal and a violation of Miss Riggin's constitutional rights. Thereafter the charges against Miss Riggin were dropped by the State Attorney's office. Immediately thereafter, on March 31, 1976, Miss Riggin was re-employed by the Lee County Memorial Hospital with full knowledge of the circumstances surrounding her encounter with the Lee County Sheriff's Department and the State Attorney's Office. The Vice President of Nursing and the Assistant Vice President of Nursing at Lee County Memorial Hospital each have been R.N.'s more than 30 years. Both were fully aware of the acts committed by Respondent at the time she was rehired by the hospital and both recommended that Miss Riggin be permitted to continue to work as a R.N. at the hospital. In addition to the two senior nurses at Lee County Memorial Hospital, supervisors and coworkers of Miss Riggin also recommended that she be permitted to continue as a R.N. at the hospital. Miss Riggin is a conscientious, capable, dedicated and serious young lady who fully realizes the magnitude of the offenses of which she has been charged. She enjoys the profession of nursing and is rated by her superiors and coworkers as a very capable young nurse they would be pleased to have work with them. At the time she took the controlled substances or drugs from the hospital she was attempting to treat herself with the medication. She now fully realizes the error of judgment she exercised in trying to medicate herself. The marijuana seized in her apartment had been in her possession for a long period of time and none had ever been used by Respondent. Miss Riggin never gave any of the medication found in her possession to anyone else.
The Issue Whether an application for a new hospital to be constructed in Agency for Health Care Administration Planning District 9, Subdistrict 2, should be approved.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily approved Martin's CON application No. 9981. The Petitioners are existing providers who oppose the approval of the subject CON. St. Lucie is a 194-bed acute care hospital located on U. S. Highway 1 in Port St. Lucie, Florida, that opened in 1983. Included in the bed count are 17 obstetric beds and 18 intensive care beds. St. Lucie utilizes 7 operating rooms and provides a varied list of surgical services. Although St. Lucie does not provide tertiary services, it offers an impressive array of medical options including general and vascular surgery, orthopedics, spine surgery, neurosurgery, and gynecology. Furthermore, St. Lucie is a designated stroke center and it is fully accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). The JCAHO mission is to improve the safety and quality of care provided to the public through the provision of health care accreditation and related services that support performance improvement in health care organizations. St. Lucie uses a hospitalist program 7 days per week, 12 hours per day. The hospitalist program is a group of physicians who are employed by the hospital to manage the care of its patients. St. Lucie believes the hospitalist program moves patient cases more quickly and efficiently. St. Lucie has committed financial resources to its hospitalist program and hopes to expand its use in the future. The emergency department (ED) at St. Lucie handles approximately 42,000 visits per year. The ED has 24 beds comprised of 16 regular beds and 8 "fast track" beds. All areas are either curtained or separated by dividers to provide for patient privacy. Historically, St. Lucie has expanded the ED to provide for additional space for emergent patients. One of the strategies it has used includes the installation of special chairs in a waiting triaged area. The other Petitioner, Lawnwood, is located in Ft. Pierce, Florida, near I-95 and the Florida Turnpike. Lawnwood has 341 beds and, in additional to traditional medical/surgical options, provides tertiary services such as neurosurgery and open heart. Lawnwood also provides Level II neonatal intensive care services. Like St. Lucie, Lawnwood is fully accredited by JCAHO. Lawnwood has provided quality health care services to its region for over 30 years. The Lawnwood ED handles approximately 40,000 visits per year in a 28-bed unit. At its current location Lawnwood can expand its facilities should it desire to do so. At the current time, however, it has no plans for expansion of its main campus. It does plan to initiate an expansion of its intensive care unit. Financing for that expansion was anticipated to become more definite in 2009. In furtherance of its efforts to promote itself as a regional provider of quality medical services, Lawnwood has begun the arduous process of becoming a Level I trauma program for a multi-county area. In this regard, Lawnwood asserts that its service area for trauma patients encompasses Indian River County, St. Lucie County, parts of Okeechobee County, and portions of Martin County, Florida. Lawnwood has invested in the capital improvements needed to fully implement this program. The Petitioners are owned and operated by Hospital Corporation of America (HCA), a for-profit corporation headquartered in Nashville, Tennessee. HCA has input into the decisions affecting Petitioners and can influence when the improvements they hope to implement will be finalized. In addition to the Petitioners, other providers in the district include Indian River Hospital located in Vero Beach, Florida, and Martin Memorial Medical Center, Inc. with two hospitals in Martin County, Florida. It is the latter competitor that seeks to establish a new hospital in the western portion of St. Lucie County, Florida. Martin is a private, not-for-profit Florida corporation licensed to operate Martin Memorial Hospital North, in Stuart, Florida, and Martin Memorial Hospital South, in Port Salerno, Florida. The northern facility has 244 licensed beds; the southern hospital has 100 licensed beds. The northern hospital is the older provider and has served patients from St. Lucie and Martin Counties for over 70 years. Like Lawnwood, Martin offers a broad range of acute care hospital services including tertiary services. The options available at Martin include open-heart surgery, complex wound care, oncology, obstetrics, neonatal intensive care, pediatrics, and orthopedics. Martin provides high-quality medical services to its patients in both outpatient and inpatient venues. To that end Martin has been active in the western portion of St. Lucie County for a number of years and has solidified relationships with physicians in that area of the district. In this regard, Martin established an urgent care center in Port St. Lucie back in 1984. Since that time it has repeatedly sought to expand its provision of medical care to the residents of St. Lucie County. Martin constructed a physicians complex that employs and provides offices for physicians most of whom are on staff at St. Lucie. Over 80 percent of the patients from the Martin physician complex get admitted to St. Lucie. Martin also established a second outpatient facility in the western portion of St. Lucie County. This 70,000 square foot center provides 500-600 treatments per month to its patients. Among the services provided at this facility include a broad range of diagnostic and laboratory services, radiation therapy, rehabilitation therapy, and pediatric medicine. Finally, Martin also intends to establish a freestanding ED in the western portion of St. Lucie County in 2009. This facility will provide another access point for patients in the western portion of the county to facilitate a quicker response for patients who seek emergency care. Martin views this proposed freestanding ED as an interim measure and will convert it to an urgent care or other non-acute use if the proposed hospital it seeks to construct is approved. The Proposal Martin seeks to construct a general acute care hospital consisting of 80 beds, with intensive care, an ED, telemetry, and obstetrics. It will not offer tertiary services. The site for the proposed hospital is in an area known as "Tradition," a planned community in the western portion of St. Lucie County. The City of Port St. Lucie has annexed the geographical area into what residents consider "West Port St. Lucie" and have designated an area of Tradition to promote the life sciences industry. Accordingly, Tradition has areas reserved for medical office buildings, research facilities, as well as the hospital site to be used by Martin. Martin's proposed site is adjacent to the Torrey Pines Molecular Research Institute. The entire Tradition and West Port St. Lucie area is within AHCA's District 9, Subdistrict 2. By locating the new hospital in the western portion of the county, Martin maintains it will promote and enhance access for current and future residents of the developing area without adversely impacting St. Lucie and Lawnwood. Another advantage to a hospital in the western portion of the county is the option of having a haven in the event of a hurricane or natural disaster in the eastern portion of the county. Since the site is located to the west of the coastline, storm surges would not likely impact the facility or dictate evacuation. Further, the site provides excellent geographic access for traffic and the population of the expanding western portions of the county. Like other geographical areas, the coastal portion of the county faces “build out” that will limit the population expansion anticipated in that area. The proposed area has yet to face any limitation in that regard. It is the most likely geographic area that will expand as the population grows. HCA also recognized the benefits of the western area for future expansion of its medical facilities. It unsuccessfully negotiated to acquire a hospital site at or near the proposed location. In relation to the other parties, the proposed site is north and west of the Martin hospitals in Martin County, west of St. Lucie, and south and west of Lawnwood. The size of the parcel is adequate to construct the hospital. In reaching its decision to seek the approval of the new hospital, Martin considered input from many sources, including, but not limited to: physicians who practice in the vicinity of the proposed hospital; emergency response personnel who transport patients to the various district hospitals; medical researchers who have located to or are locating to the proposed area; elected officials familiar with the medical needs of the community; and health care planning professionals. The St. Lucie River divides St. Lucie County east to west. Only the areas west of the river have been designated as the primary service area for the proposed hospital. The primary service area comprises the land within zip codes 34983, 34984, 34986, 34953, 34987, and 34988. The secondary service area comprises those lands encompassed by zip codes 34981, 34982, 34952, and 34957. These primary and secondary service areas have been reasonably determined to project admissions and other relevant use data. As is later addressed in more detail, the population projected for the service area will reasonably support the utilization required to make the proposed hospital financially feasible. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. In this case, the parties have identified the provisions of law that pertain to this matter. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: . . . If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to Martin, "need" is evidenced by a large current and projected growing population in the proposed service area (PSA), sustained population growth that exceeds the district and state averages, capacity constraints at the existing providers, geographic access barriers including traffic congestion and the St. Lucie River, the need for improved access for emergency medical services, enhanced geographic and financial access to obstetrical services for residents of the western portion of the county, growth to offset impact on existing providers, and the financial health of existing providers. As previously stated, St. Lucie County is divided by the St. Lucie River. The river is crossed west-to-east by a limited number of bridges that can back up and delay the traffic utilizing them for access to St. Lucie. The county is traveled north to south by two major roadways: U.S. Highway 1 and I-95. To travel from the western portions of the county and the Tradition community, vehicles cross I-95, the river, and travel U.S. Highway 1 to St. Lucie. The PSA is the fastest growing portion of the county. The older areas to the east are not growing at the rate associated with the development of Tradition and other communities to the west. Some of the coastal areas to the east have become "saturated." That is to say, building and growth restrictions along the coast have limited the population in those areas. The western portion of the county is one of the most rapidly growing communities in the state and has become one of the focal areas of growth for the region. Although the rate of growth has slowed in the recent economic decline, the St. Lucie County area is still predicted to grow at an increased pace in the near future. Population projections prepared by the Bureau of Economics and Business Research at the University of Florida demonstrate that the growth reasonably expected for the PSA is fairly dramatic. According to Dr. Smith, whose testimony has been credited, the primary service area population is expected to reach or exceed 180,977 by 2015. If underestimated (as is typical of these types of projections), the growth could easily exceed that projection. The projection was based upon the most currently available data and has not been contradicted by more reliable data. Claritas data also suggested that the projections produced by Dr. Smith's work were reasonable. The projected growth rate in the primary service area exceeds the projected growth rate of the district as well as for Florida for the period 2007-2015. This finding is supported by the credible weight of the data admitted into evidence. Although the population growth has slowed due to economic conditions, the county will experience renewed growth in the PSA with the projected reversal of slowing trends. Development in the PSA continues to be the most likely geographic area that will be improved first and faster than other areas of the county. Looking at the age component of the population projected for the PSA, the age 65 and over cohort is the fastest growing segment of the population; the second is the 45-64 population segment. These segments are the majority of the acute care hospital utilization. Additionally, females ages 15- 44 also reflect a high rate of growth for the primary service area. This latter statistic supports the notion that a demand for obstetrics is likely. Acute care hospital utilization in the subdistrict increased from 2003 through June 2008. The non-tertiary discharges within the primary service area increased by 42 percent for the period 2003 to 2007. Birth volume in the primary service area increased for the same period and doubled the number of obstetric admissions for the time noted. This increase in utilization supports the likelihood that population growth for the area will further increase the utilizations expected for the PSA. Historically, St. Lucie has observed this utilization and growth of demand for its services. St. Lucie has responded by adding beds to its ED but the projections would suggest that past and future growth will result in capacity constraints for St. Lucie. Demand for intensive care, medical surgical beds, and progressive care beds at St. Lucie has been high. The ICU occupancy rate at St. Lucie in particular has been at or above 85 percent capacity a significant portion of the time. Capacity issues are more pronounced during the months from November through May of each year. The subdistrict enjoys a strong seasonal influx of residents who require all the amenities of a community including medical care. In this regard, St. Lucie has seen a "bed crunch" in order to accommodate the seasonal patients. This crunch results in longer ED waits, longer waits for admissions for those requiring acute care, longer waits for those seeking elective admissions, and longer waits for some services such as blood transfusions. Although hospitals are not intended to be like fast food restaurants (providing all services on a expedited basis), extended waits for bed placement can place waiting patients on gurneys in less than optimal conditions. This scenario does not promote efficient or the most effective form of providing health care services to those in need. The bed crunch at St. Lucie is expected to continue due to increasing demand for acute care hospital services in the county. Capacity constraints are similarly demonstrated at Lawnwood and Martin. Like St. Lucie, Lawnwood and Martin experience the seasonal crunch associated with the increased population during the winter months. In Lawnwood's case, the ED has delays through out the year. This means that patients wait for a bed assignment in the ED until a suitable room placement can be made. Additionally, the intensive care unit at Lawnwood experiences high occupancy. As Lawnwood transitions to a trauma center, the demand for acute care beds will also increase. Lawnwood will be the sole trauma center for the region and will likely receive an increase in utilization from that patient source. Martin also has experienced high utilization and has operated at or near capacity for extended periods during the season. Further, the birth volume growth for Martin supports the conclusion that additional obstetric beds are needed for the subdistrict. The majority of Martin's increased birth volume has come from the PSA. Martin has also established that obstetrics patients travel from areas closer to Lawnwood or St. Lucie to seek services at Martin. This demand for obstetrical services in the PSA also suggests that the proposed hospital would enhance access to obstetrics in the subdistrict. Patients who might be induced (as the mother is past her due date) for labor must, at times, wait for a delivery bed. Additionally, patients who present in labor do not always have a labor bed. The new facility would ease these constraints. The location of the hospital at Tradition will also improve geographic access to medical facilities. The traffic and natural barriers to health care services (limited west to east roadways and the river) would be eliminated by the proposed facility. Additionally, during periods of storm events, residents throughout the subdistrict would have access to an acute care hospital without driving to the coastal area. The demand for emergency medical response and transport in St. Lucie County has increased dramatically. The St. Lucie County Fire Department transports all patients requiring advanced life support services in the county. When traveling from the western portions of the county, the emergency transports use the same roadways to cross the river as the general population. Delays are common. Even after delivering a patient to the St. Lucie ED, the transport must return west from its point of origin in order to return to service. The delays in traversing the county result in delays for the unit to be able to respond to the next call. Although it is impractical to have a hospital on every corner, the establishment of a hospital at Tradition would greatly enhance the response times for emergency vehicles and enhance their ability to return to service more quickly. To respond to the increased population and need in the Tradition community, the county has established two new fire stations in the area. The primary service area has the greatest need for additional fire and emergency services according to Chief Parrish. To help address the problem of having rescue units out of service for extended periods of time while transporting patients to an existing hospital east of the river (or while they are returning west to their service area), the Fire Department has doubled rescue trucks and paramedics at two stations in the western portion of the county. This duplication of manpower and equipment increases emergency costs for the county. Although there are plans for the construction of another bridge across the river that would ease some of the congestion in crossing the county, it is unknown when that bridge will be funded and constructed. City personnel do not expect the bridge to be started prior to 2017. The proposed hospital will provide improved access for emergency medical services. The proposed hospital will provide enhanced access to obstetrical services for the residents of the PSA. With regard to financial access, the weight of the credible evidence supports the finding that residents of the PSA are able to adequately access medical services. Existing providers are meeting the needs of the needy and those without ability to pay. Although the new hospital would provide a closer point of service for the indigent or Medicaid recipients who may lack transportation advantages of the more affluent, the needy are currently being served by existing providers. The existing providers are financially healthy and are well able to meet the needs of the indigent. Should the new hospital siphon off the more desirable patients (ie. the insured, Medicare, self-pay, etc.), the existing providers should be able to continue to provide the indigent care needed by the subdistrict. Additionally, the new hospital would also be expected to accept Medicaid or indigent patients. Travel times within the subdistrict further suggest that the addition of a new hospital would reduce the time for all residents to arrive at an acute care hospital. Although the travel times currently suggest that patients could access an existing provider within 40 minutes, the addition of the new facility would ensure that during crunch times or times of traffic congestion or other times when factors extend the time for access to service, any patient from the PSA can be assured of prompt medical care. Establishment of the new hospital will also improve access in the event of a catastrophe or disaster. Given the recent history of hurricanes in the state, improved access to medical facilities in times of crisis can be critical to the patient as well as the emergency crews working during such events. To the extent that any existing provider loses admissions to the new hospital, the growth in population and projected admissions will adequately offset the loss of admissions. Further, the utilization expected by all providers will adequately assure their financial stability as the new provider achieves or exceeds its projected goals. Martin has demonstrated a strong financial position for a number of years. The establishment of the new hospital will not compromise Martin's financial strength or detract from its provision of services at the two hospital campuses it currently utilizes. The new, third campus will complement and enhance the Martin Health Care System. Martin has demonstrated the project is financially feasible both in the short and long term. Martin's past financial performance and continued strong financial position assure that it will be able to obtain financing for the proposed hospital construction and start up. Moreover, the projected patient days to be captured by the new hospital will assure that the hospital will achieve its "break even" financial point at a reasonable future date. The project should achieve revenues in excess of expenses by its third year of operation. The projections for utilization are reasonable and are based upon reasonable assumptions including the premise that Martin will redirect admissions from its southern facilities to services more geographically accessible at the new hospital. Martin has an established presence in the PSA and should be able to achieve its expected admissions without adversely impacting St. Lucie or Lawnwood. The revenue projections for the new hospital are reasonable and should be achieved. Martin has the resources, the workforce, and physician coverage to provide for the new hospital. Additionally, it is expected that new physicians will seek privileges at the new hospital and will provide emergency on-call coverage as may be needed. St. Lucie and Lawnwood have coverage for the medical specialties and ED departments at their facilities. Martin has a low vacancy and turnover rate for both nursing and non-nursing personnel. It partners with the community to sponsor initiatives that promote continued success in these areas. It is a favored employer among those in Martin County. The staffing projections for nursing and clinical support for the new hospital are reasonable. The projected salaries are also in line with those currently offered and should be reasonable and easily achieved. In short, the applicant has demonstrated that Schedule 6A of the application is supported by the record in this cause. Martin has demonstrated it is able to implement the project and to staff its needs at the levels projected by the application. St. Lucie County will grow at a sufficient rate to assure that all providers, including the proposed hospital, will have admissions to meet the financial needs of the institutions. Moreover, the growth anticipated is sufficient to fund the future improvements or expansions that may be required by the providers. Essentially, when considered as a whole, west to east, the county has sufficient growth potential to support the additional acute care hospital beds proposed by the applicant. Competition for the future beds will be enhanced by the additional provider. St. Lucie and Lawnwood will continue to perform well in the market. St. Lucie will continue to achieve the lion's portion of the market east of the river while Lawnwood will continue to serve the region as it has with tertiary and the newly added trauma services. If anything, Martin will take the largest hit from the establishment of the new hospital as it will seek to allow its patients from the PSA that currently travel south and east to Martin hospitals to remain in their community at the new facility. Acting as the "mother ship," Martin is willing to promote the new hospital so that the stresses it has at the Martin County hospitals may be alleviated. The Martin system as a whole will continue to grow and benefit from the addition of the new hospital. Martin is the chief initiator of medical services to the western St. Lucie County community. No HCA hospital has attempted to establish a presence in the Tradition area that matches or exceeds the commitment Martin has made to the residents of western St. Lucie County. St. Lucie and Lawnwood will continue to provide quality care to their patients and will continue to be financially strong should the new hospital come on line. The adverse impact suggested by the HCA hospitals is not supported by the weight of the credible evidence in this cause. In short, the market projections are adequate to assure all providers will continue to share a significant portion of the health care pie. The growth in population, growth in admissions and utilization, the demographics of the population, and the reputation of all providers to provide quality care support the long term success of all providers in the subdistrict. The establishment of the new hospital will also promote competition as medical and clinical research also come into play. Should the new hospital located near the research facilities promote clinical trials, all providers in the subdistrict would benefit from any successful achievements. Martin has agreed to the following conditions for the CON: Martin will partner with Torrey Pines Institute for Molecular Studies for the provision of resources associated with clinical trials and life science research. Martin will continue to support the Volunteers in Medicine program with free inpatient and outpatient hospital services, outpatient laboratory, diagnostic and treatment services at a value of not less than $750,000 of charges per year for the next 10 years. Martin will support other community social services organizations in the form of cash, goods and services valued at not less than $75,000 annually for the next 10 years. This represents a commitment of $750,000 to support organizations such as Meals on Wheels, American Cancer Society, American Heart Association, etc. Martin will support Florida Atlantic University Nursing School, Indian River Community College and other area nursing and allied health schools with at least $75,000 per year in services or goods for the next 10 years to help ensure an adequate supply of well-trained health care professionals. Martin will establish a volunteers program (based on its current successful program in Martin County) in Port St. Lucie area to involve local high schools in encouraging teens to volunteer in health care settings and to encourage health care careers. Martin will partner with the St. Lucie school system in the development of a High School Medical Academy. Martin will make the West Port St. Lucie Hospital available as a training site for area nursing and allied health schools and for the Florida State University physician training program. Martin will locate the new hospital south of Tradition Parkway, east of Village Parkway, adjacent to the Torrey Pines headquarters and the I-95 Gatlin Boulevard exit. Martin will provide a minimum of 11.1 percent of its total annual patient days in the new hospital to Medicaid and Medicaid HMO patients. Martin will also provide a minimum of $250,000 per year for Medicaid and/or charity outreach programs within the western Port St. Lucie area for the first five years of operation. This is not the first CON application submitted by Martin to establish a hospital in the western portion of St. Lucie County. The current application differs from others in that the updated population and utilization data more clearly establish that the projected growth for the subdistrict will support the new facility without unduly impacting the existing providers. The planning horizon for the instant application and the pertinent data show that the western portion of the county more closely resembles areas that have been granted satellite or new hospital facilities in other areas of the state. The growth projected for the county mandates additional healthcare resources be devoted to the PSA. Additionally, similar to its commitment to the Martin County residents, the applicant has demonstrated it will partner with the St. Lucie County resources to establish the same programs that have benefited other areas of the subdistrict. Finally, while the Torrey Pines affiliation was represented in prior applications, that facility is now a reality and operational. The benefits of having the Martin hospital adjacent to its facility is no longer speculative. Torrey Pines is a nationally recognized research entity. The State of Florida and St. Lucie County governmental entities have pursued this type of research facility for location to the state and this area. According to the Torrey Pines leadership, the location of the Martin hospital in proximity to its facility would enhance their efforts. The architectural schematics, project completion schedule, design narratives, and code compliance information set fort in Martin's application are reasonable. The site preparation and construction costs set forth on Schedule 9 are reasonable for the project proposed. Additionally, the equipment costs are reasonable. There is no financial barrier to access hospital services by the residents of the PSA. The quality of care rendered by all hospitals in the subdistrict is excellent. Although there may be some impact on the admissions and utilization at St. Lucie, the impact is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. The impact expected at Lawnwood should be less than St. Lucie, nevertheless, it too is not of such a magnitude so as to adversely impact the quality of care and provision of health services at that hospital. Section 408.035(2), Florida Statutes (2007), specifies that the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district must be considered. As noted above, there is no barrier to services in the subdistrict. Nevertheless, Martin has demonstrated that access to additional services will be enhanced by the establishment of the new hospital in the western area of the county. Additionally, delays in admissions and capacity constraints at the existing hospitals although not chronic or at a critical juncture are evidenced in the record. Section 408.035(3), Florida Statutes (2007), requires the consideration of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. This criterion is not in dispute in this cause. Section 408.035(4), Florida Statutes (2007), requires the review of the availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation. In this regard, Martin has established that it is able to provide the resources necessary for this project. Additionally, it has shown that projected salaries for the nurses (as depicted on Schedule 6A) are reasonable and within the general guidelines of Martin's provision of those services at its other hospitals. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require that a CON applicant demonstrate that the existing acute care providers within the PSA are failing in order to approve a new hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a hospital would be appropriate or inappropriate. In fact, AHCA has approved hospitals when residents of the PSA live within twenty minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case, the proposed hospital will provide a convenience to residents of western St. Lucie County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the hospital. Patients who would not benefit from the convenience of the proposed hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C-1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of the subdistrict will continue to use the existing providers who offer those services. The new hospital will not compete for those services. Lawnwood will continue to provide tertiary services to the PSA and will continue to be a strong candidate for any patient in the PSA requiring trauma services when that service comes on line. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The new Martin hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider or entity an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. This subdistrict enjoys a varied range of healthcare providers. All demonstrate strong financial stability and utilization. A new hospital will promote continued quality and cost-effectiveness. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. No more effective method of construction has been proposed. The financial soundness of the proposal should cover the actual costs associated with the construction of the project. Additionally, the free-standing ED that Martin is constructing will be transitioned to a urgent care clinic or some other health care facility, it will not continue to provide emergent services when the new hospital is on line. Therefore, it should not be considered a less costly alternative for ED services. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. Martin has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The new hospital would be expected to continue this tradition. Moreover, this criterion is adequately addressed by the proposed conditions to the CON approval. Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Agency's Rationale The SAAR set forth the Agency's rationale for the proposed approval of the CON application. The SAAR acknowledged that the proposal received varied support from numerous sources. Further, the SAAR acknowledged that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the applicant meets its projected occupancy levels; that the project would have a positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule is reasonable. The SAAR also recognized the improved access for obstetrical services for residents of the growing western St. Lucie County. This also reinforced the generally recognized improvements to access geographically given the limitations in east-west traffic access. Finally, the SAAR recognized that Martin is the provider that has invested in the western portion of the subdistrict by establishing clinics and physician networks to provide care to the residents of the PSA. Opponents to the new hospital have not similarly committed to the residents of western St. Lucie County. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9981 with the conditions noted in the SAAR. DONE AND ENTERED this 31st day of July, 2009, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of July, 2009. COPIES FURNISHED: Paul H. Amundsen, Esquire Julie Smith, Esquire Amundsen & Smith 502 East Park Avenue Post Office Drawer 1759 Tallahassee, Florida 32302 Karin M. Byrne, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire J. Stephen Menton, Esquire David Prescott, Esquire Rutledge, Ecenia, & Purnell 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Justin Senior, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Holly Benson, Secretary Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308-5403
The Issue Whether under Section 381.494(6)(c)-(d), Florida Statutes, and Rule 10-5.11, Florida Administrative Code, Respondent, Martin Memorial Hospital Association, Inc., is entitled to a Certificate of Need ("CON") authorizing a proposed 75-bed satellite hospital in Port Salerno, Martin County, Florida.
Findings Of Fact Background Respondent, Martin Memorial Hospital Association, Inc. ("Martin Memorial"), seeks a CON to construct and operate a 75- bed satellite hospital in Port Salerno, Florida. Of the proposed 75 acute-care beds, 50 will be new and 25 will be transferred from Mar in Memorial's existing hospital in Stuart, Florida. The proposed satellite hospital will have six intensive care beds, 69 medical-surgical beds, and two operating rooms. Respondent, Department of Health and Rehabilitative Services ("DHRS"), preliminarily issued the applied-for CON. After Petitioner, Palm Beach-Martin County Medical Center ("PBMC"), owner of nearby Jupiter Hospital in northern Palm Beach County, requested a Section 120.57 hearing to contest issuance of the CON, DHRS forwarded this case to the Division of Administrative Hearings for assignment of a hearing officer. This case, in its earlier stages, was a consolidated proceeding with numerous parties and party-applicants. In the fall of 1984, several parties withdrew or were dismissed. One of the them, American Healthcorp., dismissed its challenge of DHRS' denial of its application to construct a 120-bed new hospital in Vero Beach, Florida. Prior to that dismissal, American Healthcorp. had filed a mandamus action in Leon County Circuit Court to require DHRS to issue a CON. The writ of mandamus was issued and that order was appealed by DHRS to the First District Court of Appeal. On June 18, 1985, the First District reversed the Circuit Court's order. DHRS never issued a CON to American Healthcorp., as the writ of mandamus was stayed during the pendency of the appeal. Initially, PBMC, another party-applicant, contested DHRS' denial of a proposed 66-bed addition to its existing hospital in Jupiter, Palm Beach County, Florida. Later, PBMC dropped its opposition to the denial after concluding that, due to a dramatic drop in patient census during 1984, additional beds in the area were not needed.1 On Martin Memorial's unopposed motion to dismiss, PBMC was dismissed as a party. Other nonapplicant intervenors subsequently withdrew. In the earlier consolidated proceeding, Martin Memorial had contested the denial of its initial application (filed in 1983) for a CON to construct a 150-bed satellite hospital in Port Salerno, on the same site as now proposed for the 75-bed hospital. In October, 1984, Martin Memorial revised its application, within a deadline for submittal of amended applications set by prehearing order. This revised application, now the subject of this proceeding, reduced the number of beds in the proposed hospital from 150 to 75: 50 were to be new and 25 were to be transferred from Martin Memorial's existing hospital in Stuart.2 This 75-bed application was then preliminarily approved by DHRS, as part of an effort to settle the pending consolidated proceeding. After notice of the approval was published on December 7, 1984 in the Florida Administrative Weekly, PBMC timely requested a hearing to contest it. PBMC's position is, generally, that another hospital in the area is not needed and will result in an unnecessary duplication of services and that, if built, the hospital would draw patients who would otherwise use Jupiter Hospital, to the economic injury of PBMC. The remaining party-applicant in the consolidated proceeding was Lawnwood Medical Center, whose proposed 50- bedexpansion of its hospital in Fort Pierce (St. Lucie County), was preliminarily approved by DHRS. Martin Memorial requested a Section 120.57(1) hearing to contest the approval. By stipulation dated May 15, 1985, Lawnwood Medical Center was dismissed as a party. Martin Memorial II. The Parties The applicant, Martin Memorial, operates a not-for- profit community hospital in Stuart, Florida, which has served the health care needs of the area since 1939. At that time, it had 25 beds and the site consisted o eight acres. In subsequent years, Martin Memorial added five additional acres of land, and the hospital now has 336 beds, including 26 new beds: nearing completion. Martin Memorial is a subsidiary of Coastal Health Corporation, a not-for-profit holding company. One of the holding company's other non-profit subsidiaries, Coastal Care Corporation, provides services such as ambulatory surgery and primary or emergency care at medical treatment centers. Martin Memorial and its parent corporation, Coastal Health Corporation, are governed by boards comprised of full- time residents of Martin County who serve without compensation. Martin Memorial Hospital has a proven record of providing health care to indigents. Its policy is to provide health services without regard to race, religion, national origin, or a patient's ability to pay. It has always participated in the Medicare/Medicaid Programs and participates in the county indigent program. It proposes to follow the same policy at the proposed satellite hospital. Martin Memorial Hospital, in Stuart, is adjacent to the St. Lucie River on the north, bounded by the Heida-Brad Park residential development on the east, by the St. Mary's Episcopal Church on the south, and by various businesses and residences on the west. It would be difficult for Martin Memorial Hospital to expand to meet anticipated future demand. It has found it impractical to buy additional land adjacent to its existing facility. (It does not nave eminent domain power.) Under current zoning, its height is limited to the existing six floors. Other obstacles include problems with parking access and compliance with fire safety codes. Palm Beach-Martin (PBMC) PBMC is a non-profit corporation, organized in 1973, with the stated purpose of serving tee health care needs of residents of northern Palm Beach County and southern Martin County. It operates a community not-for-profit hospital, known as Jupiter Hospital, in Jupiter, Florida. A 156-bed acute care hospital, it is the northern most hospital in Palm Beach County and provides health care services to the residents of northern Palm Beach and southern Martin Counties. Over 10% of Jupiter Hospital's patients come from the Hobe Sound area of Martin County, and another 20% come from the Tequesta area of Martin County. The boards which operate PBMC and Jupiter Hospital are made up of volunteers; one-half of whom are doctors on the hospital's medical staff, and the other half are lay-members from the community. All policy decisions are made by the boards. The hospital is managed, under contract, by hospital Corporation of America Management Company (owned by Hospital Corporation of America) which supplies only the hospital administrator and finance director, all other personnel are employees of PBMC. Like Martin Memorial, PBMC has a practice of providing health care to indigent patients. It has a Medicaid contract at its convalescent pavilion and treats Medicaid patients requiring care. (Since it has not had a Medicaid contract with the state, PBMC "writes-off" the cost of care provided to Medicaid and indigent patients. But due to an increasing number of Medicaid patients, PBMC has applied for a Medicaid contract.) It has a current contract with Palm Beach County to treat indigents in its out-patient facility. Department of Health and Rehabilitative Services (DHRS) DHRS is designated by statute as the single state agency charged with issuing and denying CONs in accordance with district plans, DHRS rules, and state and federal statutes. See, Section 381.494, Florida Statutes (1983). Geographic Facts The proposed satellite hospital would be located in Port Salerno, Martin County, 5 1/2 miles south of Martin Memorial Hospital and 15 miles north of Jupiter Hospital. The site of the proposes hospital is 35 acres in size, and is located approximately 1/4 mile east of Highway U.S. 1, on Port Salerno Road. Jonathan Dickinson State Park, abutting Highway U.S. 1 for five miles, is situated between the site of the proposed satellite hospital and PBMC's Jupiter Hospital. The area of Hobe Sound is just north of this State Park. The proposed hospital would be adjacent to the Martin County Campus of Indian River Community College. III. Standing of PBMC: Expected Impact of Proposed Hospital on PBMC. Since it is physicians who admit patients to hospitals, the extent to which medical staffs overlap is one factor used to project how a new hospital will affect an existing one. Martin Memorial Hospital and Jupiter Hospital have distinct medical staffs and there is no material overlap. Neither has it been shown that Jupiter Hospital physicians will seek staff privileges at the proposed satellite hospital. It is reasonably expected that the proposed hospital will be staffed, for the most part, by physicians who are also on the staff of Martin Memorial Hospital. Nevertheless, the proposed satellite hospital would draw away a substantial portion of Jupiter Hospital's patient base and is intended to reduce Jupiter Hospital's market share in the Hobe Sound area to near zero. (Indeed, this is a result projected in Martin Memorial's Long Range Plan.) Martin Memorial (in its Long Range Plan) estimates Jupiter Hospital's current market share to be 65%. Jupiter Hospital's primary service area includes Hobe Sound, from which it draws approximately 10% of its patients. The northern boundary of the Hobe Sound area is 20 minutes driving time from Jupiter Hospital. Hobe Sound is also within the primary service area of the proposed satellite hospital. The proposed hospital would be in the same DHRS Service District as Jupiter Hospital and both hospitals would have overlapping primary service areas. The projected loss of 10% of its patient base to the proposed satellite hospital would have a significant adverse financial impact on PBMC. It has not been shown, however, this impact would imperil the continued financial feasibility of Jupiter Hospital. IV. Numerical Bed-need Projected by Applying DHRS Rule-Based Bed-need Methodology. The proposed satellite hospital would be located in DHRS Health District 9, which consists of Indian River, St. Lucie, 55artin, Okeechobee, and Palm Beach Counties. The state acute care bed-need methodology is a complex formula contained in Rule 10-5.11(23), Florida Administrative Code. It projects bed-need, on a district-wide basis, five years into the future, creating what is referred to as a "five-year planning horizon" for assessing acute care bed-need. The formula requires several district-specific inputs, including population forecasts in four age groups, the average fertility rate in the district for the three most recent years, the average historical utilization rate in the district for the three most recent years, together with specific factors used to determine the net flow of elderly patients. Three other input factors are applied uniformly to all districts: discharge rates by service and by age cohort for Florida residents, average length of stay by service and by age cohort, and occupancy standards by service and by age cohort. Application of the formula entails seven steps: Project patient days by service and by age cohort using the formula: Patient days = projected population x discharge rate x average length of stay Adjust the projected patient days for the 65 and over age cohort to account for patient flows. Calculate bed-need by applying service- specific occupancy standards to projected patient days. Calculate the district bed allocation by summing the beds needed by service. Calculate the projected occupancy of these beds using the district's historical utilization rate. If the projected occupancy. rate is less than 75 percent or greater than 90 percent, apply specified formulas to adjust the district bed allocation (downward or upward, respectively. Check to ensure that each district will be able to meet peak demand based on the adjusted allocation. (R-l8l/, Testimony of Kolb) Population projections used in the methodology are: "for age- specific cohorts residing in the relevant district projected five years into the future," Rule 10-5.11(23)(f)1., Florida Administrative Code. These age-specific cohort projections (of county populations) must be "those developed by the State Health Planning Agency, and will be based on the latest mid-range projections published by the Bureau of Economic and Business Research of the University of Florida [BEBR]." Id. There are currently 4,695 licensed or approved acute care beds in District 9, which includes the 50 additional beds (preliminarily) approved for the proposed satellite hospital and the 45 beds approved in a subsequent batching cycle. For July, 1989, application of the bed-need methodology shows a district wide gross need of 4,621 beds. This is based on population forecasts for July, 1939, released by the Governor's Budgeting and Planning Office on- January 1, 1985.This office interpolates and publishes population forecasts based on figures received from BEBR. Since later 1934 (when Rule 27E-2.01-.04 was adopted requiring state agencies to use, in their planning, population projections provided by the Governor's Office), DHRS's Office of Health Planning and Development has used such forecasts to project bed-need under the methodology. These forecasts are appropriate for such use since they are "developed" by the State Health Planning Agency and based on the latest mid-range projections published by BEBR. When the licensed or approved bed total of 4,645 (excluding 50 beds for the proposed satellite hospital) are subtracted from the district wide gross need, there is a net surplus of 24 beds. If the 50 beds of the proposed satellite hospital are included, the net surplus increases to 74 beds. A planning horizon of January, 1990, however, is more appropriate. It more closely conforms to the methodology's requirement that need be projected five years into the future. (At hearing, all parties agreed or acquiesced to the proposition that the five year planning horizon should begin to run, to the extent possible, from the date of final hearing in June, 1985.) The latest county-wide projections released by the Governor's Office for state agency use, projects population by age and sex cohorts for January 1, 1990 and July 1, 1990. The July 1, 1990 projections are beyond the five year horizon and so less suitable for use in the methodology. Applying, then, the bed-need methodology to project bed-need for January, 1990, shows a gross need of 4,702 beds, resulting in a total district wide net need of 57 beds (excluding the proposed 50-beds satellite hospital). Hence the methodology shows (just barely) a January, 1990 need for the 50- beds sought for the proposed satellite hospital. Because of projected increases in district population, the methodology predicts a significant growth in bed-need between July, 1989 and January, 1990: bed-need grows by 81 beds or by more than 10 beds per month. PBMC contends that a planning horizon of July 1, 1989, and no later, must be used since DHRS has, historically, updated bed-need projections only on July 1 of each year. Annual updates were limited to once a year because updated population figures were received only in July. Now, however, -he situation has greatly improved. DHRS receives updated population forecasts from the Governor's Office twice a year--in January and July. There is no reason why these updated and, presumably, more accurate population forecasts cannot be used to project bed-need Martin Memorial, on the other hand, argues for a more distant planning horizon--April 1, 1990. This horizon, however, requires use of BEBR projections recently received but not yet released or interpolated by the Governor's Office, until released, such projections are not appropriate for use by state agencies. See, Rule 27E-2.01-2.04, Fla. Admin. Code. V. Consideration of Other CON Review Criteria [A CON may be denied even though the bed- need methodology projects a need for the proposed beds five years into the future. Rule 10-5.11(23)(b): "An unfavorable Certif- icate of Need determination may be made when a calculated bed-need exists, but other criteria specified in Chapter 3Bl.494(6)(c), Florida Statutes, are not met." DHRS must consider CON applications in light of all statutory and rule criteria. See, Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361 (Fla. 1st DCA 1984).] Subdistrict Need: Allocation of District Wide Bed-need to|-. Relevant Subdistrict In 1983, the Local Health Council divided District9 into five subdistricts: (1) Indian River County, (2) Martin and St. Lucie Counties, (3) Okeechobee County, (4) northern Palm Beach County, and (5) southern Palm Beach County. Each subdistrict "is an area where the co-unity, by itself, uses the facilities in an area. It is supposed to be a sort of natural boundary that separates the different communities." (TR-413) The council also adopted a methodology for allocating acute care beds among the five component subdistricts. (R.-19) Although DHRS has not yet adopted, by rule, District9's subdistricts and subdistrict bed-need allocation methodology, both are part of District 9's Local Health Plan, adopted after a series of workshops and public hearings. The subdistricts were identified pursuant to a protocol furnished by DHRS which required consideration of whether an area was urban or rural, or comprised a standard metropolitan statistical area (SMSA). Under the protocol, an SMSA must be designated a separate subdistrict. Since Martin and St. Lucie Counties form a SMSA, they form a separate subdistrict. The five subdistricts of District 9 were identified in a rational manner, have a factual basis, and are useful tools for health care planning purposes. The methodology for allocating district wide bed-need to the subdistricts, also part of the Local Health Plan, has also been shown to be supported by reason and accepted health care planning concepts. DHRS cannot rationally determine the need for additional acute care beds, at least in =he context of this case without looking at subdistrict need or lack of need. In this way, local needs and conditions are considered in the decision- making process. District 9 is too large to serve as a useful unit for acute care bed planning purposes. Applying the Local Health Plan's sur5istrict bed-need allocation methodology to the July, 1989 planning horizon, indicates a net acute care bed-need for the Martin/St. Lucie-- County Subdistrict (not counting the 50 beds at issue) of 103beds. If the proposed hospital were approved, the subdistrict bed-need methodology would show a remaining subdistrict need for53 acute care beds. (R-18, TR-249) When applied to the January, 1990 planning horizon, preferred to the July, 1999 horizon., the subdistrict methodology shows a net acute care bed-need of 119 beds for the Martin/St. Lucie County Subdistrict (not counting the 50 beds at issue). Thus, the bed-need allocation methodology contained in District 9's Local Health Plan, shows a need for the proposed 50-acute care beds, with a 69-bed margin. (T-18, TR-248) Since the total number of licensed and approved beds (excluding the 50-beds at issue) for the subdistrict is 761, the projected need for 119 new acute care beds in January, 1990, is considered to be substantial. But the subdistrict bed allocation methodology assumes, incorrectly, that patients do not "cross-over" from one subdistrict to another. It fails, therefore, to consider or take to account the significant number of patients residing in the Martin/St. Lucie Counties Subdistrict who use acute care beds at Jupiter Hospital, located in the subdistrict to the south. This failure in the subdistrict methodology detracts from the weight to be given the resulting bed-need calculation. Availability, Accessibility and Adequacy of Like and Existing Facilities. Section 384.494(6) (c) 2.; Florida Statutes, requires review of CON applications in context with the "availability . . . accessibility and adequacy of like and existing health care services . . . in the district of the applicant."] Excess or under-utilized acute care bed capacity is a problem because it contributes to higher health costs. There are fixed overhead costs associated with acute care beds, whether empty or filled by a patient. These costs must ultimately be borne by the patients, or their insurers In reviewing a CON application, DHRS considers the number of available unoccupied beds at the facility and in the county or subdistrict for the most recent calendar year, determines actual occupancy rates, and compares them against an 80% occupancy standard, a standard generally accepted by health care planners. For example, one stated reason for DHRS' denial of Martin Memorial's initial 150-bed application was the availability of 20 unoccupied medical-surgical beds at Martin Memorial in 1982, on an average daily basis. Similarly, the average daily availability of 73 unoccupied medical-surgical beds in the five hospitals within PBMC's service area, plus additional approved but not licensed beds in the area, were stated reasons for DHRS' denial of PBMC's initial 1983 application for additional beds. (R-13) Applying the 80% occupancy standard to 1984 bed utilization statistics in the Martin/St. Lucie County Subdistrict, there were 111 unoccupied acute care beds on an average daily basis, not counting the 50 new beds recently approved for Lawnwood Hospital and the 26 new beds soon to be available at Martin Memorial. This is a 63.7% occupancy rate. Moreover, there were 47 unoccupied licensed beds on an average daily basis at Martin Memorial Hospital (not counting the 26 new beds under construction). The same calculation using only medical-surgical beds shows that in 1984, on an average daily basis, Martin Memorial had 36 unoccupied medical-surgical beds or an occupancy rate of 661. At Jupiter Hospital and Port St. Lucie Medical Center, the two hospitals having overlapping service areas with Martin Memorial, there were 31 (58.2% occupancy rate) and 49 (43.7% occupancy rate) unoccupied medical-surgical beds, respectively, on an average daily basis. (HRS-4) There is an ample supply of available beds: there is not a shortage of acute care hospital beds at Martin Memorial Hospital or in the Martin/St. Lucie Subdistrict. Martin Memorial has shown only that there may be, or could be, bed availability problems during certain peak months at Memorial Hospital in 1990, based on seasonal considerations. At most, it has shown that, without the proposed satellite hospital, the average occupancy for its highest occupancy month in 1990 would reach 91%. (TR-263-265) However, it is possible to operate a hospital at such an occupancy level for several months and yet maintain an acceptable level of service. (Moreover, Martin Memorial's analysis fails to take into account acute care beds which would be available in 1990 at Port St. Lucie Medical Center and Jupiter Hospital, where occupancy rates would be much lower.) Martin Memorial does not assert that in 1990 its average daily occupancy rate will exceed 80%. Indeed, assuming the validity of its average length of stay and hospital utilization assumptions (which are questionable), Martin Memorial forecasts an average daily occupancy rate of 79.4%. The State Health Plan states that "the issue of surplus beds is expected to be an even greater problem in the future because of the growth of alternative delivery systems"-- (R-20, p.22)--a proposition with which Martin Memorial's expert generally agrees. (TR-287-288) The State Health Plan concludes that "the combined effect of ambulatory surgery, HMOs, DRGs, and other innovations could reduce acute care bed-need by 15% or more." Id. Thus it becomes more likely that there will be an ample supply of available unoccupied beds in the subdistrict through 1990. The proposed satellite hospital would improve or enhance the accessibility of hospital services, since it would be located closer to some patients than either Martin Memorial or Jupiter Hospital. However, it has not been shown that geographic accessibility has been or will be a serious problem without construction of the proposed satellite hospital. The proposed hospital would be located about 5 miles from Martin Memorial and about 15 1/2 miles from Jupiter Hospital. Patients in the southern part of Martin County, residing south of the northern part of Hobe Sound, can be driven to Jupiter Hospital in 20 minutes or less. The definitive standard, commonly used by DHRS and.generally accepted by health care planners to detect geographical bed-access problems, is the 30 minute drive-time standard. Under this standard, if acute care hospital beds are available and accessible, within an automobile travel time of 30 minutes under average traffic conditions to at least 90% of the population, there is no cause for concern about geographic accessibility. It is undisputed that hospital beds are now available well within 30 minutes travel time to all residents of Martin County during all relevant periods, and will continue to be so through 1990. In short, geographic accessibility is not a current or projected problem and although the satellite hospital would make in-patient services more geographically accessible to some residents, such a result could be expected whenever a new hospital is constructed, whatever its location. As to adequacy of existing and licensed and approved facilities, there is no showing that the quality or extent of health care provided is inadequate. Extent of Utilization of Like and Existing Facilities. [Under Section 3Bl.494(6)(c)2., Florida Statutes, CON applications must also be reviewed in context with the "extent of utilization . . . of like and existing health care services . . . in the service district of the applicant."] During the last two years, the health care industry has undergone major changes resulting in a sudden and dramatic decline in the use of hospital in-patient services. The main cause of this decline was the shift, in October 1983, to the Medicare prospective payment system, otherwise known as Diagnostic Related Groupings (DRGs). The DRG payment system changed Medicare reimbursement from a cost basis to a set reimbursement based on diagnosis. It has caused a sharp decline in the average length of stay of Medicare patients as well as a decrease in Medicare admissions, and a resulting decline in hospital occupancy levels. For example, in calendar year 1984, the average length of stay for hospital patients in District 9 dropped from approximately 6.8 to 6.1. (DHRS-4) Another recent development contributing to the general decline in hospital utilization .is the increasing emphasis on providing out-patient services such as out-patient surgery and home health services. In many areas of the country, the advent of Preferred Provider Organizations (PPOs) and Health Maintenance Organizations (HMOs) have significantly impacted hospital occupancy rates, not only by encouraging shorter lengths of stay, but also by greatly lowering admission rates. (TR-604-05, 773: P-3, p.l8) According to the State Health Plan, "the emergence of [these] alternative delivery systems . . . [has] exacerbated declining occupancy rates." (R-20, Vol. 1, p.26) Martin Memorial has developed free-standing medical treatment centers in Hobe Sound and Port St. Lucie, which can provide up to 80% of the services required by patients in hospital emergency rooms. (TR-56-59 R-1, Vol. II at 73) In addition, Martin Memorial is merging with VNA in Martin County to provide home health care. These alternative delivery systems, along with the expected increasing effects of PPOs, HMOs and prospective payment systems, will contribute to further declines in hospital utilization and tend to extend the time during which the existing inventory of acute care beds will be adequate to meet the needs of a growing population. Although witnesses for Martin Memorial suggest that this steady decline in bed utilization at Martin Memorial will soon bottom out and that the average length of stay will fall no further, the weight of credible evidence shows that hospital utilization in District 9, as well as in the country as a whole, is still declining and that no one can say, with any reasonable degree of certainty, just when the decline (or "nose dive," TR- 682) in average length of stay and overall utilization will stop. The Executive Director of the District 9 Health Council predicts that the average length of stay in the district may fall from its current level of 6.1 or 6.2 to 5, and a recent survey of southeastern hospitals predicts at least a 5% further decline in average length of stay from 1984 levels. Hospital admission or discharge rates in District 9 fell slightly in 1984, but on the whole have remained relatively constant. The decline in hospital utilization has been chiefly caused by the unprecedented drop in average length of stay. Several factors causing declines in hospital admissions as well as utilization in other areas of the state and country have not yet begun to significantly affect northern Palm Beach, Martin, and St. Lucie Counties. It is, however, reasonably expected that these factors, such as out-patient or ambulatory surgical centers, and home health services (which are becoming increasingly used), will continue to grow and further decrease hospital in-patient surgery and care, admissions, and utilization. (TR-39-40, 578) As stated earlier, the most recent State Health Plan predicts that the combined effect of ambulatory surgery and other alternative health care delivery systems will be to reduce hospital discharges (or admissions) by 15% or more by 1989. (R-20, Vol. 2, p.72) Another factor which will contribute to the further decline in hospital utilization in Florida will be the required adoption of prospective payment programs by hospitals and private insurers for non-;5edicare patients. Under the Florida Health Care Access Act of 1984, hospitals are required to negotiate a prospective payment arrangement with each health insurer representing 10% or more of the hospital's private pay patients (R-20, Vol. 1, p. ll) To date, the only active HMOs in District 9 are found in southern Palm Beach County and their impact has not been felt elsewhere in the district. It is reasonably anticipated, however, that HMOs will expand throughout the district in the next several years and will contribute to a further decline in admissions. (Some commentators predict HMOs will reduce hospital admission rates by as much as 40%.) (TR-605-06, 679-80) Even without these factors, the extent of the decline in hospital utilization in District 9 has been dramatic. Overall hospital utilization i., 1984 declined from a level of 73.7% in 1983 to 65.R% in 1984. (HRS-4; R-~9: P-5) The District 9 medical-surgical utilization rate dropped from 76.3% in 1983 to 67.3% in 1984. The decline in hospital utilization in the Martin/St. Lucie Subdistrict and at specific hospitals in the area have been even more pronounced: 1983-84 Subdistrict and Specific Hospital Utilization Rates Overall Rate Med-Surg Rate 1983 1984 1983 1984 Martin/St. Lucie Subdistrict 76.9%1 63.7% 78% 63.8% Martin Memorial 74.1% 65.1%4 74.8% 66.0% Port St. Lucie5 38.9% 44.1% 37.6% 43.7% Jupiter Hospital 67.7% 55.7% 71.4% 58.2% Although experts disagree on how long the decline in hospital utilization will continue and how far it will fall, it is apparent that hospital utilization is continuing to decline in District 9 in 1985. By January and February 1985, the Martin/St. Lucie Subdistrict medical-surgical utilization declined about 1% from the same period in 1984. However, the most recent data for March, 1985, shows a decline in monthly medical-surgical utilization from 73.2% in 1984 to 68.8%. Martin Memorial's patient days in 198; are less than the corresponding number of patient days .when compared to the same periods in 1984. In addition, in no single month during Martin Memorial's 1985 fiscal year, beginning on October 1, 1984, has Martin yet achieved its budgeted patient days or admissions. In fact, Martin Memorial's bed utilization is more than 10% under budget for fiscal year 1985. (TR-66-69 P-1) Martin Memorial contends that the projected increase in the population and the aging in population in the Martin/St. Lucie Subdistrict will offset the decline in average length of stay and gradually increase the in-patient population. Although it is reasonable to expect that such factors would increase utilization, over the last year in District 9, use rates have gone down and admission rates have decreased slightly even though population increased and aged. In addition, it is reasonably anticipated that the future negative impact of HMOs on use and admissions will offset these population changes and contribute to further decline in utilization. Projected Utilization of Martin Memorial Hospital and the Proposed Satellite Hospital. In projecting- utilization for its existing and proposed facilities, Martin Memorial used 1984 District 9 use rates and a constant to increasing average length of stay. (R- 18) Use and admission rates have declined steadily for several years for the under-65 population and, in the first year of DRGs, dropped by over 3% for the over-65 population. Vet, despite this t-end and projections of decreasing use and admission rates in the future due to alternative delivery programs, Martin Memorial's utilization forecast uses admission rates slightly higher than the 1984 actual admission rates. (R- 18) In projecting the average length of stay for the proposed Port Salerno Hospital, Martin 'Memorial discounted 10% from its 1984 average length of stay. This discount, however, was due to projections of lower Medicare utilization and lower intensity of services at the new hospital, and makes no allowance for any further decreases in average lengths of stay. Similarly, in projecting utilization for Martin Memorial Hospital, Martin Memorial assumed an increase over the 1984 average length of stay of 6.0 days to 6.1 days in 1990. These assumptions are unreasonable in that they 'ail to fully into account the current and projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization—that the satellite hospital would experience 58% occupancy in 1990, the first year of operation. Martin Memorial projects that without the proposed Port Salerno Hospital, Martin Memorial would achieve an occupancy rate of 79.4% in 1990. This utilization projection was based on population projections for Martin County done in 1984 by Dr. Stanley Smith it fails to take into account Dr. Smith's recent revision downward of the 1990 population projections for Martin County from 100,900 to 98,700. (TR-95-96, 294-95 R-6) The decline in average length of stay and hospital use rates will have a major impact on the number of empty beds in District 9 and, at least as applied to this District, the bed- need methodology of Rule 10-5.11(23), over-states the need for additional beds in 1990. The methodology uses a constant average length of stay derived from prior years. It is not an accurate predictor of future occupancy when, as now, use rates and utilization are declining and are reasonably expected to continue to decline. (TR-639-41: TR-614, 621-22 P-5) Martin Memorial's projected 79.4% occupancy rate in 1990 is overstated because it fails to fully take into account continuing declines in average length of stay and use rates, and because the 1984 population figures used to derive the 1984 use rate may be understated, thereby overstating the use rate. Similarly, using the same assumptions, an occupancy rate of 69.7% was projected for Jupiter Hospital (without the proposed Port Salerno Hospital). This projection is also overstated for the same reasons. If the Port Salerno Hospital were approved, the 1990 occupancy figures for both Martin Memorial and Jupiter Hospital would, in all likelihood, be much lower. (TR-627 P-5) 21 A more credible projection of ,Martin Memorial Hospital's 1990 occupancy rate was offered by Thomas W. Schultz, PSMC's health care planning expert. By reducing the 1984 Dis- trict 9 use rate by 2.9% to account for declining utilization at Martin Memorial during the first three months of 1985, as well as the general continuing decline in hospital utilization, Mr. Schultz projected Martin Memorial's 1990 occupancy (without the new facility) to be only 72.6%. Similarly, because use rates are still declining and because the 1985 population numbers used to calculate the rates may have been understated, this projected occupancy is overstated. (TR-628-30, 635-38; P-5) The State Health Plan and the District 9 Local Health Plan [Section 381.494(6) (c)l. requires that CON applications be reviewed "in relation to the applicable district plan and state health plan "] Several specific utilization and occupancy standards are contained in the State Health Plan and the District 9 Local Health Plan. A major stated goal of the State Health Plan is to promote the efficient utilization of acute care services by raising the occupancy rates or acute care hospitals. (R-20) It identifies 80% as the appropriate minimum occupancy level for acute care hospitals: an average annual occupancy rate of at least 80% is made an objective. As conceded by Debra S. Kolb, Ph.D., Martin Memorial's expert health planner, the 80% occupancy standard is an appropriate minimum standard which should be "looked at as a hurdle before beds are added." (TR- 289) She adds, however, that "there are other factors, such as . . . size of the facility, seasonality issues, age problems. . . that would warrant special cases." (T?.-289) By policy and practice, DHRS considers current occupancy levels to be an important criterion and has applied this 80% occupancy standard in reviewing CON applications. Its use of these standards is illustrated by its initial action on the various applications which were once part of this proceeding. DHRS granted Lawnwood Hospital's application for several stated reasons, one of which was a 1982 occupancy rate of 90%. Martin Memorial's initial 150-bed application and PBMC's 60-bed application (later dropped) were denied, in substantial part, because of low utilization rates in 1982 and because there was an adequate supply of beds currently available. (Interestingly, both Martin Memorial and PBMC had 1982 occupancy rates exceeding 70%.) As stated by Gene Nelson, then supervisor of DHRS' CON review section, in the State Agency Action Report denying PBMC's application: "Overall utilization for Palm Beach Martin County Medical Center for 1982 was 72.3% and medical/surgical utilization was 76.4%, neither being sufficiently high to justify additional beds." (R-13) The Acute Care portion of District 9's Local Health Plan (1984), contains "Recommendations by Priority Ranking" reflecting policies and priorities which, according to the local health council, should be used (in addition to the DHRS bed-need methodology) in planning and allocating acute care bed-need. Priority I delineates the subdistricts for purposes of allocating acute care hospital beds: Priority II establishes the_ subdistrict allocation methodology: Priority III establishes an occupancy rate which must be met before additional beds may approved: Before needed beds, as determined by Rule 10-5.11(23), may be approved, applicants requesting additional acute care beds should demonstrate that certain occupancy thresholds have been achieved relative to medical/surgical, obstetric, pediatric and ICU/CCU beds. The average annual occupancy rate (most recent calendar year) in the applying facility and its corresponding subdistrict average, should equal or exceed the following levels (inclusive of CON approved beds): Medical/Surgical 75% Obstetrical 65% Pediatric 65% ICU/CCU, Monitored & Intermediate Care 75% (e.s.) (R-10, pp.48-49) The rationale for this standard is set forth in the plan: With the advent of the Medicare prospective reimbursement system, there is literally no way to estimate the magnitude of impact that this reimbursement mechanism will have on hospital admissions, occupancy rates, and average lengths of stay. Therefore, relying upon the national standard of 4 beds/1000 population was not adequate. There is a need for an indicator based solely on utilization for the elderly. Since the reimbursement mechanism for non-Medicare patients has not changed, a resource based methodology has been utilized for this population group. Moreover, the program goals of the Local Health Plan state that the overall occupancy rate in District 9--as a whole--for licensed acute care beds as well as the occupancy rate for medical/surgical beds should equal or exceed 756. (Id. at 47) These minimum annual district and subdistrict occupancy rates take seasonality and age considerations into account. Bed utilization or occupancy standards are the only bed-need criteria that look to actual, verifiable data reflecting current conditions as opposed to forecasts, which look to the future.6 Failure to achieve the occupancy standards of Priority III A of the Local Health Plan creates, at least, a strong presumption against the approval of the project. In exceptional situations, however, additional beds may be approved even though the occupancy standard is not met. A typical example projected continuing decline in hospital admissions and utilization. Consequently, little weight is assigned to Martin Memorial's forecast of future bed utilization--that the satellite hospital would experience 58% occupancy in 1990.the first year of operation would be where there was a geographical access problem.7 Both the State and District 9 Health Plans cite the high cost of unused hospital beds which add to the cost of hospitalization. (R-20, p.70: R-10, p.10) A primary goal of both plans is to raise occupancy rates and eliminate excess beds. With this in mind, it is reasonable to give considerable weight to current utilization rates even though a numerical "need" for the beds is projected by the DHRS bed-need methodology.8 1984 bed utilization at Martin Memorial, Port St. Lucie and Jupiter Hospitals, as well as average utilization for District 9 and the Martin/St. Lucie Subdistrict, fall well below the minimum occupancy standards normally applied by DHRS and set out in the State and Local Health Plans. These minimum occupancy standards have not been met and are not reasonably projected to be met by 1990. Considerable weight should be accorded this factor since that is the effect of the State and Local Health Plans and DHRS' normal practice. Moreover, since occupancy rates are based on actual current conditions, they are less subject to manipulation, and inject a healthy measure of reality into CON decision-making during a time of great change in the health care industry. Economies and Improvement Services Derived From Operation of Joint, Cooperative or Shared Resources. [Another CON criterion is whether there will be "[p]robable economies and improvements in service that may be derived from the operation of joint, cooperative, or shared health care resources." Section 3fll.494(6)(c)5., Florida Statutes.] Because the proposed project is a satellite hospital, there will be economies and improvements in services realized from the operation of joint, cooperative or shared health care resources, as compared to the operation of a wholly separate free-standing hospital. The satellite hospital will not offer obstetrics or a defined pediatric unit. It will not have a CAT Scanner, a -- personnel office similar to Martin Memorial's, or a hospital laundry. It will have an emergency room, normal operating room suites, and radiology and lab services, although the more complex lab tests will be performed at Martin Memorial Hospital. The Need for Research and Educational Facilities. [CON applications are also reviewed in context with the "need for research and educational facilities . . .." Section 381.494 (6)(c)7, Florida Statutes.] The proposed satellite hospital will be located directly adjacent to the Martin County campus of Indian River Community College ("IRCC"). The IRCC campus has an Allied Health Building with approximately nine classrooms, a nursing 120 and an emergency medical technician lab. IRCC has a contract with Martin Memorial Hospital which allows IRCC students to use Martin Memorial facilities for clinical training. Clinical training is an important part of the allied health curriculum at IRCC. Construction of the satellite hospital next to the IRCC campus would benefit the Allied Health Programs since there could be joint use of equipment, facilities, and personnel, and a better opportunity to invite doctors, nurses, and other health care professionals to the classroom. The satellite hospital would also be more convenient to students, in terms of scheduling and transportation, than Martin Memorial Hospital, where they now receive clinical training. Although the proposed satellite hospital would enhance the IRCC health care training programs, there is no evidence that the clinical training programs now provided at Martin Memorial Hospital are inadequate. The proposed facility is not predicated on a claim that its primary purpose will be to serve as a research or educational facility. Financial Feasibility of the Proposed Satellite Hospital. [Another CON criterion is "[t]he immediate and long-term financial feasibility of the proposal." Section 381.494 (6)(c)9, Florida Statutes.] Estimated Project Costs The estimated costs of the movable equipment for the proposed satellite hospital are reasonable. (Stipulation, P.3) The real property in Port Salerno where the proposed satellite hospital would be located, is owned by Martin Memorial and is of adequate size and otherwise appropriate for the proposed project. (Stipulation, p.3) The estimated cost of construction and fixed equipment is $7,490,625.00, which amounts a cost of $117.50t per square foot. (The hospital will have 850 square feet per bed: $117.50 X 850 X 75 = $7,490,625.00.) his is a reasonable cost for bidding the project in the spring of 1986. Estimates of the architect's fee ($545,317.00), the cost for surveys and borings ($25,000.00j, the 3% contingency cost ($251,000.00), the developmental costs ($195,000.00), the site work and utilities ( $960, 000.03 ), the actual land costs.($595,000.00), and the financing and refinancing costs($3,100,770.00) have also been shown to be reasonable. Short-Term Financial Feasibility Martin Memorial has sufficient funds to make the equity contribution necessary to obtain financing. It also has the ability to raise $16,370,000.00 through the sale of tax exempt bonds, which appear to be marketable. It is likely that Martin Memorial would be able to secure the necessary funds for construction. The proposed satellite hospital would be financially feasible in the short-term. Martin Memorial has proven its ability to operate a hospital efficiently and profitably. Even with the advent of the DRG payment system, Martin Memorial Hospital has continued to operate profitably. During the initial DRG phase-in year of 1984, Martin Memorial benefited financially from the use of the new prospective payment schedule. Even if bed use at the satellite hospital is less than projected, or desired, during the start-up years, it is likely that Martin Memorial would be able to subsidize its operation until, with expected population growth, utilization increases and it becomes financially self- sustaining. Long-Term Financial Feasibility The proposed satellite hospital is also financially feasible in the long-term his conclusion is supported by a financial analysis utilizing reasonable assumptions based on Martin Memorial Hospital's historical experience an t financial costs obtained from a qualified securities analyst. The financial analyst also used bed utilization projections supplied by Martin Memorial's qualified earth care planner. Although the reliability of the 1990 utilization forecast is questionable, over the long-term--with projected increases in population9 is likely that the proposed hospital would become financially feasible, self-sustaining, and able to meet its operating expenses and debt service payments. I. Availability of Manpower and Resources [Another CON criterion is "[t]he availability of resources, including health manpower . . .." Section 381.494 (6)(c)8, Florida Statutes.] Martin Memorial has an in-place recruiting department which, in the past, has successfully recruited new employees for expansion programs. It has the capability of recruiting, training, and staffing the 175 full-time equivalent medical personnel shown in its CON application. There has been no showing that the hiring of employees for the satellite hospital will significantly impact other facilities or that there is a shortage of health manpower and resources. III. Need for the Proposed Hospital (using a planning horizon of January, 1990) Based on a Balanced Consideration of all CON Criteria_ ["Need" for a proposed facility, under CON law, is determined by "a balanced consideration of all the statutory [and rule] criteria." Department of Health and Rehabilitative Services v. Johnson & Johnson, 447 So. 2d 361, 363 (Fla. 1st DCA 1984) See, Section 381.494(6)(c), Florida Statutes. DHRS may not adopt a rule allowing it to "ignore some statutory criteria and emphasize others." Id. Nor may it adopt a methodology, in rule form, which "rigidly control[s] the granting or withholding of [CON] approval." Humana, Inc. et al. v. Department of Health and Rehabilitative Services, So. 2d (Fla. 1st DCA Case No. AY-422, Opinion filed May 16, 1985), 10 F.L.W. 1222.] (a) The foregoing evidentiary findings support an ultimate finding that the proposed satellite hospital is not needed, either now or within the planning horizon of January, 1990. When measured against all pertinent statutory and rule criteria, the factors favoring approval of Martin Memorial's application are outweighed by the factors supporting denial. The DHRS numerical bed-need methodology projects a January, 1990 "need", but barely so. Further, the methodology, as one criterion among many, is assigned less weight since it is a less accurate predictor of "need" in times, such as these, when in-patient bed use is steadily declining. This decline is pervasive, has continued, unabated, for over 13 months and has not yet bottomed-out. The methodology uses bed-need figures rooted in the past and does not adequately reflect this decline. Allocation of bed-need to the Martin/St. Lucie Subdistrict shows a more substancial "need" (103 beds), but this figure is, in part, also derived from the DHRS methodology. There is an adequate current supply of available acute care beds at existing facilities, similar in nature. No geographical access problem has been shown. The existing hospitals which serve the area proposed to be served by the satellite hospital, as well as the subdistrict and district, have 1984 occupancy rates considerably below the,30% occupancy standard generally applied by DHRS and health care planners. There is not a current shortage of beds. In January, 1990, it is likely that the supply of acute care beds will continue to be adequate. In all likelihood, daily occupancy rates at Martin Memorial and in the subdistrict will still be below the 80% standard. At best, Martin Memorial has shown that during two or three peak winter months, its own institution-specific occupancy rate will exceed 90%.10 But on a short-term basis, such a rate is doable and consistent with quality health care. Current bed utilization, a readily ascertainable criterion which reflects actual conditions, should be accorded considerable weight on the scale of criterion when, as now, the health care industry is in rapid flux and past trends have been disrupted, or even displaced. With declining average lengths of stay and anticipated growth in alternative delivery systems, it is reasonably expected that acute care bed use will continue to decline. The steady drop in bed use makes it more likely that the currently existing and licensed or approved beds in the area will be adequate through January 1990. Martin Memorial's utilization forecast failed to fully take into account the steady decline in bed use. Approval of the proposed hospital would be inconsistent with the State Health Plan, which identifies 80% as a minimum occupancy rate for acute care hospitals and, more particularly, with the Local Health Plan (Priority III) which, with few exceptions, does not allow new beds (irrespective of the DHRS methodology numbers) until specified occupancy thresholds have been met. These thresholds have not yet been met. The proposed hospital would be financially feasible in the short-and-long-term, enhance competition, and improve the education of health care students at the adjacent Indian River Community College. These benefits, however, are outweighed by the other factors which support a conclusion that the proposed hospital will not be needed by January, 1990. Construction of an unneeded hospital would have the effect of reducing occupancy rates at nearby hospitals and exacerbating the problem of excess bed capacity.
Recommendation Based on the foregoing, it is RECOMMENDED: That Martin Memorial's application or a CON to construct and operate the Port Salerno Hospital be DENIED. DONE and ORDERED this 4th day of October, 1985, in Tallahassee, Florida. R. L. CALEEN, J . Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, FL 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 4th day of October, 1985.
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
