The Issue Whether Certificate of Need (CON) Application No. 9992, filed by Sun City Hospital, Inc., d/b/a South Bay Hospital to establish a 112-bed replacement hospital in Riverview, Hillsborough County, Florida, satisfies, on balance, the applicable statutory and rule review criteria for approval.
Findings Of Fact The Parties A. South Bay South Bay is a 112-bed general acute care hospital located at 4016 Sun City Center Boulevard, Sun City Center, Florida. It has served south Hillsborough County from that location since its original construction in 1982. South Bay is a wholly-owned for-profit subsidiary of Hospital Corporation of America, Inc. (HCA), a for-profit corporation. South Bay's service area includes the immediate vicinity of Sun City Center, the communities of Ruskin and Wimauma (to the west and east of Sun City Center, respectively), and the communities of Riverview, Gibsonton, and Apollo Beach to the north. See FOF 68-72. South Bay is located on the western edge of Sun City Center. The Sun City Center area is comprised of the age- restricted communities of Sun City Center, Kings Point, Freedom Plaza, and numerous nearby senior living complexes, assisted- living facilities, and nursing homes. This area geographically comprises the developed area along the north side of State Road (SR) 674 between I–75 and U.S. Highway 301, north to 19th Avenue and south to the Little Manatee River. South Bay predominantly serves the residents of the Sun City Center area. In 2009, Sun City Center residents comprised approximately 57% of all discharges from SB. South Bay had approximately 72% market share in Sun City Center zip code 33573. (Approximately 32% of all market service area discharges came from zip code 33573.) South Bay provides educational programs at the hospital that are well–attended by community residents. South Bay provides comprehensive acute care services typical of a small to mid-sized community hospital, including emergency services, surgery, diagnostic imaging, non-invasive cardiology services, and endoscopy. It does not provide diagnostic or therapeutic cardiac catheterization or open-heart surgery. Patients requiring interventional cardiology services or open-heart surgery are taken directly by Hillsborough County Fire Rescue or other transport to a hospital providing those services, such as Brandon Regional Hospital (Brandon) or SJH, or are transferred from SB to one of those hospitals. South Bay has received a number of specialty accreditations, which include accreditation by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), specialty accreditation as an advanced primary stroke center, and specialty accreditation by the Society for Chest Pain. South Bay has also received recognition for its quality of care and, in particular, for surgical infection prevention and outstanding services relating to heart attack, heart failure, and pneumonia. South Bay's 112 licensed beds comprise 104 general medical-surgical beds and eight Intensive Care Unit (ICU) beds. Of the general medical-surgical beds, 64 are in semi-private rooms, where two patient beds are situated side-by-side, separated by a curtain. Forty-eight are in private rooms. Semi- private rooms present challenges in terms of infection control and patient privacy, and are no longer the standard of care in hospital design and construction. Over the years, SB has upgraded its hospital physical plant to accommodate new medical technology, including an MRI suite and state-of-the-art telemetry equipment. South Bay is implementing automated dispensing cabinets on patient floors for storage of medications and an electronic medication administration record system that provides an extra safety measure for dispensing medications. Since 2009, SB has implemented numerous programmatic initiatives that have improved the quality of care. South Bay is converting one wing of the hospital to an orthopedic unit. In 2001, South Bay completed a major expansion of its ED and support spaces, but has not added new beds. Patients presenting to the ED have received high quality of care and timely care. Since 2009, SB has improved its systems of care and triage of patients in the ED to improve patient flow and reduce ED wait times. Overall, South Bay has a reputation of providing high- quality care in a timely manner, notwithstanding problems with its physical plant and location. South Bay's utilization has been high historically. From 2006 to 2009, SB's average occupancy has been 79.5%, 80.3%, 77.2%, and 77.7%, respectively. Its number of patient discharges also increased in that time, from 6,190 in 2006 to 6,540 in 2009, at an average annual rate increase of 1.9%. (From late November until May, the seasonal months, utilization is very high, sometimes at 100% or greater.) Despite its relatively high utilization, SB has also had marginal financial results historically. It lost money in 2005 and 2007, with operating losses of $644,259 in 2005 and $1,151,496 in 2007 and bottom-line net losses of $447,957 (2005) and $698,305 (2007). The hospital had a significantly better year in 2009, with an operating gain of $3,365,113 and a bottom- line net profit of $2,144,292. However, this was achieved largely due to a reduction in bad debt from $11,927,320 in 2008 to $7,772,889 in 2009, an event the hospital does not expect to repeat, and a coincidence of high surgical volume. Its 2010 financial results were lagging behind those of 2009 at the time of the hearing. South Bay's 2009 results amount to an aberration, and it is likely that 2010 would be considerably less profitable. South Bay's marginal financial performance is due, in part, to its disproportionate share of Medicare patients and a disproportionate percentage of Medicare reimbursement in its payor mix. Medicare reimburses hospitals at a significantly lower rate than managed care payors. As noted, SB is organizationally a part of HCA's West Florida Division, and is one of two HCA-affiliated hospitals in Hillsborough County; Brandon is the other. (There are approximately 16 hospitals in this division.) Brandon has been able to add beds over the past several years, and its services include interventional cardiology and open-heart surgery. However, SB and Brandon combined still have fewer licensed beds than either St. Joseph's Hospital or Tampa General Hospital, and fewer than the BayCare Health System- affiliated hospitals in Hillsborough in total. South Bay's existing physical plant is undersized and outdated. See discussion below. Whether it has a meaningful opportunity for expansion and renovation at its 17.5-acre site is a question for this proceeding to resolve. South Bay proposes the replacement and relocation of its facility to the community of Riverview. In 2005, SB planned to establish an 80-bed satellite hospital in Riverview, on a parcel owned by HCA and located on the north side of Big Bend Road between I-75 and U.S. Highway 301. SB filed CON Application No. 9834 in the February 2005 batching cycle. The application was preliminarily denied by AHCA, and SB initially contested AHCA's determination. South Bay pursued the satellite hospital CON at that time because of limited availability of intercompany financing from HCA. By the time of the August 2007 batching cycle, intercompany financing had improved, allowing SB to pursue the bigger project of replacing and relocating the hospital. South Bay dismissed its petition for formal administrative hearing, allowing AHCA's preliminary denial of CON Application No. 9834 to become final, and filed CON Application No. 9992 to establish a replacement hospital facility on Big Bend Road in Riverview. St. Joseph's Hospital St. Joseph's Hospital was founded by the Franciscan Sisters of Allegany, New York, as a small hospital in a converted house in downtown Tampa in 1934. In 1967, SJH opened its existing main hospital facility on Martin Luther King Avenue in Tampa, Florida. St. Joseph's Hospital, Inc., a not-for-profit entity, is the licensee of St. Joseph's Hospital, an acute care hospital located at 3001 West Martin Luther King, Jr., Boulevard, Tampa, Florida. As a not-for-profit organization, SJH's mission is to improve the health care of the community by providing high- quality compassionate care. St. Joseph's Hospital, Inc., is a Medicaid disproportionate share provider and provided $145 million in charity and uncompensated care in 2009. St. Joseph's Hospital, Inc., is licensed to operate approximately 883 beds, including acute care beds; Level II and Level III neonatal intensive care unit (NICU) beds; and adult and child-adolescent psychiatric beds. The majority of beds are semi-private. Services include Level II and pediatric trauma services, angioplasty, and open-heart surgery. These beds and services are distributed among SJH's main campus; St. Joseph's Women's Hospital; St. Joseph's Hospital North, a newer satellite hospital in north Tampa; and St. Joseph's Children's Hospital. Except for St. Joseph's Hospital North, these facilities are land-locked. Nevertheless, SJH has continued to invest in its physical plant and to upgrade its medical technology and equipment. In February 2010, SJH opened St. Joseph's Hospital North, a state-of-the-art, 76-bed satellite hospital in Lutz, north Hillsborough County, at a cost of approximately $225 million. This facility is approximately 14 miles away from the main campus. This followed the award of CON No. 9610 to SJH for the establishment of St. Joseph's Hospital North, which was unsuccessfully opposed by University Community Hospital and Tampa General Hospital, two existing hospital providers in Tampa. Univ. Cmty. Hosp., Inc., d/b/a Univ. Cmty. Hosp. v. Agency for Health Care Admin., Case Nos. 03-0337CON and 03-0338CON. St. Joseph's Hospital North operates under the same license and under common management. St. Joseph's Hospital, Inc., is also the holder of CON No. 9833 for the establishment of a 90-bed state-of-the-art satellite hospital on Big Bend Road, Riverview, Hillsborough County. These all private beds include general medical-surgical beds, an ICU, and a 10-bed obstetrical unit. On October 21, 2009, the Agency revised CON No. 9833 with a termination date of October 21, 2012. This project was unsuccessfully opposed by TG, SB, and Brandon. St. Joseph's Hosp., Inc. v. Agency for Health Care Admin., Case No. 05-2754CON, supra. St. Joseph's Hospital anticipates construction beginning in October 2012 and opening the satellite hospital, to be known as St. Joseph's Hospital South, in early 2015. This hospital will be operating under SJH's existing license and Medicare and Medicaid provider numbers and will in all respects be an integral component of SJH. The implementation of St. Joseph's Hospital South is underway. SJH has contracted with consultants, engineers, architects, and contractors and has funded the first phase of the project with $6 million, a portion of which has been spent. The application for CON No. 9833 refers to "evidence- based design" and the construction of a state-of-the-art facility. (The design of St. Joseph's Hospital North also uses "evidence-based design.") St. Joseph's Hospital South will have all private rooms, general surgery operating rooms as well as endoscopy, and a 10-bed obstetrics unit. Although CON No. 9833 is for a project involving 228,810 square feet of new construction, SJH intends to build a much larger facility, approximately 400,000 square feet on approximately 70 acres. St. Joseph's Hospital Main's physical plant is 43 years old. The majority of the patient rooms are semi–private and about 35% of patients admitted at this hospital received private rooms. Notwithstanding the age of its physical plant and its semi–private bed configuration, SJH has a reputation of providing high quality of care and is a strong competitor in its market. St. Joseph's Hospital, Inc., has two facility expansions currently in progress at its main location in Tampa: a new five-story building that will house SJH neonatal intensive care unit, obstetrical, and gynecology services; and a separate, two-story addition with 52 private patient rooms. Of the 52 private patient rooms, 26 will be dedicated to patients recovering from orthopedic surgery, and will be large enough to allow physical therapy to be done in the patient room itself. The other 26 rooms will be new medical-surgical ICU beds at the hospital. At the same time that SJH expands its main location, it is pursuing a strategic plan whereby the main location is the "hub" of its system, with community hospitals and health facilities located in outlying communities. As proposed in CON Application No. 9610, St. Joseph's Hospital North was to be 240,000 square feet in size. Following the award of CON No. 9610, SJH requested that AHCA modify the CON to provide for construction of a larger facility. In its modification request, SJH requested to establish a large, state- of-the-art facility with all private patient rooms, and the desirability of private patient rooms as a matter of infection control and patient preference. AHCA granted the modification. St. Joseph's Hospital, Inc., thereafter planned to construct St. Joseph's Hospital North to be four stories in height. The plan was opposed. St. Joseph's Hospital, Inc., offered to construct a three-story building, large enough horizontally to accommodate the CON square footage modification. The offer was accepted. St. Joseph's Hospital, Inc., markets St. Joseph's Hospital North as "The Hospital of the Future, Today." The hospital was constructed using "evidence-based design" to maximize operational efficiencies and enhance the healing process of its residents –- recognizing, among other things, the role of the patient's family and friends. The facility's patient care units are all state-of-the-art and include, for example, obstetrical suites in which a visiting family member can spend the night. A spacious, sunlit atrium and a "healing garden" are also provided. The hospital's dining facility is frequented by community residents. In addition, SJH owns a physician group practice under HealthPoint Medical Group, a subsidiary of St. Joseph's Health Care Center, Inc. The group practice has approximately 19 different office locations, including several within the service area for the proposed hospital. The group includes approximately 106 physicians. However, most of the office locations are in Tampa, and the group does not have an office in Riverview, although there are plans to expand locations to include the Big Bend Road site. St. Joseph's Hospital, Inc., anticipates having to establish a new medical staff for St. Joseph's Hospital South, and will build a medical office building at the site for the purpose of attracting physicians. It further anticipates that some number of physicians on SB's existing medical staff will apply for privileges at St. Joseph's Hospital South. St. Joseph's Hospital, Inc., is the market leader among Hillsborough County hospitals and is currently doing well financially, as it has historically. For 2010, St. Joseph's Hospital Main's operating income was approximately $78 million. Organizationally, SJH has a parent organization, St. Joseph's Health Care Center, Inc., and is one of eight hospitals in the greater Tampa Bay area affiliated with BayCare. On behalf of its member hospitals, BayCare arranges financing for capital projects, provides support for various administrative functions, and negotiates managed care contracts that cover its members as a group. St. Joseph's Hospital characterizes fees paid for BayCare services as an allocation of expenses rather than a management fee for its services. In 2009, SJH paid BayCare approximately $42 million for services. St. Joseph's Hospital is one of three BayCare affiliates in Hillsborough County. The other two are St. Joseph's Hospital North and South Florida Baptist Hospital, a community hospital in Plant City. St. Joseph's Hospital South would be the fourth BayCare hospital in the county. Tampa General The Hillsborough County Hospital Authority, a public body appointed by the county, operated Tampa General Hospital until 1997. In that year, TG was leased to Florida Health Sciences Center, Inc., a non-profit corporation and the current hospital licensee. Tampa General is a 1,018-bed acute care hospital located at 2 Columbia Drive, Davis Island, Tampa, Florida. In addition to trauma surgery services, TG provides tertiary services, such as angioplasty, open-heart surgery, and organ transplantation. Tampa General operates the only burn center in the area. A rehabilitation hospital is connected to the main hospital, but there are plans to relocate this facility. Tampa General owns a medical office building. Tampa General is JCAHO accredited and has received numerous honors. Tampa General provides high-quality of care. Approximately half of the beds at TG are private rooms. Tampa General's service area for non-tertiary services includes all of Hillsborough County. Tampa General is also the teaching hospital for the University of South Florida's College of Medicine. As a statutory teaching hospital, TG has 550 residents and funds over 300 postgraduate physicians in training. Tampa General is the predominant provider of services to Medicaid recipients and the medically indigent of Hillsborough County. It is considered the only safety-net hospital in Hillsborough County. (A safety net hospital provides a disproportionate amount of care to indigent and underinsured patients in comparison to other hospitals.) A high volume of indigent (Medicaid and charity) patients are discharged from TG. In 2009, the costs TG incurred treating indigent patients exceeded reimbursement by $56.5 million. Approximately 33% of Tampa General's patients are Medicare patients and 25% commercial. Tampa General has grown in the past 10 years. It added 31 licensed acute care beds in 2004 and 82 more since SB's application was filed in 2007. In addition, the Bayshore Pavilion, a $300-million project, was recently completed. The project enlarged TG's ED, and added a new cardiovascular unit, a new neurosciences and trauma center, a new OB-GYN floor, and a new gastrointestinal unit. Facility improvements are generally ongoing. Tampa General's capital budget for 2011 is approximately $100 million. In 2010, TG's operating margin was approximately $43 million and a small operating margin in 2011. AHCA AHCA is the state agency that administers the CON law. Jeff Gregg testified that during his tenure, AHCA has never preliminarily denied a replacement hospital CON application or required consideration of alternatives to a replacement hospital. Mr. Gregg opined that the lack of alternatives or options is a relevant consideration when reviewing a replacement hospital CON application. T 468. The Agency's State Agency Action Report (SAAR) provides reasons for preliminarily approving SB's CON application. During the hearing, Mr. Gregg testified, in part, that the primary reasons for preliminary approval were issues related to quality of care "because the facility represents itself as being unable to expand or adapt significantly to the rapidly changing world of acute care. This is consistent with what [he has] heard about other replacement hospitals." T 413. Mr. Gregg also noted that SB focused on improving access "[a]nd as the years go by, it is reasonable to expect that the population outside of Sun City Center, the immediate Sun City Center area, will steadily increase and improve access for more people, and that's particularly true because this application includes both a freestanding emergency department and a shuttle service for the people in the immediate area. And that was intended to address their concerns based upon the fact that they have had this facility very conveniently located for them in the past at a time when there was little development in the general south Hillsborough area. But the applicant wants to position itself for the expected growth in the future, and we think has made an excellent effort to accommodate the immediate interests of Sun City Center residents with their promises to do the emergency, freestanding emergency department and the shuttle service so that the people will continue to have very comfortable access to the hospital." T 413-14. Mr. Gregg reiterated "that the improvements in quality outweigh any concerns that [the Agency] should have about the replacement and relocation of this facility; that if this facility were to be forced to remain where it is, over time it would be reasonable to expect that quality would diminish." T 435. For AHCA, replacement hospital applications receive the same level of scrutiny as any other acute care hospital applications. T 439-40. South Bay's existing facility and site South Bay is located on the north side of SR 674, an east-west thoroughfare in south Hillsborough County. The area around the hospital is "built out" with predominantly residential development. Sun City Center, an age-restricted (55 and older) retirement community, is located directly across SR 674 from the hospital as well as on the north side of SR 674 to the east of the hospital. Other residential development is immediately to the west of the hospital on the north side of SR 674. See FOF 3-6. Sun City Center is flanked by two north-south arterial roadways, I-75 to the west and U.S. Highway 301 to the east, both of which intersect with SR 674. The community of Ruskin is situated generally around the intersection of SR 674 and U.S. 41, west of I-75. The community of Wimauma is situated along SR 674 just east of U.S. Highway 301. South Bay is located in a three-story building that is well–maintained and in relatively good repair. The facility is well laid out in terms of design as a community hospital. Patients and staff at SB are satisfied with the quality of care and scope of acute care services provided at the hospital. Notwithstanding current space limitations, and problems in the ICU, see FOF 77-82, patients receive a high quality of care. One of the stated reasons for replacement is with respect to SB's request to have all private patient rooms in order to be more competitive with St. Joseph's Hospital South. South Bay's inpatient rooms are located within the original construction. The hospital is approximately 115,800 square feet, or a little over 1,000 square feet per inpatient bed. By comparison, small to mid-sized community hospitals built today are commonly 2,400 square feet per inpatient bed on average. All of SB's patient care units are undersized by today's standards, with the exception of the ED. ICU patients, often not ambulatory, require a higher level of care than other hospital patients. The ICU at SB is not adequate to meet the level of care required by the ICU patient. SB's ICU comprises eight rooms with one bed apiece. Eight beds are not enough. As Dr. Ksaibati put it at hearing: "Right now we have eight and we are always short . . . double . . . the number of beds, that's at least [the] minimum [t]hat I expect we are going to have if we go to a new facility." T 198-99 (emphasis added). The shortage of beds is not the only problem. The size of SB's ICU rooms is too small. (Problems with the ICU have existed at least since 2006.) Inadequate size prohibits separate, adjoining bathrooms. For patients able to leave their beds, therefore, portable bathroom equipment in the ICU room is required. Inadequate size, the presence of furniture, and the presence of equipment in the ICU room creates serious quality of care issues. When an EKG is conducted, the nurse cannot be present in the room. Otherwise, there would be no space for the EKG equipment. It is difficult to intubate a patient and, at times, "extremely dangerous." T 170. A major concern is when a life-threatening problem occurs that requires emergency treatment at the ICU patient's bedside. For example, when a cardiac arrest "code" is called, furniture and the portable bathroom equipment must be removed before emergency cardiac staff and equipment necessary to restore the function of the patient's heart can reach the patient for the commencement of treatment. Comparison to ICU rooms at other facilities underscores the inadequate size of SB's ICU rooms. Many of the ICU rooms at Brandon are much larger -- more than twice the size of SB's ICU rooms. Support spaces are inadequate in most areas, resulting in corridors (at times) being used for inappropriate storage. In addition, the hospital's general storage is inadequate, resulting in movable equipment being stored in mechanical and electrical rooms. Of the medical-surgical beds at SB, 48 are private and 64 are semi-private. The current standard in hospital design is for acute care hospitals to have private rooms exclusively. Private patient rooms are superior to semi-private rooms for infection control and patient well-being in general. The patient is spared the disruption and occasional unpleasantness that accompanies sharing a patient room –- for example, another patient's persistent cough or inability to use the toilet (many of SB's semi-private rooms have bedside commodes). Private rooms are generally recognized as promoting quality of care. South Bay's site is approximately 17.5 acres, bordered on all sides by parcels not owned by either SB or by HCA- affiliated entities. The facility is set back from SR 674 by a visitor parking lot. Proceeding clockwise around the facility from the visitor parking lot, there is a small service road on the western edge of the site; two large, adjacent ponds for stormwater retention; the rear parking lot for ED visitors and patients; and another small service road which connects the east side of the site to SR 674, and which is used by ambulances to access the ED. Dedicated parking for SB's employees is absent. A medical office building (MOB), which is not owned by SB, is located to the north of the ED parking lot. The MOB houses SB's Human Resources Department as well as medical offices. Most of SB's specialty physicians have either full or part-time offices in close proximity to SB. Employee parking is not available in the MOB parking lot. Some of SB's employees park in a hospital-owned parking lot to the north of the MOB, and then walk around the MOB to enter the hospital. South Bay's CEO and management employees park on a strip of a gravel lot, which is rented from the Methodist church to the northeast of the hospital's site. In 2007, as part of the CON application to relocate, SB commissioned a site and facility assessment (SFA) of the hospital. The SFA was prepared for the purpose of supporting SB's replacement hospital application and has not been updated since its preparation in 2007. The architects or engineers who prepared the SFA were not asked to evaluate proposed options for expansion or upgrade of SB on-site. However, the SFA concludes that the SB site has been built out to its maximum capacity. On the other hand, the SFA concluded that the existing building systems at SB met codes and standards in force when constructed and are in adequate condition and have the capacity to meet the current needs of the hospital. The report also stated that if SB wanted to substantially expand its physical plant to accommodate future growth, upgrades to some of the existing building systems likely would be required. Notwithstanding these reports and relative costs, expansion of SB at its existing site is not realistic or cost- effective as compared to a replacement hospital. Vertical expansion is complicated by two factors. First, the hospital's original construction in 1982 was done under the former Southern Standard Building Code, which did not contain the "wind-loading" requirements of the present-day Florida Building Code. Any vertical expansion of SB would not only require the new construction to meet current wind-loading requirements, but would also require the original construction to be retrofitted to meet current wind-loading requirements (assuming this was even possible as a structural matter). Second, if vertical expansion were to meet current standards for hospital square footage, the new floor or floors would "overhang" the smaller existing construction, complicating utility connections from the lower floor as well as the placement of structural columns to support the additional load. The alternative (assuming feasibility due to current wind-loading requirements) would be to vertically stack patient care units identical to SB's existing patient care units, thereby perpetuating its undersized and outdated design. Vertical expansion at SB has not been proposed by the Gould Turner Group (Gould Turner), which did a Master Facility Plan for SB in May 2010, but included a new patient bed tower, or by HBE Corporation (HBE). Horizontal expansion of SB is no less complicated. The hospital would more than double in size to meet the modern-day standard of 2,400 square feet per bed, and its site is too small for such expansion. It is apparent that such expansion would displace the visitor parking lot if located to the south of the existing building, and likely have to extend into SR 674 itself. South Bay's architectural consultant expert witness substantiated that replacing SB is justified as an architectural matter, and that the facility cannot be brought up to present-day standards at its existing location. According to Mr. Siconolfi, the overall building at SB is approximately half of the total size that would normally be in place for a new hospital meeting modern codes and industry standards. The more modest expansions offered by Gould Turner and HBE are still problematic, if feasible at all. Moreover, with either proposal, SB would ultimately remain on its existing 17.5-acre site, with few opportunities to expand further. Gould Turner's study was requested by SB's CEO in May 2010, to determine whether and to what extent SB would be able to expand on-site. (Gould Turner was involved with SB's recent ED expansion project area.) The resulting Master Facility Plan essentially proposes building a new patient tower in SB's existing visitor parking lot, to the left and right of the existing main entrance to SB. This would require construction of a new visitor parking lot in whatever space remained in between the new construction and SR 674. The Master Facility Plan contains no discussion of the new impervious area that would be added to the site and the consequential requirement of additional stormwater capacity, assuming the site can even accommodate additional stormwater capacity. This study also included a new 12-bed ICU and the existing ICU would be renovated into private patient rooms. For example, "[t]he second floor would be all telemetry beds while the third floor would be a combination of medical/surgical, PCU, and telemetry beds." In Gould Turner's drawings, the construction itself would be to the left and to the right of the hospital's existing main entrance. Two scenarios are proposed: in the first, the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 114 licensed beds (including two new beds), all private; in the second, some of the hospital's existing semi-private rooms would become private rooms and, with the new construction, the hospital would have 146 licensed beds (adding 34 beds), of which 32 would be semi-private. South Bay did not consider Gould Turner's alternative further or request additional, more detailed drawings or analysis, and instead determined to pursue the replacement hospital project, in part, because it was better not to "piecemeal" the hospital together. Mr. Miller, who is responsible for strategic decisions regarding SB, was aware of, but did not review the Master Facility Plan and believes that it is not economically feasible to expand the hospital. St. Joseph's Hospital presented testimony of an architect representing the hospital design/build firm of HBE, to evaluate SB's current condition, to provide options for expansion and upgrading on-site, and to provide a professional cost estimate for the expansion. Mr. Oliver personally inspected SB's site and facility in October 2010 and reviewed numerous reports regarding the facility and other documents. Mr. Oliver performed an analysis of SB's existing physical plant and land surrounding the hospital. HBE's analysis concluded that SB has the option to expand and upgrade on-site, including the construction of a modern surgical suite, a modern 10-bed ICU, additional elevators, and expansion and upgrading of the ancillary support spaces identified by SB as less than ideal. HBE's proposal involves the addition of 50,000 square feet of space to the hospital through the construction of a three-story patient tower at the south side of the hospital. The additional square footage included in the HBE proposal would allow the hospital to convert to an all-private bed configuration with either 126 private beds by building out both second and third floors of a new patient tower, or to 126 private beds if the hospital chose to "shell in" the third floor for future expansion. Under the HBE proposal, SB would have the option to increase its licensed bed capacity 158 beds by completing the second and third floors of the new patient tower (all private rooms) while maintaining the mix of semi-private and private patient rooms in the existing bed tower. The HBE proposal also provides for a phased renovation of the interior of SB to allow for an expanded post-anesthesia care unit, expanded laboratory, pharmacy, endoscopy, women's center, prep/hold/recovery areas, central sterile supply and distribution, expanded dining, and a new covered lobby entrance to the left side of the hospital. Phasing of the expansion would permit the hospital to remain in operation during expansion and renovation with minimal disruption. During construction the north entrance of the hospital would provide access through the waiting rooms that are currently part of the 2001 renovated area of the hospital with direct access to the circulation patterns of the hospital. The HBE proposal also provides for the addition of parking to bring the number of parking spaces on-site to 400. The HBE proposal includes additional stormwater retention/detention areas that could serve as attractive water features and, similar to the earlier civil engineering reports obtained by SB, proposes the construction of a parking garage at the rear of the facility should additional parking be needed in the future. However, HBE essentially proposes the alternative already rejected by SB: construction of a new patient tower in front of the existing hospital. Similar to Gould Turner, HBE proposes new construction to the left and right of the hospital's existing lobby entrance and the other changes described above. HBE's proposal recognizes the need for additional stormwater retention: the stand of trees that sets off the existing visitor parking lot from SR 674 would be uprooted; in their place, a retention pond would be constructed. Approval of the Southwest Florida Water Management District (SWFWMD) would be required for the proposal to be feasible. Assuming the SWFWMD approved the proposal, the retention pond would have to be enclosed by a fence. This would then be the "face" of the hospital to the public on SR 674. HBE's proposal poses significant problems. The first floor of the three-story component would be flush against the exterior wall of the hospital's administrative offices, where the CEO and others currently have windows with a vista of the front parking lot and SR 674. Since the three-story component would be constructed first in the "phased" construction, and since the hospital's administration has no other place to work in the existing facility, the CEO and other management team would have to work off-site until the new administrative offices (to the left of the existing hospital lobby entrance) were constructed. The existing main entrance to the hospital, which faces SR 674, would be relocated to the west side of the hospital once construction was completed in its entirety. In the interim, patients and visitors would have to enter the facility from the rear, as the existing main entrance would be inaccessible. This would be for a period of months, if not longer. For the second and third floors, HBE's proposal poses two scenarios. Under the first, SB would build the 24 general medical-surgical beds on the tower's second floor, but leave the third floor as "shelled" space. This would leave SB with a total of 106 licensed beds, six fewer than it has at present. Further, since HBE's proposal involves a second ICU at SB, 18 of the 106 beds are ICU beds, leaving 88 general medical-surgical beds. By comparison, SB currently has 104 general medical- surgical beds, meaning that it loses 16 general medical-surgical beds under HBE's first scenario. In the second scenario, SB would build 24 general medical-surgical beds on the third floor as well, and would have a total of 126 licensed beds. Since 18 of those beds would be ICU beds, SB would have 108 general medical-surgical beds, or only four more than it has at present. Further, the proposal does not make SB appreciably bigger. The second and third floors in HBE's proposal are designed in "elongated" fashion such that several rooms may be obscured from the nursing station's line of sight by a new elevator, which is undesirable as a matter of patient safety and security. Further, construction of the second and third floors would be against the existing second and third floors above the lobby entrance's east side. This would require 12 existing private patient rooms to be taken out of service due to loss of their vista windows. At the same time, the new second and third floors would be parallel to, but set back from, existing semi- private patient rooms and their vista windows along the southeast side of the hospital. This means that patients and visitors in the existing semi-private patient rooms and patients and visitors in the new private patient rooms on the north side of the new construction may be looking into each other's rooms. HBE's proposal also involves reorganization and renovation of SB's existing facility, and the demolition and disruption that goes with it. To accommodate patient circulation within the existing facility from the ED (at the north side of the hospital) to the new patient tower (at the south side of the hospital), two new corridors are proposed to be routed through and displace the existing departments of Data Processing and Medical Records. Thus, until the new administrative office space would be constructed, Data Processing and Medical Records (along with the management team) would have to be relocated off-site. Once the new first floor of the three-story component is completed, the hospital's four ORs and six PACU beds will be relocated there. In the existing vacated surgical space, HBE proposes to relocate SB's existing cardiology unit, thus requiring the vacated surgical space to be completely reconfigured (building a nursing station and support spaces that do not currently exist in that location). In the space vacated by the existing cardiology unit, HBE proposed expanding the hospital's clinical laboratory, meaning extensive demolition and reconfiguration in that area. The pharmacy is proposed to be relocated to where the existing PACU is located, requiring the building of a new pharmacy with a secure area for controlled substances, cabinets for other medications, and the like. The vacated existing pharmacy is in turn proposed to be dedicated to general storage, which involves still more construction and demolition, tearing out the old pharmacy to make the space suitable for general storage. HBE's proposal is described as a "substantial upgrade" of SB, but it was stated that a substantial upgrade could likewise be achieved by replacing the facility outright. This is SB's preference, which is not unreasonable. There have been documented problems with other hospital expansions, including patient infection due to construction dust. South Bay's proposal South Bay proposes to establish a 112-bed replacement hospital on a 39-acre parcel (acquired in 2005) located in the Riverview community, on the north side of Big Bend Road between I-75 and U.S. Highway 301. The hospital is designed to include 32 observation beds built to acute care occupancy standards, to be available for conversion to licensed acute care beds should the need arise. The original total project cost of $215,641,934, calculated when the application was filed in October 2007 has been revised to $192,967,399. The decrease in total project cost is largely due to the decrease in construction costs since 2007. The parties stipulated that SB's estimated construction costs are reasonable. The remainder of the project budget is likewise reasonable. The budgeted number for land, $9,400,000, is more than SB needs: the 39-acre parcel is held in its behalf by HCA Services of Florida, Inc., and was acquired in March 2005 for $7,823,100. An environmental study has been done, and the site has no environmental development issues. The original site preparation budgeted number of $5 million has been increased to $7 million to allow for possible impact fees, based on HCA's experience with similar projects. Building costs, other than construction cost, flow from the construction cost number as a matter of percentages and are reasonable. The equipment costs are reasonable. Construction period interest as revised from the original project budget is approximately $4 million less, commensurate with the revised project cost. Other smaller numbers in the budget, such as contingencies and start-up costs, were calculated in the usual and accepted manner for estimated project costs and are reasonable. South Bay's proposed service area (PSA) comprises six zip codes (33573 (Sun City Center), 33570 (Ruskin), 33569 (Riverview), 33598 (Wimauma), 33572 (Apollo Beach), and 33534 (Gibsonton)) in South Hillsborough County. These six zip codes accounted for 92.2% of SB's discharges in 2006. The first three zip codes, which include Riverview (33569), accounted for 76.1% of the discharges. Following the filing of the application in 2007, the U.S. Postal Service subdivided the former zip code 33569 into three zip codes: 33569, 33578, and 33579. (The proposed service area consists of eight zip codes.) The same geographic area comprises the three Riverview zip codes taken together as the former zip code 33569. In 2009, the three Riverview zip codes combined accounted for approximately 504 to 511/514 of SB's discharges, with 589 discharges in 2006 from the zip code 33569. Of SB's total discharges in 2009, approximately 8 to 9% originated from these three zip codes. In 2009, approximately 7,398 out of 14,424 market/service-area discharges, or approximately 51% of the total market discharges came from the three southern zip codes, 33573 (Sun City Center), 33570 (Ruskin), and 33598 (Wimauma). Also, approximately 81% of SB's discharges in 2009 originated from the same three zip codes. (The discharge numbers for SB for 2009 presented by St. Joseph's Hospital and SB are similar. See SB Ex. 9 at 11 and SJH Ex. 4 at 8-9. See also TG Ex. 4 at 3-4.) In 2009, SB and Brandon had an approximate 68% market share for the eight zip codes. See FOF 152-54 and 162-65 for additional demographic data. St. Joseph's Hospital had an approximate 5% market share within the service area and using 2009-2010 data, TG had approximately 6% market share in zip code 33573 and an overall market share in the three Riverview zip codes of approximately 19% and a market share of approximately 23% in zip code 33579. South Bay's application projects 37,292 patient days in year 1; 39,581 patient days in year 2; and 41,563 patient days in year 3 for the proposed replacement hospital. The projection was based on the January 2007 population for the service area as reflected in the application, and what was then a projected population growth rate of 20.8% for the five-year period 2007 to 2012. These projections were updated for the purposes of hearing. See FOF 246-7. The application also noted a downturn in the housing market, which began in 2007 and has continued since then. The application projected a five-year (2007-2012) change of 20.8% for the original five zip codes. At hearing, SB introduced updated utilization projections for 2010-2015, which show the service area population growing at 15.3% for that five-year period. South Bay's revised utilization projections for 2015- 2017 (projected years 1-3 of the replacement hospital) are 28,168 patient days in year 1; 28,569 patient days in year 2; and 29,582 patient days in year 3. The lesser utilization as compared with SB's original projections is partly due to slowed population growth, but predominantly due to SB's assumption that St. Joseph's Hospital will build its proposed satellite hospital in Riverview, and that SB will accordingly lose 20% of its market share. The revised utilization projections are conservative, reasonable, and achievable. With the relocation, SB will be more proximate to the entirety of its service area, and will be toward the center of population growth in south Hillsborough County. In addition, it will have a more viable and more sustainable hospital operation even with the reduced market share. Its financial projections reflect a better payor mix and profitability in the proposed location despite the projection of fewer patient days. Conversely, if SB remains in Sun City Center, it is subject to material operating losses even if its lost market share in that location is the same 20%, as compared to the 30 to 40% it estimates that it would lose in competition with St. Joseph's Hospital South. South Bay's medical staff and employees support the replacement facility, notwithstanding that their satisfaction with SB is very high. The proposal is also supported by various business organizations, including the Riverview Chamber of Commerce and Ruskin Chamber of Commerce. However, many of the residents of Sun City Center who testified opposed relocation of SB. See FOF 210-11. South Bay will accept several preconditions on approval of its CON application: (1) the location of SB on Big Bend Road in Riverview; (2) combined Medicaid and charity care equal to 7.0% of gross revenues; and (3) operating a free- standing ED at the Sun City location and providing a shuttle service between the Sun City location and the new hospital campus ("for patients and visitors"). SB Ex. 46, Schedule C. In its SAAR, the Agency preliminarily approved the application including the following: This approval includes, as a component of the proposal: the operation of a freestanding emergency department on a 24-hour, seven-day per week basis at the current Sun City location, the provision of extended hours shuttle service between the existing Sun City Center and the new campuses to transport patients and visitors between the facilities to locations; and the offering of primary care and diagnostic testing at the Sun City Center location. These components are required services to be provided by the replacement hospital as approved by the Agency. Mr. Gregg explained that the requirement for transport of patients and visitors was included based on his understanding of the concerns of the Sun City Center community for emergency as well as routine access to hospital services. Notwithstanding the Agency statement that the foregoing elements are required, the Agency did not condition approval on the described elements. See SB Ex. 12 at 39 and 67. Instead, the Agency only required SB, as a condition of approval, to provide a minimum of 7.0% of the hospital's patient days to Medicaid and charity care patients. (As noted above, SB's proposed condition says 7.0% of gross revenues.) Because conditions on approval of the CON are generally subject to modification, there would be no legal mechanism for monitoring or enforcement of the aspects of the project not made a condition of approval. If the Agency approves SB's CON application, the Agency should condition any approval based on the conditions referenced above, which SB set forth in its CON application. SB Ex. 12 at 39 and 67. See also T 450 ("[The Agency] can take any statement made in the application and turn that into a condition," although conditions may be modified.1 St. Joseph's Hospital and Tampa General are critical of SB's offer of a freestanding ED and proposed shuttle transportation services. Other than agreeing to condition its CON application by offering these services, SB has not evaluated the manner in which these services would be offered. South Bay envisions that the shuttle service (provided without charge) would be more for visitors than it would be for patients and for outpatients or patients that are ambulatory and able to ride by shuttle. Other patients would be expected to be transported by EMS or other medical transport. As of the date of hearing, Hillsborough County does not have a protocol to address the transport of patients to a freestanding ED. South Bay contacted Hillsborough County Fire Rescue prior to filing its CON application and was advised that they would support SB's establishment of a satellite hospital on Big Bend Road, but did not support the closure and relocation of SB, even with a freestanding ED left behind. See FOF 195-207. At hearing, SB representatives stated that SB would not be closed if the project is denied. Compliance with applicable statutory and rule criteria Section 408.035(1): The need for the health care facilities and health services being proposed The need for SB itself and at its current location is not an issue in this case. That need was demonstrated years ago, when SB was initially approved. For the Agency, consideration of a replacement hospital application "diminishes the concept of need in [the Agency's] weighing and balancing of criteria in this case." There is no express language in the CON law, as amended, which indicates that CON review of a replacement hospital application does not require consideration of other statutory review criteria, including "need," unless otherwise stipulated. Replacement hospital applicants, like SB, may advocate the need for replacement rather than expansion or renovation of the existing hospital, but a showing of "need" is still required. Nevertheless, institution-specific factors may be relevant when "need" is considered. The determination of "need" for SB's relocation involves an analysis of whether the relocation of the hospital as proposed will enhance access or quality of care, and whether the relocation may result in changes in the health care delivery system that may adversely impact the community, as well as options SB may have for expansion or upgrading on-site. In this case, the overall "need" for the project is resolved, in part, by considering, in conjunction with weighing and balancing other statutory criteria, including quality of care, whether the institution-specific needs of SB to replace the existing hospital are more reasonable than other alternatives, including renovation and whether, if replacement is recommended, the residents of the service area, including the Sun City Center area, will retain reasonable access to general acute care hospital services. The overall need for the project has not been proven. See COL 360-70 for ultimate conclusions of law regarding the need for this project. Section 408.035(2): The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant The "service district" in this case is acute care subdistrict 6-1, Hillsborough County. See Fla. Admin. Code R. 59C-2.100. The acute care hospital services SB proposes to relocate to Big Bend Road are available to residents of SB's service area. Except as otherwise noted herein with respect to constraints at SB, there are no capacity constraints limiting access to acute care hospital services in the subdistrict. The availability of acute care services for residents of the service area, and specifically the Riverview area, will increase with the opening of St. Joseph's Hospital South. All existing providers serving the service area provide high quality of care. Within the service district as a whole, SB proposes to relocate the existing hospital approximately 5.7 linear miles north of its current location and approximately 7.7 miles using I-75, one exit north. South Bay would remain in south Hillsborough County, as well as the southernmost existing health care facility in Hillsborough County, along with St. Joseph's Hospital South when it is constructed. The eight zip codes of SB's proposed service area occupy a large area of south Hillsborough County south of Tampa (to the northwest) and Brandon (to the northeast). Included are the communities of Gibsonton, Riverview, Apollo Beach, Ruskin, Sun City Center, and Wimauma. The service area is still growing despite the housing downturn, with a forecast of 15.3% growth for the five-year period 2010 to 2015. The service area's population is projected to be 168,344 in 2015, increasing from 145,986 in 2010. The service area is currently served primarily by SB, which is the only existing provider in the service area, and Brandon. For non-tertiary, non-specialty discharges from the service area in 2009, SB had approximately 40% market share, including market share in the three Riverview zip codes of approximately 10% (33569), 6% (33578), and 16% (33579). Brandon had approximately 28% of the market in the service area, and a market share in the three Riverview zip codes of approximately 58% (33569), 46% (33578), and 40% (33579). Thus, SB and Brandon have approximately a 61% market share in the Riverview zip codes and approximately a 68% market share service area-wide. The persuasive evidence indicates that Riverview is the center of present and future population in the service area. It is the fastest-growing part of the service area overall and the fastest-growing part of the service area for patients age 65 and over. Of the projected 168,334 residents in 2015, the three Riverview zip codes account for 80,779 or nearly half the total population. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County. At the same time, it will be between seven and eight minutes farther away from Sun City Center. In conjunction with St. Joseph's Hospital South when constructed, SB's proposed relocation will enhance the availability and accessibility of existing health care facilities and health services in south Hillsborough County, especially for the Riverview-area residents. However, it is likely that access will be reduced for the elderly residents of the Sun City Center area needing general acute care hospital services. St. Joseph's Hospital and Tampa General contend that: (1) it would be problematic to locate two hospitals in close proximity in Riverview (those being St. Joseph's Hospital South and the relocated SB hospital) and (2) SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. St. Joseph's Hospital seems to agree that the utilization projections for SB's replacement hospital are reasonable. Also, St. Joseph's Hospital expects St. Joseph's Hospital South to reach its utilization as projected in CON Application No. 9833, notwithstanding the decline in population growth and the proposed establishment of SB's proposed replacement hospital, although the achievement of projected utilization may be extended. There are examples of Florida hospitals operating successfully in close proximity. The evidence at hearing included examples where existing unaffiliated acute care hospitals in Florida operate within three miles of each another; in two of those, the two hospitals are less than one-half mile apart. These hospitals have been in operation for years. However, some or all of the examples preceded CON review. There are also demographic differences and other unique factors in the service areas in the five examples that could explain the close proximity of the hospitals. Also, in three of the five examples, at least one of the hospitals had an operating loss and most appeared underutilized. One such example, however, is pertinent in this case: Tallahassee Memorial Hospital and Capital Regional Medical Center (CRMC) in Tallahassee, which are approximately six minutes apart by car. CRMC was formerly Tallahassee Community Hospital (TCH), a struggling, older facility with a majority of semi-private patient rooms, similar to South Bay. Sharon Roush, SB's current CEO, became CEO at TCH in 1999. As she explained at hearing, HCA was able to successfully replace the facility outright on the same parcel of land. TCH was renamed CRMC and re-opened as a state-of-the-art hospital facility with all private rooms. The transformation improved the hospital's quality of care and its attractiveness to patients, better enabling it to compete with Tallahassee Memorial Hospital. St. Joseph's Hospital and Tampa General also contend that SB's relocation would deprive Sun City Center's elderly of reasonable access to hospital services. When the application was filed in 2007, Sun City Center residents in zip code 33573 accounted for approximately 52% of all acute care discharges to SB and SB had a 69% market share. By 2009, Sun City Center residents accounted for approximately 57% of all SB discharges and SB had approximately 72% market share. Approximately half of the age 65-plus residents in the service area reside within the Sun City Center area. This was true in 2010 and will continue to be true in 2015. The projected percentage of the total population in the Sun City Center zip code over 65 for 2009-2010 is approximately 87%. This percentage is expected to grow to approximately 91% by 2015. Sun City Center also has a high percentage of residents who are over the age of 75. Demand for acute care hospital services is largely driven by the age of the population. The age 65-plus population utilizes acute-care hospital services at a rate that is approximately two to three times that of the age 64 and younger population. South Bay plans to relocate its hospital from the Sun City Center zip code 33573 much closer to an area (Riverview covering three zip codes) that has a less elderly population. Elderly patients are known to have more transportation difficulties than other segments of the population, particularly with respect to night driving and congested traffic in busy areas. Appropriate transportation services for individuals who are transportation disadvantaged typically require door-to- door pickup, but may vary from community to community. At the time of preliminary approval of SB's proposed relocation, the Agency was not provided and did not take into consideration data reflecting the percentage of persons in Sun City Center area who are aged 65 or older or aged 75 and older. The Agency was not provided data reflecting the number of residents within the Sun City Center area who reside in nursing homes or assisted living facilities. In general, the 2010 median household incomes and median home values for the residents of Sun City Center, Ruskin, and Gibsonton are materially less than the income and home values for the residents from the other service areas. Freedom Village is located near Sun City Center and within walking distance to SB. Freedom Village is comprises a nursing home, assisted living, and senior independent living facilities, and includes approximately 120 skilled nursing facility beds, 90 assisted living beds, and 30 Alzheimer's beds. Freedom Village is home to approximately 1,500 people. There are additional skilled nursing and assisted living facilities within one to two miles of SB comprising approximately an additional 400 to 500 skilled nursing facility beds and approximately 1,500 to 2,000 residents in assistant or independent living facilities. Residents in skilled nursing facilities and assisted living facilities generally require a substantial level of acute- care services on an ongoing basis. Many patients 65 and older requiring admission to an acute-care facility have complex medical conditions and co-morbidities such that immediate access to inpatient acute care services is of prime importance. Area patients and caregivers travel to SB via a golf cart to access outpatient health care services and to obtain post-discharge follow-up care. Although there are some crossing points along SR 674, golf carts are not allowed on SR 674 itself, and the majority of Sun City Center residents who utilize SB in its existing location do not arrive by golf cart -– rather, they travel by automobile. The Sun City Center area has a long–established culture of volunteerism. Residents of Sun City Center provide a substantial number of man-hours of volunteer services to community organizations, including SB. Among the many services provided by community volunteers is the Sun City Center Emergency Squad, an emergency medical transport service that operates three ambulances and provides EMT and basic life support transport services in Sun City Center 24-hours a day, seven days a week. The Emergency Squad provides emergency services free of charge, but charges patients for transport which is deemed a non-emergency. Most patients transported by the Emergency Squad are taken to the SB ED. It is customary for specialists to locate their offices adjacent to an acute-care hospital. Most of the specialty physicians on the medical staff of SB have full-time or part-time offices adjacent to SB. The location of physician offices adjacent to the hospital facilitates access to care by patients in the provision of care on a timely basis by physicians. The relocation of SB may result in the relocation of physician offices currently operating adjacent to SB in Sun City Center, which may cause additional access problems for local residents. In 2009, the SB ED had approximately 22,000 patient visits. Approximately 25% of the patients that visit the South Bay ED are admitted for inpatient care. South Bay recently expanded its ED to accommodate approximately 34,000 patient visits annually. The average age of patients who visit the South Bay ED is approximately 70. Patients who travel by ambulance may or may not experience undue transportation difficulties as a result of the proposed relocation of SB; however, patients also arrive at the South Bay ED by private transportation. But, most patients are transported to the ED by automobile or emergency transport. In October 2010, the Board of Directors of the Sun City Center Association adopted a resolution on behalf of its 11,000 members opposing the closure of SB. The Board of Directors and membership of Federation of Kings Point passed a similar resolution on behalf of its members. Residents of the Sun City Center area currently enjoy easy access to SB in part because the roadways are low-volume, low-speed, accessible residential streets. SR 674 is the only east-west roadway connecting residents of the Sun City Center area to I-75 and U.S. Highway 301. The section of SR 674 between I-75 and U.S. Highway 301 is a four-lane divided roadway with a speed limit of 40-45 mph. To access Big Bend Road from the Sun City Center area, residents travel east on SR 674 then north on U.S. Highway 301 or west on SR 674 then north on I-75. U.S. Highway 301 is a two-lane undivided roadway from SR 674 north to Balm Road, with a speed limit of 55 mph and a number of driveways and intersections accessing the roadway. (Two lanes from Balm Road South, then widened to six lanes from Balm Road North.) U.S. Highway 301 is a busy and congested roadway, and there is a significant backup of traffic turning left from U.S. Highway 301 onto Big Bend Road. A portion of U.S. Highway 301 is being widened to six lanes, from Balm Road to Big Bend Road. The widening of this portion of U.S. Highway 301 is not likely to alleviate the backup of traffic at Big Bend Road. I-75 is the only other north-south alternative for residents of the Sun City Center area seeking access to Big Bend Road. I-75 is a busy four-lane interstate with a 70 mph speed limit. The exchange on I-75 and Big Bend Road is problematic not only because of traffic volume, but also because of the unusual design of the interchange, which offloads all traffic on the south side of Big Bend Road, rather than divide traffic to the north and south as is typically done in freeway design. The design of the interchange at I-75 in Big Bend Road creates additional backup and delays for traffic seeking to exit onto Big Bend Road. St. Joseph's Hospital commissioned a travel (drive) time study that compared travel times to SB's existing location and to its proposed location from three intersections within Sun City Center. This showed an increase of between seven and eight minutes' average travel time to get to the proposed location as compared to the existing location of SB. The study corroborated SB's travel time analysis, included in its CON application, which shows four minutes to get to SB from the "centroid" of zip code 33573 (Sun City Center) and 11 minutes to get to SB's proposed location from that centroid, or a difference of seven minutes. The St. Joseph's Hospital travel time study also sets forth the average travel times from the three Sun City Center intersections to Big Bend Road and Simmons Loop, as follows: Intersection Using I-75 Using U.S. 301 South Pebble Beach Blvd. and Weatherford Drive 12 min. 17 secs. 14 min. 19 secs. Kings Blvd. and Manchester Woods Drive 15 min. 44 secs. 20 min. 39 secs. North Pebble Beach Blvd. and Ft. Dusquesna Drive 13 min. 15 secs. 15 min. 41 secs. The average travel time from Wimauma (Center Street and Delia Street) to Big Bend Road and Simmons Loop was 15 minutes and 16 seconds using I-75 and 13 minutes and 52 seconds using U.S. Highway 301, an increase of more than six minutes to the proposed site. The average travel time from Ruskin (7th Street and 4th Avenue SW) to Big Bend Road and Simmons Loop was 15 minutes and 22 seconds using U.S. 41 and 14 minutes and 15 seconds using I-75, an increase of more than five minutes to the proposed site. Currently, the average travel time from Sun City Center to Big Bend Road using U.S. Highway 301 is approximately to 16 minutes. The average travel time to Big Bend Road via I-75 assuming travel with the flow of traffic is approximately 13 minutes. The incremental increase in travel time to the proposed site for SB for residents of the Sun City Center area, assuming travel with the flow of traffic, ranges from nine to 11 minutes. For residents who currently access SB in approximately five to 10 minutes, travel time to Big Bend Road is approximately 15 to 20 minutes. As the area develops, traffic is likely to continue to increase. There are no funded roadway improvements beyond the current widening of U.S. Highway 301 north of Balm Road. Most of the roadways serving Sun City Center, Ruskin, and Wimauma have a county-adopted Level of Service (LOS) of "D." LOS designations range from "A" to "F", with "F" considered gridlock. Currently, Big Bend Road from Simmons Loop Road (the approximate location of SB's propose replacement hospital) to I-75 is at LOS "F" with an average travel speed of less than mph. Based on a conservative analysis of the projected growth in traffic volume, SR 674 east of U.S. Highway 301 is projected to degrade from LOS "C" to "F" by 2015. By 2020, several additional links on SR 674 will have degraded to LOS "F." The LOS of I-75 is expected to drop to "D" in the entirety of Big Bend Road between U.S. Highway 301 and I-75 is projected to degrade to LOS "F" by 2020. The Hillsborough County Fire Rescue Department (Rescue Department) opposes the relocation of SB to Big Bend Road. The Rescue Department supports SB's establishment of a satellite hospital on Big Bend Road, but does not support the closure of SB in Sun City Center. The Rescue Department anticipates that the relocation of SB will result in a reduction in access to emergency services for patients and increased incident response times for the Rescue Department. The Rescue Department would support a freestanding ED should SB relocate. David Travis, formerly (until February 2010) the rescue division chief of the Rescue Department, testified against SB's proposal. The basis of his opposition is his concern that relocating the hospital from Sun City Center to Riverview would tend to increase response times for rescue units operating out of the Sun City Center Fire Station. The term response time refers to the time from dispatch of the rescue unit to its arrival on the scene for a given call. Mr. Travis noted that rescue units responding from the Sun City Center Fire Station would make a longer drive (perhaps seven to eight minutes) to the new location in Riverview to the extent that hospital services are needed, and during the time of transportation would necessarily be unavailable to respond to another call. However, Mr. Travis had not specifically quantified increases in response times for Sun City Center's rescue units in the event that SB relocates. Further, SB is not the sole destination for the Rescue Department's Sun City Center rescue units. While a majority of the patients were transported to SB, out of the total patient transports from the greater Sun City Center area in 2009, approximately one-third went to other hospitals other than SB, including St. Joseph's Hospital, Tampa General, and Brandon. The Rescue Department is the only advanced life support (ALS) ground transport service in the unincorporated areas of Hillsborough County responding to 911 calls. The ALS vehicles provide at least one certified paramedic on the vehicle, cardiac monitors, IV medications, advanced air way equipment, and other services. The Rescue Department has two rescue units in south Hillsborough County - Station 17 in Ruskin and Station 28 in Sun City Center. (Station 22 is in Wimauma, but does not have a rescue unit.) Stations 17 and 28 run the majority of their calls in and around the Sun City Center area, with the majority of transports to the South Bay ED. The Rescue Department had 3,643 transports from the Sun City Center area in 2009, with 54.5% transports to SB. If SB is relocated to Big Bend Road, the rescue units for Stations 17 and 28 are likely to experience longer out-of- service intervals and may not be as readily available for responding to calls in their primary service area. The Rescue Department seeks to place an individual on the scene within approximately seven minutes, 90% of the time (an ALS personnel goal) in the Sun City Center area. Relocation of SB out of Sun City Center may make it difficult for the Rescue Department to meet this response time, notwithstanding the proximity of I-75. A rapid response time is critical to providing quality care. The establishment of a freestanding ED in Sun City Center would not completely alleviate the Rescue Department's concerns, including a subset of patients who may need to be transported to a general acute care facility. There are other licensed emergency medical service providers in Hillsborough County, with at least one basic life support EMS provider in Sun City Center. The shuttle service proposed by SB may not alleviate the transportation difficulties experienced by the patients and caregivers of Sun City Center. Also, SB has not provided a plan for the scope or method of the provisional shuttle services. Six residents of Sun City Center testified against SB's proposed relocation to Riverview, including Ed Barnes, president of the Sun City Center Community Association. Mr. Barnes and two other Sun City Center residents (including Donald Schings, president of the Handicapped Club, Sun City Center) spoke in favor of St. Joseph's Hospital's proposed hospital in Riverview at a public land-use meeting in July 2010, thus demonstrating their willingness to travel to Riverview for hospital services. Mr. Barnes supported St. Joseph's Hospital's proposal for a hospital in Riverview since its inception in 2005, when St. Joseph's Hospital filed CON Application No. 9833 and thought that St. Joseph's Hospital South would serve the Sun City Center area. There are no public transportation services per se available within the Sun City Center area. Volunteer transportation services are provided. In part, the door-to-door services are provided under the auspices of the Samaritan Services, a non-profit organization supported by donations and staffed by Sun City Center volunteers. It is in doubt whether these services would continue if SB is relocated. There is a volunteer emergency squad using a few vehicles that responds to emergency calls within the Sun City Center area, with SB as the most frequent destination. Approval of SB's project will not necessarily enhance financial access to acute care services. The relocation of SB is more likely than not to create some access barriers for low- income residents of the service area. The relocation would also be farther away from communities such as Ruskin and Wimauma as there are no buses or other forms of public transportation available in Ruskin, Sun City Center, or Wimauma. However, it appears that the Sun City Center residents would travel not only to Riverview, but north of Riverview for hospital services following SB's relocation, notwithstanding the fact that Sun City Center residents are transportation- disadvantaged. The Hillsborough County Board of County Commissioners recently amended the Comprehensive Land-Use Plan and adopted the Greater Sun City Center Community Plan, which, in part, lists the retention of an acute care hospital in the Sun City Center area as the highest health care planning priority. For Sun City Center residents who may not want to drive to SB's new location, SB will provide a shuttle bus, which can convey both non-emergency patients and visitors. South Bay has made the provision of the shuttle bus a condition of its CON. As noted herein, the CON's other conditions are the establishment of the replacement hospital at the site in Riverview; combined Medicaid and charity care in the amount of 7.0% of gross revenues; and maintaining a freestanding ED at SB. SB Ex. 46, Schedule C. Section 408.035(3): The ability of the applicant to provide quality of care and the applicant's record of providing quality of care South Bay has a record of providing high quality of care at its existing hospital. It is accredited by JCAHO, and also accredited as a primary stroke center and chest pain center. In the first quarter of 2010, SB scored well on "core measures" used by the Centers for Medicare and Medicaid Services (CMS) as an indicator of the quality of patient safety. South Bay received recognition for its infection control programs and successfully implemented numerous other quality initiatives. Patient satisfaction is high at SB. AHCA's view of the need for a replacement hospital is not limited according to whether or not the existing hospital meets broad quality indicators, such as JCAHO accreditation. Rather, AHCA recognizes the degree to which quality would be improved by the proposed replacement hospital -– and largely on that basis has consistently approved CON applications for replacement hospitals since at least 1991. See FOF 64-66. South Bay would have a greater ability to provide quality of care in its proposed replacement hospital. Private patient rooms are superior in terms of infection control and the patient's general well-being. The conceptual design for the hospital, included in the CON application, is the same evidence- based design that HCA used for Methodist Stone Oak Hospital, an award-winning, state-of-the-art hospital in San Antonio, Texas. Some rooms at SB are small, but SB staff and physicians are able, for the most part, to function appropriately and provide high quality of care notwithstanding. (The ICU is the exception, although it was said that patients receive quality of care in the ICU. See FOF 77-82.) Most of the rooms in the ED "are good size." Some residents are willing to give up a private room in order to have better access of care and the convenience of care to family members at SB's existing facility. By comparison, the alternative suggested by St. Joseph's Hospital does not use evidence-based design and involves gutting and rearranging roughly one-third of SB's existing interior; depends upon erecting a new patient tower that would require parking and stormwater capacity that SB currently does not have; requires SB's administration to relocate off-site during an indeterminate construction period; and involves estimated project costs that its witnesses did not disclose the basis of, claiming that the information was proprietary. South Bay's physicians are likely to apply for privileges at St. Joseph's Hospital South. Moreover, if SB remains at its current site, it is reasonable to expect that some number of those physicians would do less business at SB or leave the medical staff. Many of SB's physicians have their primary medical offices in Brandon, or otherwise north of Sun City Center. Further, many of the specialists at SB are also on staff at Brandon. St. Joseph's Hospital South would be more convenient for those physicians, in addition to having the allure of a new, state-of-the-art hospital. South Bay is struggling with its nursing vacancy rate, which was 12.3% for 2010 at the time of the hearing and had increased from 9.9% in 2009. The jump in nursing vacancies in 2010 substantially returned the hospital to its 2008 rate, which was 12.4%. As with its physicians, SB's nurses generally do not reside in the Sun City Center area giving its age restrictions as a retirement community; instead, they live further north in south Hillsborough County. In October 2007 when the application was filed, SB had approximately 105 employees who lived in Riverview. It is reasonable to expect that SB's nurses will be attracted to St. Joseph's Hospital South, a new, state-of-the-art hospital closer to where they live. Thus, if it is denied the opportunity to replace and relocate its hospital, SB could also expect to lose nursing staff to St. Joseph's Hospital South, increasing its nursing vacancy rate. Section 408.035(4): The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation The parties stipulated that Schedule 2 of SB's CON application was complete and required no proof at hearing. South Bay will not have to recruit nursing or physician staff for its proposed replacement hospital. Its existing medical and nursing staff would not change, and would effectively "travel" with the hospital to its new location. Conversely, the replacement hospital should enhance SB's ability to recruit specialty physicians, which is currently a challenge for SB in its existing facility. The parties stipulated to the reasonableness of SB's proposed staffing for the replacement hospital as set out in Schedule 6A, but SJH and TG contend that the staffing schedule should also include full-time equivalent positions (FTEs) for the freestanding ED that SB proposes to maintain at its existing hospital. This contention is addressed in the Conclusions of Law, concerning application completeness under section 408.037, at COL 356-57. South Bay has sufficient funds for capital and operating expenditures for project accomplishment and operation. The project cost will be underwritten by HCA, which has adequate cash flow and credit opportunities. It is reasonable that SB's project will be adequately funded if the CON is approved. Section 408.035(5): The extent to which the proposed services will enhance access to health care for residents of the service district The specific area that SB primarily serves, and would continue to serve, is the service area in south Hillsborough County as identified in its application and exhibits. The discussion in section IV.B., supra, is applicable to this criterion and incorporated herein. With its proposed relocation to Riverview, SB will be situated in the most populous and fastest-growing part of south Hillsborough County; will be available to serve Sun City Center, Ruskin, and Wimauma; and will be between seven and eight minutes farther away from Sun City Center than it is at present. However, while the relocated facility will be available to the elderly residents of the Sun City Center area, access for these future patients will be reduced from current levels given the increase in transportation time, whether it be by emergency vehicle or otherwise. Section 408.035(6): The immediate and long-term financial feasibility of the proposal Immediate or "short-term" financial feasibility is the ability of the applicant to secure the funds necessary to capitalize and operate the proposed project. The project cost for SB's proposed replacement hospital is approximately $200 million. The costs associated with the establishment and operation of the freestanding ED and other services were not included in the application, but for the reasons stated herein, were not required to be projected in SB's CON application. South Bay demonstrated the short-term financial feasibility of the proposal. The estimated project cost has declined since the filing of the application in 2007, meaning that SB will require less capital than originally forecast. While Mr. Miller stated that he does not have authority to bind HCA to a $200 million capital project, HCA has indicated that it will provide full financing for the project, and that it will go forward with the project if awarded the CON. Long-term financial feasibility refers to the ability of a proposed project to generate a profit in a reasonable period of time. AHCA has previously approved hospital proposals that showed a net profit in the third year of pro forma operation or later. See generally Cent. Fla. Reg. Hosp., Inc. v. Agency for Health Care Admin. & Oviedo HMA, Inc., Case No. 05-0296CON (Fla. DOAH Aug. 23, 2006; Fla. AHCA Jan. 1, 2007), aff'd, 973 So. 2d 1127 (Fla. 1st DCA 2008). To be conservative, SB's projections, updated for purposes of hearing, take into account the slower population growth in south Hillsborough County since the application was originally filed. South Bay also assumed that St. Joseph's Hospital South will be built and operational by 2015. The net effect, as accounted for in the updated projections, is that SB's replacement hospital will have 28,168 patient days in year 1 (2015); 28,569 patient days in year 2 (2016); and 29,582 patient days in year 3 (2017). That patient volume is reasonable and achievable. With the updated utilization forecast, SB projects a net profit for the replacement hospital of $711,610 in 2015; $960,693 in 2016; and $1,658,757 in 2017. The financial forecast was done, using revenue and expense projections appropriately based upon SB's own most recent (2009) financial data. Adjustments made were to the payor mix and the degree of outpatient services, each of which would change due to the relocation to Riverview. The revenue projections for the replacement hospital were tested for reasonableness against existing hospitals in SB's peer group, using actual financial data as reported to AHCA. St. Joseph's Hospital opposed SB's financial projections. St. Joseph's Hospital's expert did not take issue with SB's forecasted market growth. Rather, it was suggested that there was insufficient market growth to support the future patient utilization projections for St. Joseph's Hospital South and SB at its new location and, as a result, they would have a difficult time achieving their volume forecasts and/or they would need to draw patients from other hospitals, such as Brandon, in order to meet utilization projections. St. Joseph's Hospital's expert criticized the increase in SB's projected revenues in its proposed new location as compared to its revenues in its existing location. However, it appears that SB's payor mix is projected to change in the new location, with a greater percentage of commercial managed care, thus generating the greater revenue. South Bay's projected revenue in the commercial indemnity insurance classification was also criticized because SB's projected commercial indemnity revenues were materially overstated. That criticism was based upon the commercial indemnity insurance revenues of St. Joseph's Hospital and Tampa General, which were used as a basis to "adjust" SB's projected revenue downward. St. Joseph's Hospital and Tampa General's fiscal-year 2009 commercial indemnity net revenue was divided by their inpatient days, added an inflation factor, and then multiplied the result by SB's year 1 (2015) inpatient days to recast SB's projected commercial indemnity net revenue. The contention is effectively that SB's commercial indemnity net revenue would be the same as that of St. Joseph's Hospital and Tampa General. There is no similarity between the three hospitals in the commercial indemnity classification. The majority of SJH's and TG's commercial indemnity net revenue comes from inpatients rather than outpatient cases; whereas the majority of SB's commercial indemnity net revenue comes from outpatient cases rather than inpatients. This may explain why SB's total commercial indemnity net revenue is higher than SJH or TG, when divided by inpatient days. The application of the lower St. Joseph's Hospital-Tampa General per-patient-day number to project SB's experience does not appear justified. It is likely that SB's project will be financially feasible in the short and long-term. Section 408.035(7): The extent to which the proposal will foster competition that promotes quality and cost-effectiveness South Bay and Brandon are the dominant providers of health care services in SB's service area. This dominance is likely to be eroded once St. Joseph's Hospital South is operational in and around 2015 (on Big Bend Road) if SB's relocation project is not approved. The proposed relocation of SB's facility will not change the geography of SB's service area. However, it will change SB's draw of patients from within the zip codes in the service area. The relocation of SB is expected to increase SB's market share in the three northern Riverview zip codes. This increase can be expected to come at the expense of other providers in the market, including TG and SJH, and St. Joseph's Hospital South when operational. The potential impact to St. Joseph's Hospital may be approximately $1.6 million based on the projected redirection of patients from St. Joseph's Hospital Main to St. Joseph's Hospital South, population growth in the area, and the relocation of SB. Economic impacts to TG are of record. Tampa General estimates a material impact of $6.4 million if relocation is approved. Notwithstanding, addressing "provider-based competition," AHCA in its SAAR noted: Considering the current location is effectively built out at 112 beds (according to the applicant), this project will allow the applicant to increase its bed size as needed along with the growth in population (the applicant's schedules begin with 144 beds in year one of the project). This will shield the applicant from a loss in market share caused by capacity issues and allow the applicant and its affiliates the opportunity to maintain and/or increase its dominant market share. SB Ex. 12 at 55. AHCA's observation that replacement and relocation of SB "will shield the applicant from a loss in market share caused by capacity issues" has taken on a new dimension since the issuance of the SAAR. At that time, St. Joseph's Hospital did not have final approval of CON No. 9833 for the establishment of St. Joseph's Hospital South. It is likely that St. Joseph's Hospital South will be operational on Big Bend Road, and as a result, SB, at its existing location, will experience a diminished market share, especially from the Riverview zip codes. In 2015 (when St. Joseph's Hospital proposes to open St. Joseph's Hospital South), SB projects losing $2,669,335 if SB remains in Sun City Center with a 20% loss in market share. The losses are projected to increase to $3,434,113 in 2016 and $4,255,573 in 2017. It follows that the losses would be commensurately more severe at the 30% to 40% loss of market share that SB expects if it remains in Sun City Center. St. Joseph's Hospital criticized SB's projections for its existing hospital if it remains in Sun City Center with a 20% loss in market share; however, the criticism was not persuasively proven. It was assumed that SB's expenses would decrease commensurately with its projected fewer patient days, thus enabling it to turn a profit in calendar year 2015 despite substantially reduced patient service revenue. However, it was also stated that expenses such as hospital administration, pharmacy administration, and nursing administration, which the analysis assumed to be variable, in fact have a substantial "fixed" component that does not vary regardless of patient census. South Bay would not, therefore, pay roughly $5 million less in "Administration and Overhead" expenses in 2015 as calculated. To the contrary, its expenses for "Administration and Overhead" would most likely remain substantially the same, as calculated by Mr. Weiner, and would have to be paid, notwithstanding SB's reduced revenue. The only expenses that were recognized as fixed by SJH's expert, and held constant, were SB's calendar year 2009 depreciation ($3,410,001) and short-term interest ($762,738), shown in the exhibit as $4,172,739 both in 2009 and 2015. Other expenses in SJH's analysis are fixed, but were inappropriately assumed to be variable: for example, "Rent, Insurance, Other," which is shown as $1,865,839 in 2009, appears to decrease to $1,462,059 in 2015. The justification offered at hearing, that such expenses can be re-negotiated by a hospital in the middle of a binding contract, is not reasonable. St. Joseph's Hospital's expert opined that SB's estimate of a 30 to 40% loss of market share (if SB remained in Sun City Center concurrent with the operation of St. Joseph's Hospital South) was "much higher than it should be," asserting that the loss would not be that great even if all of SB's Riverview discharges went to St. Joseph's Hospital South. (Mr. Richardson believes the "10 to 20 percent level is likely reasonable," although he opines that a 5 to 10% impact will likely occur.) However, this criticism assumes that a majority of the patients that currently choose SB would remain at SB at its existing location. The record reflects that Sun City Center area residents actively supported the establishment of St. Joseph's Hospital South, thus suggesting that they might use the new facility. Further, SB's physicians are likely to join the medical staff of St. Joseph's Hospital South to facilitate that utilization or to potentially lose their patients to physicians with admitting privileges at St. Joseph's Hospital South. Tampa General's expert also asserted that SB would remain profitable if it remained in its current location, notwithstanding the establishment of St. Joseph's Hospital South. It was contended that SB's net operating revenues per adjusted patient day increased at an annual rate of 5.3% from 2005 to 2009, whereas the average annual increase from 2009 to 2017 in SB's existing hospital projections amounts to 1.8%. On that basis, he opined that SB should be profitable in 2017 at its existing location, notwithstanding a loss in market share to St. Joseph's Hospital South. However, the 5.3% average annual increase from 2005 to 2009 is not necessarily predictive of SB's future performance, and the evidence indicated the opposite. Tampa General's expert did not examine SB's performance year-by-year from 2005 to 2009, but rather compared 2005 and 2009 data to calculate the 5.3% average annual increase over the five-year period. This analysis overlooks the hospital's uneven performance during that time, which included operating losses (and overall net losses) in 2005 and 2007. Further, the evidence showed that the biggest increase in SB's net revenue during that five-year period took place from 2008 to 2009, and was largely due to a significant decrease in bad debt in 2009. SB Ex. 16 at 64. (Bad debt is accounted for as a deduction from gross revenue: thus, the greater the amount of bad debt, the less net revenue all else being equal; the lesser the amount of bad debt, the greater the amount of net revenue all else being equal.) The evidence further showed that the 2009 reduction in bad debt and the hospital's profitability that year, is unlikely to be repeated. Overall, approval of the project is more likely to increase competition in the service area between the three health care providers/systems. Denial of the project is more likely to have a negative effect on competition in the service area, although it will continue to make general acute care services available and accessible to the Sun City Center area elderly (and family and volunteer support). Approval of the project is likely to improve the quality of care and cost-effectiveness of the services provided by SB, but will reduce access for the elderly residents of the Sun City Center area needing general acute care hospital services who will be required to be transported by emergency vehicle or otherwise to one of the two Big Bend Road hospitals, unless needed services, such as open heart surgery, are only available elsewhere. For example, if a patient presents to SB needing balloon angioplasty or open heart surgery, the patient is transferred to an appropriate facility such as Brandon. The presence of an ED on the current SB site may alleviate the reduction in access somewhat for some acute care services, although the precise nature and extent of the proposed services were not explained with precision. If its application is denied, SB expects to remain operational so long as it remains financially viable. Section 408.035(8): The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the costs and methods of the proposed construction, including the costs and methods of energy provision, were reasonable. St. Joseph's Hospital and Tampa General did not stipulate concerning the availability of alternative, less costly, or more effective methods of construction, and take the position that SB should renovate and expand its existing facility rather than replace and relocate the facility. Whether section 408.035(8) requires consideration (weighing and balancing with other statutory criteria) of potential renovation costs as alternatives to relocation was hotly debated in this case. For the reasons stated herein, it is determined that this subsection, in conjunction with other statutory criteria, requires consideration of potential renovation versus replacement of an existing facility. St. Joseph's Hospital offered expert opinion that SB could expand and upgrade its existing facility for approximately $25 million. These projected costs include site work; site utilities; all construction, architectural, and engineering services; chiller; air handlers; interior design; retention basins; and required movable equipment. This cost is substantially less than the approximate $200 million cost of the proposed relocation. It was proven that there are alternatives to replacing SB. There is testimony that if SB were to undertake renovation and expansion as proposed by SJH, such upgrades would improve SB's competitive and financial position. But, the alternatives proposed by SJH and TG are disfavored by SB and are determined, on this record, not to be reasonable based on the institutional- specific needs of SB. Section 408.035(9): The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Approval of SB's application will not significantly enhance access to Medicaid, charity, or underserved population groups. South Bay currently provides approximately 4% of its patient days to Medicaid beneficiaries and about 1% to charity care. South Bay's historic provision of services to Medicaid patients and the medically indigent is reasonable in view of its location in Sun City Center, which results in a disproportionate share of Medicare in its current payor mix. South Bay also does not offer obstetrics, a service which accounts for a significant degree of Medicaid patient days. South Bay proposes to provide 7% of its "gross patient revenue" to Medicaid and charity patients as part of its relocation. South Bay's proposed service percentage is reasonable. Section 408.035(10): The applicant's designation as a Gold Seal Program nursing facility pursuant to s. 400.235, when the applicant is requesting additional nursing home beds at that facility The parties stipulated that this criterion is not applicable.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered denying CON Application No. 9992. DONE AND ENTERED this 8th day of August, 2011, in Tallahassee, Leon County, Florida. S CHARLES A. STAMPELOS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of August, 2011.
The Issue The issue is whether Petitioner’s application for a Certificate of Need to establish a new 84-bed acute care hospital in Viera should be approved.
Findings Of Fact Parties Holmes and the Health First System Holmes, the applicant for the CON at issue in this case, is a not-for-profit corporation that operates two acute care hospitals in Brevard County: Holmes Regional Medical Center (HRMC) in Melbourne and Palm Bay Community Hospital (PBCH) in Palm Bay. HRMC opened in 1962. It is a 514-bed acute care hospital, with 504 acute care beds and 10 Level II neonatal intensive care (NICU) beds. HRMC provides tertiary-level services, including adult open-heart surgery, and it is the designated trauma center for Brevard County. HRMC has been recognized as one of the top 100 cardiovascular hospitals in the country, and it has received other recognitions for the high quality of care that it provides. PBCH opened in 1992. It is a 60-bed acute care hospital. PBCH does not provide tertiary-level services, and it does not provide obstetrical (OB) services. Holmes’ parent company is Health First, Inc. (Health First), which is a not-for-profit corporation formed in 1995 upon the merger of Holmes and the organization that operated Cape Canaveral Hospital (Cape Hospital). Cape Hospital is a 150-bed not-for-profit acute care hospital in Cocoa Beach. The range of services that Cape Hospital provides is broader than range of services provided at PBCH, but not as broad as the range of services provided at HRMC. For example, Cape Hospital provides OB services, but it does not have any NICU beds. All of the Health First hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (JCAHO). Health First provides a broad range of health care services in Brevard County in addition to the hospital services provided at HRMC, PBCH, and Cape Hospital. For example, it operates a hospice program, surgical center, outpatient facilities, and fitness centers. Health First also administers the Health First Health Plan (HFHP), which is the largest managed care plan in Brevard County. All of the Health First hospitals serve patients without regard to their ability to pay, and as more fully discussed in Part F(1)(g) below, Holmes provides a significant amount of care to Medicaid and charity patients at HRMC and PBCH. Holmes also provides health care services to the medically underserved through a program known as HOPE, which stands for Health, Outreach, Prevention, and Education. HOPE was established in the early 1990’s to provide free health care for at-risk children as well as free clinics (both fixed-site and mobile) for medically underserved patients throughout Brevard County. At the time of the final hearing, the free clinics operated by HOPE were being transitioned into a federally- qualified health center, the Brevard Health Alliance (BHA). After the transition, Holmes will no longer operate the clinics; however, Holmes is obligated to provide $1.3 million per year in funding to BHA and it will continue to provide services to at- risk children through the HOPE program. Health First administers a charitable foundation that raises money to support initiatives such as the cancer center at HRMC, the construction of a hospice house, and an Alzheimer’s support center. The foundation has raised approximately $7 million since its inception in October 2001. Wuesthoff Wuesthoff operates two not-for-profit acute care hospitals in Brevard County: Wuesthoff-Rockledge and Wuesthoff- Melbourne. Like Health First, Wuesthoff provides a broad range of health care services in Brevard County in addition to its acute care hospitals. The services include a nursing home, assisted living facility, clinical laboratory, hospice program, home health agency, diagnostic center, and fitness centers. Wuesthoff-Rockledge opened in 1941. It has 245 beds, including 218 acute care beds, 10 Level II NICU beds, and 17 adult inpatient psychiatric beds. Wuesthoff-Rockledge provides tertiary-level services, including adult open-heart surgery, and it is the only acute care hospital in Brevard County designated as a Baker Act receiving facility. Wuesthoff-Rockledge is in the process of adding 44 more beds, including a new 24-bed intensive care unit (ICU) that is projected to open in 2006 and 20 acute care beds. After those beds are added, Wuesthoff-Rockledge will have 289 beds. Currently, approximately 57 percent of Wuesthoff- Rockledge’s beds are in semi-private rooms and 43 percent of the beds are in private rooms. After the addition of the 44 new beds, the percentages will be 69 percent in semi-private rooms and 31 percent in private rooms. Wuesthoff-Melbourne opened in December 2002. It originally received CON approval for 50 beds in November 2000. Before it opened, it received CON approval for an additional 50 beds, which increased its licensed capacity to 100 beds. Wuesthoff-Melbourne opened with 65 beds, all of which are in private rooms. At the time of the hearing, Wuesthoff- Melbourne had that same number of beds and an occupancy rate of approximately 80 percent. In December 2004, Wuesthoff-Melbourne added an additional 50 beds. Wuesthoff was awaiting final licensure approval from the Agency for those beds at the time of the hearing. The approval will increase Wuesthoff-Melbourne’s licensed capacity to 115 beds, all of which are in private rooms. The additional 15 beds (beyond the 100 previously licensed) were added pursuant to the 2004 amendments to the CON law, which permit bed expansions at existing hospitals without CON approval. Wuesthoff-Melbourne was designed and engineered for approximately 200 beds, and it expects to have 134 beds in service in the near future. The space for the additional 19 beds (to expand from 115 to 134) has been shelled-in, and the bed expansion will likely be completed in late-2005 or early- 2006. All of those beds will be in private rooms. The expansion of Wuesthoff-Melbourne to 134 beds will occur notwithstanding the outcome of this proceeding, but the expansion of the facility to 200 beds depends in large part on the outcome of this proceeding. Wuesthoff-Melbourne provides all of the basic acute care services, including OB services. It does not provide tertiary-level services. The Wuesthoff hospitals are accredited by JCAHO. Wuesthoff has been recognized as one of the “100 Most Wired” hospitals by Hospitals & Health Networks magazine for the comprehensive information technology (IT) systems in place at its hospitals. The Wuesthoff hospitals serve all patients without regard to their ability to pay, and as discussed in Part F(1)(g) below, the Wuesthoff hospitals provide a significant amount of care to Medicaid and charity patients. Wuesthoff also provides health care services to the medically underserved through a free health clinic in Cocoa and a mobile unit that serves patients throughout Brevard County. Like Health First, Wuesthoff administers a charitable foundation that funds initiatives at the Wuesthoff hospitals and in the community. (3) Agency The Agency is the state agency that administers the CON program and is responsible for reviewing and taking final agency action on CON applications. Application Submittal and Preliminary Agency Action Holmes filed a letter of intent and a CON application in the first batching cycle of 2004 for hospital beds and facilities. Holmes’ letter of intent and CON application were timely and properly filed. Holmes application, CON 9759, proposes the establishment of a new 84-bed acute care hospital in the Viera area of Brevard County. The proposed hospital will be known as Viera Medical Center (VMC). The fixed need pool published by the Agency for the applicable batching cycle identified a need for zero new acute care beds in Subdistrict 7-1, which is Brevard County. There were no challenges to the published fixed need pool. The Agency comparatively reviewed Holmes’ application with the CON applications filed by Wuesthoff to add 34 beds at Wuesthoff-Melbourne (CON 9760) and to add 44 beds at Wuesthoff- Rockledge (CON 9761). On June 10, 2004, the Agency issued its State Agency Action Report (SAAR), which summarized the Agency’s findings and conclusions based upon its comparative review of the applications. The SAAR recommended denial of Holmes’ application and both of Wuesthoff's applications. After the Agency published notice of its intent to deny the applications in the Florida Administrative Weekly, Holmes timely petitioned the Agency for an administrative hearing on the denial of its application. Wuesthoff did not pursue an administrative hearing on the denial of its applications as a result of the 2004 amendments to the CON law, which became effective July 1, 2004. Under the new law, a CON is not needed to add acute care beds at an existing hospital and, as indicated above, the Wuesthoff hospitals are already in the process of adding the beds that they were seeking through CON 9760 and CON 9761. The Agency reaffirmed its opposition to Holmes’ application at the hearing through the testimony of Jeffrey Gregg, the Bureau Chief for the Agency’s CON program. Acute Care Subdistrict 7-1 / Brevard County The Agency uses a five-year planning horizon in determining the need for new acute care beds, and it calculates the inventory of acute care beds and considers CON applications for new acute care beds on a subdistrict basis. Brevard County is in Subdistrict 7-1. There are no other counties in the subdistrict. There are six existing acute care hospitals in Brevard County, all of which are not-for-profit hospitals: Parrish Medical Center (Parrish) in Titusville, Cape Hosptial, Wuesthoff-Rockledge, Wuesthoff-Melbourne, HRMC, and PBCH. Brevard County is a long, narrow county. It stretches approximately 70 miles north to south, but averages only 20 miles east to west. The county is bordered on the north by Volusia County, on the west by the St. Johns River and Osceola County, on the south by Indian River County, and on the east by the Atlantic Ocean. The major north-south arterial roads in the county are Interstate 95 (I-95) and U.S. Highway 1 (US 1). The Intracoastal Waterway also runs north and south through the eastern portion of the county. Other arterial roads in the south/central portion of the county are Murrell Road, Eau Gallie Boulevard and Wickham Road. Because of the county’s long and narrow geography, three recognized market areas for hospital services have developed in the county, i.e., northern, central, and southern. The northern area of the county, which includes the Titusville area, had approximately 63,000 residents in 2003. It is primarily served by one hospital: Parrish. The central area of the county, which includes the Rockledge and Cocoa areas, had approximately 163,000 residents in 2003. It is primarily served by two hospitals: Wuesthoff- Rockledge and Cape Hospital. The southern area of the county, which includes the Melbourne and Palm Bay areas, had approximately 276,000 residents in 2003. It is primarily served by three hospitals: HRMC, Wuesthoff-Melbourne, and Palm Bay. The Viera area, discussed below, overlaps the central and southern market areas and is primarily served by Wuesthoff- Rockledge, Wuesthoff-Melbourne, and HRMC. According to the data in Table 28 of the CON application, those hospitals together accounted for 90 percent of the patients from zip code 32940, which is the “main” Viera zip code. The evidence was not persuasive that the three market areas in Brevard County equate to “antitrust markets” from an economist’s standpoint, but it was clear that the hospitals and physicians in the county recognize the existence of the market areas. For example, there is very little overlap in the medical staffs of the hospitals in different market areas, but there is significant overlap in the medical staffs of the hospitals in the same market area, and the opening of Wuesthoff-Melbourne in south Brevard County impacted HRMC and PBCH, but had little impact on the hospitals in central Brevard County. Additionally, there is very little out-migration of patients from one area of the county to hospitals in another area. The data in Tables 18 and 19 of the CON application shows that in 2003, for example, 83.6 percent of south Brevard County adult medical/surgical patients were admitted to one of the three south Brevard County hospitals, and 79.5 percent adult medical/surgical patients in central Brevard County were admitted to one of the two hospitals in that area of the county. Viera Viera is an unincorporated area in south/central Brevard County that is being developed by The Viera Company (TVC). TVC is a for-profit land development company owned by A. Duda & Sons, Inc. (Duda). The Viera DRI Viera is being developed pursuant to a development of regional impact (DRI) development order that was first adopted by Brevard County in 1990. The original DRI included 3,000 acres east of I-95, which was developed primarily as residential subdivisions. In 1995, an additional 6,000 acres were added to the DRI west of I- 95, which is being developed as a mixed-use community. The portion of the DRI east of I-95 has effectively been built-out. The build-out date for the remainder of the DRI is 2020. The master plan for the DRI includes approximately 19,000 residential units, 3.7 million square feet (SF) of office space, 2.9 million SF of commercial space, a governmental center, six schools, parks, open space, and a 7,500-seat baseball stadium and practice facility used by the Florida Marlins. As of October 2004, over 5,800 homes and approximately 2 million SF of commercial and office space have been developed west of I-95 in addition to the governmental center, several schools, and the Florida Marlins’ facilities. There are approximately 12,000 acres of undeveloped, agricultural property adjacent to and to the west of the DRI that are owned by Duda and that, according to the chief operating officer of TVC, will likely be added to the DRI in the near future. The record does not reflect what type of uses will be developed on that property or when that development will begin. The DRI development order includes authorization for up to 470 hospital beds, with vested traffic concurrency for 150 beds. The master site plan for the DRI designates an area west of I-95 on the southwest corner of the Wickham Road/Lake Andrew Drive intersection as the “Proposed Viera Medical Park.” VMC is proposed for that location. The DRI development order provides all of the local government land use approvals, including traffic concurrency, that are necessary for VMC. TVC is developing Viera for and marketing it to retirees and younger persons, including families with children. The DRI includes age-restricted subdivisions, but it also includes amenities such as three elementary schools and a large regional park with ball fields and playgrounds. (2) Negotiations for a Hospital in Viera TVC has long wanted a hospital in Viera. Wuesthoff identified the Viera area as future growth area in the 1990’s and began establishing health care facilities in the area at that time. Wuesthoff has a diagnostic center, a lab facility, and a rehabilitation facility in the Suntree area, which is just to the east of the Viera DRI. Wuesthoff expressed interest in building a hospital in Viera in 1993 and, more recently, in 2003. In August 1993, Wuesthoff and TVC entered into an agreement that gave Wuesthoff a 10-year exclusive right to develop a hospital in Viera if certain conditions were met. However, Wuesthoff ultimately built Wuesthoff-Melborune in Melbourne (rather than in Viera), and the exclusivity provision in the August 1993 contract never went into effect. In July 2003, Wuesthoff sent a letter to TVC expressing its interest in obtaining an option to purchase 25 to acres within the Viera DRI to construct a hospital. In the letter, Wuesthoff stated that it would construct the hospital “within 10 years or when the population of Viera exceeds 40,000, whichever first occurs”; that the hospital would be “constructed similar to Wuesthoff Medical Center-Melbourne which currently encompasses 65 licensed beds in a 150,000 sq. ft. facility”; that it wanted the “sole right to build a hospital or hospital like facility in Viera . . . until 5 years after the opening of the hospital” and that it wanted TVC to “consider selling the desired land to Wuesthoff at a reduced price.” Wuesthoff’s July 2003 offer was not seriously considered by TVC because, by that time, TVC was in the process of finalizing its agreement for the sale of 50 acres to Health First for VMC. Additionally, the Health First agreement was more appealing to TVC because Health First was offering to purchase more property at a higher price than was Wuesthoff, and Health First was committed to building a hospital sooner than was Wuestoff. The contract between Health First and TVC was executed on August 5, 2003, and Health First has since closed on the purchase of the 50 acres at a cost of approximately $9 million. The Health First/TVC contract includes an exclusivity provision that prohibits the development of another hospital within the Viera DRI or on any of the lands owned by Duda until 2029 if Holmes constructs at least 70 percent of Phase I of the Viera Medical Park by August 31, 2006, and begins construction on a hospital with at least 80 beds by August 31, 2010. The contract also includes exclusivity provisions relating to the other uses being developed as part of the Viera Medical Park, but the exclusivity on those uses expires in 2010, at the latest. The exclusivity provision will be included in restrictive covenants that are recorded in the public records of Brevard County. The restrictive covenants will run with the land and will bind future purchasers of property from TVC and Duda. Exclusivity provisions are not uncommon in land- purchase contracts for large commercial projects or new hospitals. The August 1993 agreement between Wuesthoff and TVC included such a provision as did Wuestoff’s July 2003 offer. However, the length of the hospital exclusivity provision in the Health First/TVC contract and the fact that it applies to the land owned by Duda outside of the Viera DRI goes beyond what is reasonably necessary to allow the new hospital to become stabilized and has the potential to stifle competition for acute care hospital services in the Viera area for the next 25 years. Viera Medical Center (1) Generally Holmes conditioned the approval of its CON application on VMC being located at the "[i]ntersection of Lake Andrew Drive and Wickham Road, Viera, Florida." VMC was projected to open in 2008 as part of the Viera Medical Park that Health First is building on the 50 acres that it purchased from TVC at that location. VMC will be located in zip code 32940, which is the “main” Viera zip code. VMC will be built on 20 of the 50 acres purchased by Health First. The remaining 30 acres will be developed with the other health care facilities that will make up the Viera Medical Park. The development of the Viera Medical Park will be done in three phases. Phase I will include a fitness center; a medical office building; and outpatient facilities such as an urgent care center, an ambulatory surgical center, and a diagnostic imaging and rehabilitation center. Phase II will include VMC. Phase III may include a nursing home and/or assisted living facility as well as “multi-family retirement units.” VMC will be a 213,000 SF facility with 84 licensed beds, 16 “observation” beds, and a full emergency room (ER). The 84 licensed beds will consist of 72 acute care beds and a 12-bed critical care unit/ICU. All of the beds will be in private rooms. The total project cost for VMC is approximately $106 million, which will be funded primarily by tax-free bonds issued by Holmes. VMC will have a cardiac catheterization lab, but it will not provide interventional cardiology services such as angioplasty. VMC will not provide any tertiary-level services or OB services, and it will not have a dedicated pediatric unit. VMC will share management and administrative support services with HRMC so as to minimize duplication of those services and to reduce overhead costs. VMC will have an integrated IT system that will utilize electronic medical records and a computerized physician order entry system, as well as an electronic ICU (e-ICU). The e-ICU is an innovative critical care management system based upon a telemedicine platform that is in use at the existing Health First hospitals in Brevard County. Except for the e-ICU, which the Wuesthoff hospitals do not have, the IT systems at VMC will be materially the same as Wuesthoff’s award-winning IT systems. VMC will have a helipad without any weight restrictions and, as discussed in Part F(1)(a)(iv) below, VMC has been designed with hurricanes and other “contingency events” (e.g., bioterrorism) in mind. Demographics of VMC’s Proposed Service Area The primary service area (PSA) for VMC consists of zip codes 32934, 32935/36, 32940, and 32955/56; the secondary service area (SSA) consists of zip codes 32901/02/41, 32904, 32922/23/24, 32926/59, and 32927. Neither Wuesthoff nor the Agency contested the reasonableness of the PSA or the SSA. All of the zip codes targeted by VMC are within the primary service area of one or more of the existing hospitals, and there are three hospitals physically located within those zip codes. Wuesthoff-Melbourne and Wuestoff-Rockledge are located in VMC’s PSA, and HRMC is in VMC’s SSA. The 2003 population of the PSA was 108,436. In 2010, which would be VMC’s third year of operation, the PSA’s population is projected to be 128,498. The 65+ age cohort, which is the group that most heavily utilizes hospital services, is projected to make up 21.5 percent of the PSA’s population in 2010. That is a lower percentage than the projected populations of the 18-44 age cohort (29.1 percent) and the 45-65 age cohort (29.7 percent) in the PSA. VMC’s PSA has a more favorable payor-mix than the county as a whole. It has a lower percentage of Medicaid patients and a higher percentage of insured patients --i.e., commercial, HMO, PPO, workers comp, and Champus/VA patients -- than the county as a whole. Except for zip code 32935/36, each of the zip codes in VMC’s PSA has a higher median household income than Brevard County as a whole. Zip code 32935/36 is the zip code in which Wuesthoff-Melbourne is located. The zip code in which VMC will be located, 32940, has the highest median household income in Brevard County. The median household income in that zip code for 2004 was $67,000 as compared to the county-wide average of $44,000. Utilization Projections VMC was projected to open in January 2008, and Holmes' CON application contains utilization and financial projections for VMC's first three years of operation, i.e., 2008, 2009, and 2010. The utilization projections are based upon an average length of stay (ALOS) of 3.69 days, which is reasonable. The utilization projections are also based upon the assumption that by VMC’s third year of operation, it will have 26.9 percent market share in its PSA and a 7.4 percent market share in its SSA. VMC's projected market share in zip code 32940, which is its “home” zip code and the “main” Viera zip code, is projected to be 35 percent. The market share assumptions are reasonable and attainable. The utilization projections include a “ramp-up” period for VMC. Its annual occupancy rate in its first year of operation is projected to be 45.6 percent; its annual occupancy rate in its second year of operation is projected to be 65.7 percent; and in its third year of operation (2010), VMC is expected to have an annual occupancy rate of 76 percent with 6,313 discharges and 23,298 patient days. The occupancy rates, and the discharges and patient days upon which they are based, are reasonable and attainable.2 The application projects that VMC will redirect or “cannibalize” a significant percentage of its patients from the other Health First hospitals. The percentage of patients that VMC will cannibalize from the other Health First hospitals in each zip code varies from 75 percent to 45 percent, depending upon the proximity of the zip code to VMC. Overall, approximately 69.4 percent of VMC’s patients will be cannibalized patients, i.e., patients that would have otherwise gone to HRMC (66.2 percent), Cape Hosptial (3.2 percent), or PBCH (less than 0.1 percent). The remaining 30.6 percent of VMC’s patients will be patients that would have otherwise gone to Wuesthoff-Rockledge (15.8 percent) or Wuesthoff-Melbourne (14.8 percent). The record does not reflect the outpatient volume projected for VMC, but Holmes’ health planner conceded at the hearing that the projected outpatient revenues for VMC did not take into account the outpatient services that will be included in Phase I of the Viera Medical Park. As a result, the volume on which the outpatient revenues were based is overstated to some degree, but there was no credible evidence regarding the extent of the overstatement. VMC is projected to treat 15,851 patients in its ER in its first year of operation (2008), and by its third year of operation (2010), VMC is expected to treat 27,780 patients in its ER. The record does not reflect how those figures were calculated, nor does it reflect what percentage of those patients would have otherwise been treated in the ERs at HRMC, PBCH, or the Wuesthoff hospitals. However, the reasonableness of those figures was not contested by Wuesthoff or the Agency. Statutory and Rule Criteria Statutory Criteria -- Section 408.035, Florida Statutes (2004)3 Subsections (1), (2) and (5) -– Need for Proposed Services; Accessibility of Existing Services; and Enhancing Access According to the CON application (page 14), the need for VMC is justified based upon: The large population base and significant population growth projected for the [Viera] area. The need to improve access and reduce travel times for this significant population for both critical care and inpatient services. The projected need for additional acute care beds at HRMC and the benefits of delivering non-tertiary services away from [HRMC’s] campus. Additionally, the CON application (page 15) asserts that the approval of VMC will: Significantly enhance the area’s Homeland Security and disaster planning and preparedness. Enhance the quality of care delivered to area residents as a result of key design and information technology innovations planned for [VMC]. Provide access to cost-effective, quality of care for all residents of the service area, including the uninsured. In its PRO (page 19), Holmes identifies those same six issues as the “not normal” circumstances that justify approval of VMC. Holmes’ health planner conceded at the hearing that the VMC project is not intended to address any cultural, programmatic, or financial access problems, and that those potential “not normal” circumstances were not advanced in the CON application as bases for approval of VMC. Population of and Growth in the Viera Area There has been considerable growth in Viera over the past 15 years, and the demand for new homes in the Viera DRI remains strong. The projected population of the Viera DRI is expected to exceed 40,000 when the DRI is built-out in 2020, and that figure does not include the population of the Suntree area, which is outside of the Viera DRI and has a number of large residential subdivisions. Zip code 32940, which is the “main” Viera zip code, had a population of 22,940 in 2003. By 2010, that zip code is projected to have a population of 31,862. That is an increase of 38.9 percent, but only 9,000 persons. As stated above, the population of VMC's PSA is projected to increase from 108,436 (in 2003) to 128,489 (in 2010). That is an increase of 18.5 percent, but only 20,000 persons. The population of VMC’s PSA is projected to grow at a faster rate than Brevard County as a whole. Over the seven-year period used in the application (2003 to 2010), the annual growth rate for VMC’s PSA is projected to be 2.64 percent while the annual growth rate of Brevard County as a whole is projected to be 1.74 percent.4 Population growth in Florida is normal and, indeed, is expected. There is nothing extraordinary about the growth projected for zip code 32940 and/or VMC’s PSA. Accordingly, the population growth projected in the Viera area does not, in and of itself, justify the approval of VMC. Enhanced Access There are two main components to Holmes’ argument that VMC will enhance access. First, Holmes contends that VMC will reduce travel times for Viera residents and thereby enhance their access to hospital services. Second, Holmes contends that the approval of VMC will relieve pressure on the overcrowded ERs at the existing hospitals in Brevard County thereby enhancing access to ER services countywide. For Viera Residents VMC will provide more convenient access to hospital services for Viera residents (at least those in need of the basic, non-OB services that will be offered at VMC), and to that extent, VMC will enhance access for Viera residents. VMC will also provide more convenient ER access for Viera residents. Quicker access to an ER is generally beneficial to the patient, although certain heart-attack patients may benefit more by going to the ER of a hospital that can do an immediate angioplasty, such as Wuesthoff-Rockledge or HRMC. VMC will not necessarily enhance access for other residents of the PSA and SSA targeted by VMC (e.g., those outside of the Viera area) because many of those residents are closer to an existing hospital. Indeed, some of those residents would have to pass an existing hospital to get to VMC, which seems particularly unlikely for emergency patients. VMC will also not enhance access for patients in need of OB services or tertiary services that will not be offered at VMC. Convenience alone is not a basis for approving a new hospital, particularly where (as here) the evidence establishes that the residents of the area to be served by the new hospital currently have reasonable access to hospital services. VMC will be located approximately 10 miles south of Wuesthoff-Rockledge, and approximately 11 miles north of Wuesthoff-Melbourne. VMC will be approximately 15 miles northwest of HRMC. There are multiple routes from the Viera area to the Wuesthoff hospitals and HRMC. The routes are along major arterial roads, including I-95, US 1, Wickham Road, Murrell Road, Fiske Boulevard, and Eau Gallie Boulevard. All of those roads are at least four lanes wide. The travel-time studies presented by Wuesthoff show that it takes less than 15 minutes to drive from either of the Wuesthoff hospitals to the VMC site. There was anecdotal testimony suggesting longer travel times, particularly from the VMC site to Wuesthoff-Melbourne,5 but that testimony was not as persuasive as Wuesthoff’s travel-time studies. The travel-time studies presented by Wuesthoff were not without flaws. For example, the travel times were calculated by driving away from the Wuesthoff hospitals, rather than driving towards the hospitals as a potential patient from Viera would be doing. Holmes did not present its own travel- time studies, and notwithstanding the directional issue and the other unpersuasive criticisms of the study by Holmes’ traffic engineer, Wuesthoff’s studies are found to be credible and persuasive. Indeed, Holmes’ traffic engineer estimated that it would take 15 to 20 minutes to get from VMC to Wuesthoff- Melbourne using the most direct route (Transcript, at 668), which is consistent with Wuesthoff’s travel-time studies. It takes longer to drive from Viera to HRMC than it does to drive from Viera to either of the Wuesthoff hospitals. The travel-time studies did not directly address the issue, but the anecdotal testimony suggests that the travel times from Viera to HRMC are between 25 and 45 minutes depending upon the time of day and traffic conditions.6 There are several road segments on the routes between Viera and the Wuesthoff hospitals whose “v/c ratios”7 currently exceeds 1.0, which is an indication of an over-capacity road. However, there are roadway improvements planned or underway that will expand the capacity of those road segments by 2010. Indeed, a comparison of the 2003 (Exhibit H-23) and 2010 (Exhibit W-50) v/c ratios for the road segments on the routes between Viera and the Wuesthoff hospitals shows only marginal increases in the ratios, with many of the 2010 ratios projected to be lower than 0.8, which according to Holmes’ traffic engineer, indicates that the “roadway that is probably operating well within its ability to carry that traffic volume.” Holmes’ traffic engineer did not attempt to quantify the extent to which travel times would increase due to the marginal increases in the v/c ratios. Thus, his opinion that travel times would “increase significantly” and be “significantly greater” in the future is not persuasive. TVC is required to mitigate for the off-site traffic impacts generated by the development of the Viera DRI. In this regard, road improvements (e.g., additional lanes, traffic signals, etc.) will be made in the future as necessary to accommodate the additional population in the Viera DRI. In fact, there are significant road improvements currently underway that are being funded, at least in part, by TVC pursuant to the Viera DRI development order, including the six-laning of I-95 through the Viera area. In sum, the evidence establishes that persons in the PSA and SSA targeted by VMC, including residents of the Viera area, currently have reasonable access to acute care services, and the evidence was not persuasive that there will be access problems over the applicable five-year planning horizon such that a new hospital in Viera is necessary to enhance access. For ER Services in Central and South Brevard County The Brevard County government is the emergency medical services (EMS) provider for the county. Brevard County EMS responds to emergency calls throughout the county and its ambulances transport emergency patients to hospital ERs. Overcrowded ERs can adversely affect the EMS system in several ways. First, if the ER is overcrowded it can take longer for ambulances to off-load patients to the ER staff, which results a longer period of time that the ambulance is “out of service.” Second, if the closest hospital is on “diversion status” because of an overcrowded ER, ambulances will have to transport patients to a more distant hospital, which also results in the ambulance being out of service for a longer period of time. Longer out-of-service periods can, on a cumulative basis, strain the EMS system because an out-of-service ambulance is not able to respond to emergency calls in its service area and the EMS provider may have to shift other ambulances to cover the area at the risk of increasing response times for emergency calls. Brevard County EMS protocol requires ambulances to take patients to the closest hospital, unless the patient is a trauma patient or the closest hospital is on diversion status. Trauma patients are taken to HRMC, which is the designated trauma center for the county. A hospital requests diversion status from EMS when it is unable to accept additional emergency patients because its ER is overcrowded. The most common reasons that an ER is overcrowded is that it had a large number of emergency patients arrive at the same time or that there is a “bottleneck” in the ER caused by a lack of inpatient beds to move patients from the ER that need to be admitted to the hospital. If diversion status is granted, EMS will take emergency patients to another hospital, even if it is further away than the hospital on diversion. As noted above, this strains the EMS system and can result in longer response times for emergency calls, which in turn, can negatively impact patient care. If diversion status is denied, the hospital is required to continue to accept emergency patients. This can create a less than optimal setting for patient care because the hospital may not have adequate space or resources to treat the patient in a timely manner. Until recently, Brevard County EMS would not grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informed EMS that they could not take the patients. That policy recently changed, and EMS will now grant diversion status to a hospital in south Brevard County if either of the other two hospitals in that area of the county informs EMS that it can take the patients. The new EMS policy change makes it easier for hospitals in south Brevard County to be placed in diversion status. For example, under the old policy, diversion status would not be granted to HRMC if either Wuestoff-Melbourne or PBCH informed EMS that they could not take HRMC’s emergency patients, but under the new policy, diversion status will be denied to HRMC only if Wuesthoff-Melbourne and PBCH both inform EMS that they cannot take HRMC’s emergency patients. In Brevard County, having a hospital on diversion was “pretty rare” until 2002. Diversion requests have become more frequent since then, and they are no longer a seasonal phenomenon caused by the influx of “snowbirds” into the county. Diversion is a more frequent problem in south Brevard County than it is in central Brevard County, and in south Brevard County, the diversion requests have come primarily from HRMC. The evidence was not persuasive that ER overcrowding is a significant problem for the Wuesthoff hospitals or PBCH. Wuesthoff-Melbourne has not requested to go on diversion, and only one occasion was identified where HRMC’s diversion request was denied because Wuesthoff-Melbourne was unable to handle HRMC's diverted patients. That occasion occurred when Wuesthoff-Melbourne had only 65 beds and, hence, less ability than it currently has to move patients out of the ER to accommodate additional emergency patients. According to Holmes, VMC will enhance access to ER services in central and south Brevard County because it will increase the area-wide ER capacity and reduce the frequency of diversion requests, which in turn, will reduce strains on the EMS system and benefit patients. The "North Expansion" underway at HRMC (discussed below) will include a new ER that is expected to help address the overcrowding issues that have required HRMC to request diversion in the past. The new ER is designed with shelled-in space to facilitate future ER expansions as needed. In any event, the evidence was not persuasive that VMC will materially reduce the ER volume at HRMC. The record does not reflect what percentage of VMC’s projected ER patients would have otherwise been served at HRMC as compared to the Wuesthoff hospitals. Moreover, it is not likely that non-trauma emergency patients from the Viera area are contributing to the overcrowding in the ER at HRMC because, under EMS protocol, those patients currently are being taken to Wuesthoff-Melbourne or Wuesthoff-Rockledge, which are closer to Viera than is HRMC. Need to “Decompress” HRMC Holmes contends that VMC will help to “decompress” HRMC and that it is the only viable option for doing so. HRMC is a well-utilized facility. According to the SAAR, its annual occupancy rate for the 12-month period ending June 2003 was 81.22 percent. HRMC's occupancy rate tends to stay above 80 percent, and at times it is as high as 115 percent. If VMC is not approved, HRMC’s annual occupancy rate for 2008 is projected to be 83.9 percent, and by 2010, its occupancy rate is projected to increase to 90 percent. Even if VMC is approved, HRMC’s annual occupancy rate is projected to be 81.7 percent in 2010. Those figures assume that HRMC will maintain its current bed capacity and they do not take into account the impact of the expansion of the Wuesthoff hospitals. HRMC currently includes approximately 612,000 SF. It is located on 18 acres of property that is bounded by streets and developed properties. Holmes owns several parcels of land adjacent to HRMC, and it is continuing to acquire parcels as they come available. Much of the adjacent land owned by Holmes is used for parking, and notwithstanding a 500-space parking garage on the south side of HRMC, there is still a shortage of parking at HRMC. Some of its staff parks at a nearby shopping center and take a shuttle to the hospital. There is an area on the north side of HRMC identified as the site of a "future parking garage," but there are no current plans to construct that structure. The original portion of the hospital, which is referred to as the “core” area, was built in the 1960’s. The remainder of the hospital has been added over the years, which has resulted in a less than ideal facility layout and has created operating inefficiencies. Some of the hospital’s support functions and administrative offices are located off- site. HRMC has undertaken a series of construction projects in recent years to reduce inefficiencies and congestion at the hospital and to increase the percentage of private rooms at the hospital. Those projects include the construction of a new OB unit and, most significantly, the $100 million “North Expansion.” The North Expansion is an eight-story, 337,000 SF addition to the hospital that is expected to be completed by the end of 2006. It will include 144 patient rooms, a new ER with a number of new observation beds, and it will allow all of the hospital’s cardiology services to be located in contiguous space. The 144 patient rooms will include 14 cardiovascular ICU beds, 22 ICU beds, and 108 acute care beds. All of the beds will be in private rooms. The 144 beds added as part of the North Expansion will not increase the bed capacity at Holmes. The same number of existing licensed beds will be eliminated, either through the conversion of existing semi-private rooms to private rooms or because the rooms are located in space that will be demolished to construct the North Expansion. The North Expansion has been designed and engineered to withstand 200-mile per hour winds, which exceeds the applicable building code requirements for hurricane protection. The North Expansion has also been designed and engineered to accommodate future expansion at HRMC in several respects. First, it includes shelled-in space on the eighth floor for an additional 36 private patient rooms. Second, it is engineered (but not shelled-in) to allow the fourth through eighth floors to be further expanded to include up to 180 additional private patient rooms in what was referred to at the hearing as a “mirror image” of the tower being built as part of the North Expansion. Third, the ER includes shelled-in space for future expansions as well as adjacent open space into which the ER could be further expanded in the future. There is no current plan to finish the shelled-in space on the eighth floor, but Holmes’ facility manger testified that he expected that to occur as soon as funding is available, and perhaps prior to the completion of the North Expansion. The beds added on the eighth floor will not increase the licensed capacity at Holmes, but rather they will come from the conversion of 36 additional existing semi-private rooms to private rooms. There is also no current plan to construct the “mirror image” side of the fourth through eighth floors of the North Expansion. That construction will be done in conjunction with the renovation of the core area of the hospital and will initially be used to locate the services from the core area that are displaced by the renovation. After the renovation of the core area, however, the "mirror image" will be used for patient rooms. In conjunction with the construction of the North Expansion, HRMC expects to relocate some of its ancillary and support services from the core area into the space where the existing ER is located, which in turn will open up space in the core area for other purposes. The space created by the construction of the new OB unit will also be available for other uses after it is no longer needed as "swing space" during the construction of the North Expansion. Additionally, Holmes recently purchased a building directly behind HRMC into which it will likely locate other ancillary and support services. Currently, less than 40 percent of HRMC’s general acute care beds are in private rooms. After the North Expansion, almost 80 percent of those beds will be in private rooms. Ultimately, Holmes wants all of the beds at HRMC to be in private rooms. Private rooms are beneficial because they offer the patients and their families more privacy and a more restful environment, and they can also help reduce the spread of infections. However, private rooms can also create operational inefficiencies for nurses who have to visit more rooms (often on longer hallways) than they would to serve the same number of patients in semi-private rooms. High quality care can be provided in semi-private rooms, and HRMC and Wuesthoff-Rockledge each do so. Although patients may prefer private rooms and most new hospitals are being designed with only private rooms, private rooms are still best characterized as an amenity, not a necessity. As a result, and Holmes’ desire to convert all of HRMC’s semi-private rooms to private rooms does not justify the building a new hospital based upon alleged capacity constraints at HRMC. Indeed, if Holmes chose to do so, it could increase the bed capacity at HRMC with little or no additional cost by adding the 36 beds in the shelled-in eighth floor of the North Expansion and/or by not converting as many semi-private rooms into private rooms. Moreover, after the North Expansion, HRMC will have approximately 50 observation beds (as compared to 20 currently) in private rooms that can be used for inpatients as needed. Indeed, as a result of the 2004 amendments to the CON law, some of those beds could be converted to licensed acute care beds at any time without CON review. Even if the beds are not converted to licensed beds, they will still help to decompress HRMC because observation patients will not need to be placed in inpatient rooms while they are being observed and evaluated for possible admission to the hospital. Several Holmes’ witnesses testified that even if Holmes wanted to add bed capacity to HRMC by converting fewer semi-private rooms to private rooms or other means, it could not do so because of limitations on the space available to provide the support services necessary for those additional rooms. That testimony was not persuasive because the witnesses conceded that Holmes has not undertaken a thorough analysis of what it intends to do with the space created in the existing building by the relocation of services as part of the North Expansion, which as noted above, will free up additional space for support services in the core area. The evidence was also not persuasive that the alternative presented in the CON application for adding 84 beds to HRMC is realistic. That alternative, the cost of which is presented in Table 23 of the CON application, was prepared after the decision was made to seek approval of a CON for VMC; it was not an alternative actually considered by Holmes and, indeed, it was characterized by the Holmes’ witness who prepared the cost estimate as a “theoretical solution” and not a viable solution to adding beds. The cost estimate in Table 23 is based upon a plan that would require the acquisition of additional land across the street from HRMC and the construction of a new bed tower on that land and an adjacent parcel on which Holmes currently owns a medical office building. The bed tower would be connected to HRMC by a two-story bridge over the street. The plan also includes the construction of a new parking garage and an office building to replace the existing medical office building. The land and building costs of the plan were approximately $86.2 million, which is approximately $18.3 million more than the land and building costs of VMC. When the equipment costs are added, the total cost of the plan is approximately $120 million. Not only was the plan not a viable solution, its cost was clearly overstated. For example, the $450/SF cost of the new bed tower was irreconcilably higher than the $278/SF cost of VMC and the $2.5 million that Holmes represented to the Agency in October 2003 that it would cost to add 50 beds to HRMC. In sum, the evidence fails to support Holmes’ claim that the only way to add bed capacity to HRMC is through the $120 million plan presented in Table 23 of the CON application. The evidence also fails to support Holmes’ claim that VMC is the only viable option to decompress HRMC. Indeed, the evidence establishes that HRMC could be decompressed if PBCH was better utilized. Holmes contends that PBCH is too far away from Viera to be a viable alternative to HRMC for patients from the Viera area. The evidence supports that claim, but that claim ignores the fact that better utilization of PBCH by Palm Bay patients will help to decompress HRMC. PBCH is currently an underutilized facility, and it has been ever since it opened in 1992. According to the SAAR, PBCH's annual occupancy rate for the 12-month period ending June 2003 was only 51.5 percent. Its annual occupancy rate is projected to be only 60.1 percent in 2008 and 65.4 percent in 2010, which are well below the 75 to 80 percent optimum utilization level. Approximately 25 to 30 percent of HRMC’s patient volume comes from the Palm Bay zip codes. If those patients were redirected to PBCH, the utilization rate at HRMC would go down and the utilization rate at PBCH would go up. Redirecting Palm Bay patients to PBCH has the potential to decompress HRMC more than redirecting Viera patients to VMC because HRMC has approximately 7,000 admissions from the Palm Bay area, as compared to approximately 6,000 admissions from the Viera area. Holmes did not present any persuasive evidence as to why patients from the Palm Bay zip codes could not be redirected to PBCH as a means of decompressing HRMC. On this issue, there was credible evidence presented by Wuesthoff that virtually no elective cases are being done at PBCH and that PBCH is essentially being used as a triage facility for HRMC. Finally, the expansion of the Wuesthoff hospitals (particularly Wuesthoff-Melbourne) will help to decompress HRMC because the Wuesthoff hospitals will be able to serve more patients. As the Wuestoff hospitals' market share grows, HRMC’s market share (and patient volume) will decline.8 Enhanced Homeland Security and Disaster Planning Brevard County is susceptible to hurricanes because of its location on the east coast of Florida and the length of its coastline. The evidence was not persuasive that Brevard County is more susceptible to hurricanes than are the other counties on the east coast. The three major storms that affected the county in the summer of 2004 were not the norm. Brevard County has a comprehensive emergency management plan to prepare for and respond to hurricanes, as do all of the existing hospitals in the county. Those plans were tested in the summer of 2004 when the county was directly impacted by three of the four major storms that hit the state Florida. The hospitals’ hurricane plans include securing the building, discharging as many patients as possible prior to the arrival of the storm, and canceling elective surgeries scheduled around the time the storm is expected to hit the area. The plans also provide for the evacuation of some of the hospitals during particularly strong storms, i.e., Category 3 or above. Cape Hospital is particularly prone to evacuation when a strong hurricane threatens the area because it is located close to the ocean on a peninsula in the middle of the Intracoastal Waterway. Cape Hospital was evacuated twice during the summer of 2004. None of the hospitals in Brevard County were evacuated during the first storm, Hurricane Charley. Cape Hospital and Wuesthoff-Rockledge were evacuated prior to the second storm, Hurricane Francis. That was the first time that Wuesthoff-Rockledge was evacuated since it opened in 1941, and its ER remained open and staffed even though the remainder of the hospital was evacuated. Cape Hosptial’s patients were taken to HRMC, and Wuesthoff-Rockledge patients were taken to Wuesthoff-Melbourne. The evacuated patients were accompanied by physicians and nurses and were transported to the receiving hospitals by ambulance. The evacuation of Cape Hospital and Wuesthoff- Rockledge placed strains on the receiving hospitals and their staffs. At one point during the evacuation, HRMC had more than 700 patients in its 514-bed facility and Wuesthoff-Rockledge had 156 patients in its 65-bed facility. By all accounts, despite the strains placed on the receiving hospitals, the evacuations went smoothly and there were no adverse patient outcomes attributable to the evacuation. Indeed, the director of Brevard County’s Health Department testified that all of the hospitals in the county responded and performed “great” during the hurricanes, and that sentiment was echoed by physicians and administrators affiliated with both of the hospital systems involved in this case. Cape Hospital was evacuated again prior to the third storm, Hurricane Jeanne. Wuesthoff-Rockledge was not evacuated during that storm, and approximately 15 of Cape Hospital’s patients were taken to Wuesthoff-Rockledge. None of the Health First or Wuesthoff hospitals suffered any significant damage from the hurricanes. The approval of VMC will not eliminate the possibility that Cape Hospital, Wuesthoff-Rockledge, or some other hospital in Brevard County may have to evacuate during a future hurricane. VMC may provide a more convenient (or at least an additional) place to evacuate some of the patients from Cape Hospital during a future hurricane because VMC is closer to Cape Hospital than is HRMC. VMC will also be more inland than HRMC and it will be designed to withstand 165 mile per hour winds. Holmes conditioned the approval of its CON application on the inclusion of a "suitable parcel, fully equipped and designed to support temporary staging of Disaster Medical Assistance Teams (DMAT)" at VMC. A DMAT is essentially a mobile emergency room set up by the federal government after a natural disaster to help serve the medical needs of those affected by the disaster. The DMAT staging area at VMC will be an open field adjacent to the hospital that is “pre-plumbed” with water, electricity, and communication lines. In some situations, it is beneficial for a DMAT to be set up proximate to a hospital, and in that regard, VMC’s inland location and proximity to I-95 may make it an attractive location to set up a DMAT in the future. It is not necessary, however, for a DMAT to be set up proximate to a hospital. DMATs are fully self-sustaining and they can be set up anywhere, including a Wal-Mart parking lot. Indeed, in some situations, it is more beneficial for the DMAT to be located closer to the persons in need of its services than to a hospital. For example, after Hurricane Jeanne, a DMAT was set up near the Barefoot Bay community in southern Brevard County, which is miles from the closest hospital. VMC’s central-county location and proximity to I-95 would also make it a good point-of-dispensing (POD) for vaccines and medicines in the case of a severe biological emergency. However, like DMATs, PODs can be set up anywhere and it is not critical for a POD to be proximate to a hospital even though proximity might allow for greater medical oversight of the dispensing process. There are high-profile, “Tier 1” terrorist targets located in Brevard County, including Kennedy Space Center, Cape Canaveral Air Force Station, Patrick Air Force Base, and Port Canaveral. There is also a nuclear power plant in Indian River County, just south of the Brevard County line. The nature of these targets is somewhat unique because they involve the country's space program, but the presence of multiple “Tier 1” terrorist targets is not unique to Brevard County and is not, in and of itself, a special circumstance that justifies approval of a new hospital. Brevard County has developed emergency management plans in conjunction with the state and federal governments to prepare for and respond to terrorist attacks on those targets. Those plans have been in place for many years, but they have been significantly strengthened since September 11, 2001. VMC will include decontamination areas and other design features to facilitate the treatment of victims of bio- terrorism. The existing hospitals in Brevard County have similar design features as well as comprehensive plans for dealing with bio-terrorism. The evidence was not persuasive that VMC, as an 84- bed, non-tertiary satellite hospital, will materially enhance County’s ability to deal with a large-scale terrorist attack, whether biological or otherwise. Similarly, the evidence was not persuasive that Brevard County’s emergency management plans for hurricanes and/or terrorism are deficient in any way or that the approval of VMC would result in material enhancements to those plans. Any enhancements attributable to VMC would be marginal, at best. The DMAT staging area and other design elements included at VMC to facilitate the hospital’s participation in the Brevard County’s response to hurricanes, terrorist attacks, or other contingencies are positive attributes. Inclusion of those features in VMC (or any new hospital for that matter) is reasonable despite the infrequency of those contingencies, but it does not follow that VMC should be approved simply because it will include those features. IT Innovations and Design Features The evidence was not persuasive that VMC will provide a higher quality of care than is currently being provided at the existing hospitals serving central and south Brevard County as a result of the “innovative” IT systems and the other design features that will be incorporated into VMC. See Part F(1)(b) below. Accordingly, the approval of VMC is not justified on that basis. Enhanced Access to Care for the Uninsured Holmes’ contention that VMC will enhance access for the uninsured implicates the issue of “financial access.” Financial access concerns arise when there is evidence that necessary services are being denied to patients based upon their inability to pay or their uninsured status. Holmes’ health planner acknowledged at the hearing that VMC was not intended to address any financial access concerns for patients in the Viera area and, indeed, there was no credible evidence of any financial access concerns in PSA and SSA targeted by VMC. As discussed in Part E(2) above, VMC’s PSA include a higher percentage of insured patients than Brevard County as a whole, and as discussed in Part F(1)(g) below, the existing hospitals are adequately serving the medically indigent patients in central and south Brevard County, both at the hospital and through outreach efforts such as the Holmes’ HOPE program and Wuesthoff’s free clinics. Accordingly, the evidence failed to establish that VMC will enhance access to care for the uninsured, and approval of VMC is not justified on that basis. Subsection (3) -- Applicant’s Quality of Care Holmes, the applicant, provides a high quality of care at HRMC and PBCH, and it is reasonable to expect that it will provide the same high quality of care at VMC. The Wuesthoff hospitals also provide a high quality of care, and Holmes' witnesses acknowledged that VMC was not proposed to address any problem with quality of care in central or south Brevard County. The evidence was not persuasive that the quality of care at VMC will be materially better (or worse) than that provided at Wuesthoff-Melbourne, which has a similar range of services that will be provided at VMC. The award-winning IT systems in place at the Wuesthoff hospitals are materially the same as those proposed for VMC except for e-ICU at VMC. The evidence was not persuasive that the e-ICU significantly enhances quality of care, and because the e-ICU is being used at the existing Health First hospitals in Brevard County, VMC will not be providing any new technology or service that is not already available to physicians and patients in the county. Thus, the "innovative" IT systems proposed for VMC do not provide an independent basis for approving the CON application. The evidence was not persuasive that VMC would exacerbate nursing or physician shortages in Brevard County thereby negatively affecting quality of care in the county. See Part F(1)(c) below. Subsection (4) -- Availability of Personnel and Resources for Operations Holmes and Health First have the management resources necessary to establish and operate VMC. Holmes’ CON application projects that VMC will have 241.4 full-time equivalents (FTEs) in its first year of operation, and that by its third year of operation, it will have 355.7 FTEs. Nursing positions -- registered nurses, licensed practical nurses, nursing aides, and nursing directors -- account for 123.1 of the FTEs in the first year of operation, and 189.2 of the FTEs in the third year of operation. According to the CON application, a significant number of the initial FTEs at VMC are expected to be filled by persons who transfer from Holmes’ existing campuses, HRMC and PBCH. The parties stipulated that the projected number of FTEs needed by position and the projected salaries contained in Holmes’ CON application are reasonable for the census projected at VMC. However, Wuesthoff disputed whether Holmes will be able to adequately staff VMC due to nurse and physician shortages in Brevard County and/or that VMC will exacerbate those shortages and make it more difficult to staff the existing hospitals in the county. There is a nursing shortage in Brevard County, as there is around Florida and across the nation, but the situation in Brevard County is improving. Wuesthoff was able to fully staff Wuesthoff-Melbourne prior to its opening in December 2002, even though the nursing shortage was more severe at that time. Additionally, Wuesthoff is currently in the process of adding beds at Wuestoff-Melbourne and Wuesthoff-Rockledge, and it expects to be able to recruit and retain the nurses necessary to staff those additional beds despite the current state of the nursing shortage. Holmes received “magnet designation” from the American Nurses Credentialing Center, which is a recognition of its excellence in nursing. No other hospital in Brevard County has magnet designation, and that designation helps Holmes attract and retain nurses. The evidence establishes that Holmes will be able to recruit and retain the nursing and other staff needed for VMC, and the evidence was not persuasive that the staffing of VMC will exacerbate the nursing shortage or otherwise significantly impact Wuesthoff. There is a shortage of physicians in Brevard County with certain specialties, including neurosurgery, neurology, orthopedics, dermatology, and gastroenterology. Like the nursing shortage, this problem is not unique to Brevard County and it is not as severe in Brevard County as it is elsewhere in the state. The shortage of physician specialists in Brevard County is to some extent hospital-specific. For example, there is only one neurosurgeon covering Wuesthoff-Rockledge and Cape Hospital, and Wuesthoff-Melbourne only has part-time coverage neurosurgical coverage, but Holmes has several neurosurgeons. Holmes has recently had success in recruiting new physicians to Brevard County, including specialists. One of the largest multi-specialty physician groups in Brevard County, whose physicians are on staff at Holmes’ and Wuestoff's hospitals, has also been successful recently in recruiting new physicians to the area. That group, Melbourne Internal Medicine Associates, will be adding more physicians whether or not VMC is approved. The evidence establishes that Holmes will be able to attract the necessary physician staff for VMC, just as Wuesthoff-Melbourne was able to do when it opened. Indeed there are a number of physicians who have offices in the Viera area that are closer to VMC than the existing hospitals where they have privileges. Holmes and Wuesthoff require physicians with privileges at their hospitals to provide coverage for ER calls on a rotational basis. Physicians with privileges at more than one of the hospitals are required to provide ER call coverage at multiple hospitals, which can create a problem if the physician is on-call at two (or more) hospitals at the same time. Physicians who choose obtain privileges at VMC will be required to provide ER call coverage at VMC. ER call coverage is a problem in Brevard County, but the evidence was not persuasive that the problem is as significant in Brevard County as it is elsewhere in the state or that VMC would seriously exacerbate the problem. More specifically, the evidence was not persuasive regarding the extent to which VMC would cause physicians to be on call at more than one hospital at the same time. Nor was the evidence persuasive regarding the likelihood that physicians would relinquish privileges at other hospitals in Brevard County to obtain privileges at VMC in such numbers that ER call coverage problems would be created for the other hospitals. Subsection (6) -- Financial Feasibility The parties stipulated that VMC is financially feasible in the short-term and that Holmes has sufficient availability of funds for VMC's capital and operating expenses. The long-term financial feasibility of VMC is in dispute. Generally, if a CON project will at least break even in the second year of operation, it is financially feasible in the long-term. If, however, the project continues to show a loss in the second year of operation it is not financially feasible in the long-term unless it is nearing break-even and it is demonstrated that the hospital will break even within a reasonable period of time. Agency precedent (e.g., Wellington, supra, at 73-74) and the evidence in this case (e.g., Exhibit W-57, at 22) establish that in the context of a satellite hospital project that is expected to “cannibalize” patients from the applicant’s existing hospital, it is important to consider the impact of the project on the entire hospital system in evaluating the long- term financial feasibility of the project. The net operating revenue projected on Schedule 7A of the CON application, which is the starting point for the net income/loss projected on Schedule 8A, is reasonable.9 On Schedule 8A of the CON application, in the column titled “VMC only,” Holmes projects that VMC will generate a net loss of $5.71 million in its first year of operation, but that it will generate net profits of $1.48 million and $5.11 million in its second and third years of operation. Thus, as a stand-alone entity, VMC is financially feasible in the long-term. However, the “VMC only” figures do not provide the complete picture of the financial feasibility of the VMC project because of the significant percentage of its patients that will be cannibalized from HRMC and PBCH. In evaluating the long-term financial feasibility of the VMC project, it is also important to consider the “incremental difference” column in Schedule 8A. That column reflects VMC’s net financial benefit (or burden) to Holmes after taking into account the patients that VMC is cannibalizing from HRMC and PBCH. The “incremental difference” column in Schedule 8A shows a net loss of $695,000 in the VMC’s first year of operation, and net profits of $605,000 and $983,000 in the second and third years of VMC’s operation. The incremental figures presented in the CON application identify the profit/loss that will be generated by the patients treated at VMC that are new to the Holmes’ system, but they do not take into account the fact that the patients treated at VMC that were cannibalized from the other Holmes’ hospitals would have generated a different profit/loss for the Holmes’ system if they were treated at one of the other Holmes’ hospitals. When incremental profit/loss associated with treating the cannibalized patients at VMC rather than HRMC or PBCH is factored in, the “incremental difference” generated by VMC will be net profits of $498,000 (year one); $720,000 (year two); and $252,000 (year three). Included in the “incremental difference” column on Schedule 8A (and embedded in the revised figures in the preceding paragraph) are negative figures on the “depreciation and amortization” line and the “interest” line. Those figures are intended to reflect the depreciation, amortization, and interest expenses that Holmes will “save” by building VMC rather than by adding 84 beds at HRMC. A critical assumption underlying the “savings” shown on those lines is that it would cost $120 million to add 84 beds to HRMC. To the extent that cost is overstated, then the depreciation, amortization, and interest expense “savings” on Schedule 8A are also overstated, as is the incremental net profit of the VMC project. The extent to which the net profit is overstated depends upon the extent to which the $120 million cost is overstated. For example, if the cost of adding 84 beds to HRMC is the same as the cost of VMC (i.e., $106 million rather than $120 million), then the depreciation, amortization, and interest expense shown in the “incremental difference” column on Schedule 8A would be $0 (rather than a negative number) because the depreciation, amortization, and interest expenses in the “with this project” and “without this project” columns would be the same. If, on the other hand, there was no cost associated with the addition of 84 beds at HRMC, then the depreciation, amortization, and interest expense shown in the “without this project” column would be $10.662 million lower in 2010 (see Endnote 10) and that amount would appear as a positive number -- i.e., expense -- rather than a negative number -- i.e., “savings” -- in the “incremental difference” column. The evidence was not persuasive that it will cost $120 million to add beds to HRMC, which is the amount underlying the projected “savings” in depreciation, amortization, and interest expense shown on Schedule 8A. Indeed, as discussed in Part F(1)(a)(iii) above, the evidence establishes that the alternative that gave rise to the $120 million cost estimate was not a viable option and that Holmes could add 84 beds at HRMC with little or no cost if it chose to do so by reducing the number of semi-private rooms that it converts to private rooms as part of the North Expansion and/or by finishing the shelled- in space on the eighth floor of the North Expansion. Accordingly, the “savings” embedded in Schedule 8A are grossly overstated as is the incremental net profit shown in that schedule. Specifically, in the third year of operation, when VMC is at a near-optimal occupancy level of 76 percent, the incremental net profit generated by VMC will be no more than $234,000 and, more likely, will be a net loss between $497,000 and $10.41 million.10 A net profit of $234,000 is a very marginal return on the $106 million cost of VMC, and is well below the three percent return that Holmes' seeks to achieve for its capital projects. However, according to Holmes' chief financial officer, the return generated by a project is not Holmes' paramount concern as a not-for profit organization, and at that level, the project would be considered financially feasible in the long-term. A $497,000 to $10.41 million incremental net loss would mean that the project is not financially feasible in the long-term. The “including this project” column on Schedule 8A projects that Holmes will have net income of approximately $31.1 million in 2010. Thus, even if VMC actually generated an incremental net loss in the range of $497,000 to $10.41 million in 2010, the Holmes' system would still be profitable. Subsection (7) -- Fostering Competition that Promotes Cost-Effectiveness Generally, competition for hospital services benefits consumers because it leads to lower prices and it creates incentives for hospitals to lower costs. It is not necessary for hospitals to be equal in size to compete, but the beneficial effects of competition will be greater if the hospitals are more equal. As explained by Dr. David Eisenstadt, Wuesthoff’s expert economist, “competitive constraints are a matter of degree” and “while it is true that a small hospital can pose some competitive constraint, it’s not correct that a small hospital can impose the same competitive constraint . . . as a large hospital could.” (Transcript at 1571-72). Holmes is, and historically has been, the dominant provider of hospital services in south Brevard County, with market shares exceeding 80 percent prior to the opening of Wuesthoff-Melbourne. Holmes still has a market share in excess of 70 percent in south Brevard County. A dominant hospital has the ability to set prices above competitive levels by commanding higher prices in negotiations with commercial payors. Holmes has done so in the past and, based upon the comparison of the commercial average net inpatient revenues reported by the Health First hospitals and the Wuesthoff hospitals in 2003 and 2004, it continues to do so. Holmes ability to set prices above competitive levels is enhanced by the fact that the largest managed care plan in Brevard County, HFHP, is operated by Health First. The original approval of the CON for Wuesthoff- Melbourne was based upon the Agency’s determinations that there was at that time a “compelling” need for competition for hospital services in south Brevard County; that the entry of a new, non-Health First provider into the market would give commercial payors and, ultimately, patients an alternative to Holmes, which because of its relationship with HFHP, had no incentive to negotiate competitive rates with other providers; and that competition would have the effect of reducing prices paid by the commercial payors to the hospitals and, ultimately, the premiums paid by patients. Wuesthoff-Melbourne’s entry into the market in December 2002 has not yet resulted in any material price reductions. Indeed, notwithstanding Wuesthoff-Melbourne’s presence in the market, HRMC increased its charges by 15 percent in 2003-04 and by an additional five percent in 2004-05. A hospital’s charges do not necessarily correspond to the prices that the hospital negotiates with commercial payors. However, in this case, there appears to be a correlation because Holmes had an 11.6 percent increase in net revenue per admission between 2003 and 2004 and it also had significant increases in the commercial average inpatient revenues per admission at HRMC and PBCH between 2003 and 2004. Moreover, the significant increase in charges at Holmes over the past two years is a strong indication that Holmes is not feeling any significant competitive pressure as a result of Wuesthoff-Melbourne’s presence in the market. Wuesthoff-Melbourne will be able to exert more competitive pressure on Holmes as its market share increases, particularly if Holmes’ market share continues to decline at the same time as is projected. As a result, Wuesthoff-Melbourne’s ability to expand and increase (or at least maintain) its market share in the growing Viera market is particularly significant to achieving price reductions (and/or minimizing price increases) in Brevard County.11 Holmes contends that even if VMC is approved, there will be sufficient competition in Viera because, according to Table 33 in the CON application, in 2010 the Health First hospitals will have a 50.5 percent market share of the PSA targeted by VMC and the Wuesthoff hospitals will have a 44.3 percent market share of the PSA. However, the approval of the VMC will have the effect of dramatically slowing the upward trend in Wuesthoff’s market share and corresponding downward trend of Health First’s market share in the PSA targeted by VMC because according to Tables 28 and 33 of the CON application, without VMC, the market share of the Wuesthoff hospitals in the PSA is projected to increase from 43.3 percent (in 2003) to 52.3 percent (in 2010), and the market share of the Health First Hospitals in the PSA is expected to decline from 51.2 percent (in 2003) to 42.5 percent (in 2010). Moreover, if VMC is approved, it is less likely that there will be sufficient need for additional acute care beds in the area to justify expanding Wuesthoff-Melbourne beyond 134 beds. That, in turn, will limit the competitive pressure that Wuesthoff-Melbourne will be able to exert on Holmes in the future. The evidence was not persuasive regarding the extent of the competitive pressure and/or price reductions that would result from the expansion of Wuesthoff-Melbourne rather than the approval of VMC.12 However, the fact remains that VMC will strengthen Holmes’ market position in central and south Brevard County, which will not foster competition that promotes cost effectiveness. Not only will the approval of VMC negatively affect the evolution of competition in south Brevard County, but it will effectively preclude the construction of another hospital in the Viera area until 2029 when the exclusivity provisions and restrictive covenants discussed in Part D(2) above expire. The evidence was not persuasive that there was an anticompetitive motivation underlying Holmes’ decision to propose VMC, but the evidence does establish that the approval of VMC will have anticompetitive effects. As a result, the criteria in Section 408.035(7), Florida Statutes, strongly weigh against the approval of Holmes’ CON application. Subsection (8) -- Costs and Methods of Construction The parties stipulated that the costs (including equipment costs), methods of construction, and energy provision for VMC are reasonable; that the architectural drawings for the VMC satisfy the applicable code requirements; and that the construction schedule for VMC is reasonable. Thus, VMC satisfies the criteria in Section 408.035(8), Florida Statutes. Subsection (9) -- Medicaid and Charity Care Holmes conditioned the approval of its application on VMC providing the following levels of Medicaid and charity care: At least 3.0 percent of inpatients at [VMC] will be covered by Medicaid and/or Medicaid HMOs. At least 2.3 percent of the gross revenues of [VMC] will be attributable to patients who meet the guidelines for charity care. The Medicaid and charity commitments are lower than the averages for Brevard County, but they are reasonable and attainable in light of the demographics of the area that will be served by VMC. Holmes has a history of providing considerable services to Medicaid and charity patients, both at its existing facilities and through community programs such as HOPE. Wuesthoff also has a history of providing considerable services to Medicaid and charity patients at its existing facilities and through community programs such as its free clinic in Cocoa. Wuesthoff-Rockledge is a Medicaid disproportionate share provider, which entitles it to a higher Medicaid reimbursement rate from the State as a “reward” for serving more than its fair share of Medicaid patients. Holmes' hospitals and Wuesthoff-Melbourne are not Medicaid disproportionate share providers. Wuesthoff-Melbourne has not been open long enough to qualify. The Wuesthoff hospitals have a contract with Well Care, which is the only Medicaid HMO in Brevard County. Holmes' hospitals do not have a contract with Well Care. On a dollar-amount basis, Holmes provides considerably more Medicaid and charity care than any other hospital in Brevard County, including the Wuesthoff hospitals. In fiscal year 2003, for example, Holmes’ Medicaid gross revenues were $53.7 million (as compared to $39.7 million for the Wuesthoff hospitals) and its charity care gross revenues were $27.8 million (as compared to $10.9 million for the Wuesthoff hospitals). The larger dollar-amount of Medicaid and charity care provided by Holmes is due, at least in part, to Holmes being almost twice the size of the Wuesthoff hospitals. On a percentage basis, Holmes provides approximately the same level of charity care as Wuesthoff-Rockledge, but it provides less Medicaid care than Wuesthoff-Rockledge. In fiscal year 2003, for example, 2.8 percent of Holmes’ gross revenue was charity care (as compared to 2.5 percent for Wuesthoff- Rockledge) and seven percent of Holmes’ patient days were attributable to Medicaid patients (as compared to 10.9 percent for Wuesthoff-Rockledge). According to Mr. Gregg, the Agency gives more weight to the percentage of Medicaid and charity care provided by a hospital than it does to the dollar amount of such services. However, Mr. Gregg acknowledged that Holmes satisfies the criteria in Section 408.035(9), Florida Statutes, based upon its history of providing services to the medically indigent and its Medicaid and charity commitments at VMC. Holmes' satisfaction of the criteria in Section 408.035(9), Florida Statutes, is not given great weight in this proceeding because the medically indigent in central and south Brevard County are currently being adequately served by the existing facilities and, more significantly, zip code 32940, in which VMC will be located and from which it is projected to draw the largest percentage of its patients, has a lower percentage of Medicaid/charity patients and a higher median household income than Brevard County as a whole. Subsection (10) -- Designation as a Gold Seal Nursing Homes The parties stipulated that Section 408.035(10), Florida Statutes, is not applicable because Holmes is not proposing the addition of any nursing home beds. Rule Criteria The Agency rules implicated in this case -- Florida Administrative Code Rules 59C-1.030(2) and 59C-1.038 -- do not contain any review criteria that are distinct from the statutory criteria discussed above. The “health care access criteria” and “priority considerations” in those rules focus primarily on the impact of the proposed facility on the medically indigent and other underserved population groups, as well as the applicant’s history of and/or commitment to serving those groups. Holmes satisfies those rule criteria, but they are not given great weight for the reasons discussed in Part F(1)(g) above. Impact of VMC on the Wuesthoff Hospitals As discussed above, VMC is projected to take patients that are currently being served by, or would otherwise be served by one of the existing hospitals in central or south Brevard County. Approximately 30 percent of VMC’s patient volume will come at the expense of the Wuesthoff hospitals. As a result of the projected population growth in central and south Brevard County over the planning horizon, the Wuesthoff hospitals are projected to have more admissions in 2010 than they currently have, whether or not VMC is approved. However, if VMC is approved, the Wuesthoff hospitals will have fewer admissions in 2010 than they would have had without VMC. The health planners who testified at the hearing agreed that in determining the impact of VMC on the Wuesthoff hospitals it is appropriate to focus on the number of admissions that the Wuesthoff hospitals would have received but for the approval of VMC. The Agency’s precedent is in accord. See Wellington, supra, at 54, 109 n.13. Holmes’ health planner projected in the CON application that the approval of VMC will result in the Wuesthoff hospitals having 1,932 fewer admissions in 2010 than they would have had without VMC, 998 at Wuesthoff-Rockledge and 934 at Wuesthoff-Melborune. Wuesthoff’s health planner projected that the approval of VMC will result in the Wuesthoff hospitals having 2,399 fewer admissions in 2010 than they would have had without VMC, 1,541 at Wuestoff-Rockledge and 858 at Wuesthoff-Melborune. The projections of Wuesthoff’s health planner are more reasonable because they are based upon more current market share data and, as to Wuesthoff-Melbourne, the projections may even be understated because its market share is still growing in the areas targeted by VMC. On a contribution-margin basis, the lost admissions projected by Wuesthoff’s health planner translate into a loss of approximately $3.9 million of income at Wuesthoff-Rocklege and a loss of approximately $2 million of income at Wuesthoff- Melbourne. Using the lost admissions projected by Holmes’ health planner, the lost income at Wuesthoff-Rockledge would be $2.51 million and the lost income at Wuesthoff-Melbourne would be $2.15 million. Thus, impact of VMC on the Wuesthoff system would be a lost income of at least $4.66 million and, more likely, $5.9 million. A loss of income in that range would be significant and adverse to the Wuesthoff hospitals, both individually and collectively. Even though the Wuesthoff system has a net worth of approximately $70.95 million, its net income (i.e., “excess of revenues over expenses”) was only $971,000 in 2003 and $1.1 million in 2004. The system is still recovering from a “devastating” financial year in 1999 when it reported a loss of almost $12 million. Wuesthoff-Melbourne reported a $4.1 million net loss in 2003, and as of June 2004, it had yet to show a profit. The significance of the projected lost income at the Wuesthoff hospitals is tempered somewhat by the increased patient volume that the hospitals are projected to have in 2010 even if VMC is approved. However, the evidence was not persuasive that the increased patient volumes will necessarily result in greater profits at the Wuesthoff hospitals in 2010.13 The approval of VMC will also likely result in a loss of outpatient volume at the Wuesthoff hospitals. However, there is no credible evidence regarding the amount of outpatient volume that would be lost or the financial impact of the lost outpatient volume on Wuesthoff.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Agency issue a final order denying Holmes’ application, CON 9759. DONE AND ENTERED this 17th day of June, 2005, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 17th day of June, 2005.
The Issue The Petitioner, St. Joseph's Hospital, Inc., d/b/a St. Joseph's Hospital (Petitioner, Applicant, or St. Joseph's) filed Certificate of Need (CON) Application No. 9833 with the Agency for Health Care Administration (Agency or AHCA). The application seeks authority to establish a 90-bed acute care satellite hospital in southeastern Hillsborough County, Florida. St. Joseph's intends to transfer 90 acute care beds from its existing location in Tampa to the new facility. The issue in this case is whether the Agency should approve the CON application.
Findings Of Fact The Parties AHCA is the state agency charged with the responsibility of administering the CON program for the state of Florida. The Agency serves as the state heath planning entity. See § 408.034, Fla. Stat. (2007). As such, it was charged to review the CON application at issue in this proceeding. AHCA has preliminarily denied St. Joseph's CON application No. 9833. The Petitioner is the applicant for the CON in this case. The Petitioner is a not-for-profit organization licensed to operate St. Joseph's Hospital, a general acute care facility located in the urban center of Tampa, Florida. It was originally founded by a religious order and has grown from approximately 40 beds to a licensed bed capacity of 883 beds. St. Joseph's provides quality care in a comprehensive range of services. Those services include tertiary and Level II trauma services. St. Joseph's provides services to all patients regardless of their ability to pay. To meet its perception of the growing healthcare needs of the greater Hillsborough County residents, St. Joseph's has proposed to construct a satellite hospital on a site it purchased in the mid-1980s. According to St. Joseph's, the satellite hospital, together with its main campus, would better address the growing community needs for acute care hospital services. To that end, St. Joseph's filed CON application No. 9833 and seeks approval of its satellite facility. It proposes to transfer 90 of its acute care beds from its current hospital site to the new satellite facility. The main hospital will offer support services as may be necessary to the satellite facility. Tampa General is an 877-bed acute care hospital located on Davis Island in urban Tampa, Florida. Prior to 1997, it was a public hospital operated by the Hillsborough County Hospital Authority but has since been operated and managed by a non- profit corporation, Florida Health Sciences, Inc. Tampa General provides quality care in a wide range of services that include tertiary and Level I trauma. Tampa General addresses the medical needs of its patients without consideration of their ability to pay. It is a "safety net" provider and is the largest provider of services to Medicaid and charity patients in the AHCA District 6/Subdistrict 1. Medicaid has designated Tampa General a "disproportionate share" provider. Tampa General is also a teaching hospital affiliated with the University of South Florida's College of Medicine. Recently, Tampa General has undergone a major construction project that brings on line a new emergency trauma center as well as additional acute care beds, a women's center, a cardiovascular center and a digestive diagnostic and treatment center. Tampa General opposes the CON request at issue. South Bay and Brandon also oppose St. Joseph's CON application. South Bay is a 112-bed community acute care hospital located in Sun City Center, Florida. South Bay has served the community for about 25 years and offers quality care but does not provide obstetrical services primarily because its closest population and patient base is a retirement community restricted to persons over 55 years of age. In contrast, Brandon is an acute care hospital with 367 beds located to South Bay's north in Brandon, Florida. Brandon provides quality care with a full range of hospital services including obstetrics, angioplasty, and open-heart surgery. Brandon also has neonatal intensive care (NICU) beds to serve Level II and Level III needs. It is expected that Brandon could easily add beds to its facility as it has empty "shelled-in" floors that could readily be converted to add 80 more acute care beds. Both Brandon and South Bay are owned or controlled by Hospital Corporation of America (HCA) and are part of its West Florida Division. The Proposal St. Joseph's has a wide variety of physicians on its medical staff. Those physicians currently offer an array of general acute care services as well as medical and surgical specialties. St. Joseph's provides Levels II and III NICU, open heart surgery, interventional radiology, primary stroke services, oncology, orthopedic, gynecological oncology, and pediatric surgical. Based upon its size, reputation for quality care, and ability to offer this wide array of services, St. Joseph's has enjoyed a well-deserved respect in its community. To expand its ties within AHCA's District 6/Subdistrict 1 healthcare community, St. Joseph's affiliated with South Florida Baptist Hospital a 147-bed community hospital located in Plant City, Florida. This location is east of the main St. Joseph Hospital site. Further, recognizing that the growth of greater Hillsborough County, Florida, has significantly increased the population of areas previously limited to agricultural or mining ventures, St. Joseph's now seeks to construct a community satellite hospital located in the unincorporated area of southeastern Hillsborough County known as Riverview. The Petitioner owns approximately 50 acres of land at the intersection of Big Bend Road and Simmons Loop Road. This parcel is approximately one mile east of the I-75 corridor that runs north-south through the county. In relation to the other parties, the proposed site is north and east of South Bay, south of Brandon, and east and south of Tampa General. South Florida Baptist Hospital, not a party, is located to the north and farther east of the proposed site. The size of the parcel is adequate to construct the proposed satellite as well as other ancillary structures that might compliment the hospital (such as medical offices). If approved, the Petitioner's proposal will provide 66 medical-surgical beds, 14 beds within an intensive care unit, and 10 labor and delivery beds. All 90 beds will be "state-of- the-art" private rooms along with a full-service emergency department. The hospital will be fully digital, use an electronic medical record and picture archiving system, and specialists at the main St. Joseph's hospital will be able to access images and data at the satellite site in real time. A consultation would be, theoretically, as close as a computer. In reaching its decision to seek the satellite hospital, St. Joseph's considered input from many sources; among them: HealthPoint Medical Group (HealthPoint) and BayCare Health System, Inc. (BayCare). HealthPoint is a physician group owned by an affiliate of St. Joseph's. HealthPoint has approximately 80 physicians who operate 21 offices throughout Hillsborough County. All of the HealthPoint physicians are board certified. At least five of the HealthPoint offices would have quicker access to the proposed satellite hospital than to the main St. Joseph's Hospital site. The HealthPoint physicians support the proposal so that their patients will have access to, and the option of choosing, a St. Joseph facility in the southeastern part of the county. BayCare is an organization governed by a cooperative agreement among nonprofit hospitals. Its purpose is to assist its member hospitals to centralize and coordinate hospital functions such as purchasing, staffing, managed care contracting, billing, and information technology. By cooperatively working together, its members are able to enjoy a cost efficiency that individually they did not enjoy. The "synergy" of their effort results in enhanced quality of care, efficient practices, and a financial savings to their operations. The proposed St. Joseph's satellite would also share in this economy of efforts. Understandably, BayCare supports the proposal. Review Criteria Every new hospital project in Florida must be reviewed pursuant to the statutory criteria set forth in Section 408.035, Florida Statutes (2007). Accordingly, the ten subparts of that provision must be weighed to determine whether or not a proposal meets the requisite criteria. Section 408.035(1), Florida Statutes (2007) requires that the need for the health care facilities and health services being proposed be considered. In the context of this case, "need" will not be addressed in terms of its historical meaning. The Agency no longer calculates "need" pursuant to a need methodology. Therefore, looking to Florida Administrative Code Rule 59C-1.008, requires consideration of the following pertinent provisions: ...If an agency need methodology does not exist for the proposed project: The agency will provide to the applicant, if one exists, any policy upon which to determine need for the proposed beds or service. The applicant is not precluded from using other methodologies to compare and contrast with the agency policy. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict or both; Medical treatment trends; and, Market conditions. The existence of unmet need will not be based solely on the absence of a health service, health care facility, or beds in the district, subdistrict, region or proposed service area. According to St. Joseph's, "need" is evidenced by a large and growing population in the proposed service area (PSA), sustained population growth that exceeds the District and state average, highly occupied and seasonally over capacity acute care beds at the existing providers, highly occupied and sustained increases in demand for hospital services, a scarcity of emergency medical service resources within the PSA compounded by budget cuts, increases in traffic congestion and travel times to the existing hospitals, the lack of a nonprofit community hospital near the proposed site, and the lack of local obstetrical services. In this case the Petitioner has identified the PSA as a 10 zip code area with 7 being designated the "primary" area of service (PSA) and 3 zip codes to the north being identified as the "secondary" area of service (SSA). The population of this PSA is projected to reach 322,913 by the year 2011 (from its current 274,696). All parties used Claritas data to estimate population, the PSA growth, and various projections. Claritas is a conservative estimator in the sense that it relies on the most recent U. S. census reports that may or may not track the most recent growth indicators such as building starts or new home sales. Nevertheless, if accurate, the estimated 17.5 percent population growth expected in the new satellite hospital's PSA exceeds the rate of growth estimated for AHCA District 6 as well as the projected State of Florida growth rate. From the 7 primary zip codes within the PSA alone the area immediately adjacent to the subject site is estimated to grow by 14,900 residents between 2006 and 2011. Over the last 20 years the PSA has developed from rural farming and mining expanses with scattered housing and trailer parks to an area characterized by modern shopping centers, apartment complexes, housing subdivisions, churches, libraries, and new schools. Physicians in the area now see as many as 60 patients per day and during the winter peak months may admit up to 20 patients per week to hospitals. Travel times from the southern portion of the PSA to St. Joseph's Hospital, Tampa General, or Brandon, can easily exceed 30 minutes. Travel times to the same providers during "rush" or high traffic times can be longer. All of the opponent providers have high occupancy rates and experience seasonal over capacity. During the winter months visitors from the north and seasonal residents add significant numbers to the population in Hillsborough County. These "snow birds" drive the utilization of all District 6/Subdistrict 1 hospitals up. Further, increased population tends to slow and congest traffic adding to travel times within AHCA District 6/Subdistrict 1. Both Brandon and Tampa General have recently added beds to address the concerns of increased utilization. Additionally, Tampa General has expanded its emergency department to provide more beds. South Bay has elected to not increase its bed size or emergency department. South Bay has experienced difficulty staffing its emergency department. When faced with capacity problems, South Bay "diverts" admissions to other hospitals. When the emergency rooms of the Opponent providers are unable to accommodate additional patients, the county emergency transport is diverted to other facilities so that patients have access to emergency services. During the winter season and peak flu periods this diversion is more likely to occur. Another hospital in the southeastern portion of the county, within St. Joseph's satellite PSA, would alleviate some of the crowding. More specifically, South Bay's annual occupancy rate in 2006 was 80.1 percent. For the first seven months of 2007, South Bay's average occupancy rate was 88.4 percent. These rates indicate that South Bay is operating at a high occupancy. Operating at or near capacity is not recommended for any hospital facility. Long term operation at or near occupancy proves to be detrimental to hospital efficiencies. Similarly, Brandon operates at 70 percent of its bed capacity. Even though it has recently added beds it intends to add more beds to address continuing increases in admissions. Brandon's emergency room is also experiencing overcrowded conditions. When Brandon's emergency room diverts patients their best option may be to leave District 6/Subdistrict 1 for care. Tampa General is a large complex and its emergency department has been expanded to attempt to address an obvious need for more services. It is unknown whether the new emergency department will adequately cure the high rates of diversion Tampa General experienced in 2007. New beds were added and an improved emergency department was designed and constructed with the expectation that Tampa General's patients would be better served. Based upon Tampa General's expansion and its projected growth, Tampa General could experience an occupancy rate over 75 percent by 2011. If so, Tampa General could easily return to the utilization problems previously experienced. There are no obstetrical services offered south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer obstetrics and has designated a 10-bed unit to accommodate those patients. There are no nonprofit hospitals south of Brandon in AHCA District 6/Subdistrict 1. The proposed St. Joseph's satellite hospital would offer patients in the PSA with the option of using such a hospital. Section 408.035(2), Florida Statutes (2007), requires the consideration of the availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant. As previously stated, all of the parties provide quality care to their patients. Although delays in emergency departments may inconvenience patients, the quality of the medical care they receive is excellent. Similarly, hospital services are available and can be accessed in AHCA District 6/Subdistrict 1. The parties provide a full range of healthcare service options that address the medical and surgical needs of the residents of AHCA District 6 Subdistrict 1. An additional hospital would afford patients with another choice of provider in the southeastern portion of the county. The St. Joseph satellite hospital would afford such patients with a hospital option within 30 minutes of the areas within the PSA. This access would promote shorter wait times and less crowded facilities. Section 408.035(3), Florida Statutes (2007), mandates review of CON applications in light of the ability of the applicant to provide quality of care and the applicant's record of providing quality of care. As previously stated St. Joseph's has a well-deserved reputation for providing quality care within a wide range of hospital services to its patients. It is reasonable to expect the satellite hospital would continue in the provision of such care. The management team and affiliations established by St. Joseph's will continue to pursue quality care to all its patients regardless of their ability to pay. Section 408.035(4), Florida Statutes (2007), considers the availability of resources for project accomplishment and operation. Resources that must be considered include healthcare personnel, management personnel, and funds for capital and operating expenditures. St. Joseph's has the resources to accomplish and operate the satellite hospital proposed. St. Joseph's has a successful history of recruiting and retaining healthcare personnel and management personnel. The estimates set forth in its CON application for these persons were reasonable and conservative. Salaries and benefits for healthcare personnel and management personnel should be within the estimated provisions set forth in the application. Although there is a nationwide shortage of nursing personnel and physicians in certain specialties, St. Joseph's has demonstrated it has a track record of staffing its facility to meet appropriate standards and provide quality care. There is no reason to presume it will not be similarly successful at the satellite facility. St. Joseph's has also demonstrated it has the financial ability to construct and operate the proposed satellite hospital. The occupancy rates projected for the new hospital will produce a revenue adequate to make the hospital financially feasible. Further, if patients who reside closer to the satellite facility use it instead of the main St. Joseph Hospital, a lower census at the main hospital will not adversely impact the financial strength of the organization. There will be adequate growth in the healthcare market for this PSA to support the new facility as well as the existing providers. It must be noted, however, that construction costs for the satellite hospital will exceed the amounts disclosed by the CON application. Some of the increases in cost are significant. For example, the estimate for the earthwork necessary for site preparation has risen from $417,440 to $1,159,296. Additionally, most of the unit prices for construction have gone up dramatically in the past couple of years. Hurricanes and the resulting increased standards for building codes have also driven construction costs higher. More stringent storm water provisions have resulted in higher construction costs. For this project it is estimated the storm water expense will be $500,000 instead of the original $287,000 proposed by the CON application. In total these increases are remarkable. They may also signal why development in AHCA's District 6/Subdistrict 1 has slowed since the CON application was filed. Regardless, St. Joseph's should have the financial strength to construct and operate the project. Section 408.035(5), Florida Statutes (2007), specifies that the Agency must evaluate the extent to which the proposed services will enhance access to health care for residents of the service district. In the findings reached in this regard, the criteria set forth in Administrative Code Rule 59C-1.030(2) have been fully considered. Those provisions are: (2) Health Care Access Criteria. The need that the population served or to be served has for the health or hospice services proposed to be offered or changed, and the extent to which all residents of the district, and in particular low income persons, racial and ethnic minorities, women, handicapped persons, other underserved groups and the elderly, are likely to have access to those services. The extent to which that need will be met adequately under a proposed reduction, elimination or relocation of a service, under a proposed substantial change in admissions policies or practices, or by alternative arrangements, and the effect of the proposed change on the ability of members of medically underserved groups which have traditionally experienced difficulties in obtaining equal access to health services to obtain needed health care. The contribution of the proposed service in meeting the health needs of members of such medically underserved groups, particularly those needs identified in the applicable local health plan and State health plan as deserving of priority. In determining the extent to which a proposed service will be accessible, the following will be considered: The extent to which medically underserved individuals currently use the applicant’s services, as a proportion of the medically underserved population in the applicant’s proposed service area(s), and the extent to which medically underserved individuals are expected to use the proposed services, if approved; The performance of the applicant in meeting any applicable Federal regulations requiring uncompensated care, community service, or access by minorities and handicapped persons to programs receiving Federal financial assistance, including the existence of any civil rights access complaints against the applicant; The extent to which Medicare, Medicaid and medically indigent patients are served by the applicant; and The extent to which the applicant offers a range of means by which a person will have access to its services. In any case where it is determined that an approved project does not satisfy the criteria specified in paragraphs (a) through (d), the agency may, if it approves the application, impose the condition that the applicant must take affirmative steps to meet those criteria. In evaluating the accessibility of a proposed project, the accessibility of the current facility as a whole must be taken into consideration. If the proposed project is disapproved because it fails to meet the need and access criteria specified herein, the Department will so state in its written findings. AHCA does not require a CON applicant to demonstrate that the existing acute care providers within the PSA are failing in order to approve a satellite hospital. Also, AHCA does not have a travel time standard with respect to the provision of acute care hospital services. In other words, there is no set geographical distance or travel time that dictates when a satellite hospital would be appropriate or inappropriate. In fact, AHCA has approved satellite hospitals when residents of the PSA live within 20 minutes of an existing hospital. As a practical matter this means that travel time or distance do not dictate whether a satellite should be approved based upon access. With regard to access to emergency services, however, AHCA does consider patient convenience. In this case the proposed satellite hospital will provide a convenience to residents of southeastern Hillsborough County in terms of access to an additional emergency department. Further, physicians serving the growing population will have the convenience of admitting patients closer to their residences. Medical and surgical opportunities at closer locations is also a convenience to the families of patients because they do not have to travel farther distances to visit the patient. Patients and the families of patients seeking obstetrical services will also have the convenience of the satellite hospital. Patients who would not benefit from the convenience of the proposed satellite hospital would be those requiring tertiary health services. Florida Administrative Code Rule 59C- 1.002(41) defines such services as: (41) Tertiary health service means a health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. In terms of tertiary health services, residents of AHCA District 6/Subdistrict 1 will continue to use the existing providers who offer those services. The approval of the St. Joseph satellite will not adversely affect the tertiary providers in AHCA District 6/Subdistrict 1 in terms of their ability to continue to provide those services. The new satellite will not compete for those services. Tampa General has a unique opportunity to provide tertiary services and will continue to be a strong candidate for any patient in the PSA requiring such services. As a teaching hospital and major NICU and trauma center, Tampa General offers specialties that will not be available at the satellite hospital. If non-tertiary patients elect to use the satellite hospital, Tampa General should not be adversely affected. Tampa General has performed well financially of late and its revenues have exceeded its past projections. With the added conveniences of its expanded and improved facilities it will continue to play a significant roll in the delivery of quality health care to the residents of the greater Tampa area. Section 408.035(6), Florida Statutes (2007) provides that the financial feasibility of the proposal both in the immediate and long-term be assessed in order to approve a CON application. In this case, as previously indicated, the utilizations expected for the new satellite hospital should adequately assure the financial feasibility of the project both in the immediate and long-term time frames. Population growth, a growing older population, and technologies that improve the delivery of healthcare will contribute to make the project successful. The satellite hospital will afford PSA residents a meaningful option in choosing healthcare and will not give any one provider an unreasonable or dominant position in the market. Section 408.035(7), Florida Statutes (2007) specifies that the extent to which the proposal will foster competition that promotes quality and cost-effectiveness must be addressed. AHCA's District 6/Subdistrict 1 enjoys a varied range of healthcare providers. From the teaching hospital at Tampa General to the community hospital at South Bay, all demonstrate strong financial stability and utilization. A new satellite hospital will promote continued quality and cost-effectiveness. As a member of the BayCare group the satellite will benefit from the economies of its group and provide the residents of its PSA with quality care. Physicians will have another option for admissions and convenience. Section 408.035(8), Florida Statutes (2007), notes that the costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction should be reviewed. The methodology used to compute the construction costs associated with this project were reasonable and accurate at the time prepared. The costs, however, are not accurate in that most have gone up appreciably since the filing of the CON application. No more effective method of construction has been proposed but the financial soundness of the proposal should cover the increased costs associated with the construction of the project. The delays in resolving this case have worked to disadvantage the Applicant in this regard. Unforeseeable acts of nature, limitations of building supplies, and increases inherent with the passage of time will make this project more costly than St. Joseph's envisioned when it filed the CON application. Further, it would be imprudent to disregard the common knowledge that oil prices have escalated while interest rates have dropped. These factors may also impact the project's cost. Section 408.035(9), Florida Statutes (2007), provides that the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent should be weighed in consideration of the proposal. St. Joseph's has a track record of providing health care services to Medicaid patients and the medically indigent without consideration of any patient's ability to pay. The satellite hospital would be expected to continue this tradition. Moreover, as a provision of its CON application, St. Joseph's has represented it will provide 12.5 percent of its patient days to Medicaid/Medicaid HMO/Charity/Indigent patients. 57 Section 408.035(10), Florida Statutes, relates to nursing home beds and is not at issue in this proceeding. The Opposition The SAAR set forth the Agency's rationale for the proposed denial of the CON application. The SAAR acknowledged that the proposal had received 633 letters of support (80 from physicians, 365 from St. Joseph employees, and 191 from members of the community); that funding for the project would be available; that the short-term position, long-term position, capital requirements, and staffing for the proposal were adequate; that the project was financially feasible if the Applicant meets its projected occupancy levels; that the project would have a marginally positive effect on competition to promote quality and cost-effectiveness; and that the construction schedule "seems to be reasonable" for the project. Notably in opposition to the CON application, the SAAR represented that: It is not clear that projected population growth for this area will outpace the ability of subdistrict facilities to add beds to accommodate population growth. The subdistrict's most recent average utilization rate was 63.40 percent, and an additional facility has already been approved for this applicant in this county for the purpose of handling forecasted growth. Growth projected for females aged 15-44 is not significantly higher for the county than for the district or state, and it is not demonstrated that need exists for obstetric services in the subdistrict. The foregoing analysis did not credit the projected population growth for the PSA applicable to this proposal heavily. The population growth expected for the PSA will support the utilization necessary for the proposed project. Applying the Agency's assessment, all existing hospital providers could add beds to meet "need" for a Subdistrict and thereby eliminate the approval of any satellite community facility that would address local concerns. Also, South Bay has conceded it will not add beds at its location. Additionally, the SAAR stated: While both South Bay Hospital and Brandon Regional Hospital have occupancy rates such that the introduction of a competing facility would not likely inhibit their abilities to maintain operations, the same cannot be stated for Tampa General Hospital, the only designated Disproportionate Share Hospital in this subdistrict. Any impact on Tampa General Hospital as a result of the proposed project would likely be negative, limiting Tampa General's ability to offset its Medicaid and charity care services. The applicant facility does not currently have a significant presence in the proposed market, and would have to gain market share in this PSA in order to meet its projected occupancy levels. Much of the market share gained by the applicant with the proposed facility would likely be at the expense of existing facilities in this area, most notably Tampa General due to its lower occupancy level and higher Medicaid and charity care provisions. In reaching its decision, the Agency has elected to protect Tampa General from any negative impact that the proposed satellite hospital might inflict. Tampa General has invested $300 million in improvements. It is a stand-alone, single venue hospital that has not joined any group or integrated system. It relies on its utilization levels, management skill and economies of practice to remain solvent. Tampa General considers itself a unique provider that should be protected from the financial risks inherent in increased competition. It is the largest provider of services to indigent patients in AHCA District 6/Subdistrict. Brandon opposes the proposed satellite hospital in part because it, too, has expanded its facility and does not believe additional beds are needed in AHCA District 6/Subdistrict 1. Nevertheless when a related facility sought to establish a satellite near the St. Joseph's site, Brandon supported the project. Brandon provides excellent quality of care and has a strong physician supported system. It will not be adversely affected in the long run by the addition of a satellite hospital in St. Joseph's PSA. Similarly, South Bay opposes the project. South Bay will not expand and does not provide obstetric services. It has had difficulty staffing its facility and believes the addition of another competitor will exacerbate the problem. Nevertheless, South Bay has a strong utilization level, a track record of financial strength, and will not likely be adversely impacted by the St. Joseph satellite. The opponents maintain that enhanced access for residents of the PSA does not justify the establishment of a new satellite hospital since the residents there already have good access to acute care services.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered by the Agency for Health Care Administration that approves CON Application No. 9833 with the conditions noted. DONE AND ENTERED this 13th day of May, 2008, in Tallahassee, Leon County, Florida. J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 13th day of May, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Holly Benson, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Stephen A. Ecenia, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P. A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32304-0551 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire Radey, Thomas, Yon & Clark, P.A. 301 South Bronough Street, Suite 200 Post Office Box 10967 Tallahassee, Florida 32301 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308
The Issue Whether Certificate of Need Application No. 8614, filed by Vencor Hospitals South, Inc., meets, on balance, the applicable statutory and rule criteria. Whether the Agency for Health Care Administration relied upon an unpromulgated and invalid rule in preliminarily denying CON Application No. 8614.
Findings Of Fact Vencor Hospital South, Inc. (Vencor), is the applicant for certificate of need (CON) No. 8614 to establish a 60-bed long term care hospital in Fort Myers, Lee County, Florida. The Agency for Health Care Administration (AHCA), the state agency authorized to administer the CON program in Florida, preliminarily denied Vencor's CON application. On January 10, 1997, AHCA issued its decision in the form of a State Agency Action Report (SAAR) indicating, as it also did in its Proposed Recommended Order, that the Vencor application was denied primarily due to a lack of need for a long term care hospital in District 8, which includes Lee County. Vencor is a wholly-owned subsidiary of Vencor, Inc., a publicly traded corporation, founded in 1985 by a respiratory/physical therapist to provide care to catastrophically ill, ventilator-dependent patients. Initially, the corporation served patients in acute care hospitals, but subsequently purchased and converted free-standing facilities. In 1995, Vencor merged with Hillhaven, which operated 311 nursing homes. Currently, Vencor, its parent, and related corporations operate 60 long term care hospitals, 311 nursing homes, and 40 assisted living facilities in approximately 46 states. In Florida, Vencor operates five long term care hospitals, located in Tampa, St. Petersburg, North Florida (Green Cove Springs), Coral Gables, and Fort Lauderdale. Pursuant to the Joint Prehearing Stipulation, filed on October 2, 1997, the parties agreed that: On August 26, 1996, Vencor submitted to AHCA a letter of intent to file a Certificate of Need Application seeking approval for the construction of a 60-bed long term care hospital to be located in Fort Myers, AHCA Health Planning District 8; Vencor's letter of intent and board resolution meet requirements of Sections 408.037(4) and 408.039(2)(c), Florida Statutes, and Rule 59C-1.008(1), Florida Administrative Code, and were timely filed with both AHCA and the local health council, and notice was properly published; Vencor submitted to AHCA its initial Certificate of Need Application (CON Action No. 8614) for the proposed project on September 25, 1996, and submitted its Omissions Response on November 11, 1996; Vencor's Certificate of Need Application contains all of the minimum content items required in Section 408.037, Florida Statutes; Both Vencor's initial CON Application and its Omissions Response were timely filed with AHCA and the local health council. During the hearing, the parties also stipulated that Vencor's Schedule 2 is complete and accurate. In 1994, AHCA adopted rules defining long term care and long term care hospitals. Rule 59C-1.002(29), Florida Administrative Code, provides that: "Long term care hospital" means a hospital licensed under Chapter 395, Part 1, F.S., which meets the requirements of Part 412, Subpart B, paragraph 412.23(e), [C]ode of Federal Regulations (1994), and seeks exclusion from the Medicare prospective payment system for inpatient hospital services. Other rules distinguishing long term care include those related to conversions of beds and facilities from one type of health care to another. AHCA, the parties stipulated, has no rule establishing a uniform numeric need methodology for long term care beds and, therefore, no fixed need pool applicable to the review of Vencor's CON application. Numeric Need In the absence of any AHCA methodology or need publication, Vencor is required to devise its own methodology to demonstrate need. Rule 59C-1.008(e) provides in pertinent part: If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, subdistrict, or both; Medical treatment trends; and Market conditions. Vencor used a numeric need analysis which is identical to that prepared by the same health planner, in 1995, for St. Petersburg Health Care Management, Inc. (St. Petersburg). The St. Petersburg project proposed that Vencor would manage the facility. Unlike the current proposal for new construction, St. Petersburg was a conversion of an existing but closed facility. AHCA accepted that analysis and issued CON 8213 to St. Petersburg. The methodology constitutes a use rate analysis, which calculates the use rate of a health service among the general population and applies that to the projected future population of the district. The use rate analysis is the methodology adopted in most of AHCA's numeric need rules. W. Eugene Nelson, the consultant health planner for Vencor, derived a historic utilization rate from the four districts in Florida in which Vencor operates long term care hospitals. That rate, 19.7 patient days per 1000 population, when applied to the projected population of District 8 in the year 2000, yields an average daily census of 64 patients. Mr. Nelson also compared the demographics of the seven counties of District 8 to the rest of the state, noting in particular the sizable, coastal population centers and the significant concentration of elderly, the population group which is disproportionately served in long term care hospitals. The proposed service area is all of District 8. By demonstrating the numeric need for 64 beds and the absence of any existing long term care beds in District 8, Vencor established the numeric need for its proposed 60-bed long term care hospital. See Final Order in DOAH Case No. 97-4419RU. Statutory Review Criteria Additional criteria for evaluating CON applications are listed in Subsections 408.035(1) and (2), Florida Statutes, and the rules which implement that statute. (1)(a) need in relation to state and district health plans. The 1993 State Health Plan, which predates the establishment of long term care rules, contains no specific preferences for evaluating CON applications for long term care hospitals. The applicable local plan is the District 8 1996-1997 Certificate of Need Allocation Factors Report, approved on September 9, 1996. The District 8 plan, like the State Health Plan, contains no mention of long term care hospitals. In the SAAR, AHCA applied the District 8 and state health plan criteria for acute care hospital beds to the review of Vencor's application for long term care beds, although agency rules define the two as different. The acute care hospital criteria are inapplicable to the review of this application for CON 8614 and, therefore, there are no applicable state or district health plan criteria for long term care. (1)(b) availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization and adequacy of like and existing services in the district; and (1)(d) availability and adequacy of alternative health care facilities in the district. Currently, there are no long term care hospitals in District 8. The closest long term care hospitals are in Tampa, St. Petersburg, and Fort Lauderdale, all over 100 miles from Fort Myers. In the SAAR, approving the St. Petersburg facility, two long term care hospitals in Tampa were discussed as alternatives. By contract, the SAAR preliminarily denying Vencor's application lists as alternatives CMR facilities, nursing homes which accept Medicare patients, and hospital based skilled nursing units. AHCA examined the quantity of beds available in other health care categories in reliance on certain findings in the publication titled Subacute Care: Policy Synthesis And Market Area Analysis, a report submitted to the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, on November 1, 1995, by Levin-VHI, Inc. ("the Lewin Report"). The Lewin Report notes the similarities between the type of care provided in long term care, CMR and acute care hospitals, and in hospital-based subacute care units, and subacute care beds in community nursing homes. The Lewin Report also acknowledges that "subacute care" is not well-defined. AHCA has not adopted the Lewin Report by rule, nor has it repealed its rules defining long term care as a separate and district health care category. For the reasons set forth in the Final Order issued simultaneously with this Recommended Order, AHCA may not rely on the Lewin Report to create a presumption that other categories are "like and existing" alternatives to long term care, or to consider services outside District 8 as available alternatives. Additionally, Vencor presented substantial evidence to distinguish its patients from those served in other types of beds. The narrow range of diagnostic related groups or DRGs served at Vencor includes patients with more medically complex multiple system failures than those in CMR beds. With an average length of stay of 60 beds, Vencor's patients are typically too sick to withstand three hours of therapy a day, which AHCA acknowledged as the federal criteria for CMR admissions. Vencor also distinguished its patients, who require 7 1/2 to 8 hours of nursing care a day, as compared to 2 1/2 to 3 hours a day in nursing homes. Similarly, the average length of stay in nursing home subacute units is less than 41 days. The DRG classifications which account for 80 percent of Vencor's admissions represent only 7 percent of admissions to hospital based skilled nursing units, and 10 to 11 percent of admissions to nursing home subacute care units. Vencor also presented the uncontroverted testimony of Katherine Nixon, a clinical case manager whose duties include discharge planning for open heart surgery for patients at Columbia-Southwest Regional Medical Center (Columbia-Southwest), an acute care hospital in Fort Myers. Ms. Nixon's experience is that 80 percent of open heart surgery patients are discharged home, while 20 percent require additional inpatient care. Although Columbia-Southwest has a twenty-bed skilled nursing unit with two beds for ventilator-dependent patients, those beds are limited to patients expected to be weaned within a week. Finally, Vencor presented results which are preliminary and subject to peer review from its APACHE (Acute Physiology, Age, and Chronic Health Evaluation) Study. Ultimately, Vencor expects the study to more clearly distinguish its patient population. In summary, Vencor demonstrated that a substantial majority of patients it proposes to serve are not served in alternative facilities, including CMR hospitals, hospital-based skilled nursing units, or subacute units in community nursing homes. Expert medical testimony established the inappropriateness of keeping patients who require long term care in intensive or other acute care beds, although that occurs in District 8 when patients refuse to agree to admissions too distant from their homes. (1)(c) ability and record of providing quality of care. The parties stipulated that Vencor's application complies with the requirement of Subsection 408.035(1)(c). (1)(e) probable economics of joint or shared resources; (1)(g) need for research and educational facilities; and (1)(j) needs of health maintenance organizations. The parties stipulated that the review criteria in Subsection 408.035(1)(e), (g) and (j) are not at issue. (f) need in the district for special equipment and services not reasonably and economically accessible in adjoining areas. Based on the experiences of Katherine Nixon, it is not reasonable for long term care patients to access services outside District 8. Ms. Nixon also testified that patients are financially at a disadvantage if placed in a hospital skilled nursing unit rather than a long term care hospital. If a patient is not weaned as quickly as expected, Medicare reimbursement after twenty days decreases to 80 percent. In addition, the days in the hospital skilled nursing unit are included in the 100 day Medicare limit for post-acute hospitalization rehabilitation. By contrast, long term care hospitalization preserves the patient's ability under Medicare to have further rehabilitation services if needed after a subsequent transfer to a nursing home. (h) resources and funds, including personnel to accomplish project. Prior to the hearing, the parties stipulated that Vencor has sufficient funds to accomplish the project, and properly documented its source of funds in Schedule 3 of the CON application. Vencor has a commitment for $10 million to fund this project of approximately $8.5 million. At the hearing, AHCA also agreed with Vencor that the staffing and salary schedule, Schedule 6, is reasonable. (i) immediate and long term financial feasibility of the proposal. Vencor has the resources to establish the project and to fund short term operating losses. Vencor also reasonably projected that revenues will exceed expenses in the second year of operation. Therefore, Vencor demonstrated the short and long term financial feasibility of its proposal. needs of entities serving residents outside the district. Vencor is not proposing that any substantial portion of it services will benefit anyone outside District 8. probable impact on costs of providing health services; effects of competition. There is no evidence of an adverse impact on health care costs. There is preliminary data from the APACHE study which tends to indicate the long term care costs are lower than acute care costs. No adverse effects of competition are shown and AHCA did not dispute the fact that Vencor's proposal is supported by acute care hospitals in District 8. costs and methods of proposed construction; and (2)((a)-(c) less costly alternatives to proposed capital expenditure. The prehearing stipulation includes agreement that the design is reasonable, and that proposed construction costs are below the median in that area. past and proposed service to Medicaid patients and the medically indigent. Vencor has a history of providing Medicaid and indigent care in the absence of any legal requirements to do so. The conditions proposed of 3 percent of total patient days Medicaid and 2 percent for indigent/charity patients proposed by Vencor are identical to those AHCA accepted in issuing CON 8213 to St. Petersburg Health Care Management, Inc. Vencor's proposed commitment is reasonable and appropriate, considering AHCA's past acceptance and the fact that the vast majority of long term care patients are older and covered by Medicare. services which promote a continuum of care in a multilevel health care system. While Vencor's services are needed due to a gap in the continuum of care which exists in the district, it has not shown that it will be a part of a multilevel system in District 8. (2)(d) that patients will experience serious problems obtaining the inpatient care proposed. Patients experience and will continue to experience serious problems in obtaining long term care in District 8 in the absence of the project proposed by Vencor. Based on the overwhelming evidence of need, and the ability of the applicant to establish and operate a high quality program with no adverse impacts on other health care providers, Vencor meets the criteria for issuance of CON 8614.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration issue CON 8614 to Vencor Hospitals South, Inc., to construct a 60-bed long term care hospital in Fort Myers, Lee County, District 8. DONE AND ENTERED this 3rd day of March, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Kim A. Kellum, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 R. Terry Rigsby, Esquire Geoffrey D. Smith, Esquire Blank, Rigsby & Meenan, P.A. 204 South Monroe Street Tallahassee, Florida 32301
The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue Whether any or all of the following Certificate of Need ("CON") applications for projects in southeastern Duval County, health services planning Subdistrict 4-3, should be approved by the Agency for Health Care Administration: St. Luke's Hospital Association d/b/a St. Luke's Hospital's CON Application No. 9483 to construct at the Mayo Clinic Jacksonville campus on San Pablo Road a new 214-bed replacement hospital to take the place of St. Luke's Hospital; St. Vincent's Medical Center, Inc.'s CON Application No. 9484P for the establishment of a new 135-bed acute care hospital to be located at the site of the existing St. Luke's Hospital; and Southern Baptist Hospital of Florida, Inc.'s CON Application No. 9482 to establish a new 92-bed satellite acute care hospital at the intersection of Old St. Augustine Road and Interstate 95 just north of St. Johns County by transferring 92 beds from Baptist Medical Center in downtown Jacksonville?
Findings Of Fact The Mayo Foundation and its Facilities The Foundation The Mayo Foundation ("Mayo" or the "Mayo Clinic") is considered to be one of the world's preeminent providers of health care services. Although its clinical practice is entirely in this country, Mayo's service area is international; from around the globe it draws patients impressed by the high regard in which its health care services are held. Here at home, Mayo's reputation is not lost on the American populace. Among the nation's many outstanding providers of health care services to the medically complex patient, certainly one of the most recognized, if not the most recognized, is the prestigious "Mayo Clinic." Founded in Rochester, Minnesota toward the end of the 19th Century, with hospital affiliations added eventually in a number of Midwestern states, the Mayo Clinic is the first multi- specialty medical group practice in the United States. Its mission is to provide the highest quality health care by medical professionals practicing all of the known specialties and sub- specialties of medicine in a clinical, unified, multi-campus setting that incorporates medical education and research. Reflective of its status as a physician-led organization, and as important and as essential as they are to the Mayo mission, medical education and research are secondary to Mayo's clinical practice. In the mid to late 1980's, the Mayo Clinic expanded its multi-campus setting to the nation's sunbelt. Mayo Clinic Jacksonville was founded by Mayo in Florida in 1986; the following year, Mayo Clinic Scottsdale was founded in Arizona. Today, Mayo successfully delivers health care services of the highest quality at its two facilities in Florida and Arizona as well as at its principal location in Rochester. Much of its success is due to its approach to health care. An Integrated Approach As a natural outgrowth of its multi-specialty group practice and consistent with its mission, Mayo's model of health care is an integrated team approach. Under the approach, specialists and sub-specialists from a variety of medical disciplines interact for the benefit of the patient. When a patient enters the Mayo system as an outpatient, for example, the patient is assigned a primary physician who serves as "a captain of the ship," so to speak. "[T]hat captain of the ship is responsible for the initial outpatient assessment, establishing what consultations are needed through the course of the patient's visit." (Tr. 80). The primary complaint physician, after initial evaluation "will order consultations with whatever specialists and sub-specialists are perceived as needed in the care of that patient's case." (Tr. 80). In the case of Mayo Clinic Jacksonville, the team will attempt to get the patient through the system in a maximum of five days. Whether outpatient or inpatient, the patient is accompanied by a single medical record through all phases of care by all physicians who participate in the patient's care: primary, treating or consulting. Utilizing consolidated protocols and practice standards, the "integrated" and "team" aspects of the approach enhance Mayo's capability for delivering to the patient comprehensive, coordinated medical care. The Mayo model of care founded on the integrated approach affords greater continuity of care than traditional models. It is especially effective with the patient who has complex medical conditions requiring the services of more than one physician specialist. The reverse of a university setting where "physician focus . . . is primarily on research; second, education; and then, lastly, patient care[,]" (tr. 78), patient care is the primary mission of the Mayo Clinic. Like the providers of care in a university setting, however, Mayo is organized to conduct clinical care, medical education and medical research at the same time. Education and research, therefore, although both secondary to patient care under the Mayo model, remain essential elements of the Mayo mission. There is another aspect of the Mayo model of care that enhances the quality of the health care it provides. Mayo refers to it as an "alignment of interests." Alignment of Interests Mayo has achieved an alignment of its interests, as expressed in its mission statement, with those of its physicians and the facilities at which they practice. There are approximately 2,000 Mayo employed physicians; 1,400 or so are at Mayo Clinic Rochester. The remaining 600 or so are split fairly evenly between Mayo Clinic Jacksonville and Mayo Clinic Scottsdale. They practice all medical specialties and sub-specialties on a fixed salary with direct employment by Mayo. Just as in the case of their employer, Mayo physicians seek principally to provide patient care services consistent with the Mayo mission. Like their employer, too, Mayo physicians aspire to the provision of patient services in an environment that includes teaching and research. Virtually all two thousand Mayo physicians participate in medical education activities and research. Mayo also owns the hospitals that are utilized by the multi-specialty group practices in its various locales. Mayo's control of the scope and direction of the multi- specialty group practice is crucial to the success of the Mayo model. Direct employment of physicians is fundamental to achieving the goals of the Mayo Clinic. So is Mayo ownership and control of the hospitals at which the multi-specialty group practice takes place. For purposes of patient and physician schedules alike, Mayo must be able to control the allocation of hospital resources, such as the availability of beds, operating rooms, and ancillary/support services. Many Mayo patients, for example, travel significant distances to receive services at a Mayo campus. Mayo's control over hospital resources is central to meeting its goal of providing hospital-based services, including surgery or admission, in as short a time frame as possible for the benefit of the patient and the patient's family, and to otherwise best achieve the benefits of integrated, comprehensive care. Closed Staff Facilities The governance of both physicians and facilities used in the Mayo model works best in a "closed-staff" environment, meaning that only Mayo physicians admit patients to, and otherwise practice at, the hospital. Mayo's preference to operate its affiliate hospitals in a "closed staff" environment is based on a number of factors. Mayo physicians practice in a uniform fashion, agreeing as to what the standard of care should be, and following the same protocols and other practice standards. (Non-Mayo physicians in a hospital setting do not practice with the same uniformity, employing approaches to medical care and standards used in that care that may vary.) Variances in practice styles affect how nursing and other hospital support staff conduct their daily responsibilities with regards to both physician and patient interactions. When Mayo physicians practice medicine under uniform protocols and standards and the remainder of the hospital's medical staff practice medicine in their various and different individual ways, confusion among staff is a common result. The difficulties met by nurses, for example, in knowing precisely what to do from one patient to the next is avoided in a Mayo closed staff setting. In a service where quality and safety concerns are paramount, it is important to Mayo to reduce the variation of practice among physicians and staff alike. In an open-staff setting, the ability of the hospital's governing body to control variation, to enforce standards, and to drive standards to the highest level of excellence is much more difficult than in a closed-staff integrated group practice setting. Mayo cannot forge with non-Mayo physicians the alignment of interests it has with Mayo-employed physicians. An open staff setting, moreover, requires that Mayo's administration deal with the struggles of control and politics that are not uncommon in open-staff hospitals. In an open-staff setting, Mayo's ability to control the scope and direction of its integrated group practice, including the ability to timely schedule admissions and surgeries, is subject to interference because of the need to address the needs of non-Mayo physicians. Free of meeting non-Mayo physician needs, the integrated group practice has the opportunity to achieve the high quality of care of the medically complex patient for which it is designed. Mayo Clinic facilities in Rochester and Mayo Clinic Scottsdale are closed staff facilities. Mayo Clinic Jacksonville, for reasons explained below, is not. It is the only "open-staff" facility among Mayo's clinical facilities. Mayo Clinical Facilities and Medical Education/Research Programs In 1987, shortly after the expansion of Mayo operations to Jacksonville through the establishment of Mayo Clinic Jacksonville the year before, St. Luke's was acquired by Mayo. The purpose of the acquisition was to provide the inpatient component for Mayo's Jacksonville operations. Also in 1987, Mayo expanded its operations to the Phoenix-Scottsdale area of Maricopa County, Arizona through the establishment of Mayo Clinic Scottsdale. Similar to the arrangement in Jacksonville, Mayo Clinic Scottsdale has an affiliate hospital nearby. The affiliate is in Phoenix. In keeping with the Mayo-preferred approach, the Phoenix affiliate uses a closed staff. Mayo activities in the three locations require more than 37,000 employees. Mayo personnel comprise several hundred scientists, over 500 clinical and research associates and fellows, over 33,000 administrative and allied health personnel, and over 1,500 medical residents in addition to the more than 2,000 physicians. On a system-wide basis, Mayo has $3.3 billion in annual operating expenditures. Approximately $300 million annually is dedicated to medical research expenses, and approximately $130 million annually is dedicated to medical education expenses. Mayo's medical education activities include the Mayo Medical School for medical students, and the Mayo Graduate School of Medicine, which offers graduate medical education in more than 100 specialties and sub-specialties. Further, the Mayo Graduate School offers Ph.D. programs in several different medical-related areas. Medical research within the Mayo system includes bench research, that is, research primarily in a laboratory. In keeping with the primacy of patient care under the Mayo model, Mayo's medical research also includes clinical research involving direct interaction with patients. Mayo Clinic Jacksonville Located approximately 10 miles east of St. Luke's, Mayo Clinic Jacksonville sits on 400 acres of land that was donated to Mayo. The campus is on San Pablo Road about one-half mile from the road's intersection with J. Turner Butler Boulevard, another half-mile or so to the west of the Intracoastal Waterway flowing between the mainland and the barrier island that is Jacksonville Beach. The campus contains numerous facilities that support clinical, medical education, and medical research activities. Also located on the campus are two hotels for the convenience of patients, their families, and their friends. Mayo Clinic Jacksonville vigorously participates in Mayo's medical education activities, with approximately 155 residents and 65 fellows from the Mayo Graduate School of Medicine, covering numerous specialties, on-site. At the time the St. Luke's application was filed, Mayo Clinic Jacksonville participated in 12 accredited graduate medical education programs and was in the process of adding two more. Mayo Clinic Jacksonville is actively involved in a wide range of both clinical research and bench research programs. All specialties and sub-specialties found within the Mayo system as a whole are represented on the medical staff of over 300 physicians. With the exceptions of some anesthesiologists, family practitioners and transplant physicians who are located at St. Luke's, Mayo Clinic Jacksonville physicians are based at the Mayo Clinic Jacksonville campus. Approximately 50% of Mayo Clinic Jacksonville's outpatients reside in Agency District 4, which includes Baker, Nassau, Duval, Clay, St. John's, Flagler, and Volusia Counties. Approximately 25% of its outpatients come from the remainder of the State of Florida, 22% from the remainder of the United States, and 3% from foreign countries. When Mayo Clinic Jacksonville was established, the campus obtained Florida Development of Regional Impact ("DRI") approval. That DRI approval, effective until 2020, includes approval for a 900-bed hospital to be located on the campus. Mayo's Acquisition of St. Luke's It has long been Mayo's intention to consolidate its hospital operations on the campus of Mayo Clinic Jacksonville. The intention, in fact, had been fully formed at the time Mayo Clinic Jacksonville was established in 1986. Nonetheless, Mayo Clinic Jacksonville did not pursue initially the development of hospital services on campus for two reasons. The first was a regulatory obstacle; CON regulation requires establishment of need for the construction and operation of a hospital in Florida. The second was a logistical opportunity; Mayo was presented with the chance to purchase St. Luke's Hospital at its facility on Belfort Road to which St. Luke's had relocated from the Northside of Jacksonville west of the St. John's River only a few years before. Mayo took advantage of the opportunity with the acquisition of St. Luke's Hospital in 1987. Prior to its affiliation with Mayo, St. Luke's was a local community provider. More than two-thirds of its patients originated from Jacksonville and Duval County. Few patients originated from beyond northeast Florida. Its only tertiary service was adult open-heart surgery. In recognition of its importance as a community provider, the seller of St. Luke's conditioned Mayo's acquisition on the requirement that an open staff be maintained for five years after purchase. St. Luke's acquiesced. St. Luke's Hospital, therefore, promised to be "open-staffed" at least until 1992. With the end in 1992 of the open-staff requirement imposed at sale, concern over community access continued. To address the concern, Mayo committed to continue to keep the staff open at St. Luke's as long as it remained operationally feasible to do so. In keeping with that commitment, today St. Luke's has approximately 700 non-Mayo physicians or community physicians on staff in addition to 300 or so Mayo physicians. The Parties AHCA The Agency for Health Care Administration is the state agency with the authority to review applications for certificates of need and issue certificates of need in Florida. Section 408.034(1), Florida Statutes. St. Luke's Hospital Association St. Luke's Hospital Association, d/b/a St. Luke's Hospital ("St. Luke's") is a private, not-for-profit corporation that operates a general acute care hospital located in AHCA Health Care Planning District 4. Of its 289 beds, 10 are Level II Neonatal Intensive Care ("NICU") beds added to the facility in February 2001. A controlling interest in St. Luke's has been held by Mayo since the 1987 acquisition. Immediately off Interstate 95 near its intersection with J. Turner Butler Boulevard in Duval County, St. Luke's campus is on Belfort Road in southeast Jacksonville. The area, bounded as it is to the west and the north by the St. John's River, is referred to locally as "Southside." Originally founded in 1873 by three women concerned about health care for the destitute in the Jacksonville area, St. Luke's Hospital is the oldest hospital in Florida. Over the years, St. Luke's Hospital has changed locations several times. It moved to its current location in 1983. Since Mayo's acquisition of a controlling interest in St. Luke's, the primary role of St. Luke's in the Mayo organization has been to provide the inpatient component for Mayo Clinic Jacksonville's clinical practice, including the provision of tertiary and quaternary services. With all of Mayo Clinic Jacksonville's inpatient practice at St. Luke's Hospital, all Mayo Clinic teaching components that are related to inpatient care also take place at St. Luke's, as does inpatient-related research activities. St. Vincent's St. Vincent's is a not-for-profit corporation that owns and operates St. Vincent's Hospital and St. Catherine Laboure Manor, a 240-bed long-term care facility. Unlike all the other hospitals operated by parties in this proceeding, St Vincent's Medical Center is not located in Subdistrict 4-3. It is located in Subdistrict 4-2, on the west side of the St. John's River and across the river from "Southside." Vincent's has a three-part mission. The first is to serve the community by providing quality patient care services with special emphasis on care to the poor and vulnerable. Second, St. Vincent's believes in a holistic approach to health care in which the spiritual needs of the patient are just as important as the physical and emotional ones. Third, St. Vincent's mission includes an obligation to advocate and speak on behalf of the poor. St. Vincent's Medical Center is a 528-bed hospital located on Riverside Avenue in Jacksonville. It has a significant obstetrical practice. Among the tertiary services it provides are Level II neonatal intensive care services. It also provides adult open heart surgery and interventional cardiology services. Its staff is closed for diagnostic and interventional catheterizations. St. Vincent's Hospital was established by the Daughters of Charity, a Catholic religious organization, in 1916; its mission then as now to care for the poor. St. Vincent's moved to its current location in 1927. Today, St. Vincent's is associated with Ascension Health, the largest Catholic health care system in the United States and the largest not-for-profit health care system in the United States. Ascension Health has over fifty hospitals in twelve states and a dozen nursing homes. It provides St. Vincent's with various support services such as capital financing, insurance and risk management services, group purchasing and management of the pension program for all employees. Consistent with its mission, St. Vincent's provides a significant amount of care to the uninsured and underinsured. St. Vincent's operates a large family practice residency program staffed by 60 family practice residents and 10-12 faculty members. The family residency program sees about 30,000 patients per year, and approximately 65% of them are either Medicaid or Medicaid-eligible individuals. The family residency program results in approximately 750 inpatient admissions per year to St. Vincent's. In addition to the family residency program, St. Vincent's operates a number of outreach programs, including services to migrant farm workers that work in St. John's and Flagler Counties. These individuals have no means of transportation, are moved from farm to farm by buses, and without St. Vincent's, would have limited access to health care. St. Vincent's has two mobile vans that visit the migrant farm workers. Essentially physician offices on wheels, the vans, the size of large Winnebagos, include a laboratory draw station and radiology unit. Any person who seeks medical care at the vans is provided with medical care. The vans also visit sites accessible to the urban poor. If a patient seen by a physician in one of these vans needs hospitalization, arrangements are made to admit the patient to St. Vincent's. None of the other hospitals in the Jacksonville area have a mobile outreach program similar to St. Vincent's. At the time of hearing, St. Vincent's has been selected to receive an award from the American Hospital Association in recognition of the work of its mobile health ministry. St. Vincent's also operates a parish nurse program in over 50 different churches, the majority of which are low-income and non-Catholic. This program assigns a nurse to a church. When a member of the church is unable to obtain care for a health problem, the nurse arranges for the person's care. Baptist Southern Baptist Hospital of Florida, Inc., d/b/a Baptist Medical Center ("Baptist") is a not-for-profit corporation. It is part of the Baptist Health System, a major healthcare system serving Northeast Florida. Baptist Health System is comprised of three licensed acute care hospitals including Baptist Medical Center ("BMC"), Baptist Medical Center Beaches in Jacksonville Beach ("Baptist Beaches") and Baptist Medical Center Nassau, located in Fernandina Beach. At the time Baptist filed its application, BMC was licensed for 591 beds at its downtown Jacksonville campus. Of these, 455 are acute care beds, 33 are Level II NICU beds, 15 are Level III NICU beds, 63 are adult psychiatric beds, 19 are child/adolescent psychiatric beds and 6 are adult substance abuse beds. Through its three hospitals, Baptist Health System offers a full range of services for medical/surgical patients (including intensive care, open-heart surgery and stem cell transplantation), obstetrical and newborn services (including NICU Level II and III) and psychiatric services. Baptist Medical Center is located in downtown Jacksonville at 800 Prudential Drive. It has an excellent reputation in the community as a provider of high-quality health care services. Founded in 1955, it is committed to providing accessible, affordable health care of high quality to the Jacksonville community. Today, it is a Medicaid disproportionate share provider, second only to Shands Jacksonville in terms of providing Medicaid services to the local community. It operates the largest not-for-profit home health agency in the area. Not currently affiliated with any religious order, the mission of Baptist remains grounded in its faith-based heritage. The distinct nature of its organization within the Jacksonville community is based on four factors. It is faith-based; it is mission-driven to serve the local community rather than owners or shareholders; it is community-focused serving Jacksonville and the five surrounding counties; and finally, it is locally governed. Wolfson Children's Hospital ("Wolfson") operates under Baptist's license. It is a regional tertiary hospital serving northeast Florida and southeast Georgia. It provides all tertiary services for children except for burns. Wolfson provides major pediatric oncology and cardiovascular services. Wolfson is affiliated with Nemours Children's Clinic, located on the other side of I-95 from Baptist Medical Center. The two are connected by a walkover. Nemours is funded in large part by a trust from the DuPont family. It offers 65 specialists and sub-specialists in pediatric medicine surgery. Wolfson houses major educational services for pediatric practitioners. Every nurse trained in Jacksonville receives his or her pediatric training at Wolfson. All the Mayo Clinic Jacksonville family practitioners in pediatrics, as well as University of Florida family program in pediatrics, train at Wolfson. Further confirming Wolfson's role as a regional children's hospital, a new Ronald McDonald House with room for 20 patient families is now under construction in close proximity to the hospital. Baptist's mission is to continue a healing ministry to the community. It is more than just caring for people when they are ill. Baptist emphasizes the promotion of health through preventive measures. It operates a primary care network of more than 60 physicians at 15 sites to serve the community. It also has a mental health network that provides mental health counselors and psychologists throughout the City of Jacksonville. Baptist partners with a multi-service center for at- risk youth in which it helps to see that over 400 children are fed every night. Baptist also partners with a homeless shelter in Jacksonville to provide medical services. Memorial Memorial is a tertiary level care provider of hospital services. It offers a full array of acute care including open heart surgery, interventional cardiology, and Level II Neonatal Intensive Care ("NICU"). Memorial's licensed bed complement consists of 343 acute care beds and 10 Level II NICU beds. Located on University Boulevard in "Southside" Jacksonville, in the same quadrant of the city as St. Luke's Hospital, Memorial is slightly more than 2 miles northwest of St. Luke's. During the 12-month period of July 2000 to June 2001 (the time frame for the January 2002 Hospital Bed Need Projections applicable to the relevant batching cycle), Memorial had an occupancy of 70% for its 343 acute care beds. For the same time period, the occupancy rate for its Level II NICU beds was 55.86%. In order to ensure patient comfort, privacy and satisfaction, Memorial typically will not place two patients in its two-bed semi-private rooms. The practice diminishes the use of the hospital's functional acute care bed capacity. To increase functional capacity, Memorial is in the process of creating a new 32-bed unit consisting entirely of private rooms. The new 32-bed unit is but one aspect of an ongoing multi-phase, two-year expansion project at Memorial at a cost of $67 million. Critical care beds will be increased from 21 to 30. Forty-one semi-private rooms will be converted to private rooms. Memorial's emergency department will be expanded from 20 to 35 bays. The number of operating rooms ("ORs") will be increased from 18 to 20. The cardiac catheterization labs will be increased from 2 to 4. A new special imaging room will be added. The telemetry capability of the hospital will be increased from 117 units to 149 units. There will be substantial addition of new technology and equipment; the addition of a third open heart operating room; the addition of a 2-story 235 space parking garage; and replacement and improvement of roofing, air handling and mechanical systems. These projects will significantly enhance operational efficiencies and acute care functionality and capacity at Memorial. Memorial is under a contract with the Department of Corrections whereby 28 acute care beds are reserved for the care of prisoners. These beds are not available to the general population. The contract expires in April 2003. No evidence was presented as to whether the contract would be renewed or not. For now, the life of the contract presents only the possibility that the 28 beds will become available in the spring of 2003 for the general populace. Memorial recently commissioned the Sullivan Group to evaluate the necessity of adding acute care beds at its facility through the CON application process. The Sullivan Group found that Memorial's current occupancy of 70% did not justify the filing of a CON application for additional beds. It recommended that Memorial continue to expand and improve the hospital. The Sullivan Group also recognized that if its occupancy levels continued their present rate of increase, Memorial would be able to add acute care beds in the near future without CON review. Under a statutory provision, addition of a certain number of beds exempt from CON review is triggered by achievement of an 80% annual occupancy rate. If Memorial experiences such an occupancy rate, it will be able to add 35 beds under the exemption. As part of its ongoing projects, Memorial constructed new square footage for a short stay area. The area was also constructed to accommodate a 3-floor wing of 30-35 beds per floor. The strategy of expanding a facility's licensed bed capacity via the statutory exemption is consistent with the Agency's encouragement of the use of the exemption in preference to CON review. District 4 and Subdistrict 3 District 4, one of eleven "health service planning" districts defined by the Legislature for the State of Florida, is composed of Baker, Nassau, Duval, Clay, St. Johns, Flagler, and Volusia Counties. Section 408.032(5), Florida Statutes. The district is split into five subdistricts by Agency rule. The first three, Subdistricts 4-1, 4-2 and 4-3 contain parts of Duval County as well as at least one other county. Of the hospitals that are parties to this proceeding, only St. Vincent's is not in Subdistrict 4-3. It is located in Subdistrict 4-2, composed of Baker and Clay Counties and certain zip codes in Duval County referred to in Rule 59C- 2.100(3)(a)d.2., Florida Administrative Code, as "southwestern" Duval County. The St. John's River separates Subdistrict 4-2 from Subdistrict 4-3. This proceeding is concerned mainly with Subdistrict 4- 3 in that all three of the proposed projects are to be located in Subdistrict 4-3. Subdistrict 4-3 consists of St. Johns County and "the southeastern portion of Duval County lying within ZIP codes 32207, 32211, 32216, 32217, 32223, 32224, 32225, 32228, 32233, 32246, 32250, 32256, 32257, 32258, 32266, and 32277." Rule 59C-2.100(3)(a)d.2., Florida Administrative Code. There are no major geographic access issues in District With the exception of Baptist Beaches, the hospitals are all in the center core of the county. The roadways and infrastructure in Duval County are well situated for access to existing hospitals. Nonetheless, in Subdistrict 4-3, access to certain services will be enhanced for residents of southern Duval County by the approval of Baptist's application. There is no complaint of financial access issues in this case. Consistent with no financial access problem, Baptist and St. Luke's have not conditioned approval of their applications on the provision of care to a percentage of Medicaid and charity patients. The acute care occupancy rate for all District 4 hospitals was 58.69% for the twelve-month period from July 1, 2000, through June 30, 2001. In Subdistrict 4-3, the rate was 67.57% for the same period. For the last six months of the period, January 1 through June 30, 2000, the acute care occupancy rate of Subdistrict 4-3 was 71.49%, much higher that projected occupancy rate for District 4 of 60.46% and for the State of 55.49%. For medical-surgical beds, a subset of acute care beds, for the first six months of 2001, the occupancy rate for Subdistrict 4-3 was over 73%. These rates reflect a trend nationwide for the last few years of increased occupancy rates and in the Jacksonville area "some hefty increases in patient volumes and user rates over the last few years." (Tr. 2160). Richard Baehr, health planning expert for Memorial, predicts that this trend will naturally subside to the point that "use rates will be fairly stable going forward and utilization, as a result will continue to grow with population." (Tr. 2161). Using these occupancy rates and subtracting the beds not occupied plus beds added in the district and subdistrict between July and December 2001, from a weighted average of licensed acute care beds from July 1, 2000, to June 30, 2001, there were 1,718 acute care beds unused in District 4 and 477 unused in Subdistrict 4-3. Subdistrict 4-3 is expected to experience a 1.8% annual compound growth through rate 2006. At this rate, the aggregate growth rate through 2006 equals 11%. In 2000, there were 175,546 acute care hospital admissions in District 4 with a population of 1,625,780. The use rate, therefore, was 107.98 per 1,000 population. The average length of stay for District 4 hospitals based on acute care admissions is 4.6 days. District 4 hospitals experienced an average daily acute care census of 2,206 patients with an acute care bed capacity according to a December 31, 2001, inventory of 4,068. Assuming an 11% population growth, District 4 will experience an incremental population increase of 162,642 persons in 2006 and 190,142 persons in 2007 above the 2000 population. District 4 hospitals are projected to experience a projected incremental increase of 220 patients in 2006 and 258 patients in 2007. This increase assumes that the district use rate remains constant at 107.68 (a rate adjusted to a 365-day year since the year 2000 was a leap year) and the average length of stay is held constant at 4.6. Based on the population analysis, above (and in consideration of the 34 psychiatric bed at St. Vincent's approved for conversion to acute care beds), the District 4 acute care bed occupancy will be 59.2% in 2006 and 60.1% in 2007. In 2000, District 4 hospitals experienced an additional 45.9 average daily census from patients outside the District. Assuming a constant 45.9 immigration rate through 2007, the District-wide occupancy rate is projected to be 60.3% in 2006 (leaving a surplus of 1,629 beds) and 61.2% in 2007 (a surplus of 1,592 beds). District 4 hospitals, therefore, can accommodate future growth based on current licensed and available beds in the absence of the proposed projects. Even if all three projects at issue in this proceeding are approved, however, there would only be a 5% increase in the number of beds in Subdistrict 4-3 at the same time there is expected to be a population increase of 11%. By the time these projects come on line, if approved, there will likely be adequate demand to support all of the hospitals in Subdistrict 4-3. Still, the five Subdistrict 4-3 hospitals (Memorial, Baptist, Baptist Beaches, St. Luke's, and Flagler) are also well positioned to accommodate future growth based on current licensed beds in the absence of the proposed projects unless seasonality is considered. On the other hand, during the winter season, from time- to-time, it can be difficult to obtain a bed at any of these hospitals. Recent approvals may help. Baptist has recently been approved to add 30 acute care beds, Baptist Beaches eight, St. Luke's four and Flagler 31. Based on 50,300 admissions from a population of 537,182 in 2000, Subdistrict 4-3 realized a use rate of 93.38 per 1,000 population. Utilizing the same analysis as presented above with respect to District 4, Subdistrict 4-3 is projected to achieve an incremental increase in average daily census of 72.6 in 2006 and 85.8 in 2007. When this incremental increase is applied to the current Subdistrict 4-3 acute care complement of 1,398 beds, Subdistrict 3 hospitals will experience a 51.4% occupancy rate (leaving 679 surplus beds) in 2006 and a 52.3% occupancy rate (666 surplus beds) in 2007. In 2000, patients from outside the service area accessing District 4 hospitals accounted for an additional 229.6 patient days of Subdistrict 4-3. Holding in-migration constant, Subdistrict 4-3 is expected to have an occupancy rate of 67% in 2006 and 68% in 2007. These rates would be higher, however, if in-migration grows. Approval of the three applications at issue will not result in any change in the district-wide acute care bed inventory. Since none of the applications at issue in this case would result in an increase in the acute care bed inventory of the district, AHCA took the position that numeric need for the acute care beds was not an issue in any of the applications. Memorial disputes the Agency's position on this point at least with regard to St. Vincent's. Unlike the St. Luke's and Baptist's applications (both of which increase neither the bed inventory of the district nor of Subdistrict 4-3), St. Vincent's application will increase the bed inventory of Subdistrict 4-3. If St. Vincent's application is granted the bed inventory of Subdistrict 4-3 will be increased by 70, the 70 beds St. Vincent's hopes to transfer from its facility in Subdistrict 4-2 to the new St. Luke's. The issue is important. If AHCA is correct, St. Vincent's need not demonstrate "not normal" circumstances to support its application; if numeric need is an issue with regard to St. Vincent's then it is required to demonstrate such circumstances because numeric need for the subdistrict is zero. Events Related to the Stipulation in the Comparative Review Cases Case No. 02-0447CON ("Memorial's Case") was initiated by Memorial in its status as an existing provider of acute care hospital services. Its purpose is to challenge AHCA's approval of St. Vincent's partial application. It does not take issue with the approvals of the St. Luke's and Baptist's applications. Unlike Case No. 02-0447CON, the other three cases in this consolidated proceeding were filed by applicants: Baptist, St. Vincent's or St. Luke's. The three cases initiated by the applicants each seek comparative review of the applications. For example, in Case No. 02-0971CON, St. Luke's requests the relief that both St. Vincent's and its applications be granted in lieu of Baptist's. The three cases filed by the applicants, Case Nos. 02- 0882CON, 02-0943CON, and 02-0971CON, (the "Comparative Review Cases") were consolidated with Memorial's case, but Case No. 02- 0882, having been originally assigned to an administrative law judge other than the undersigned, was not consolidated with the rest of the cases until May 3, 2002. On April 22, 2002, Memorial filed a petition to intervene in each of the Comparative Review Cases. On May 3, 2002, the petition was granted subject to Memorial's presentation of proof of standing at final hearing. The Stipulation in the Comparative Review Cases Prior to Memorial's intervention in the Comparative Review Cases, all of the parties to those cases entered a pre- hearing stipulation (the "Stipulation in the Comparative Review Cases.") With the exception of the issues contained in Memorial's Case, the Stipulation in the Comparative Review Cases was ruled binding on Memorial and to have extinguished all issues it settles except for those raised in Memorial's case. The stipulation follows: The parties [AHCA, St. Luke's, St. Vincent's and Baptist] agree that each application, as a matter of fact and law, satisfies the following statutory and rule criteria: Each application was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. CON application 9483 is a replacement application. c. Section 408.035(3), (4), (5), (6)(except for availability of health personnel and management personnel), (8), (10) (including architectural design, movable equipment, and fixed equipment), (11). Section 408.035(12) is not at issue. Rule 59C-1.038(6)(a) and (b), Florida Administrative Code. f. Rule 59C-1.030(2)(a)-(d). (Case Nos. 02-0882CON, 02-0943CON, and 02-0971CON, Joint Pre- hearing Stipulation, 1st Attachment.) Although Memorial did not join in this stipulation, the stipulation preceded Memorial's intervention in the three cases in which the stipulation was entered. In consideration of Memorial taking the cases in which the stipulation was entered as it found them at the time of intervention, the stipulation was ruled to be binding on all parties to the four consolidated cases, including Memorial, although its effect in the consolidated cases was limited because the petition in Memorial's Case was not subject to the stipulation. The issues raised by Memorial's Case that the stipulation extinguished in the Comparative Review Cases, therefore, survived in the consolidated cases by virtue of the petition in Memorial's case. The remainder of the issues (those not raised by Memorial's Case) that were subject to the stipulation were extinguished by the stipulation for purposes of the consolidated cases. Joint Pre-hearing Stipulation A pre-hearing stipulation entered by all parties, including Memorial, contains the following: St. Vincent's application 9484P was timely filed, complete and satisfies the provisions of Section 408.037, Florida Statutes. St. Vincent's and Memorial each have a history of providing high quality of care for inpatient hospital services and have the continued capability of providing high quality of care. Accordingly, the quality of care provided by these parties is not at issue in this proceeding. Additionally, the parties agree that St. Vincent's would be able to provide quality care at St. Luke's Hospital if its application 9484P is approved. St. Vincent's CON application 9484P satisfies the criterion contained in Section 408.035(3), Florida Statutes. The parties agree that St. Vincent's has available management personnel and funds for capital and operating expenditures and therefore satisfies those specific portions of Section 408.035(6), Florida Statutes. The letter contained in CON application number 9484 from Charles J. Barnett, Senior Vice President for Ascension Health to John J. Maher, Chief Executive Officer of St. Vincent's, can be admitted for the truth of the matters asserted without further proof. Also, the letter dated October 12, 2001 for James M. Corrigan, Senior Vice President and Chief Financial Officer of St. Vincent's, to Jeffrey N. Gregg can be admitted for the truth of the matters asserted without further proof. The parties agree that St. Vincent's has a history of providing health care services to Medicaid patients and the medically indigent (Section 408.035(11), Florida Statutes). However, Memorial does not agree that St. Vincent's can meet the levels of charity care proposed in CON Application No. 9484P. Section 408.035(12) is not at issue. (Joint Pre-hearing Stipulation.) Growth at St. Luke's, Mayo's Options The transplant programs at St. Luke's have far exceeded original expectations for the number of patients to be treated. For example, the CON application for the liver program projected 15, 30, and 45 transplants over the first three years of operation. The first liver transplant at St. Luke's occurred in February 1998, and within the first twelve months 75 transplants had taken place at St. Luke's. Last year, 176 liver transplants were performed at St. Luke's making it the fourth largest liver transplant program in the country. Volumes in the kidney, pancreas and lung transplant programs have also greatly exceeded expectations. The increase in volume has generated more competition between community and Mayo physicians for St. Luke's hospital resources and has increased the friction between these two distinct segments of the St. Luke's medical staff. One example of the logistical and political problems that exist at St. Luke's because of the two segments of physicians that practice there is allocation of operating rooms. Somewhere between 65% and 70% of the patient days at St. Luke's are generated by Mayo physicians. Community doctors generate the remainder of patient days (30 to 35%). In settlement of the competition for operating room ("OR") time, ORs at St. Luke's are divided into those dedicated to Mayo Clinic physicians (currently 14 in number) and those dedicated to community doctors (currently 4 in number). When compared to percentages of patient days, the divide in ORs favors Mayo Clinic physicians. Approximately 78% of the ORs are dedicated to Mayo physicians; only 22% to community physicians. A determination of equity in the OR divide is more involved, however, because of the level of acuity of Mayo patients and the level of service provided by Mayo physicians when compared to community doctors. Nonetheless, conflict between community and Mayo physicians over the availability of ORs persists. It is likely to grow worse as inpatient utilization and surgical volume at St. Luke's increases. For the last six years, inpatient utilization at St. Luke's has grown 10% per annum. In addition to this sustained growth, with the increase in the number of transplant programs, St. Luke's is also experiencing a notable increase in the acuity of its patients. Admissions to St. Luke's are affected by seasonality. The first three or four months of the year are the busiest. During that time of year, St. Luke's has experienced occupancies in excess of 100% in its critical care units. As a result of occupancy pressures at St. Luke's there are Mayo patients that are seen at the Mayo Clinic who are not being admitted in a timely fashion. Mayo physicians have had to either delay those admissions or send the patients home or to another facility for treatment. St. Luke's is taking stop-gap steps to limit further growth at St. Luke's because of the growth in patient census. It has recently amended its medical staff bylaws to eliminate courtesy staff privileges. More significantly, St. Luke's is in the process of capping the size of its medical staff, and not allowing any new physicians (Mayo or community) to join the medical staff until such time as another physician leaves the staff. The plan to cap the size of its medical staff in response to that growth has resulted in heightened tensions between the Mayo physicians and the community physicians over their competition for space and resources at St. Luke's. Mayo has examined a number of options for a permanent solution to the problems created by growth. One option considered was expanding the size of St. Luke's so that it can accommodate not only more inpatients but also more space for the teaching and research components of Mayo's mission. Problems with this option include concurrency restrictions associated with further expansion on the St. Luke's site and basic hospital infrastructure limitations related to a facility originally designed and built as a community hospital and not the quaternary or research facility now required. Expansion is not practical. Even if it were practical, expansion does not accomplish consolidation of Mayo's inpatient and outpatient services needed for the Mayo Model to work at an optimal level. Faced with ever-increasing capacity constraints at St. Luke's, the option Mayo has chosen the one proposed by its application: the 214-bed replacement hospital on the Mayo Clinic Jacksonville campus. The approach is supported by St. Vincent's companion application in which it proposes to establish a 135-bed hospital at the Belfort Road location. Under these two applications, most of the Mayo physicians would move their inpatient practices to the replacement hospital while community physicians would continue to admit patients to the hospital on the present St. Luke's site. If these applications are not approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians. Elimination of the "community" side of St. Luke's hospital is less than ideal from the Agency's point of view as explained by Jeffery N. Gregg, Chief of AHCA's Bureau of Health Facility Regulation: [The Agency is] aware of the traditional position of St. Luke's Hospital in Jacksonville. It's a very old provider. It's . . . widely recognized as an important part of the community. It has a long tradition and . . . it inspires a considerable degree of . . . affection and loyalty among people who live in Jacksonville. . . . [O]ne of the things that . . . we like about this proposal is that it preserves a spot for an ongoing role for the institution of St. Luke's. If Mayo were to close the staff at the current St. Luke's, what greater Jacksonville has traditionally known as St. Luke's would disappear, in that, . . . it would become the Mayo hospital; the community component would go away. It would have to relocate to other places, and . . ., that would not be an ideal solution . . . . (Tr. 1398, 1399). Closing the staff at St. Luke's would have another aspect besides elimination of the "community" side of the hospital that would be less than ideal. It would not solve the inefficiencies that arise from Mayo physicians having to split time between two different campuses. Consultation among Mayo physicians and comprehensiveness of care in a single setting is facilitated by physician proximity to each other and to shared information systems. Ten miles from the Mayo Clinic Jacksonville campus, the location of St. Luke's presents difficulties for Mayo Clinic physicians and the inpatient care and research components of Mayo's mission. The great majority of the offices of Mayo Clinic physicians are at the Mayo Clinic Jacksonville campus. Mayo physicians see outpatients at their offices but must leave for St. Luke's to treat inpatients. The split between the site of inpatient practice and Mayo Clinic Jacksonville is not merely inconvenient but inefficient. When required to see an inpatient, the typical Mayo Clinic physician must leave the Clinic office, walk to the parking lot, drive the ten miles between the two campuses, re-park, and walk to the hospital. The trek easily takes 20 minutes one way and, depending on traffic, can take as much as half an hour. The thoroughfare that runs between St. Luke's and Mayo Clinic Jacksonville is J. Turner Butler Boulevard. Traffic congestion on the corridor is severe. Approval of St. Luke's application for a replacement facility at the Mayo Clinic Jacksonville campus will eliminate these efficiencies. It will give Mayo Clinic physicians quicker access to inpatients. Conversely, it will give inpatients treated by Mayo Clinic Jacksonville physicians in all their specialties and sub-specialties more efficient treatment from the physicians. While St. Luke's is a modern, well-maintained facility, it was designed as a community hospital and not as a teaching or research institution. The physical plant limits the teaching component of Mayo's mission. For example, while the patient rooms at St. Luke's are sufficient for providing patient care, they are not large enough to properly accommodate teaching rounds by Mayo residency training teams. There is another option for Mayo with regard to St. Luke's: build a replacement facility on the campus of Mayo Clinic Jacksonville and sell St. Luke's to St. Vincent's. Proposed Acquisition of St. Luke's by St. Vincent's St. Vincent's and Mayo have entered into an agreement for the sale of St. Luke's by Mayo and its acquisition by St. Vincent's. The proceeds from St. Vincent's purchase of St. Luke's will provide the majority of the funding for the building of the replacement hospital. The balance of the construction costs for the replacement hospital will come from philanthropic donations that Mayo has largely already secured. A new St. Luke's will also be the result: St. Luke's operated by St. Vincent's rather than by Mayo. The agreement, contingent upon final approval of the St. Vincent's and Mayo CON applications at issue in this proceeding, contemplates two closings. At the Phase I closing, St. Vincent's will purchase the land and the St. Luke's buildings from the Mayo Foundation for $102 million. At the time of the Phase I closing, St. Vincent's will lease back to Mayo the buildings on St. Luke's campus. The leaseback will enable Mayo to continue to operate at St. Luke's while the replacement hospital is under construction. In addition to the $102 million payment, St. Vincent's will reimburse Mayo for capital improvements to be made at St. Luke's Hospital during the term of the lease up to total of $48 million. During the lease period, Mayo will construct the replacement facility on the campus of Mayo Clinic Jacksonville. Upon completion of the construction, a Phase 2 closing will take place. In the fashion of a turnkey operation, St. Vincent's will become the license holder and operator of St. Luke's Hospital at the Phase 2 closing and Mayo will commence hospital operation at the replacement facility. The Phase 2 closing should not cause any interruption to the delivery of services at St. Luke's to the patients of community physicians. Nor should there be any time during any transition from Mayo's operation of St. Luke's to St. Vincent's when St. Luke's is forced to close because of the Phase 2 closing. The agreement between Mayo and St. Vincent's includes a provision for a contingent payment from St. Vincent's to Mayo in 2012 if the net patient revenues of St. Luke's exceed a certain amount in 2011. The contingent payment is not properly considered a project cost required to be listed on Schedule 1 of St. Vincent's CON application. It is speculative as to whether on not a 2011 payment will be required. (Under St. Vincent's forecast, the 2011 net patient revenue projection is below the payment threshold.) If a payment were required, moreover, it would be an operational expense incurred in 2012 rather than a Schedule 1 project cost incurred over the period of construction. Such a payment would not constitute a cost incurred in order to make the hospital operational or a cost to place an asset into service, the kind of cost listed on Schedule 1. Prior to entering into the agreement, St. Vincent's hired Solomon Smith Barney ("Solomon"), one of the world's largest investment banks, to review its terms and help determine an offering price by St. Vincent's. Under the agreement, St. Vincent's is purchasing the entire St. Luke's campus. This includes two medical buildings as well as St. Luke's Hospital. Mayo, moreover, is currently undertaking major construction projects at St. Luke's, including a $7 million expansion of the Emergency Department and a $15 million three-story addition and renovation project. Both are scheduled for completion prior to the Phase 2 closing. As part of its analysis, Solomon visited St. Luke's, looked at comparable transactions and current market values, and attended the negotiating sessions between Mayo and St. Luke's. Afterward, Solomon issued an opinion letter that the purchase price was fair. St. Vincent's entered into the agreement with Mayo because it saw the opportunity to extend its mission into Southside Jacksonville and to enhance the ability of both organizations to fulfill their respective missions. Approval of St. Vincent's application will improve access to care by the poor. While Mayo treats uninsured and underinsured at St. Luke's, its mission and focus are not directed toward service to the poor. St. Vincent's mission and focus, on the other hand, is its charity care policies and programs. They will be implemented at St. Luke's. Implementation of those policies and programs at the new St. Luke's to be operated by St. Vincent's will allow expansion of the geographical area served by St. Vincent's outreach programs. While many of the area's poor are located on the north side of Jacksonville, there are pockets of uninsured and underinsured throughout Duval County. Migrant farms in north St. John's County now served by St. Vincent's two mobile vans are closer to St. Luke's than St. Vincent's. Approval of St. Vincent's application will allow those migrant workers in need of hospitalization to be transported to and treated at St. Luke's rather than the more distant St. Vincent's. Community doctors practicing at St. Luke's support both Mayo's plans for a replacement hospital and St. Vincent's application for a new hospital at St. Luke's. Approval of the applications will open additional space at St. Luke's for the community doctors and allow more of that group to practice at St. Luke's. Approval of the St. Luke's and St. Vincent's applications will significantly further both Mayo's and St. Vincent's distinct missions. Approval of the St. Luke's application will allow Mayo to achieve its long-awaited goal of a Mayo Clinic Jacksonville hospital on the Mayo campus with a closed staff and otherwise specifically designed to accomplish the Mayo mission. Approval of St. Vincent's will ensure the continuation of a full-service community hospital at St. Luke's that is committed to and skilled at serving all patient populations including the poor consistent with the mission of St. Vincent's. It will return St. Luke's to its historical community roots and increase its accessibility to Medicaid patients and other underserved populations. The Proposed Projects St. Luke's The Agency has never previously reviewed or approved an application to establish a replacement hospital where the replaced facility continues to operate as a hospital. Nonetheless, prior to Memorial's intervention into the three cases in which it intervened, the parties stipulated that St. Luke's application is for a replacement hospital. It is clear, moreover, that the hospital St. Luke's seeks to construct on Mayo Clinic Jacksonville's campus is to replace the hospital at St. Luke's for the use of Mayo physicians. The Agency takes the position that the hospital proposed by St. Luke's is a replacement hospital. The St. Luke's replacement hospital will be a state- of-the-art tertiary/quaternary hospital located on the Mayo Clinic Jacksonville campus in eastern Duval County specifically designed to accommodate Mayo Clinic Jacksonville's mission. The total cost of the replacement hospital will be $207 million financed through philanthropic contributions and the sale of the St. Luke's Belfort Road campus. With the exception of obstetrics and Level II NICU, the services presently at St. Luke's will be transferred to the replacement hospital. The outpatient transplant services will also be transferred to the Mayo Clinic Jacksonville campus in order to support the relocated inpatient transplant programs. If the CON application for the replacement hospital and for St. Vincent's to establish a new hospital at Belfort Road are approved and become final with all appeals exhausted, St. Luke's will sell the Belfort Road property, plant, and equipment to St. Vincent's. St. Vincent's will then lease the Belfort Road campus to St. Luke's while the replacement hospital is constructed. When the replacement hospital is completed, in simultaneous actions, the license will be issued for the St. Luke's Replacement Hospital to begin operations at the Mayo Clinic Jacksonville campus. At no time will hospital operations at St. Luke's on Belfort Road cease. St. Luke's and St. Vincent's have constructed the agreement so that services provided to community patients by community physicians at Belfort Road should not be interrupted. The 214 beds proposed for the replacement hospital will be adequate to support the demand for Mayo Clinic Jacksonville services at least for the first few years of operation. The design of the replacement hospital and the lack of any site constraints at the Mayo Clinic Jacksonville campus will easily allow for expansion of the replacement hospital if the need arises. If approved, the replacement hospital will be fully constructed by late 2005. St. Vincent's St. Vincent's seeks authorization to establish a 135- bed hospital at the site of the existing St. Luke's Hospital. The hospital will continue to be known as St. Luke's Hospital. As described earlier, St. Vincent's will become the licensee and operator of St. Luke's at the precise moment in time that Mayo receives its license and begins operations at the replacement hospital, an event expected to occur sometime in 2006 or 2007. The 135-bed hospital proposed by St. Vincent's would be a community hospital. All of the transplant programs now provided at St. Luke's by Mayo would be transferred to the replacement hospital being built at the Mayo Clinic site. In addition to those quaternary programs, the existing adult open heart program at St. Luke's would also be moved to the replacement hospital. Mayo does not plan to offer obstetrical services at the replacement hospital. The obstetricians and the majority of the associated nursing and other support staff for obstetrics and Level II NICU services would remain at the Belfort Road location after the Phase 2 closing. (Whether the Level II NICU program will continue is dependent, however, on the outcome of a separate CON application by St. Vincent's challenged by Memorial in DOAH Case No. 02-0457CON.) St. Luke's is currently licensed for 289 beds. If its application is granted, the transfer of 214 beds will leave 65 acute care and 10 NICU beds behind. In addition to the 65 beds to be de-licensed by Mayo, St. Vincent's proposes to transfer 70 additional beds from St. Vincent's to the "new" St. Luke's Hospital to make up the 135-bed hospital. St. Vincent's is well utilized. The transfer of the 70 beds is therefore, criticized by Memorial as "unwise." (Tr. 2166). St. Vincent's, however, has devised a number of strategies to accommodate the transfer. First, St. Vincent's has recently received approval to convert 34 psychiatric beds to acute care beds, and is in the process of implementing the project. Second, St. Vincent's now uses 35 licensed beds as a pre-ambulatory and post-ambulatory surgical holding area. It is in the process of making those licensed beds available for inpatients. Third, St. Vincent's is building 20 additional examination and holding rooms in its emergency department, and is also building a 20-bed pre-holding and post-holding area for cardiac catheterization patients. These projects will free up licensed beds for inpatients at St. Vincent's. Fourth, St. Vincent's is in the process of implementing a case management program that is focusing on reducing lengths of stay. It is estimated that this program will reduce the average stay by half a day. Such a reduction will make 35 beds available. Fifth, on average, St. Vincent's currently sees 30 patients per day that come from the zip codes that surround St. Luke's. After the Phase 2 closing, St. Vincent's plans to encourage its specialty physicians to care for those patients at St. Luke's and anticipates redirecting 75% of those patients, or 22 patients per day, from St. Vincent's to St. Luke's. This redirection will further increase the number of beds available at St. Vincent's. Should St. Vincent's experience high occupancies following the Phase 2 closing despite implementation of these strategies, St. Vincent's will have the space for additional beds left by the 70 transferred beds. St. Vincent's could add up to 45 beds pursuant to a statutory exemption from CON review provided it meets the statutory threshold for triggering the exemption of annual occupancy at 80% or more. This last approach is not exempt from criticism: "[T]o take beds out of service and get to 80% [occupancy rate so as to trigger the statutory exemption] and say, therefore, I need to get beds back, that seems to be in a sense a certain gaming of the system." (Tr. 2166). St. Vincent's plans to implement the other strategies first, however. Taking advantage of the statutory exemption is a fall-back position should all else fail not a method to take advantage of the system in the first place. In any event, St. Vincent's application does not contemplate any construction by St. Vincent's at St. Luke's in order to implement its proposal. The application contemplates a seamless turnkey transition in which St. Vincent's simply takes over operations at St. Luke's at the Phase 2 closing. Baptist's Baptist proposes to construct a new 92-bed satellite hospital at the intersection of Old St. Augustine Road and I-95 in southern Duval County, just north of the St. Johns County line at a total project cost of $84.4 million. Baptist will transfer 92 acute care beds from its downtown campus to the satellite hospital. The transfer will result in the addition of no new beds to Baptist's license and no new beds to the acute care bed inventory of Subdistrict 4-3. The goal of the project is two-fold: to provide easily accessible, affordable health care to a rapidly growing population in southern Duval and northern St. Johns' Counties and to "decompress" Baptist Medical Center's existing campus in order to allow for modernization and to make it more efficient. The proposed satellite hospital will provide general medical/surgical and obstetrical services. It will offer an active and convenient emergency room and serve patients regardless of ability to pay. The new hospital will be family- focused, with large private rooms where a patient's family can be involved with patient care. Baptist's proposed hospital will pay special attention to the environment, both external and internal, with an emphasis on a healing library available to patients and their families. The 92-bed facility will be comprised of 72 med/surg beds, 8 ICU beds and 12 labor/delivery/recovery beds ("LDR beds") for obstetrical services. The facility will be an attractive five-story building. Although housing only 92 beds, it will have the presence of a larger hospital. Baptist has a contract to purchase a 32-acre parcel of land for the new facility. The purchase is contingent on final approval of its CON application in this case. The proposed site is part of a 900-acre DRI development called Grand Park of Jacksonville. This site has already met all regulatory approvals to build a new hospital, including zoning, land use studies, and DRI requirements. Unprecedented The net effect of approval of St. Luke's, St. Vincent's and Baptist's applications is for three different hospitals to come on line in Sub-district 4-3 at a cost of more than $400 million dollars. Approval of three hospital CON applications in one sub-district at once, as Memorial points out, is unprecedented. The associated costs, moreover, are considerable. On the other hand, a characterization of this proceeding as involving three "new" hospitals is not entirely accurate. While implementation of an approved St. Luke's application will require Mayo to build a "new" hospital, it will be a replacement hospital. Implementation of the approval will simply move an existing volume of business to a new physical plant. St. Vincent's hoped-for situation is, in part, the opposite. The transfer of 70 beds at St. Vincent's to join 65 beds and an existing facility will not entail the building of a new physical plant. Nor will it necessarily entail the capture of a significant number of new patients. The aim is to retain at St. Luke's the volume of its pure community cases and treat at the new St. Luke's facility up to 75% of the patients now treated at St. Vincent's that originate in St. Luke's primary service area. While the hospital will be "new," the facility will not; it will be a facility that has existed for more than 20 years and that continues to be put to its highest and best use. Nor will there be anything new about the treatment of community patients since for those who chose to use it there will not be a break in service at the facility during the shift of its control from St. Luke's to St. Vincent's. Baptist's project is not simply a new hospital either. It will be a satellite of an existing facility from which all its beds will be transferred. It will require a new physical plant, but it will operate under the same license to accommodate patients in the district, some of whom, it might have served at the main campus, had the satellite not been built, in the beds now intended for transfer. The usual aim of the CON law, to prevent the unnecessary duplication of services within a health care planning district will not be defeated by approvals any of the applications. The inventory of beds in District 4 will not increase through approval of the two CONs proposed by St. Luke's and St. Vincent's. Approval of the two, moreover, will allow Mayo to focus on the quaternary health care services, and medical education and research in which it specializes while St. Vincent's will be able to carry on the traditional community hospital care services that have long been provided at St. Luke's. Nor will Baptist be duplicating services since it is doing no more than transferring services within the subdistrict to a satellite sited more advantageously than the original site of the transferred beds. Certainly, there are factors present in the applications that are drawbacks, at least at first blush. With regard to the application for the replacement hospital filed by St. Luke's, there are no Medicaid or charity conditions. Historically, St. Luke's has only provided 1.57% of its patient days to Medicaid patients and has failed to meet indigent care conditions in the past. For fiscal year 2000, St. Luke's only provided slightly less than 9/10th of 1% of gross revenues to charity care patients. Part of the problem is that St. Luke's is located in an area with a population that is relatively affluent with the potential for few Medicaid and indigent patients since St. Luke's does not employ the outreach practices of St. Vincent's. Nonetheless, the Agency agrees with Memorial that the "weak point of the [St.Luke's/]Mayo application is indigent care." (Tr. 1437). Indigent care, however, is not an aspect of health care that Mayo has ever aspired to generally. Its mission is not to treat economically disadvantaged patients in favor of other patients or to treat certain percentages of indigent patients. Its mission is to offer health care services and medical treatment not ordinarily available at most local providers in an environment of research and medical education. As Mr. Walters explained at hearing with respect to Mayo's contribution to health care of the economically disadvantaged: Mayo can provide advances in science in our research initiatives. So as we deal with neuro-degenerative diseases and Alzheimer's, as we deal with finding the cures of cancer, these are advances in science that we believe are going to benefit all people, regardless of their ability to pay. (Tr. 241). Furthermore, St. Vincent's purchase of St. Luke's, with St. Vincent's dedication to serving the poor and history as a disproportionate share provider of Medicaid services offers the potential for the record of service to the indigent at the new St. Luke's to improve over St. Luke's historical record. The potential is enhanced by St. Vincent's practices of reaching out to the poor and the underserved. However one views the lack of indigent care conditions in St. Luke's application, there are certain drawbacks of the three applications. Baptist, for example, projects relatively low occupancy rates of only 37.8% and 48.37% in year 2005 and 2006, respectively. Obstetrics and Level II NICU services will not be provided at the replacement facility. For the Level II NICU services to continue to be provided at the new St. Luke's, if St. Luke's application and St. Vincent's application in this proceeding are granted, a separate CON will have to be approved for St. Vincent's at St. Luke's facility. That CON is subject to a separate proceeding under DOAH Case No. 02-0457CON. Approval of the St. Vincent's application, moreover, will have an impact on Memorial, an existing provider. Before addressing the drawbacks as well as the need for each of the proposals, there is one aspect of the case that must be clearly understood: the linkage between St. Luke's application and St. Vincent's. Linkage With regard to St. Luke's and St. Vincent's application, the issues regarding each must be viewed in the context of the interdependency of the two applications. If St. Luke's is denied, St. Vincent's project, whether approved or not, will not be able to proceed. There can be no sale to St. Vincent's of St. Luke's if the Mayo physicians do not have the facility on the Mayo campus. Likewise, if St. Vincent's application is denied, the effect on St. Luke's, whether its CON is approved or not, is that its project will not go forward. The St. Luke's project depends on the sale of St. Luke's to St. Vincent's for financing the construction of Mayo's replacement hospital. Without the funds from the sale of St. Luke's, the replacement hospital will not be built under the terms of St. Luke's CON application. The two projects are linked and interdependent; neither one can proceed without the way having been cleared for the other. The unusual aspect of the linkage of the St. Luke's and St. Vincent's applications is of central consideration in this case. That aside, as in any CON proceeding, the drawbacks to approval must be weighed and balanced against factors that favor approval within those statutory and rule criteria applicable in CON proceedings to allow a determination as to "need." Need for the Mayo Replacement Hospital Since the affiliation between St. Luke's and Mayo Clinic Jacksonville, St. Luke's, through a number of CON approvals, has added several adult tertiary services - bone marrow transplant, liver transplant, kidney transplant, pancreas transplant, heart transplant, and lung transplant. St. Luke's has also added community service obstetrics. The addition of obstetrics led to further service intensification through CON approval for another tertiary service at St. Luke's - a Level II NICU. The addition of these hospital services coupled with Mayo Clinic Jacksonville's capabilities and patient draw makes St. Luke's a tertiary/quaternary facility. Approximately 65% of the patients admitted to St. Luke's by Mayo physicians come from Duval County and elsewhere in District 4. Eighteen percent of the patients admitted by Mayo physicians come from the remainder of the State of Florida, and 17% come from elsewhere in the United States or from foreign countries. St. Luke's also serves as a teaching hospital in support of Mayo Clinical Jacksonville's medical education activities and by providing the inpatient training for the residency programs. St. Luke's achieved formal recognition as a teaching hospital in 1995, when it was accepted into the Counsel of Teaching Hospitals of the Association of American Medical Colleges. Some Mayo physicians are based at the St. Luke's campus. Those physicians are anesthesiologists, some family practice physicians, and the physicians involved in the solid organ transplant programs. St. Luke's is a modern facility in excellent shape. It has been accepted into the Council of Teaching Hospitals of the Association of American Medical Colleges. Although no evidence was adduced of physical plant requirements for such acceptance, the physical plant limitations of St. Luke's certainly did not impede its acceptance. St. Luke's is in the process, moreover, of seeking designation by the state as a teaching facility. As of the time of hearing that designation had not yet been achieved. Despite the quality of the facility, its recognition as an educational facility and the attempt by St. Luke's to achieve a "state" teaching hospital designation, the simple fact remains: St. Luke's was designed to be a basic community hospital. It remains adequate to support traditional community- focused non-Mayo programs. It has been adequate to support the transplant programs and the Mayo teaching mission and will continue to be so if Mayo closes the staff to Mayo physicians. It was not designed, however, with sufficient space, facilities, and other physical infrastructure to support the presence of both the contingent at its present size of community physicians and the Mayo physicians' rapidly growing clinical practice plus the vigorous medical education and research programs required of a Mayo hospital. St. Luke's is already experiencing capacity problems, with pressure on both its acute care beds and supporting acute care infrastructure produced by an average compound growth rate of 10% per annum over the past five years. St. Luke's will be at full capacity by the time the replacement hospital becomes operational if one uses a conservative growth rate of 5% per year. As Health Planner Mark Richardson put it at the hearing using the conservative 5% rate, "[t]he bottom line is that through the year 2006 and 2007, the expectation is that St. Luke's Hospital will not have enough beds to meet its needs." (Tr. 465). Mayo Clinic Jacksonville cannot maintain the status quo putting St. Luke's at a crossroad. The capacity problems must be addressed. One alternative to a replacement hospital would be closure of the medical staff at St. Luke's. It is not a desirable remedy. It would result in a significant adverse impact to the community physicians and their patients who have supported St. Luke's since its affiliation with Mayo in 1987. It ignores, moreover, St. Luke's original design as a community hospital. While it may be adequate for service as Mayo's clinical component to its Jacksonville base, it was not designed to meet the needs of the tertiary/quaternary facility it has become, nor as a hospital designed to support Mayo's vigorous medical teaching and research. Closure of the medical staff at St. Luke's will inhibit realization of the optimal service delivery approach favored by the Mayo Clinic integrated group practice model and used by Mayo Clinic Jacksonville physicians. Thus, closure of the staff at St. Luke's would have the dual effect that would serve neither the needs of community physicians now at St. Luke's nor Mayo physicians as well as they would be served by the approval of CON 9483. A substantial re-build of St. Luke's is not a practical means to keep the Mayo and community practices together at the hospital or even as a means to provide adequate facilities if the staff at the hospital were closed to Mayo physicians. Physical site restraints and significant local permitting obstacles such as planning and zoning regulations place substantial limitations on significant addition or renovation. Renovation falls short of the realization of the numerous efficiencies and other benefits that will accrue from consolidation of hospital operations on the Mayo Clinic Jacksonville campus. Even if other obstacles were to be overcome, renovation would be inordinately expensive. On balance, "rebuild" dollars would be better spent by preserving St. Luke's as a community hospital operated by St. Vincent's and by addressing Mayo Clinic Jacksonville's needs in the most optimal manner by construction of the Replacement Hospital. The solution proposed by CON application 9483 provides a number of benefits. It resolves the bed and support space limitations at St. Luke's Belfort Road campus. It will provide improvement in the coordination of care achieved by consolidation of all clinical and administrative operations on the Mayo Clinic Jacksonville campus and establishment of a physical plant specifically designed to accommodate Mayo Clinic Jacksonville's mission and growth. Operational efficiencies will be enhanced. At the same time, the transfer of beds proposed by St. Vincent's avoids the abandonment of St. Luke's Belfort Road facility and significant capital invested there if St. Vincent's proposed project is approved with the added benefit of approval of providing an innovative financing mechanism for the replacement hospital. Current staff at St. Luke's is adequate for the staffing of the replacement hospital. If staffing vacancies occur, nonetheless, Mayo should do better than the industry as a whole in filling those vacancies. District 4 Health Plan Preferences St. Luke's gains credit under some of the District 4 Health Plan Preferences. It will meet identified needs by providing services that meet commonly accepted quality standards in the most economical manner in terms of capital and operating expenditures. St. Luke's has access to an adequate supply of appropriate manpower. The replacement hospital with the continued operation of St. Luke's by St. Vincent's will provide a full array of acute care services. St. Luke's has a patient transfer agreement with Duval County Health Department's Primary Care Program. And the transfer of beds to the replacement hospital is necessary to maintain an improved quality of care and is more cost efficient than renovation and an expansion of the existing St. Luke's facility. Mayo: No Longer a Participant in Medicare, Part B A Change in Mayo's Medicare Policy At the time of hearing, Mayo Clinic Jacksonville participated fully in Medicare. It accepted from Medicare patients assignment of all their Medicare claims including those for services provided by Mayo Clinic Jacksonville physicians to them at St. Luke's and for all clinic services provided them on the Mayo Clinic Jacksonville campus. On June 21, 2002 (the day after the conclusion on June 20 of the final hearing), Mayo Clinic Jacksonville announced in its weekly newsletter provided to Mayo Clinic and St. Luke's Hospital staffs an "[u]pcoming change in Medicare billing." (See Exhibit 1 to Memorial's Motion to Reopen the Record Based Upon Newly Discovered Evidence and to Schedule an Evidentiary Hearing.) The announced upcoming change was the decision of the Mayo Clinic Jacksonville's Board of Governors that the Clinic would not participate in Medicare Part B effective January 1, 2003, a change in Mayo's Medicare Policy (the "Medicare Policy Change.") The Medicare Policy Change was the result of at least two factors. First, payment rates for physician services under Medicare Part B have been reduced by the Health Care Financing Administration. Further reductions are expected. Mayo suffers financial losses in the care of Medicare patients as it is. Mayo regards Medicare reimbursement to be inadequate and fears deeper financial losses. Non-participation in Medicare Part B allows Mayo to bill more for physician and clinic services and the possibility of not only staving off financial loss in the treatment of Medicare patients but achieving financial gain. Second, Medicare business, as percentage of all Mayo business, is increasing. In a letter dated July 3, 2002, the Medicare Policy Change and its effects on the Medicare patient were explained by Denis A. Cortese, M.D., Chair of the Board of Governors: Dear Medicare Patient: I'm writing to give you advance notice of an important billing change that will effect all our Medicare patients next year. As you know, Mayo Clinic in Jacksonville accepts payment from Medicare directly on your behalf for Medicare Part B services at the clinic and St. Luke's Hospital. Effective Jan. 1, 2003, Mayo Jacksonville will switch to another Medicare-approved billing system and fee structure. This change means that Medicare will send payments directly to you, and you will be responsible for paying Mayo. You will also pay more out of pocket for our services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. * * * We value your confidence in us, and we realize these billing changes will require adjustments on both out parts. Mayo Clinic is a not-for-profit organization, and our ability to continue to provide quality patient care, education and research rests on prudent financial management. This year, Medicare cut payments to doctors by 5.4 percent, the steepest across-the-board cut in the program's history. Additional cuts totaling 14.2 percent are planned from 2003 through 2005. Continuing to accept such inadequate reimbursement is not responsible business practice and would seriously jeopardize our ability to sustain Mayo- quality services. It's important to note that: Medicare will send payment directly to you. It will be your responsibility to pay Mayo. You may be asked to pay some out- of-pocket expenses at the time of service. Mayo will continue to submit claims to Medicare for you. However, you will have to submit a claim form and necessary paperwork to any supplemental policies you have. * * * (Exhibit 10, attached to Memorial Ex. 54, Deposition of Mary Hoffman). In its September 2002 Practice Team Newsletter, St. Luke's reiterated the news about the Medicare Policy Change: . . . Effective Jan. 1, 2003, we will switch to a different billing system and fee structure, meaning we will no longer "accept assignment." This means that Medicare will send payments directly to patients who will be responsible for paying Mayo. Patients will also pay more out of pocket for these services. This switch concerns only professional and outpatient services covered by Medicare Part B medical insurance, not hospital facility services covered by Medicare Part A hospital insurance. Also excluded from the change in billing procedure are anesthesia, pathology and radiology services provided by Mayo physicians at St. Luke's Hospital for community patients and Emergency Department services for both community and Mayo patients. (Exhibit 14, attached to Memorial Ex. 54, Deposition of Mary Hoffman). On August 2, 2002, Memorial moved to reopen the record in the case and to schedule an evidentiary hearing. The motion was based on the assertion that the Medicare Policy Change poses the potential of reducing the volume at St. Luke's and "significantly impacts the ability of St. Luke's, and in particular, community physicians, to treat patients covered by the Medicare program." Memorial's Motion to Reopen the Record, etc., filed at DOAH Aug. 2, 2002, p. 3. The motion further asserted that "[t]his change could have a profound impact on St. Luke's argument that it needs to relocate its operations to its proposed replacement hospital . . . Memorial should be permitted discovery to ascertain the impact of St. Luke's and Mayo Clinic's decision not to accept assignment for Medicare patients." Id., at 4. The motion was granted. Memorial was permitted to conduct discovery and an evidentiary hearing took place on September 27, 27 and October 8, 2002. Part A; Part B In general, Medicare Part A payments are provided to hospitals for hospital services including skilled nursing care. Payments are made for some additional services, for example, in the case of the disabled, there are payments for some disability services. Medicare Part B payments are for services provided by physicians to the patient, whether as an inpatient in a hospital setting or an outpatient. Medicare Part B payments are also for all services, physician and otherwise, rendered by clinics (such as Mayo Clinic Jacksonville.) Medicare Part B payments also cover the portion of outpatient hospital services attributable to the hospital. For simplicity's sake and for purposes of understanding the issues in this case it makes sense to think of Medicare Part B payments as covering physician and clinic services and Medicare Part A payments as those covering hospital services other than the portion of those services attributable to a physician. As Richard Baehr, Memorial's health planning witness, testified, "And for . . . outpatient services, if . . . in a hospital, there is a facility component which is actually covered by Part B, but it's a hospital service, so there is no[] change as a result of what's going on here." (Tr. 2940). There is a technical component and a professional component to Medicare payments. The technical component covers expenses associated with the technicians, the equipment, the facility and the overhead. The professional component covers none of these. It covers the fees associated with the professional services of the physician. If a service is performed on the campus at Mayo Clinic Jacksonville, because Medicare Part B covers all services of a clinic, both technical and professional, then Mayo bills Medicare Part B for the entire procedure including both components, technical and professional. "It's called a global fee." (Memorial Ex. 54, p. 40). If a Mayo physician is involved in a service performed at St. Luke's then the billing is split. Mayo bills Medicare Part B for the professional services of the physician only. It does not bill for any of the technical services associated with the facility. To use an example, if an MRI is conducted on campus at Mayo Clinic Jacksonville for a Medicare patient, then Mayo bills Medicare Part B for the global fee covering both the technical components attributable to the facility and the professional components attributable to the interpreting imaging specialist. If the same MRI is conducted at St. Luke's, then Mayo bills Medicare Part B for the interpreting physician's fees but not for the technical component. The technical component is covered by Medicare Part A for the MRI conducted at St. Luke's. Impact to Medicare Patients at St. Luke's There is a definite impact of the Medicare Policy Change to St. Luke's patients of Mayo physicians. As Dr. Cortese informed Medicare patients, for Mayo physician services provided at St. Luke's "there will be now a different rate of payment and a different method of payment." (Tr. 2940). That impact did not exist before the change. Prior to adoption of the change, St. Luke's under assignment of the patient's right to the Medicare payment would have billed Medicare and any co-insurer directly for the Mayo physician's services at the payment rate acceptable to Medicare for the service. The patient would never see a bill. Once the patient assigned Medicare benefits to the participating physician, there would be no impact to the patient, either in terms of having to file additional paperwork with Medicare or in terms of having to pay out-of-pocket expenses. After the effective date of Mayo's decision to no longer participate in Medicare Part B, there is a two-fold impact to the Mayo physician's patient at St. Luke's. First, there is a paperwork burden. The patient must seek Medicare reimbursement for the non-participating physician's fees by filing the necessary forms with Medicare. Second, there is an expense burden. The patient will be left with an additional out-of- pocket expense not covered by Medicare or co-insurance. Medicare reimburses 80% of a Medicare Allowed Amount to the claimant (the patient or, in the case of an assignment, the assignee who files the claim for Medicare reimbursement). In the case of assignment, the assignee can also bill the remaining 20% of the Allowed Amount for participants from the patient's co- insurer. The assignee is capable of being paid 100% of the Medicare Allowed Amount for participating physicians. This arrangement satisfies entirely the Medicare patient's responsibility for the charge. The patient with co-insurance need file no paperwork with Medicare and suffers no out-of-pocket expense. For the patient of non-participating physicians, the double impact will occur. The Medicare Allowed Amount for non- participating physicians is set at 95% of the Medicare Allowed Amount for participating physicians. In the absence of an assignment, a non-participating physician can send a Medicare patient a bill up to 15% higher than the Allowed Amount for a service by non-participating physicians. For a non-participating physician who chooses to maximize the allowable billing for a Medicare patient, then, the bill sent to the patient is higher than the total amount that would have been claimed from Medicare and any co-insurer under assignment by a participating physician. To illustrate the financial impact if Mayo's Medicare Policy Change to a Medicare patient of a non-participating physician, Memorial's Health Planner, Richard Baehr gave an example of a physician service for which $100 is set by Medicare as the Allowed Amount for a participating physician: In the past [prior to Mayo's decision to not participate], [Medicare] would have paid 80 percent of that [$80], and 20 percent would have been [covered] by co-insurance [$20, for a total of $100, the Allowed Amount for participating physicians]. * * * [After the Medicare patient receives health services from a participating Mayo physician,] [t]he Mayo Clinic physicians accept assignment. They are participating [in Medicare Part B]. And what happens is the patient has a service and basically goes home. Everything is billed by the physician, both for the $80 [to be paid by Medicare under Medicare Part B] and [for] the $20, [the physician] bill[s] the insurance company. As a result of this change [Mayo's decision to no longer participate], instead of $100 being the amount that Mayo could charge for the physician component, it is now $109 roughly. [To be precise, it is $109.25, $95 (95% of the Medicare Allowed Amount of $100 for participating physicians) plus $14.25 (115% of the Allowed Amount of $95 for non- participating physicians.)] But Medicare now recognizes only $95 as the [Allowed] [A]mount because [Mayo] is nonparticipating. * * * So the difference between $95 and $109[.25] is now patient responsibility. Before [the decision not to participate, patient responsibility] . . . would have been zero. Now it is $14[.25]. So you can multiply . . . if the bill is $2000, then [the patient's responsibility] is 20 times that $14[.25, i.e., $284]. (Tr. 2945, 2946). Non-participating physicians have the option of choosing to accept assignment for any particular patient. If assignment is accepted, the non-participating fee schedule or Allowed Amount (95% of the participating fee schedule or Allowed Amount) is still applicable to the non-participating physician's services. In the case of an assignment, however, the non- participating physician cannot bill the patient for anything beyond the 20% of the amount Medicare pays even if the charge is the maximum. The patient does not have the additional out-of- pocket expense incurred from the billing of a non-participating physician who does not accept assignment. Drawing on Mr. Baehr's example, for a non- participating physician who accepts assignment, the charge may be $109.25. The Medicare payment will be $76 (80% of $95, the Allowed Amount for a non-participating physician) and the patient or the co-insurer will only have to pay the physician $19 (20% of $95). The remainder of the $109.25 charge ($14.25) cannot be billed to the patient because the non-participating physician (or clinic) has chosen to accept assignment of the patient's Medicare claim. Affected Patients at St. Luke's At St. Luke's, Mayo's Medicare Policy Change will affect mainly those patients admitted by Mayo physicians. The impact to patients admitted by community physicians will be slight. After the effective date of the change, a patient admitted by a community physician and treated exclusively by community physicians will not be affected. A patient admitted by a community physician and treated by a Mayo physician rendering services in four specialties of medicine (radiology, pathology, anesthesia or emergency) will not be affected. Mayo will accept non- participating assignment for its physicians with regard to those patients. It chose to accept assignment for non-participating physicians in these four areas with the hope of minimizing the effect of the Medicare Policy Change on patients admitted by community physicians. The only community physician admitted patients who will be affected by the Medicare Policy Change are those that involve a consultation by Mayo physicians in specialties other than the four for which non-participating assignment is accepted. The impact was explained by Mayo Clinic Jacksonville's Chief Financial Officer: [Mayo has] looked into the number of occurrences where a request is made for a Mayo physician to consult on the community patient. Our statistics show that this is a relatively . . . small number of requests. . . . [T]hose occurrences approximate 110 times for all patients, with Medicare patients being approximately half of that. So on an annual basis we're talking about 50, 60 patients [who are Medicare beneficiaries]. And we have various options available to continue to evaluate so that we can fully support the community practice. * * * One of those options is for us to take assignment on those handful of consults. If we do that, there will no financial impact or balance billing occurring for those Medicare patients. If upon our further evaluation we determine that we want to bill those as a nonparticipating physician and balance bill, we have looked at our fees for consultations, . . . level five is the highest level that we can bill for consultation. For the Medicare program that fee approximates $200. So for those 50 to 60 [community physician admitted] patients, . . . they would incur an additional out-of- pocket expense of approximately 20 to $30. (Memorial Ex. 54, p. 46, 47). The decision had not yet been made as to whether to accept assignment in the case of these patients. Whatever the decision, this segment of Medicare patients will experience the paperwork burden of filing with Medicare. The Medicare Policy Change will impose the paperwork and financial burdens on patients admitted to St. Luke's by Mayo physicians for the physician components of those services. The Medicare Policy Change is likely to have some impact on the volume of Medicare business at St. Luke's because the added paperwork and financial burdens will likely discourage some number of the Medicare patients admitted by Mayo physicians (however small that number may be) from using St. Luke's. Memorial presented a sensitivity analysis showing the effect on patient day volume at St. Luke's using two assumptions deemed by its health care planner to be realistic reductions in Medicare volume as a result of the Medicare Policy Change: 10% and 20%. There were three bases for the selection of 10% and 20%: first, analysis in a Mayo Task Force report; second, a reference to expected impact made by Mayo Clinic Jacksonville's Chief Financial Officer in deposition testimony; and third, "the nature of the state, the nature of the population affected and the unique nature of this change . . . ." (Tr. 3001). 1. The Task Force Analysis. Mayo conducted a "Net Revenue Sensitivity Analysis" for 2001 showing dollar increases or decreases with Medicare volume reductions of 1%, 2.5%, 5%, and 10%. The analysis appears twice in the Mayo Clinic Jacksonville Medicare Participation Task Force Report and Recommendations, May 2002. (See I. A. p. 9 and D. p. 4 of Exhibit 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman). The Task Force Report also showed that the impact on revenue would be neutral at a 4% reduction in Medicare volume. It would lead to an increase of $3.7 million in net revenue to the clinic and the hospital with a 10% loss of Medicare volume if there was 100% replacement of the lost volume with patients with commercial or managed care health insurance. Because of the use of 10% by Mayo in the report, Memorial's health planner adopted 10% as the minimum volume reduction. There is no evidence, however, that Mayo projected that there would be a 10% reduction (or any other reduction) in Medicare volume in the wake of the Medicare Policy Change. Mr. Baehr, himself, recognized as much. With the caveat, that "hospital management doesn't always provide the worst-case scenarios to hospital boards," (tr. 3037), Mr. Baehr agreed that he didn't think the "unique purpose [of the analysis] was to identify a specific point estimate of what was likely to be the negative impact . . . on number of Medicare patients." (Tr. 3036). The Task Force reveals only the effect on net revenues if certain reduction up to and including 10% were to occur. To the contrary of projecting an estimate of a 10% loss of Medicare patients, in fact, the Task Force Report concluded that dropping Medicare assignment should not significantly reduce the demands for complex tertiary care and may not reduce the use of primary and secondary care. The task force was concerned about minimizing negative media responses to the Medicare Policy Change and patient perceptions that might arise to media reports and the change, itself. It concluded, however, at p. 4 of the Executive Summary in Part B, "Marketing Report-Focus Groups", after conducting and analyzing focus group responses: If the situation is explained well to patients, dropping Medicare assignment is unlikely to have a dramatic impact on Medicare patient volumes at Mayo Clinic Jacksonville. In fact, after patients saw an example of the financial impact that the change would have on them, very few, if any, of the patients in the focus groups would leave Mayo Clinic Jacksonville. Rather than shopping around when they require expensive procedures, some patients might consider seeing another physician if they had a cold or for other primary care needs, but most would not even consider doing that. Several of the patients mentioned that they chose to live in Jacksonville because Mayo Clinic is located there. It will take more than this change to cause them to seek care elsewhere. (Ex. 8 attached to Memorial Ex. 54, Deposition of Mary Hoffman.) While the Task Force's expectations of de minimis impact may be wishful thinking or the product of not providing worst-case scenarios to the Mayo Board of Governors as alluded to by Mr. Baehr, it is not in Mayo's interests to misjudge the impact to Medicare volumes. Levels of volumes are required to sustain many of the tertiary and quaternary procedures provided by Mayo, the procedures that have driven the demand at St. Luke's that supports Mayo's case for need for the replacement hospital in the first place. As the Task Force recommended, it was essential prior to the Medicare Policy Change that Mayo "[f]eel comfortable that dropping Medicare assignment will not significantly reduce Medicare patients' demands for complex, tertiary care . . . ." (Id., at p. 6 of B.) The Task Force analysis does not support Mr. Baehr's selection of 10% or any higher percentage as a reasonable reduction in volume. To the extent that the Task Force attempted to project a volume reduction it concluded that there was not likely to be significant reduction. The use of 10% in the sensitivity analysis showed only what the financial impact of such a reduction would be; it did not project that such a reduction would occur. 2. The Testimony of MCJ's CFO Ms. Mary Hoffman is the Chair for the Department of Financial Services at Mayo Clinic Jacksonville, the clinic's Chief Financial Officer. Financial activities at both the clinic and at St. Luke's are within the scope of her duties. Before assuming the position she had occupied a similar position at Mayo Clinic Scottsdale for 10 years. She served as the point person for the Task Force that reviewed Mayo's Medicare policies and made recommendations that led to the Medicare Policy Change. When asked why the Task Force Sensitivity Analysis used a range of 1% to 10% reduction in Medicare volume, Ms. Hoffman answered, "Our assessment is the majority of the Medicare patients will continue to seek care at Mayo Clinic Jacksonville." (Memorial Ex. 54, p. 126). Ms. Hoffman did not testify as to what constituted a "majority" in terms of a percentage. Ms. Hoffman went on to explain that "if" (id.,) there were Medicare patients that "may" (id.,)consider not coming it would be those with primary care needs. Those with specialty care and ultimately hospitalization, she opined, were likely to seek services at St. Luke's. Mayo, moreover, she asserted, did not believe that there would be a significant reduction in volume and if there were any reduction it would ultimately be filled by growth in non-Medicare volume. There is nothing in Ms. Hoffman's testimony to suggest that she thought there would be a minimum reduction in Medicare volume of 10% or that any analysis by a qualified expert had been undertaken to project such a percentage reduction. Her testimony cannot serve as a basis for the conclusion that there would be a reduction of 10% or higher. The Nature of Things The third basis for Memorial's health planner's selection of a 10 to 20% reduction is "the nature of the state, the nature of the population affected and the unique nature of this change." Florida is a state with a significant population of Medicare beneficiaries. The Duval County Medicare population is not affluent generally. Mayo's Medicare Policy Change is unique, "nobody else in the state has done this." (Tr. 3001.) As Mr. Baehr testified, "[t]his is a situation where you're going from A to B. The impact is unknown. How significantly the reaction will be by Medicare patients, by community doctors, that's an unknown. All right. I can't specifically tell you that I think the number will be X. What I can say is because of the nature of the change, and the nature of the population affected, and the fact that demographically this is not a generally affluent Medicare community, the potential impact is more severe here than it might be in some other community where the population, the Medicare population was more affluent, where a smaller percentage of the patient population was served in the local community. (Tr. 3001, 3002). There is no expectation in Memorial's analysis that there will be any refill of Medicare patients lost as the result of the Medicare Policy Change. In the time frames shown in the application, any Medicare patients lost could be refilled by additional demand. Need for St. Vincent's Proposal Occupancy St. Vincent's projected that it would have an 84% occupancy for the first year of its operation at St. Luke's. The projection was overstated because of error in the analysis, however. It employed a base population of 511,089 in 2000 to project population growth when it should have used 537,182 as the base population for the year 2000. There is a second error in the St. Vincent methodology for projecting first year occupancy. It included psychiatric and substance abuse cases among the number of patients originating in Subdistrict 4-3 that use St. Vincent's in Subdistrict 4-2 for hospital services. The new St. Luke's will not provide psychiatric and substance abuse services. St. Vincent's was also criticized by Memorial for inflating the number of normal newborn admissions by double counting the mother and the baby as separate cases. Ms. Sharon Gordon-Girven adjusted for the errors and the criticism in testimony. In so doing, she discovered that zip codes for St. Johns County had been inadvertently excluded from the St. Vincent's analysis. Adjusting for the errors, the exclusion and the criticism reduces the average daily census for the hospital proposed by St. Vincent's from 114 to 108. An average daily census of 108 in a 135-bed hospital constitutes an 80% occupancy rate. St. Luke's is conveniently located near the intersection of two major highways in Jacksonville. Its emergency department is a busy one. At the time of hearing, an ER expansion project was underway to increase the size and number of the bays so the hospital could accommodate more patients. It is reasonable to assume the one-half of the ER volume currently associated with Mayo physicians would remain at St. Luke's because it will remain the closest facility for many patients. Currently, a significant number of patients leave Subdistrict 4-3 to go to St. Vincent's in Subdistrict 4-2. They utilize St. Vincent's primarily because of a referral to a specialty physician practicing at St. Vincent's. After the Phase 2 closing, St. Vincent's will encourage these specialty physicians to join the medical staff of St. Luke's and to see and care for patients who reside in Subdistrict 4-3 at St. Vincent's at St. Luke's. It is reasonable to assume that St. Vincent's will be able to direct 75% of these patients to St. Luke's after the Phase 2 closing. There is an adequate basis for Ms. Gordon-Girven's opinion that there is a need based on projected occupancies to retain a community hospital at St. Luke's Belfort Road campus. Staffing The parties stipulated that the staffing projections contained in St. Vincent's application were reasonable with two exceptions: the reasonableness of the projected salaries for nurses and St. Vincent's ability to recruit staff for the new hospital. The salary projections for nurses in St. Vincent's application were based on the midpoint of St. Vincent's pay grade for nurses at the time the application was prepared plus an estimated inflation factor of 3% per year. The midpoint represents the middle of the pay grade, not the average salary. The average salary is typically lower that the midpoint, and new staff are not hired near the midpoint salary unless they have considerable experience. St. Vincent's salary projections are reasonable. There is a shortage of skilled nurses and allied professionals in District 4. St. Vincent's has been successful in combating the shortage. St. Vincent's vacancy rate for nurses is lower that the state and national average. The lower rate is due, in part, to St. Vincent's effort to recruit and retain nurses. St. Vincent's has four nursing recruiters. It has recruited nurses from overseas, including four nursing schools in the Philippines, and has the ability to recruit from other hospitals in Ascension Health's national network. In addition, it sponsors a number of internship programs for other allied health professionals, including pharmacy interns, radiology technologist, a nuclear medicine program, and an ultrasound school. St. Vincent's is also involved in a number of educational initiatives, including relationships with high schools and local community colleges. Finally, St. Vincent's emphasizes a strong connection between employees and their immediate supervisors to create a nurturing environment for new staff. At the time of hearing, St. Vincent's had a zero- vacancy rate for pharmacists and respiratory therapists and only a single opening for a physical therapist, a position not difficult to fill. St. Vincent's established that it would be able to staff St. Luke's after the Phase 2 closing. First, Mayo will have more staff at St. Luke's that it will need for operation of the replacement hospital. After Mayo staffs the replacement hospital, there will be additional Mayo staff available to work for St. Vincent's at St. Luke's. While the replacement hospital will no doubt be an appealing place to work for many of the current St. Luke's staff, it is reasonable to assume that some staff currently at St. Luke's will prefer to remain at St. Luke's under St. Vincent's. Second, some existing staff at St. Vincent's now will be available for recruitment for any additional staff that St. Vincent's needs for St. Vincent's at St. Luke's. Third, both Mayo and St. Vincent's will be able to achieve efficiencies if both projects are approved. Mayo will achieve efficiencies through the location of all staff on one campus. St. Vincent will be able to achieve staff efficiencies because some supervisory roles can be filled by one individual overseeing staff at both St. Luke's and St. Vincent's. Fourth, St. Vincent's has a history of successful recruitment and retention of staff even through the recent nursing shortage; there is nothing to suggest that its efforts in the past will not continue to succeed. Finally, none of the applicants are proposing the addition of any new beds to the District. Statutory and Rule Criteria Section 408.035(1) - District Health Plan Section 408.035(1) addresses the need for the project being proposed in relation to the applicable district health plan (the Plan). The Plan contains five generic preferences and seven preferences specific to acute care services. The first generic preference is for applicants who demonstrate they will meet identified needs by providing services which meet commonly accepted quality standards in a most economical manner in terms of capital and operating expenditures. St. Vincent's ability to provide quality care at St. Luke's was stipulated to by the parties. That St. Luke's Hospital is already licensed, functional, and in excellent condition for a community hospital will permit St. Vincent's to initiate operations at that facility with efficiency. In addition, there are various operational efficiencies that will be realized by a two-hospital system with the hospitals in proximity to each other. Senior staff, educational programs, PRN staff and other operational systems can be shared by both hospitals. The Plan's second generic preference is for applicants who demonstrate that they can alleviate a current or potential geographic access problem. The closure of St. Luke's staff will not create a geographic access problem. Nonetheless, if these applications are not approved, the closure of St. Luke's medical staff to Mayo-only physicians would severely limit St. Luke's Hospital as a community resource and reduce choice for access of physicians and patients to hospital facilities. St. Luke's excellent location enhances access to hospital services. The third preference is for applicants who demonstrate that the proposed service has access to an adequate supply of appropriate health manpower. St. Vincent's will be able to obtain the necessary manpower for its project. The fourth preference is for applicants who demonstrate that new or expanded bed capacity will not have a significant negative impact on other health care facilities. For the reasons stated below regarding consistency with Section 408.035(2), approval of the Mayo and St. Vincent's applications will adversely affect Memorial although the weight of that impact is slight. The fifth preference, which is for applicants who commit to maximizing service to rural county residents, is not applicable. As noted above, the Plan also has seven preferences specific to applications for acute care beds. The first of these is for applicants who propose to convert licensed unused beds or use existing space rather than new construction. St. Vincent's application clearly meets this preference. While St. Vincent's is proposing to establish a new hospital, the application does not propose any new construction, but rather the use of the existing St. Luke's facility. Beds are also being "left behind" by Mayo and "transferred" from St. Vincent's. The second preference is for applicants who demonstrate that they provide a full array of acute care of services, including medical-surgical, intensive care, pediatric and obstetrical services within the market for which they are applying. St. Vincent's application proposes a full array of services; therefore, its application meets this preference. The third preference is for existing facilities where the number of beds to be awarded is 50 beds or less. The applicant's proposal meets this preference because it is not proposing the addition of any new beds to the district. The fourth preference is for applicants proposing to acquire or consolidate facilities where it can be demonstrated that services will be improved and costs to the public will be reduced. Costs to the public will not be reduced but services will be improved over what they would be without approval. The fifth preference is for applicants who submit in their CON application copies of their current written transfer agreements with the county health department primary care program. St. Vincent's did not submit written transfer agreements. Still, St. Vincent's routinely works with the county health unit to provide access to care, including prenatal care, obstetrical services, primary care and children's care, along with prevention, education and health promotion. For example, St. Vincent's works with the Duval County Health Department to identify where its mobile vans should go to provide its mobile health services to the urban poor. In addition, St. Vincent's hires physicians arranged through various county departments of health for its family practice residency program. The sixth preference is for applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. The transfer of the beds from St. Vincent's will maintain a substantial part of the care now provided by community physicians at St. Luke's. St. Vincent's application meets this preference. The seventh preference is for applicants that demonstrate that the transfer of beds is more cost efficient than the renovation and expansion of an existing facility. St. Vincent's application meets this preference because it proposes the transfer of beds from St. Vincent's without any need to expand or renovate the existing St. Luke's Hospital campus. The Plan's last preference is for an applicant that proposes to locate transferred beds in an area that would improve access to Medicaid and indigent patients. In its application, St. Vincent's has committed to significantly expand the volume of Medicaid and indigent care provided at St. Luke's. Although the population in the primary service area of St. Luke's is an affluent one, given its mission, history and outreach programs to Medicaid and charity care patients, approval of St. Vincent's application will increase access for Medicaid patients, indigent patients and underserved populations. Section 408.035(2) - Availability, Accessibility, and Extent of Utilization of Existing Facilities The dual character of St. Luke's as a national and regional referral center for Mayo Clinic Jacksonville and as a community hospital to serve the local population cannot continue indefinitely. Unless the Mayo and St. Vincent's applications are approved, Mayo will be forced to close the medical staff at St. Luke's to Mayo-only physicians and the community physicians and their patients will be forced out of that facility. If this is allowed to occur, the accessibility of St. Luke's to the local community will be significantly diminished. Section 408.035(3) - Quality of Care By stipulation of the parties, it was agreed that St. Vincent's has a demonstrated history of providing quality of care and the ability to do so at St. Luke's. Sections 408.035(4) & (5) - Need for Special Services; Needs of Education and Research Institutions The parties stipulated that Mayo's application satisfies the statutory criteria contained in Sections 408.035(4) and (5). St. Vincent's application does not itself propose special services that are not available in adjoining areas. As to Section 408.035(5), St. Vincent's provides continuing medical and professional training, and otherwise meets the criteria contained in that statute. Section 408.035(6) - Availability of Resources In the Prehearing Stipulation, the parties agreed that St. Vincent's has sufficient management personnel, and funds for capital and operating expenditures to accomplish the proposed project. At final hearing, the parties further stipulated to the reasonableness of the full-time employees ("FTEs") projected in the application. While the parties did not stipulate to the salary projections, based on the greater weight of the evidence the salary projections are reasonable. Although evidence was presented as to the current nursing shortage, St. Vincent's demonstrated that it has the ability to recruit the necessary staff for its proposed facility. Section 408.035(7) - Enhancing Access Approval of St. Vincent's application will enhance access to health care for all residents of District 4. St. Vincent's is committed to serving all residents, including but not limited to Medicaid patients, Medicare patients, and charity care patients. The community doctors are also committed to St. Luke's 135-year tradition of providing care that is accessible to all members of the Jacksonville Community. If St. Vincent's application is denied, the accessibility of St. Luke's for these groups will be reduced because Mayo will be forced to close the medical staff of the facility to community doctors, and the "community" portion of St. Luke's dual character will be lost. Approval of the application, on the other hand, will ensure that Florida's oldest hospital founded out of concern for care of the poor remains open, committed to its original mission. Subdistrict 4-3 has experienced and is projected to continue to experience significant population growth. Approval of St. Vincent's application will enhance access for this growing population. Section 408.035(8) - Financial Feasibility The parties stipulated that St. Vincent's has the available funds for capital and operating expenditures. The applicant demonstrated the immediate financial feasibility of the project. St. Vincent's demonstrated the long term financial feasibility by the greater weight of the evidence. The projected payor mix was reasonably estimated based upon the patients in the primary service area (excluding those services that will not be provided at St. Luke's). St. Vincent's volume projections are reasonable. Likewise, its projections of revenues and expenses are also reasonable and conservative. The applicant has reasonably projected a profit beginning with the first year of operation. The evidence demonstrated long term financial feasibility. Section 408.035(9) - Fostering Competition The impacts of competition will not have any negative effect on quality of care or cost effectiveness of any existing provider including Memorial. Even if all three applications at issue in this proceeding are approved, Memorial will continue to prosper. There was no evidence to suggest that approval would cause Memorial to close, or affect its ability to operate efficiently. On the other hand, if Mayo closes the medical staff of St. Luke's Hospital, Jacksonville would lose a community hospital that offers competition to Memorial and the other providers in the subdistrict and district. St. Vincent's accepts a wide range of payors, including both managed care providers and traditional indemnity. For this reason, approval will not only preserve but increase choice for both physicians and patients. Section 408.035(10) - Costs and Methods of Construction Memorial characterizes the expenditures for the acquisition of St. Luke's and the construction of the Mayo hospital as separate costs and an exorbitant amount. However, the same dollars used to buy one hospital are also used to build the other. This can also be viewed as a creative use of limited resources. Memorial's financial witness contended that code upgrade costs of up to $80-Million should have been included as part of St. Vincent's projected project costs. However, since code upgrades are not required, (see "Construction Code Issue" Section, below,) those costs will not be incurred and therefore were properly excluded by St. Vincent's. St. Vincent's does not propose any construction or renovations being made to St. Luke's. Therefore, the criteria contained in Section 408.035(10) are satisfied. Section 408.035(11) - Provision of Indigent Care The parties stipulated that St. Vincent's has a demonstrated history of providing health care services to Medicaid patients and the medically indigent. Therefore, there is no question about its commitment to providing services to the poor and disadvantaged. The proposed commitment to charity patients contained in the application (7.37% of patient days to self-pay, 6.68% to Medicaid patients) is reasonable. It is based on the assumption that St. Vincent's at St. Luke's would realize the average payor mix of all hospitals in Subdistrict 4-3. It would not have been appropriate for St. Vincent's to assume that its payor mix would realize the payor mix of any one hospital in Subdistrict 4-3. For example, St. Luke's has provided 2.26% of its patient days to self pay (including charity/indigent patients) and 1.57% of its patient days to Medicaid patients, relatively low percentages. St. Vincent's with its superior history of care to the medically indigent is likely to provide much higher percentages. Given the variability among hospitals in the subdistrict, it was reasonable for St. Vincent's to propose commitments based on the average payor mix of all hospitals in the district. Rule Criteria There are two rule criteria that relate to this application. They are Rule 59C-1.038, acute care bed priority considerations, and Rule 59C-1.030, additional review criteria. Under the Rule 59C-1.038 there are two priorities, only the first of which (documented history of providing services to medically indigent patients or a commitment to do so) is applicable. St. Vincent's application satisfies this priority. The criteria in Rule 59C-1.030 generally address the extent to which there is a need for a particular service and the extent to which the service will be accessible to underserved members of the population. Approval of St. Vincent's application will increase the accessibility of St. Luke's to underserved groups. Approval of St. Vincent's application will promote access to health care. It will ensure that a community hospital in existence since 1873 and at its current location since 1983, will continue. When Mayo opens the replacement hospital, there will be an average daily census of approximately 90 "community" patients left behind who will continue to need "community" hospital care. Approval will ensure that the community physicians currently practicing at St. Luke's will be able to continue at the Belfort Road facility without interruption. This option is foreclosed if Mayo closes the staff at St. Luke's. St. Vincent's has a significant number of contracts with different managed-care providers, both HMOs and PPOs, and traditional indemnity providers. St. Vincent's at St. Luke's will provide the community with a wider array of payors from which to chose. Approval will foster competition and give patients greater choice. Given St. Vincent's mission and historical record of care, approval should also increase access for Medicaid patients and other traditionally underserved groups. Construction Code Issue St. Vincent's application and St. Luke's application are predicated upon a condition related to the building and life safety requirements applicable to the construction of a new hospital (and a new NICU, the subject in DOAH Case No. 02- 0457CON). The requirements will not be imposed by AHCA on St. Vincent's licensure and operation at St. Luke's provided that there is no break in hospital operations at St. Luke's hospital between the time of St. Luke's operation of the hospital to the time that St. Vincent's commences operations there. The State Agency Action Reports ("SAARs") on CON Applications Nos. 9484P (St. Vincent's) and 9481 (St. Luke's) provide as follows: CONDITIONS * * * (6) provided there is no break in licensure, the building requirements associated with the establishment of a new hospital shall not be imposed by AHCA. St. Luke's Exhibit 18, p. 90; St. Vincent's Exhibit 5, p. 34. St. Vincent's application does not involve the construction of a new facility. Nor does it call for the conversions of one type of facility to another. St. Vincent's application does not call for designing, constructing, erecting, altering, modifying, repairing or demolishing a hospital as part of its application. The application proposes that the condition be met; it proposes no break in operation at the facility when control is transferred from St. Luke's to St. Vincent's. Need for Baptist's Proposal Baptist targeted the extreme southern part of Duval County to site its proposed project as an area in need of emergency services and with potential for growth of outpatient services. The proposed site is at the center of where development is occurring, where jobs are going and where homes are being built. Today, approximately 3500 people work in the Grand Park commercial development. A number of other job centers are moving to southern Duval County. The population base and the employment base are moving south from central Duval County. The 2001 population for Baptist's proposed service area, unchallenged in this proceeding, was over 121,000 and is projected to exceed 147,000 by 2010. The proposed site will be at the center of significant highway expansion that already exists or is presently underway in the area. The site is visible from Interstate 95. The interstate is six-laned through the southern part of the county to the St. Johns County line. A new interchange has been approved and all funding committed for this site. The site is proximate to the I-295 Beltway, with a connector road known as 9- A under construction. A second connecting road, 9-B, will be constructed just south of the new site. This road has been funded and construction will commence in the near future. Old St. Augustine Road, on which the hospital will be located, will be expanded to four lanes from Interstate 295 to Interstate 95. The funding for this project is part of the Better Jacksonville Plan, a $2.2 billion long-term plan already approved by area voters and funded through a half-penny sales tax. The hospital proposed by Baptist is needed to support the healthcare needs of a dynamically growing service area. There is a vacuum of hospital services in the area; the closest hospital is 25 miles away. The proposed project will be operated under the same license as Baptist downtown from which its 92 beds will be transferred making it a satellite hospital. There will be significant integration of services so as to avoid duplication of such areas as information service management, human resource management, materials management and supply handling, laundry and others. Prior to filing its application, Baptist evaluated the bed capacity of the downtown campus and determined it could safely transfer 92 beds without creating a drain on the resources of that facility. There is no dispute that Baptist has the excess capacity to transfer the 92 beds as proposed. At 92 beds, the proposed Baptist hospital is almost identical in size to the 90-bed Baptist Beaches hospital. While Baptist Beaches serves a different market with different demographics, the Baptist System has experience in successfully operating this size hospital in an area served by a similar population volume. Baptist already operates a life flight helicopter transport as a part of Baptist Health System. The proposed new hospital will have a helipad in order to provide rapid movement of patients needing tertiary services offered at the downtown campus. Prior to pursuing this application, Baptist retained experts in architecture and construction to advise the hospital of its options with regard to these same 64 beds. All parties reached the conclusion that replacing the 64 beds at the downtown campus was not a viable option. If its application is not approved, it will be difficult for Baptist to bring the 64 beds back on line due to a lack of space and the fact that construction costs will be very expensive. Baptist's experts have advised the costs will not be significantly more to build a new 92-bed hospital than to bring the 64 beds back on line at the downtown campus. Baptist has been unable to find a way to replace the 64 beds without making a congested situation even worse. AHCA's decision to approve Baptist's proposal was based on several key factors. Baptist is a traditional urban Medicaid disproportionate share provider that has an aging physical plant and finds itself with excess capacity at its downtown campus. Baptist seeks to relocate beds to an area projected to experience significant population growth. The proposal will allow Baptist to more efficiently use existing beds to support the overall indigent care mission of the hospital. In general, it is good health planning to support a disproportionate share provider seeking to move existing beds that are underutilized at its current urban location to a suburban location so that the project will enable that provider to continue the fragile, safety-net mission that it has historically provided. Baptist is such a provider. Baptist has a 27% market share of the proposed new service area. This fact amply supports its projected fill rate. Overall, occupancy of acute care beds in Subdistrict 4-3 is quite high at 71.5%, compared with the statewide average of 55%. At the same time, the number of beds per 1,000 population is lower in Subdistrict 4-3 compared with either the state average or the average in District 4 as a whole. As such, Subdistrict 4-3 experiences a higher use rate of acute care services but has a lower supply of beds. With the exception of Baptist Beaches, the remaining hospitals in Duval County are concentrated in the center core of the county. St. Johns County's only hospital, Flagler Hospital, is located in the southern part of the county, almost 25 miles from the Duval County line. Approval of Baptist's application will enhance access to certain acute care hospital services for residents of south Duval County. Growth in Baptist's proposed new service area is significant. The area's population is already approximately the same size as that surrounding Baptist Beaches. The nearby Mandarin area is a large-scale residential development that is already built out. Its population is approximately 45,000. The area surrounding the proposed site contains a number of Development of Regional Impact (DRI) projects. The DRI process involves a needs analysis that must be done in each case to demonstrate that the population projections that are shown for a particular planning area are consistent with the supply of residential and commercial activity to be provided. Each DRI is required to submit an annual monitoring report that lists all activity, all housing starts, school starts, and population growth, both actual and projected. DRI projects have projected build-out populations as follows: Bartram Park (4,000), Julington Creek (15,000), World Golf Village (15,000 to 20,000), Marshal Creek (5,000), West Born and East Born (10,000 to 12,000), and Nocatee (36,000). The majority of these projects are family-oriented, residential communities, which means children will live there and need convenient access to emergency services. At this time, it often entails less congestion for area residents to drive south 25 miles to Flagler Hospital than it is to travel north to Jacksonville to hospitals half that distance. Likewise, the proposed site will be easier to access for the residents of Mandarin than the existing providers to the North. The proposed site falls between two interstate roadways and is adjacent to two arterial roadway systems. The current and near term transportation network surrounding this area allows for very efficient access to the hospital site. The combination of the unprecedented growth in this area coupled with the transportation network, both existing and planned, provides an extremely efficient access to the medical services proposed by Baptist. The Jacksonville area economy is doing well. Jacksonville was recently named the hottest market in America for business relocation and expansion by Expansion Management after it conducted a survey of 75 site location consultants across the nation. Baptist has received strong support from a broad spectrum of the local community in support of this project. Dozens of letters of support from community physicians, local governmental leaders, the Chamber of Commerce and major area businesses were filed as part of Baptist's application. In addition, Baptist conducted a survey of its medical staff and found there was a remarkably positive response for the satellite hospital. Significantly, Baptist received a letter of support from Flagler Hospital System in St. Augustine, which operates Flagler Hospital, the only hospital in St. Johns County. Orange Park Medical Center, an HCA hospital located in Clay County, is not a reasonable alternative in terms of access to the service area Baptist seeks to serve in southern Duval County, including the Mandarin area. Orange Park is located on the opposite side of the St. Johns River, which serves as a natural barrier to health care access. Approval of this application will have a positive impact on BMC and its mission to provide medical services to Medicaid patients and the medically indigent. Hospitals in Duval County are well utilized, and continue to grow. According to a recent study done on behalf of Memorial, it has experienced a significant increase in utilization of beds over the past three years. Its occupancy is approaching 80%. There is also continued growth in the Jacksonville market that will place additional demands on the bed capacity of Memorial. Availability of Health Personnel and Management There are a number of public and private sector initiatives being undertaken to address the problem of the heath care staffing shortage. On the public side, the Florida Legislature recently passed HB 519 to promote increased recruitment and retention of nurses. Local governments are also providing incentives to attract more interest in the nursing profession. On the private side, providers have come forward with innovative proposals to assist in dealing with this problem. Baptist has undertaken a number of projects to address the staffing shortage. Hugh Greene, CEO of Baptist, sponsored an initiative to bring together other hospital CEO's in the community to partner with the University of North Florida to establish additional capacity for nursing students. The area hospitals have committed to collectively contribute over one million dollars for this project. Annually, this program will add 50 nurses to the nursing pool. Baptist projects it will have to hire less than 100 new employees to staff its new hospital. Relocating existing staff from other Baptist facilities will fill the remainder of the proposed staff needs. Given the time to open their respective facilities, the three hospital proposals will each have an opportunity to ramp up to meet staffing needs. Based on the applications filed, the three hospital projects would be phased in over several years, with Baptist's project coming on-line in approximately two years and the St. Vincent's/St. Luke's projects taking almost four years to open their doors. The increased demand for staff, especially nursing staff, if all three applications are approved, will have some impact on other hospitals within the community. The issue is not unique to Jacksonville. Nor will it affect Memorial any more than other hospitals in the area. Notwithstanding the issue of a healthcare staffing shortage, overall, the three proposals at issue should have a positive impact on the community. Each of the parties to this proceeding conducts extensive, ongoing recruitment of nurses. It includes international recruiting, recruitment at job fairs and local schools, and proactively seeking to work more closely with local technical programs. Baptist is also very involved with the local Chamber of Commerce and its strategic initiatives to enhance education and training of potential healthcare work force. The Jacksonville Chamber has six full-time staff dedicated to work force development including healthcare. The Chamber is actively involved in recruiting not just companies, but employees, too. It is working with a company called NationJob, which has a national website system to help fill local job needs. No nursing shortage is permanent because the nursing labor market behaves like any free market. Ultimately, supply and demand are managed in a free market by offering higher wages and increasing other benefits to address the profession. Baptist has developed a variety of strategies for recruiting, training and retaining nurses. It plans to use these at the facility it proposes in its application. Strategies include local open houses at the hospital, emphasis on regional and national market searches, using the Internet, and targeting military-trained nurses through job fairs. Baptist offers scholarships and has helped the local school board create an academy for students interested in health careers, as well as partnered with the DuPont Foundation and the Ounce of Prevention to create a model for mentoring. Baptist offers these young people jobs in the summertime in some healthcare arena to encourage them to enter the healthcare field. Baptist has followed a multi-pronged approach to recruiting new healthcare workers while at the same time maintaining an environment to retain the staff it already has. An adequate, qualified workforce is a key strategic goal for Baptist. In 2001, Baptist was voted one of Jacksonville's top 25 family-friendly companies in a poll taken by Jacksonville Magazine. In 2000, Baptist commissioned research on the subject of its workforce and developed a leadership model called the "Spirit of Caregiving," which is an initiative to work closer with staff and attempt to prevent burnout which has become a problem in the industry. It also established "Flex Choice," a means to address compensation, scheduling, intensity of work and relationship with management as the four key drivers for maintaining nurse satisfaction. Baptist also created its own flex team to replace the need to use local staffing agencies to staff its hospitals. Baptist has established a relationship with H*Works, which is a consulting arm of the Healthcare Advisory Board, a national think tank research-based program headquartered in Washington, D.C. An extensive research effort was undertaken by Baptist to determine how best to recruit and retain its employees. Implementing this program has reduced Baptist's turnover and vacancy rates in nursing. Other proactive programs instituted by Baptist include developing a relationship with Lutheran Social Services to employ displaced individuals who have moved to the Jacksonville area from Bosnia. As yet another example of how it has made efforts to be proactive in staffing, Baptist changed its model for how pharmacists interact with the medical staff, allowing them to have more interaction with the clinical staff in terms of patient care. This change has been well received. While some staffing will need to be duplicated at the proposed facility due to the need for core staff at both campuses, there are a number of counterbalancing efficiencies. For example, efficiencies flow from sharing the same governing board and some of the managerial staff, in such areas as human resources, risk management, accounting functions and quality improvement functions. Approval of the new facility could actually have a slight positive effect on the staffing issue. One of the main reasons nurses leave their profession is to seek a less physically demanding one. Modernization of facilities to make them less physically demanding can help to keep some nurses in the profession. Granting Baptist's application will lead to two modernized facilities: a renovated Baptist Medical Center campus and a brand new Baptist South facility. Baptist South will be staffed by first offering existing staff at its other two hospitals in Duval County the opportunity to transfer to the new satellite facility. Over 900 current Baptist staff who work at the downtown campus were identified as living in the area surrounding the proposed site. Not all employees who transfer from the downtown facility will need to be replaced at their former workplace, as Baptist projects that a number of current patients will be redirected from the downtown campus to the Baptist South location, given its proximity to their places of residence. As previously noted, the three hospitals at issue will be phased in over several years. This will allow adequate time for the applicants to ramp up in meeting the staffing needs of their new projects without necessitating a sudden increase in patients. Memorial's expert acknowledged that as a brand new facility, it would take Baptist South several years to get established in terms of building up its patient census. Each of the applicants, while acknowledging the challenge, demonstrated the commitment to attract and maintain competent staff to run the three proposed hospital projects at issue. The average age of the work force in Jacksonville is relatively young compared to the rest of Florida. Jacksonville is more a working area than a retirement one, with strong working-age demographics compared with other parts of the state. It is reasonable to expect Baptist will be able to staff its proposed project with an impact on Memorial that Memorial can sustain. When a hospital does not have sufficient staff to take additional EMS patients, it has to go on "advisory status." In 2002, Memorial has been on advisory status proportionately less than in 2001 because it has been utilizing more creative measures to staff beds than in previous years. Baptist already has a management team in place to operate properly and effectively the proposed satellite facility once approved. As previously noted, the Baptist Health System already operates BMC, which includes the Wolfson Children's Hospital, as well as Baptist Beaches and Baptist Nassau. In addition to its existing management team, Baptist has identified Ron Robinson as the administrator who will oversee the day-to-day operation of the new hospital. He presently is employed by Baptist Medical Center as a vice president. Mr. Robinson holds a master's degree in health administration and has experience as the chief operating officer of a community hospital. Enhanced Access Accessibility is a key part of Baptist's mission. Enhancing geographic distribution of beds to an area it believes is underserved is obviously consistent with its mission. Baptist is there for the community and seeks to provide care closer to where people live. The key to access is the ability to get to a facility or service. Baptist sought a proposed site that would be easily accessible to the residents of southern Duval and northern St. Johns Counties. The Interstate 95 interchange at Old St. Augustine Road is ready to be bid and will have an 18-month construction schedule, allowing it to open prior to the commencement of operation at the new hospital, if approved. Approval of Baptist's application will address what is currently an unmet need in the area, ready access to medical services. Cost-Effectiveness The estimated cost of construction to replace the 64 beds off-line at the downtown campus is $275 per square foot. The cost to construct the proposed 92-bed satellite hospital is $190 per square foot. As noted above, there will also be savings from operating the proposed facility as a satellite of the downtown campus. Accreditation and Quality of Care BMC scored a 97 on its most recent JCAHO accreditation survey, and currently holds an Accreditation and Commendation from the Joint Commission on Accreditation of Healthcare Organizations. Baptist's laboratory is accredited by the Commission on Laboratory Accreditation of the College of American Pathologist. Over a number of years, BMC has been chosen as the consumers' choice preferred hospital for Jacksonville, based on research by the National Research Corporation. Similarly, BMC was voted Best Medical Center in Jacksonville Magazine's 2001 pool. Decompression of Downtown Campus Notwithstanding the awards and accreditation for its operational excellence, Baptist's downtown campus' location is fraught with problems. The campus is bounded by four barriers. To the south is I-95; to the east, railroad tracks and bridges; to the west, the St. Johns River; and, to the north, Prudential Drive. Prudential Drive includes the corporate offices of Aetna Insurance in a large commercial office building. Although essentially landlocked, Baptist was recently able to purchase a small parcel of land (less than two acres) on the north side of Prudential Drive. While it will offer some relief, it is too small and has building height restrictions such that it is not a viable alternative to address all the space needs of the downtown campus. There are currently 64 beds that are off-line; another 88 beds need to be replaced in order to have enough room for Wolfson Children's Hospital to expand. One of the benefits of choosing to decompress by relocating beds to the south is that all the main campus renovations can then be sequenced so the hospital is not severely disrupted during renovation. This is critical, as Baptist is expecting to see nearly 90,000 patient visits in its emergency room this year alone. Baptist has sought to alleviate the congestion on its main campus by moving outpatient programs to nearby properties. Baptist's Regional Cancer Institute provides radiation therapy and chemotherapy for oncology patients, and the Baptist Eye Institute houses eye surgery and diagnostic services. Also housed off-campus is a diagnostic center with CT scans and MRI, as well as orthopedic surgery. Further expansion is precluded by the lack of available land on or near the site. The absence of space on the campus currently requires Baptist to lease space off-campus for various non-clinical support functions, such as accounting and bookkeeping. The downtown campus also has infrastructure problems. Several of the buildings on Baptist's downtown campus are nearly 50 years old. The "main building" was built in 1955. The inpatient areas in this building have shared bathrooms. It has significant mechanical and electrical problems. The life span for this building has expired and something must be done now to address how it will be replaced. The "One Southeast Building," also on the downtown campus, was built over 20 years ago as a temporary building, but has never been replaced. A critical problem at the downtown site is inadequate parking. As part of its ongoing patient satisfaction program, Baptist routinely takes surveys of its patients. The number one complaint from patients, their families and physicians on staff is the lack of adequate parking at the downtown hospital. To help alleviate this problem, Baptist has purchased off-site parking and runs a shuttle service for over 500 employees so that patients and visitors can better access on- site-parking. Redirecting existing patients who reside closer to the new satellite facility will contribute to relief of parking inadequacy downtown. Memorial contends Baptist's proposed hospital is premature. Baptist counters that it must take action to either relocate the 64 off-line beds or find a way to bring them back on-line at the main campus. While they are off-line, it makes more sense from a health planning perspective to relocate the beds to an area where there is population growth rather than simply bring the beds back on-line at the congested downtown campus. Establishment of the satellite hospital will decompress the downtown campus and serve the dynamic growth in southern Duval and northern St. Johns Counties. Relocation Need Criteria Although AHCA has a rule to determine the need for new or additional beds, it does not have a rule specifying a methodology for evaluating a proposal to relocate existing licensed beds within the subdistrict. The acute care bed calculation methodology in Rule 59C-1.038(4), Florida Administrative Code, therefore, is not applicable to Baptist's application. Rule 59C-1.038(6)(a), Florida Administrative Code, contains a preference for applicants proposing a capital expenditure on acute care beds that have documented a history of providing services to medically indigent patients. The Agency interprets subpart (6)(a) to be applicable to acute care bed relocations. Baptist's proposal earns this preference. Baptist Medical Center has the lowest average occupancy of the subdistrict hospitals on a licensed bed basis, and can easily afford to transfer 92 beds to its proposed south project. Baptist's proposal will enhance competition. While there will likely be some competitive impact to local area hospitals if approved, it will not materially compromise the operations of any other hospital in Duval or St. Johns Counties. In fact, officials at Flagler Hospital, located in St. Johns County, submitted a letter of support for this project. Local Health Plan Preferences Baptist is deemed to meet the first general preference relating to meeting identified needs by providing quality services in an economical manner. Baptist is deemed to meet the second general preference by addressing potential geographic access problems, especially access to emergency room services. Baptist meets the third general preference in terms of demonstrating that it has access to an adequate supply of health manpower. Baptist's application sets forth a well thought-out proposal to address the issue of staffing. The fourth general preference concerning adverse impact to existing providers does not apply to Baptist as it is not adding beds or a new service. The fifth general preference focuses on maximizing services to rural county residents. Duval County is not a rural county and this provision is really not applicable to any of the applicants in this case. While Baptist's proposal will not significantly enhance access to Medicaid and indigent patients in southern Duval County, approval of the project does enable Baptist to maintain its mission as a disproportionate share provider of Medicaid and indigent services. Baptist consciously chose not to condition this application on a set Medicaid percent. It is historically on record as providing both charity/indigent care and Medicaid services as a disproportionate share provider. Baptist will continue to provide health care services regardless of ability to pay. In addition to general preferences, the local health plan also contains preferences that relate specifically to acute care beds. The first acute care preference gives priority to proposals to convert licensed, unused bed space rather than undergo new construction. This preference applies to projects seeking "new" beds and is not applicable to what Baptist is proposing. The second acute care preference concerns applicants who demonstrate that they will provide a full array of acute care services. Baptist meets this preference. The third and fourth preferences are not applicable to Baptist's proposed project. The fifth acute care preference relates to applicants who have written patient transfer agreements with the county health department. Baptist does not technically meet this preference; nonetheless, as in the case of St. Vincent's, it complies with the spirit of the concern. Baptist is a disproportionate share provider and provides access to indigent patients. The sixth acute care preference speaks to applicants who demonstrate that the transfer of beds is necessary to maintain or improve care. Baptist meets this both by decompressing its downtown campus and by enhancing accessibility to acute care and emergency services to the southern county residents. Baptist meets the seventh acute care preference in that it is more cost-efficient to transfer the beds than to add to the congestion of its landlocked downtown campus. Finally Baptist meets the eighth acute care preference to the extent that approval of the transfer of these 92 beds will enable Baptist to continue its mission of providing health care to Medicaid and medically indigent patients. On balance, Baptist's proposal is clearly consistent with the preferences of the local health plan. Impact on Memorial 1. From St. Luke's and Baptist's Memorial is a financially strong provider, as its parent company, HCA. It will continue to grow and do well if all three applications are approved. Memorial's acute care beds are highly utilized. In the first six months of 2001 the occupancy rate was over 73%. It is projected to reach 80% occupancy before 2006. On an operating basis, Memorial is highly profitable, both historically and as projected. Memorial's earnings before interest, taxes, depreciation and amortization ("EBITDA") approximated $58 million in 2001 and $49 million the year before. Approval of St. Luke's application, alone (that is, without consideration of St. Vincent's application and its linkage with St. Luke's), will not have an adverse impact on Memorial. The replacement hospital will not be a community hospital but a tertiary/quaternary facility specifically designed to further all three components of Mayo's mission, unique within the health services planning district. The replacement hospital's unique character, its closed physician staff, the absence of obstetrical services and its regional, national and international draw will result in few local residents going to the facility for routine acute care hospital services offered at Memorial. In addition, the replacement hospital will be located approximately 10 miles east from St. Luke's, and thus further away from Memorial than St. Luke's is now. The approval of Baptist's application is not likely to have an adverse impact on Memorial. At final hearing, Memorial acknowledged that Baptist's approval would have the least consequence on its operations. Memorial calculated that the impact of approval of Baptist's application on its operations would be a net margin contribution loss in a range between $619,000 and $1.5 million. Such an impact does not weigh heavily in favor of denial of Baptist's application given Memorial's EBITDA of approximately $49 million in 2000 and $58 million in 2001. In making its analysis, moreover, Memorial did not assume any growth in its operations between 2201 and Baptist's projected second year of operation. Memorial's analysis did not take into consideration the location of the satellite hospital. In fact, the impact of approval of Baptist's application will have less of an impact on Baptist than leaving at Baptist's downtown campus the 92 beds to be transferred to the satellite hospital. The impact on Memorial from approval of either or both St. Luke's (without consideration of its linkage to St. Vincent's) and Baptist's application is so slight as to be not meaningful. 2. From St. Vincent's If zip codes making up at least 1% of admissions are used to define "primary service area," there is significant overlap between the primary service areas of Memorial and St. Vincent's at St. Luke's. If St. Vincent's application is approved, the St. Vincent's at St. Luke's primary service area will directly overlap with those zip codes from which Memorial receives the majority of its patients. The St. Vincent's at St. Luke's proposed primary service area is also concentrated within fewer zip codes than St. Luke's existing primary service area. St. Vincent's at St. Luke's will need to aggressively draw patients from its proposed primary service area in order to meet volume projections of 84.21% in 2006 and 86.52% in 2007. Financial Impact If the St. Luke's application to consolidate the Mayo operations on one campus stood alone, Memorial's health planner would not find the application "that problematic." (Tr. 2253). In fact, he agreed during cross-examination that the collocation of Mayo's clinical services with its other services creates an advantageous opportunity to share resources and achieve economies that would constitute "not normal" circumstances weighing in favor of approval of the St. Luke's application in the absence of numeric need. (Id.) Nonetheless, Memorial's health planner objected to the approval of St. Luke's application in conjunction with approval of St. Vincent's application for among other reasons the financial impact to Memorial when the two are considered together. St. Luke's projects 54,677 patient days for the St. Luke's at Mayo facility during the second year of operation (2007). St. Vincent's projects 42,632 patient days for the new St. Vincent's at St. Luke's facility during 2007 for a total projected patient days of 97,309 generated by the two new hospitals. Absent approval of its application, St. Luke's projects it will experience 70,139 patient days at the existing St. Luke's during 2007. Accordingly, there will be a net increase in patient days of 27,170 in the Subdistrict as a result of approval of the St. Luke's/St. Vincent's projects. An increase of 27,170 patient days divided by 365 days yields an incremental average daily census increase of 74.4 in 2007 in the Subdistrict that would otherwise be served by existing hospitals absent approval of the two new hospitals. Memorial experiences a 22.7% market share for non- tertiary services in Subdistrict 3. When the 22.7% market share is applied to the 74.4 incremental increase in the average daily census, Memorial can expect a loss of 6,167 patient days and a loss in average daily census of 16.9 patients during 2007. Memorial can be expected to lose 1,259 cases during the second year of operation of the new St. Vincent's at St. Luke's and the new St. Luke's at Mayo when the total lost 6,167 patient days is divided by Memorial's 4.9 average length of stay for non-tertiary services. The existing St. Vincent's projects it will treat 3,093 total patients from Subdistrict 3 in 2007 absent approval of the St. Vincent's at St. Luke's project. Therefore, St. Vincent's contends 10,695 patient days and 2,320 cases will be redirected from the existing St. Vincent's to the St. Vincent's at St. Luke's new facility based on the assumption it will capture 75% of the total volume bypassing St. Luke's to access St. Vincent's. This translates to an average daily census of 29.3 patients when the 10,695 patient days expected to be captured by St. Vincent's at St. Luke's is divided by 365 days a year. With St. Vincent's at St. Luke's capturing 75% of the subdistrict volume currently accessing St. Vincent's, the 74.4 incremental increase in average daily census projected above will be reduced by the 29.3 average daily census remaining in the St. Vincent's system. This yields a 45.1 net incremental average daily census increase in the subdistrict. Memorial will lose an average daily census of 10.2 patients per day applying Memorial's 22.7% market share to the incremental increase of 45.1 average daily census that other existing hospitals would otherwise treat assuming St. Vincent's meets the 75% transfer rate. A 10.2 loss per day multiplied by 365 days a year equates to a loss at Memorial of 3,739 patient days. Divided by Memorial's 4.9 average length of stay yields a potential loss of 763 cases in 2007. Mr. Beiseigel performed an impact analysis calculating a range of financial impact Memorial will incur assuming both 1,259 and 763 lost cases. Memorial will suffer a $3,092,775 net contribution margin loss assuming 1,259 lost cases in 2007. Assuming 763 lost cases, the contribution margin loss is $1,874,335 for 2007. The financial impact suffered by Memorial will more likely approach $3,092,775. This loss does not include losses in subsequent years. Memorial may benefit financially by the capture of some community physician open heart surgery and interventional cardiology volume due to the discontinuation of open heart surgery at the St. Vincent's at St. Luke's facility. But the benefit is not likely to be substantial. Memorial has experienced a decline in adult open heart surgery volume at its facility due in part to approvals of two new open heart programs in Georgia. Additionally, Flagler Hospital has also been approved for an adult open heart surgery program which is likely to result in lost open heart surgery and cardiology volume at Memorial. Any incidental cardiology volume realized by Memorial as a result of moving the open heart program to St. Luke's at Mayo is not likely to significantly offset the adverse impact to Memorial should the St. Vincent's, and St. Luke's projects be approved. Managed Care St. Vincent's at St. Luke's is also likely to take a significant level of managed care volume from Memorial. Managed care (HMO/PPO) accounts for 40.41% of Memorial's patient days compared to 20.7% at St. Luke's and 26% at St. Vincent's. St. Vincent's at St. Luke's projects that 40.42% of its patient days will be attributable to managed care. St. Vincent's at St. Luke's would be compelled to target managed care payors that currently contract with Memorial in order to meet its managed care projections. There currently exists adequate competition for managed care contracts within the District. Memorial has recently lost a managed care contract with United resulting in a 10 patient drop in Memorial's daily census. St. Vincent's at St. Luke's aggressive pursuit of managed care contracts as reflected in their projections will have an impact on Memorial.
Recommendation In consideration of the statutory and rule criteria, on balance, all three CON applications at issue in these consolidated cases should be approved by AHCA. DONE AND ENTERED this 5th day of February, 2003, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of February, 2003. COPIES FURNISHED: Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Kathryn F. Fenske, Esquire Agency for Health Care Administration 8355 Northwest 53rd Street Miami, Florida 33166 Michael J. Cherniga, Esquire Sean M. Frazier, Esquire Greenberg Traurig, P.A. 101 East College Avenue Tallahassee, Florida 32301 Stephen A. Ecenia, Esquire Thomas W. Konrad, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Stephen C. Emmanuel, Esquire Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302-0391 R. Terry Rigsby, Esquire Law Office of R. Terry Rigsby, P. A. 215 South Monroe Street, Suite 505 Tallahassee, Florida 32301 Donna H. Stinson, Esquire Broad and Cassel 215 South Monroe Street, Suite 400 Post Office Drawer 11300 Tallahassee, Florida 32302
The Issue Whether the Certificate of Need application of the South Broward Hospital District (CON 9459) to establish a 100-bed hospital in Health Planning District 10, Broward County, should be granted by the Agency for Health Care Administration?
Findings Of Fact The Parties AHCA The Agency for Health Care Administration is the state agency with the authority to review and issue Certificates of Need in Florida. SBHD, the Applicant The applicant in this proceeding is South Broward Hospital District ("SBHD" or the "District"). Created by the Legislature in 1947 "at the request of voters to meet the healthcare needs of the South Broward community" (District No. 2, Vol. 1, pg. 7), SBHD is a special taxing district. The District receives tax revenues in order to support SBHD as the health care provider of last resort in South Broward County with a long demonstrated history of serving medically indigent patients. Id. From its inception in 1947 to today with the support of local tax revenue, the mission of SBHD has remained unchanged: to provide health care to all residents of the community regardless of ability to pay. There are three acute care hospitals in the "Memorial Health Care System" operated by SBHD: Memorial Regional, Memorial Pembroke Pines and Memorial West. These three hospitals make the District the dominant provider of health services in south Broward County. The District's market share of admissions to hospitals located in south Broward County is 85%. The other 15% of hospital admissions are to Hollywood Medical Center. (These percentages do not account for admissions of South Broward County residents to hospitals outside of the borders of SBHD.) Memorial Regional Hospital, a Medicaid disproportionate provider, is located 13.6 miles from the proposed Miramar hospital site. Without question, the predominant provider of care to indigent patients in south Broward County, Memorial Regional is licensed for 489 acute care beds. Memorial Regional had an acute care occupancy rate of 76.5% in 2000. From time-to-time in recent years, it has experienced unacceptably high occupancies particularly within individual units. It presently has patient care units that often operate above capacity, resulting in patient flow problems within the hospital. Memorial West Hospital, located 5.7 miles from the proposed Miramar site, is currently licensed for 164 acute care beds. It had an acute care occupancy rate of 88.9% in 2000. Memorial West currently operates 14 "labor-delivery- recovery" observation beds ("LDR" beds) that are not among the hospital's licensed beds. The hospital has recently received a CON for 36 additional beds to be utilized for acute care and further authorization via a CON exemption to add another 16 beds licensed for acute care provided certain occupancy levels are achieved. These additional 52 licensed beds are projected to become operational in 2002. Furthermore, Memorial West is adding 36 additional LDR beds and 20 acute care observation beds and doubling the size of its emergency room. When the expansion is complete, Memorial West will have 216 acute care beds, 20 acute care observation beds and 50 LDR beds. As matters stood at the time of hearing, peak occupancies in some departments at Memorial West such as obstetrics, routinely exceeded 100%. With the additional beds slated for opening in 2002, demand for acute care services in southwest Broward County will continue to produce high occupancy rates at Memorial West. It is reasonably projected that the growth in demand for acute care services in southwest Broward County with the additional beds will cause Memorial West to operate at 87% occupancy in 2005 and 99% occupancy in 2010 unless the hospital proposed by SBHD for Miramar is built. Memorial West opened in 1992 as a 100-bed hospital, in part fulfilling SBHD's vision to expand services into what was then projected to be a rapidly growing southwest part of the county, a suburban area more affluent than the District as a whole. Approved by AHCA's predecessor, SBHD's strategy in opening Memorial West was to gain access to this more affluent suburban market in order to help off-set the rising care of indigent care. The strategy has worked. Memorial West has made a profound contribution to the financial success and viability of the District. In 2001, Memorial Hospital West accounted for almost half of the District's bottom line profit. The profitability of Memorial West has allowed the District to continue to provide growing levels of indigent care, while at the same time decreasing tax millage rates. In fact, the millage rates levied by the District have decreased three times since Memorial West opened. During this same period of decreasing millage rates, the District has been able to increase its ratio of uncompensated care to tax revenues from 3-1 to 5-1. The District's third hospital, Memorial Hospital Pembroke was leased by the District for the first time in 1995. Now leased until June 2005 from HCA, Inc., HCA announced its intention at hearing to re-take the facility so that the District will lose Memorial Pembroke as one of its hospitals at the expiration of the lease. Licensed for 301 beds, Memorial Pembroke is located 10.6 miles from the proposed Miramar site. Memorial Pembroke's occupancy rate from July 1999 to June 2000 was 26.2%. This low rate of occupancy is due, at least in part, to significant physical plant constraints and deficiencies. Although licensed for 301 beds, the physical plant can only reasonably support 149 beds. When its daily census reaches 140 patients, the hospital's operational and support systems begin to fail. Prior to 1995, Memorial Pembroke was operated by a series of for-profit owners. Just as it does now, Memorial Pembroke suffered from chronically low utilization under all prior management. Before the District leased the facility from Columbia-HCA, the hospital had become stigmatized in the community; many patients and physicians were reluctant to use it. Due to a number of factors (some tangible, such as an out-of-date physical plant - others intangible) that stigma continues today. The District has invested considerable management and financial resources to improve the quality of care, the condition of the facility and the community reputation of Memorial Hospital Pembroke. Because the hospital serves as a "safety valve" for the high utilization at the District's other hospitals, especially Memorial West, Memorial Pembroke's census between 1995 and 2000 has been on the rise. Nonetheless, the facility continues to be regarded as a "second tier" hospital and to suffer a stigma within the community. Whatever the source of the stigma afflicting Memorial Pembroke, it is unlikely that occupancy rates at Memorial Pembroke will dramatically improve unless significant and substantial investment is made in the hospital. It does not make sense for SBHD to make such an investment since it will lose the facility in three years. Whether HCA will make the investment required to cure the facilities utilization woes remains an open question. (See paragraphs 103 and 104, below.) Through the three hospitals in the Memorial Healthcare system, Regional, West and Pembroke, and a number of clinics that are off-campus, the District provides a full range of health care services to residents of south Broward County. These include: general acute care; tertiary care; adult and pediatric trauma care under trauma center designation; a specialty children's hospital designated by the state as a Children's Medical Services provider for children with special needs for cardiac care, hematology and oncology, and craniofacial services; outpatient services; and primary care services. The District is the only provider, moreover, of many health care services within the boundaries of the South Broward Hospital District, all of Broward County south of SW 36th Street. (The North Broward Hospital District includes all of Broward County north of SW 36th Street.) These services include obstetrics, pediatrics, neonatal intensive care, adult and pediatric trauma at a Level I trauma center, and teen pregnancy prevention and education. Consistent with its mission, the District also operates the only system of primary care clinics for the indigent in the South Broward Hospital District. The District is clearly the safety net provider of acute care hospital and other services for south Broward residents. In 1999, the District provided 5.9% of its total revenue or approximately $63 million in charity care and 5.4% or approximately $58 million to Medicaid recipients. During the same time period, Cleveland Clinic in terms of total revenue provided 1% charity care and 1.8% to Medicaid recipients while Westside provided 0.6% charity and 2.3% Medicaid. In dollars worth of care devoted to indigent and Medicaid patients, SBHD provides over ten times more Medicaid and indigent care than Cleveland Clinic and Westside combined. Tax revenues, although supportive of the District's ability to maintain its mission, do not come close to compensating the District in full for the care it provides to charity and indigent patients. In fact, the District expends five dollars in uncompensated care for every dollar of tax revenue it receives. Still, as a significant source of income to the District, these tax dollars contribute to SBHD's robust financial health. Cleveland Clinic Cleveland Clinic Hospital is owned by TCC Partners, a partnership between the Cleveland Clinic Foundation and Tenet Healthcare Systems. Originally located in northeast Broward County in Pompano Beach, Cleveland Clinic obtained approval in 1997 to relocate its 150 beds to Weston near the intersection of I-75 and Arvida Parkway. Operation at the site of the relocation began in July of 2001. The new site is within one of the ten-zip codes SBHD has chosen as the proposed primary service area for its new hospital in Miramar, but it is outside the South Broward Hospital District. The new site of Cleveland Clinic is in the North Broward Hospital District, 1.5 miles to the north of the boundary line between the two hospital districts that divides Broward County into two distinct health care markets. Cleveland Clinic has an established history as a regional and national tertiary referral center. It is also an advanced research and education facility that benefits from the outstanding reputation of the Cleveland Clinic Foundation and the hospitals under its umbrella. Cleveland Clinic is not a typical community hospital. It follows a distinctive model of medicine based on a multi- disciplinary approach and a closed medical specialty staff. The medical staff is open to community primary care physicians but not to community specialists or sub-specialists. All of the specialists on its staff are salaried employees of the Cleveland Clinic. This means that physician specialists who are not employees of the Clinic do not have privileges to admit or treat patients at the Cleveland Clinic Hospital. The Cleveland Clinic offers tertiary acute care services, such as kidney transplantation and open-heart surgery. It also provides specialty services in colorectal surgery, voiding dysfunction and limb reattachment. Among its specialty programs are an adult spine program, an acute stroke program, an epilepsy clinic, and an orthopedic center of excellence in sports medicine. At the time of hearing and since opening, Cleveland Clinic's average daily census has been approximately 44 patients. Westside Founded 26 or so years ago in what was then considered western Broward Count from the standpoint of population (hence its name), Westside is a 204-bed acute care hospital. Slightly less than nineteen miles from the proposed Miramar site, the site of the hospital is "now somewhat central [to Broward County]" (Westside No. 39, p. 8), given the location of the population today and the growth that has occurred to the west of Westside. Westside, like Cleveland Clinic, is in the North Broward Hospital District. It is located in the City of Plantation on West Broward Boulevard. Among the variety of acute care services offered by Westside is open heart surgery ("OHS"). The OHS program, implemented two years ago has increased the hospital's occupancy rate to a near 70%. (In 2000, the hospital had an acute care occupancy rate of 69.3%). The occupancy rate is expected to increase as the open heart surgery program expands and matures. Recent capacity constraints in the ICU, for example, led to a capital project to expand the unit "about a year and a half ago." (Id. at 13). With regard to questions about whether the hospital had experienced capacity constraints or "bottlenecks" in units, Michael Joseph, the chief executive officer of Westside, answered this way: We did in tele, and that's when we did the overflow on the fifth floor. So at this time we are -- in the peak season of March, from time to time, sure. But on the annualized basis, we are in the 75 percent occupancy level. And sometimes there [are other issues] that all hospitals go through. (Id., at 14). At the time of Mr. Joseph's deposition, October 23, 2001, for the most recent year the average daily census has been "in the 175 range." (Id.) At present, therefore, Westside's occupancy is close to ideal. Westside is financially strong. It had strong financial performance in 2000 and at the time of hearing was expected to perform strongly in 2001. Replication of West Faced with both the potential loss in 2005 of Memorial Pembroke and the high occupancies at Memorial Regional and Memorial West, SBHD began investigating the opportunity to replicate the Memorial West model of success. During the investigation, the District came to believe what it suspected from obvious signs: there is a large and growing population to be served in the Miramar area. Although land was limited, the District was able to purchase within the City of Miramar a 138-acre parcel. The parcel is the site of the subject under consideration in this proceeding as detailed in CON Application 9459: SBHD's proposed project. SBHD's Proposed Project The District proposes to construct a 100-bed acute care hospital at the intersection of SW 172nd Avenue and Pembroke Road. The site is a large one. It has sufficient land available to serve ultimately as a "health park" with medical office buildings, outpatient facilities, and additional health care related facilities typical of a modern medical campus. If, on the other hand, the District decides it is in its best interest to "sell off balances" (tr. 486) of the property, it retains that option. The hospital will provide basic acute care services and be composed of 80 adult medical/surgical, 8 pediatric, and 12 obstetric beds. On the third floor, the hospital will have 28 observation status beds, in addition to its 100 licensed beds. The design of the hospital is cost efficient. It meets all license and life safety code requirements. All patient rooms are private and meet the square footage requirements of AHCA's license standards. The hospital design, costs, and methods of construction are reasonable. The project has several goals. First, it is intended to provide increased access to affordable and quality health care for the residents of southwestern Broward County. Second, the project will allow Memorial Regional and Memorial West the opportunity to decompress and operate at reasonable and efficient occupancies into the foreseeable future without the operational problems caused by the current over-utilization. Third, the project will replace the loss of Memorial Pembroke. Finally, the project will give the District a second financial "engine that drives the train" (tr. 141) in the manner of Memorial West. The project will enable the District to maintain its financial strength and viability and continue to serve so effectively as the safety net provider for the indigent in South Broward County. Stipulated Facts In their prehearing stipulation, filed on October 31, 2001, the parties stipulated to the following: On January 26, 2001, AHCA published a fixed need pool for zero additional acute care beds in District 10, Broward County, for the January 2001 batching cycle. The South Broward Hospital District ("SBHD" or "District") timely and properly filed a Letter of Intent, initial CON Application, and Omissions Response in the batching cycle. On May 16, 2001, AHCA filed a Notice of Intent to issue the CON together with a State Agency Action Report ("SAAR") recommending approval of the CON for the proposed hospital. AHCA's Notice of Intent to approve the CON for the proposed hospital was challenged by Cleveland Clinic and Westside. Hollywood Medical Center ("HMC") also filed a petition challenging the preliminary approval but later withdrew as a party from these proceedings. Broward County has been divided by the Florida Legislature into two hospital taxing districts. The SBHD includes all areas of the county south of SW 36th Street, and the North Broward Hospital District ("NBHD") includes all areas north of the demarcation line. SBHD, Cleveland Clinic, and Westside each have a history of providing high quality of care. All of SBHD's hospital facilities are JCAHO accredited. Accordingly, the quality of care provided by these parties is not at issue in this proceeding except as it may be impacted by staffing issues. The proposed staffing and salary projections included on Schedule 6 of CON Application No. 9459 are reasonable and are not in dispute, although the parties specifically preserved the right to present evidence concerning the SBHD's ability to recruit the staff projected, and whether the projected salaries will cause or accelerate the loss of staff at existing hospitals. The parties agree that the SBHD has available management personnel and funds for capital and operating expenditures. However, Petitioners assert that the District's use of such resources for this project is neither wise nor prudent and is not in keeping with appropriate health planning principles. The parties agree that the SBHD has a history of providing health care services to Medicaid patients and the medically indigent. (Section 408.035(11), Florida Statutes.) However, Petitioners do not agree that proposed Miramar Hospital can meet the levels of charity care proposed in the application for the Miramar Hospital. With regard to Schedule 1 of the Application, the parties stipulate that the Land Costs (lines 1-11) are reasonable and are not disputed; and the Project Development Costs (lines 26-31) are reasonable and not disputed. The parties agree that Schedule 3 of the Application (sources of funds) is reasonable and not disputed. The SBHD does not contest Petitioners standing in this proceeding. At hearing, the parties stipulated that SBHD has the ability to recruit and retain the staff needed for the proposed hospital. The parties also stipulated that the SBHD has in place the staff recruitment and retention programs described at pages 132-139 of the CON application. The stipulation at hearing did not preclude either Westside or Cleveland Clinic from presenting evidence with respect to the impact of the SBHD's recruitment on other programs and other hospitals. No Numeric Need As indicated by the AHCA Bed Utilization Data for CY 2000, the occupancy rate in Broward County was 48.42%. There is, moreover, a surplus of 1,786 beds. This surplus has been increasing over time and has grown by nearly 60 beds between the January 2001 and July 2001 planning horizons. The hospitals within the District's proposed primary service area had an occupancy rate of 53% in the July 2001 planning horizon and a surplus of 456 beds, a number "somewhat proportionate to the distribution of patient days as well as licensed beds within the district." (Tr. 1639.) If the 152 non- functional beds at Memorial Pembroke are deducted from the surplus then the surplus is 304 beds. Not surprisingly therefore, the Agency's fixed need formula for acute care beds produced a fixed need of zero beds in Health Planning District 10 for the January 2001 batching cycle. (Broward County composes all of Health Planning District 10). The fixed need pool of zero was published by the Agency in January of 2001. Again in July 2001, AHCA published a fixed need for zero acute care beds in Health Planning District 10. In light of the zero fixed need pool, SBHD bases its application for the proposed Memorial Hospital Miramar on "not normal circumstances." Not Normal Circumstances "Not normal circumstances" are not defined or limited by statute or rule. Nonetheless, a number of "not normal" circumstances have been recognized repeatedly by AHCA . These recognized "not normal circumstances" are generally grouped into categories of access, quality and cost-effectiveness. None of them are present in this case. "There [are] no financial access, geographic access or clinical access circumstances [in this case] that rise to the level of not-normal circumstances." (Tr. 1633). Nor are there any quality or cost-effectiveness deficiencies claimed by the District in its application. The District bases its claim of "normal circumstances" on eight factors. They are: 1) explosive population growth; 2) a mal-distribution of beds within the health planning district; the effects of not having a hospital facility in the area proposed; 4) continued and projected high occupancies at nearby hospitals; 5) inability to expand inpatient capacity at the nearby hospitals with high occupancy rates; 6) the limited functionality and uncertain future of one of the hospitals that might serve the area where the new hospital is proposed to be located; 7) the increasing retraction of access for residents to other hospitals; and, 8) the need to assure that the applicant will remain a strong competitor able to fulfill its unique role and mission that would be served by granting the application. Population Growth Broward County is one of the fastest growing counties in the United States. "According to the census 2000 data, [over the last decade] it was the fastest growing county in all of the United States based on total population gain . . . ." (Tr. 617.) The population growth was spurred in the latter part of the previous decade by the devastation wreaked by Hurricane Andrew in 1992. The hurricane's south Dade County victims used insurance proceeds to move to southwest Broward County. This migration helped to produce growth in southwest Broward County at a faster rate than the county as whole in the decade of the nineties. Growth in pockets of southwest Broward during this period of time has been phenomenal. For example, Pembroke Pines population increased 109 percent between 1990 and 2000. For the same time period, the population of Miramar (now the second fastest growing municipality in Florida) increased 78 percent. This growth was more than just steady during the 10 years before 2000; as the decade proceeded, the growth rate accelerated. In short, it is not a misnomer to describe the population increase in southwest Broward County and the Miramar area during the last decade as "explosive." (Tr. 626) With its attendant residential and commercial development, it has transformed southwest Broward County from a rural community into a suburban one. Population growth in southwest Broward County is expected to continue into the future. Substantial land in the area is under development or is available for residential development. By 2006, the population is projected to grow to 337,000, from the 2000 population of 289,000. This rate, while not comparable to the explosive rate in some pockets of the county in the last decade, is not insignificant. By way of contrast, the projected growth rate of 16.7% over the next five years in southwest Broward compares to a projected rate for the county as a whole of 8.4% and for Florida of 7.1%. In and of itself, the projected population growth in southwest Broward County is not a "not normal" circumstance. However one might characterize the projected growth rate in southwest Broward County, moreover, the acute care hospital bed need rule takes population into account in its calculations and projections. But, the bed need formula does not take into account the significant number of beds at Memorial Pembroke that are not functional. Nor does it take into account that Cleveland Clinic is not a typical community hospital. Nor does it take into account other factors such as that Memorial West and Memorial Regional are experiencing capacity problems or the division of the health planning district into two hospital taxing districts recognized as distinct medical markets, a recognition out of the ordinary for health planning districts in Florida. A geographical fact pertinent to arguments made by Cleveland Clinic and Westside with regard to the location of the population is that Memorial Miramar's proposed primary service area is divided by Interstate 75, a north-south primary travel corridor. On a percentage basis, there is faster population growth projected for areas west of I-75. But for the foreseeable future, the actual number of people populating the area west of I-75 will remain less than the number east of I-75. The area west of I-75, with the exception of one zip code in which a retirement center has been built, has a younger projected population that should produce lower use rates and average lengths of stay in hospitals than the area east of I-75. The support these facts lend to the District's opponent's arguments that bed need is greater east of I-75 than west is diminished by the absence of any hospitals west of I-75 in the South Broward Hospital District and the presence of four hospitals in the hospital district east of the interstate. Distribution of Beds Consistent with the recognition by the Legislature, AHCA, and its predecessor state agency, north and south Broward County are two distinct medical markets demarcated by the division of the county into two hospital districts. There are 3.52 beds per 1000 population in the North Broward Hospital District, 2.35 in the south. A greater number of under-utilized acute care beds are located in the northern half; a greater percentage of highly utilized hospitals are located in the southern half. Of the four hospitals located in south Broward County, both Memorial Regional and Memorial West had average annual occupancies in excess of 80% in the calendar year 2000. By contrast, of the 13 hospitals located in the northern half of the County, none had occupancy in excess of 80%, and only one had an average annual occupancy in excess of 70%. These statistics point toward an over-distribution within the health planning district of beds in the north and an under-distribution in the south. At the same time, beds are distributed between the two hospital districts in approximate proportion to the number of patient days experienced by each. In 2000, NBHD had 71% of the patient days for District 10 and 73% of the acute care beds. As one might expect, therefore, the relationship between patient days and acute care beds during the same period was similar for the SBHD: 28.9% of the patient days for District 10 and 27% of the beds. An analysis of bed to population ratio is only meaningful when occupancy rates are also considered. Occupancy rates are mixed in the south part of the county: very high for some, especially Memorial West, and very low for Memorial Pembroke. This breadth of this disparity is unusual. Effects of No Hospital in Miramar Thirty to 60 minutes to reach an acute care hospital is a reasonable driving time in an urban area. There are five existing acute care facilities within 30 minutes of southwest Broward County. In fact, most of the residents in Memorial Miramar's proposed service area are within 15 minutes or less of an existing acute care facility. Nonetheless, without a hospital in Miramar, residents must leave their immediate community to gain access to acute care services. As a matter of sound health planning, "[n]ot every city, town or hamlet can or should have its 'own' hospital." So correctly posit Cleveland Clinic and Westside. See pgs. 13-14, Cleveland Clinic and Westside PRO. But as the City Manager of Miramar wrote, "[t]he addition of a new hospital is one of the last missing links in the City [of Miramar]'s master plan . . . The city is looking to build the best possible future for its residents." District Ex. 2, Attachment G. A new hospital in Miramar would not only be a featured complement of the City of Miramar's plans for the future, it would also enhance access to acute care services and address access concerns caused by skewed utilization among the SBHD hospitals due to the unusual state of affairs at Memorial Pembroke and the high demand at West. Of great concern is that residents of southwest Broward County in need of emergency services are sometimes not able to gain access to those services at Memorial West, the closest available hospital. Memorial West operates the third busiest Emergency Department in Broward County with 65,000 visits in 2001. In Calendar Year 2000, Memorial West's emergency room went on diversion 123 times, averaging 7.7 hours per diversion. In the first months of 2001, the hospital went on diversion 89 times, with an average diversion time of 16.3 hours. These diversions have a dual effect. They mean that patients wait longer for beds. They also mean that providers of emergency medical services in ambulances are forced out of the community for extended periods of time unable to render services within the community that may be needed during that time. Diversions at Memorial West are becoming more and more problematic. Wait times are getting longer; the total time on diversion is growing. At first blush, the problems appear to be less significant at Memorial West than they might be elsewhere in District 10 because of its low "emergency room visits to hospital admissions" ratio. The Health Planning District average shows that about 20% of emergency room patients are admitted to the hospital. At Memorial West, the ratio is 8.7%, the lowest in the County. While normally this might reflect that patients visiting Memorial West have a lower acuity than patients visiting emergency rooms district-wide, the lower ratio for Memorial West is due, at least in part, to the high volume of pediatric patients seen at West who are transferred to Joe DiMaggio's Children's Hospital. The pediatric transfers, in the words of Frederick Michael Keroff, M.D., a Board-certified emergency physician who has worked in hospital emergency departments in South Florida for 24 years, create a false sense of what is actually being seen on the adult side of the emergency room department. On the adult side . . . [the ratio] varies somewhere between 12 and 16 and a half percent which is comparable with any other facility. . . . [W]hen you mix in such a large pediatric population into the adult population, obviously it dilutes out the number and drops [the ratio] down . . . . (Tr. 2568.) A solution to emergency room diversion at Memorial West and an alternative to the construction of Memorial Miramar proposed by Cleveland Clinic and Westside is more SBHD urgent care centers in the Miramar area. SBHD operates seven urgent care centers. Of these seven, the proposed Miramar PSA has only one. Additional urgent care centers more readily accessible in the 10 zip code area that comprises Memorial Miramar's PSA might reduce the number of visits to the ER at Memorial West. But they might not. Patients don't self-triage when they are presented with a problem. They go to the hospital. [Triage is a medical decision.] Patients usually come to the hospital, even [with] urgent care centers down the block, because they don't know what the problem is and they allow the hospital to make the decision about what the problem is. (Tr. 2571.) Additional urgent care centers would not solve the problem created when diversion is a result of the lack of acute care beds for Memorial West ER patients who need to be admitted to the hospital for treatment beyond that provided in the ER. Cleveland Clinic hospital is not likely to offer much of an alternative. Because of the closed nature of the Cleveland Clinic specialty staff, it will not be a hospital of choice for community physicians in the South Broward Hospital District. Nor will it be a hospital of choice for patients able to elect the hospital at which to seek emergency services. It is apparent from the demand on Memorial West, despite the number of beds and other emergency departments within acceptable reach, that a Memorial West-type facility is what the residents of southwest Broward County prefer and opt for even if it means they have will have to wait for emergency services. In cases of patients transported from southwest Broward County via ambulances forced to go to Cleveland Clinic in Weston to deliver patients in need of emergency services, the transport presents difficulties of their own. It is not efficient management of emergency services due to their very nature to require ambulances to leave their service areas. There are no clear solutions to the problems emergency room diversions present for patients, their families, physicians, and the emergency medical system in general in southwest Broward County other than construction of new acute care hospital in Miramar. Construction of a new acute care hospital in Miramar will help to alleviate the high occupancies and emergency room diversions currently experienced at Memorial West. It will reduce disruptions to Miramar residents and will provide an easily accessible alternative to southwest Broward County residents, thereby enhancing access to emergency services. High Occupancy Rates at West and Regional The current and reasonably-projected high occupancies at Memorial West and Memorial Regional are extraordinary circumstances for a health planning district with as many excess beds as District 10. The calculation under AHCA's formula for hospital bed need for the January 2001 batching cycle yielded an excess of 1,717 beds. Calculation by the Agency using the same formula for the July 2001 batching cycle showed an excess of 1,786 beds or 59 more excess beds than just six months earlier. The import of these results was described at hearing by Scott Hopes, Westside's expert health planner: Obviously when you have a situation like this, the default is a zero published fixed need which is what was published. But the importance here is that there are so many excess beds. And if you look also on the line [of Westside Ex. 23] that deals with occupancy rate, the occupancy rate is about 48 percent, and it hasn't varied much between the six-month period. In fact, the occupancy rate in Broward County has been under 50 percent for some quite sometime. (Tr. 2076-7). It is extraordinary that a health planning district with so many excess beds would also have two hospitals, Memorial West and Memorial Regional, with capacity problems. Memorial West, by any standard, is a successful hospital. Since it opened in 1992, the inpatient volume there has tripled. Opening as a 100-bed facility, Memorial West now has 184 licensed beds, an expansion aimed to meet the demand for its services. As alluded to elsewhere in this order, because there are often not enough available acute care beds at Memorial West, some patients have to wait in the ER six hours or more. It is not unusual for more than 40 patients to wait at one time. Despite these conditions, patients, when offered the opportunity for a transfer to another hospital, rarely accept the offer. More often than not the patients do not wish to go. The reputation of Memorial Hospital West, the loyalty factor, if you will, to Memorial, to the medical staff, the patients want to remain at the facility. (Testimony of Memorial West Administrator Ross, Tr. 152-3.) Memorial West plans expansion but even with its current planned bed expansion, it is reasonable to expect it to reach unacceptably high occupancy rates by 2006 if Memorial Miramar is not built. Furthermore, the only obstetric programs in south Broward are at Memorial West and Memorial Regional. Memorial West performed 4,400 births last year, and its obstetrics unit often operates in excess of 100% occupancy. The only constraint on additional births at West is the limited physical capacity of the facility. Memorial Regional experienced even more births last year than West with about 5,000 deliveries. Memorial Regional is operating at or exceeding its functional capacity in other departments. The current medical/surgical occupancy at Memorial Regional is approximately 80% year round. Some units experience much higher occupancies. The intensive care unit's occupancy frequently exceed 100%, as does the cardiac telemetry unit. In certain medical/surgical units, peak occupancy is as high as 125%. Memorial Regional's capacity to handle its high patient volume is limited by certain factors. Semi-private rooms are limited to use by members of the same sex. As a tertiary facility, there are specialty patients who must be served by nurses trained in that patient's specialty, with appropriate monitoring equipment. Without approval of Memorial Hospital Miramar, Memorial Regional will reach 85% occupancy by 2008 and 88% occupancy by 2010. These occupancy rates create an inefficient and untenable environment in which to deliver the mix of specialized and tertiary services offered by Memorial Regional. The overcrowding at Memorial West and Memorial Regional is dramatic and continuing. There are simply more patients seeking care at these hospitals than the hospitals can serve appropriately. This overcrowding exists despite the excess of acute care beds within the health planning district. In sum, despite the plentiful nature of the number of acute care beds in the health planning district, a need exists to either decompress Memorial Regional and Memorial West by some means such as the proposed new hospital in Miramar or to expand one or both of the two hospitals by way of new construction or conversion of LDR and observation beds. A decompression alternative to the new hospital is to transfer beds from existing hospitals to create a satellite hospital. Because of high occupancy rates at West and Regional and because Pembroke's lease will expire in 2005, transfer of existing beds is not a feasible option. That leaves expansion, as the only alternative to a new hospital in Miramar. Cleveland Clinic and Westside argue there are ample opportunities at the two hospitals for expansion. Expansion New Construction In pre-CON application evaluation, SBHD commissioned a study from Gresham, Smith and Partners, an architecture firm. The firm studied the three Memorial facilities to determine whether expansion of the acute care bed complement at any of them was feasible. In a "Memorial Health System Facility Expandability and Master Plan Review Report" the firm concluded that it was clearly not feasible to expand either Memorial Pembroke or Memorial Regional and there were problems with expanding Memorial West. With significant problems including its aged plant and its uncertain future, expansion at Memorial Pembroke would not be cost-effective. It would cost $31 million in capital improvements to maintain Pembroke's functional capacity at 149 beds. If the present location of nursing administration, hospice and other necessary services were moved out of the hospital, the hospital's function could be expanded to 215 beds. No evidence was presented with regard to the advisability of moving those services or the additional costs associated with this alternative. HCA's willingness to make the investment necessary to renovate the facility at Pembroke was not supported by any specifics. HCA's announced its intention, "to take the hospital back at the end of the lease and run it," (tr. 1511-2) but, in fact, the company has not taken any action to evaluate the potential for assuming operation of the hospital in 2005. Nor has it even begun the process it must go through before final decisions are made. The overarching intention to "re-take the hospital and run it," at this point in time, does not mean HCA will be willing to make the investment necessary to renovate the facility either during the term of SBHD's lease or afterward. It still needs to "do a very detailed discounted cash flow analysis to make a final decision on the investment needed and the return on that investment." (Tr. 1514.) Memorial Pembroke's uncertain future makes it an unlikely candidate for expansion. However unlikely such a result, with the problems that afflict Memorial Pembroke, there is, moreover, no guarantee that HCA's intended analysis will convince it even to continue operation of the hospital. Memorial Regional has different problems from Memorial Pembroke. It takes up an entire block surrounded by residential property and parking garages. There is almost no opportunity for growth on the site. Of the few areas that could be expanded vertically, only one would be conducive to bed addition. "[I]t is so remote, it doesn't tie back to the main nursing care areas." (Tr. 482.) Expansion at Regional would also be plagued with concurrency problems and zoning issues. Of the three hospitals, Memorial West presents the best option for expansion. A facility master plan for Memorial West provides for the addition of a patient tower on the north side of the facility ("the north tower"). The addition of the north tower could add as many as 50 beds to Memorial West at a cost substantially less than the construction of Memorial Miramar. Still, SBHD's architects, Smith and Gresham, concluded that expansion of the size necessary to alleviate the overcrowding at West was not cost-effective. The force of the Smith and Gresham opinion is tempered by the firm's standing to benefit financially to a much more significant degree if Memorial Miramar is built than if the planned-for tower is constructed to add 50 beds to Memorial West. But the opinion is not groundless. Put simply, construction of an additional tower at West is no simple solution to its capacity problems. The tower was planned for maternal services but like the minimal opportunity for expansion at Regional, it would be "remote from the rest of the nursing function . . . [it would, moreover] trigger huge upgrades to the infrastructure." (Tr. 480.) The hospital site is constricted already because of additions that have almost completely built out the campus. A new north tower would add inefficiencies in hospital operations because of the increase in travel distance for materials delivery and meeting the dietary needs of patients. Despite the master plan for growth, an improvement the size of the north tower would begin to turn West into another Memorial Regional: a huge hospital, overdeveloped for its site. The improvement, like every improvement thereafter, would require patient shuffles and disruptions in patient care. Like Memorial Regional, expansion at West, too, would have concurrency issues and could create a land use dispute with neighbors, the outcome of which is uncertain. In light of these obstacles, SBHD prefers the option of constructing the new hospital in Miramar over expansion at West. There is, however, in the view of SBHD's opponents, another option for expansion of existing facilities: conversion of LDR and observation beds. Expansion through conversion of LDR and Observation Beds Cleveland Clinic and Westside contend that another option to relieve overcrowding is conversion of observation and LDR beds to acute care hospital beds. But these beds are used to meet the need of observation and maternity service patients. There are patients who need closely supervised medical care but whose care has not been determined to require admission to the hospital. Observation patients, sometimes referred to as "23 hour" patients, may suffer from various conditions, including chest pain, fever, abdominal pain, rectal bleeding or nausea. Given the high number of births at Memorial West, many obstetrical patients present at the hospital in "false labor" or for antipartum testing, complications of pregnancy, or symptoms that should be treated as observation or on an inpatient basis. It would be impractical for Memorial West to convert observation and maternity service beds, whether existing or still planned for, to inpatient acute care beds. If these beds were converted, Memorial West would find itself once again in its present straits of not enough beds for observation purposes particularly for obstetrical patients for whom there is little choice where to obtain obstetrical services in the South Broward Hospital District. Limited Functionality and Uncertain Future of Memorial Pembroke Memorial Pembroke has undergone seven ownership changes since it first opened. Perceived as a hospital where neither patients nor physicians want to go, it has suffered from a stigma within the community. Even with recent gains in utilization, it achieved an occupancy rate of only 24% in calendar year 2000. Pembroke suffers from physical and infrastructure limitations that reduce its functional bed capacity to 149 beds. Its mechanical and heating, ventilation and air conditioning systems are outdated and inadequate. For example, a primary generator is vented to the outside by a 6-foot hole in the ceiling. The electrical panels are at absolute capacity. The first floor has an outdated, plenum air return with no ducts in the ceiling. The generators have transfer switches that require them to be turned on manually. Facilities management personnel are reluctant to do so for safety reasons. The semi-private patient rooms at Pembroke are too small for modern care and do not have adequate space for the monitors, IV equipment, pumps and other technology required by today's health care delivery system. Many rooms do not have showers. The hospital has a number of three bed wards woefully outdated by the standards of modern care. It would cost $31 million in capital improvements to simply maintain Pembroke's functional capacity at 149 beds, to upgrade the facility to bring it into compliance with existing code and to otherwise modernize inadequacies. Whether Pembroke will continue to operate after 2004 is unknown. While HCA stated its intention to do so, it has not made a final decision to assume operations. It still needs to conduct a financial analysis sufficiently detailed to determine whether the necessary expenditures to bring the hospital up to par are practical. Any capital investment by HCA in excess of $1 million requires the approval of HCA's national office, approval that has not yet been provided. The level of capital investment required at Memorial Pembroke is significant and it cannot be assumed that HCA will make this investment. (See paragraph 89, above.) Increasing Retraction for Access in SW Broward Of the three hospitals located within the ten zip codes that constitute southwest Broward County: Memorial West, Memorial Pembroke and Cleveland Clinic, each poses some manner of access impediment for the residents of the area. Memorial West is overcrowded. Memorial Pembroke's future is uncertain, its present clouded by significant physical plant problems and stigma that keeps its occupancy low. Cleveland Clinic's distinctive character, its closed specialty staff and its regional, national and international draw discourages utilization by southwest Broward residents seeking routine acute care hospital services at a community hospital. The Cleveland Clinic medical staff is open to community primary care physicians. "[W]ith the qualification that if there's a specialty for some reason that is not adequately manned, the clinic can go out and contract with community physicians to provide the services" (District No. 55, p. 39), the Cleveland Clinic medical staff is not open to community specialists or sub-specialists. Its specialty and sub- specialty staff, therefore, is closed. The medical staff building, moreover, located on the campus is also closed to community practitioners even to those primary care physicians with privileges at the hospital to manage their patients care. Like the specialty medical staff, the building is restricted to Cleveland Clinic salaried specialists. Due to the closed nature of the specialty staff at Cleveland Clinic, any patient admitted to the Cleveland Clinic hospital will be seen by a Cleveland Clinic physician. This sets up reluctance on the part of community physicians to use the Cleveland Clinic hospital. As expressed by the hospital's CEO, "it's sometimes difficult to convince a primary care physician that he needs to change his referral patients, so yes, there is some concern [about the willingness of community physicians to utilize the hospital]." Id., p. 40. In multiple prior CON applications approved by AHCA, Cleveland Clinic projected that up to 30% of its patients would come from outside Broward County and that it would draw patients from throughout Broward County, rather than having a more traditional, limited service area typical of a community hospital. Patient origin data for Cleveland Clinic when at its old location in Pompano Beach shows the hospital, unique among Broward County hospitals, has a broad county-wide, regional and national draw. While all other hospitals in Broward County can identify fewer than 25 zip codes that generate the first 75% of patient admissions in 1999, 60 zip codes generated the first 75% of Cleveland Clinic's admissions. Similarly, while all other hospitals in Broward County can identify fewer than 25 zip codes that generate the first 90% of their patient admissions in 1999, the first 90% of patient admissions at Cleveland Clinic's hospital were generated by no less than 287 zip codes. Cleveland Clinic presented evidence of its intention to be available to the local community. It has marketed in Broward County by means of newspaper and television advertisements and various community programs. It has also conducted outreach and training programs with the emergency medical service providers in the Broward County area, not only to improve the quality of care for the patients of Broward County but also to educate the emergency medical service providers about Cleveland Clinic. The patient origin data for Cleveland Clinic's first three months of operation in Weston, however, verifies its continued broad draw. This data shows that within Broward County, only 30% of patients originated within the 9 southwest Broward zip codes that Cleveland Clinic identifies as its "immediate service area"; the other 70% of its patients come from outside the immediate service area. Cleveland Clinic is not a typical community hospital. Its previous CON applications have been granted in part on its unique characteristics. Whether its image or persona will change with the move to Weston to attract more patients from southwest Broward County is an open question. Given its nature and the focus of the health care it is likely to deliver, however, it is not likely that it will be utilized regularly by residents of southwest Broward County seeking routine hospital care either because not their hospital of choice or because of community physician referral patterns. h. Assurance that SBHD Can Fulfill its Mission The final "not normal" circumstance relied on by SBHD relates to the affluence of the patients in southwest Broward County and the profits that are reasonably expected to be generated by virtue of the proposed hospital's location in this affluent area. The expected profits will both subsidize SBHD's charity care and support its ability to be competitive. The importance of SBHD remaining competitive and able to serve the indigent in Broward County was explained at hearing by Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation: [A]s a major indigent care provider for the State of Florida, [SBHD is] providing a service that extends far and wide that benefits everyone. In our state we have indigent care concentrated in relatively few facilities … [I]t is a very important resource that needs to be nurtured and protected to the greatest extent possible because it is fragile and vulnerable. We have many uninsured people in the state, somewhere between two and three million. It is reasonable to expect now with the economic downturn that we are going to be seeing an increase in uninsured people, so the value of hospitals that function as safety net providers is . . . very important. (Tr. 1240-1). This rationale supported the District's CON application for Memorial West. Because of SBHD's financial success to which Memorial West has been a major contributor, SBHD has achieved a significant degree of financial stability in this day of decreasing reimbursements, managed care, and increased health care costs. It is not contested that its financial position is sound. For fiscal year 2002, SBHD was running ahead of revenue and profit projections at the time of hearing. Nonetheless, if hospitals are constrained and the payor mix becomes less favorable, financial conditions can change quickly. Only three years ago, the District posted an $18 million debt. The capacity constraints at Memorial West will limit its ability to generate additional profits. At the same time, the District must accept all charity care patients. This requirement coupled with capacity constraints has the potential for an unfavorable payor mix for the District. The addition of Memorial Miramar will help to ensure that the District maintains its strong market position and will sustain a favorable payor mix. The profits expected to be generated by Memorial Miramar will ensure that the District can continue to provide care to the indigent without raising, and perhaps by lowering, the tax rate for the tax payers of Broward County. The Proposed Primary Service Area The District's proposed primary service area ("PSA") is a 10 zip code area in southwest Broward County. It excludes zip codes in Dade County that might have been included as well as the eight easternmost zip codes in south Broward County. Usually a set of contiguous towns or minor subdivisions or zip codes that represent a substantial majority of a hospital's patients, there is no single way of defining a hospital's primary service area. Some health planners use a region from which 75% of the patients come but a range of 60 to 80 percent is not unreasonable. There are other approaches to defining primary service areas: zip codes, for example, in which a threshold level of market share was achieved or that account for a minimum percentage of the hospital's patients. While one method may be more usual than another, any of a number of ways of defining a PSA may be reasonable. Cleveland Clinic's health planner, Ms. Patricia Greenberg sees Dr. Finarelli's PSA for the Miramar hospital as not rational from the perspective of health planning. The zip codes Dr. Finarelli chose include a number that are to the east of Memorial West. Ms. Greenberg asserts that it is unlikely that patients will drive from the east past Memorial West in order to reach Memorial Miramar. It would have made much more sense, in her view, for the PSA to have included three zip codes to the north of the PSA in western Broward County: zip codes 33327, 33326 and 33325. But these zip codes, entirely within North Broward Hospital District, are not South Broward Hospital District zip codes. Nor are three other zip codes that Ms. Greenberg sees for the Miramar PSA as more rational choices than zip codes east of Memorial West that Dr. Finarelli chose. Ms. Greenberg's other choices outside Dr. Finarelli's PSA are not only not in the hospital district, they are not in AHCA Health Planning District 10. They are in Dade County. Determinations of bed need do not always rise and fall on the selection of the primary service area. To the contrary, as Dr. Finarelli stated at hearing, "[h]ow and where the boundaries are drawn between the primary and secondary service area is less important [than] making sure that any analysis of bed need and demand incorporates both the primary and secondary service areas." (Tr. 724). This statement loses its potency, however, and the import of the choice of the primary service area is raised in light of the population-based bed need projections made by Dr. Finarelli within the PSA in support of the application. Population Based Bed Need Projections within the PSA Dr. Finarelli conducted a standard population based bed need analysis to determine the gross bed need within the PSA selected for the proposed hospital. His bed need calculations were computed separately for adult medical, surgical, pediatric and obstetric beds. The assumptions used by Dr. Finarelli were reasonable and appropriate. The level of detail in Dr. Finarelli's model was described by another of SBHD's expert health planners who testified in this case, Mr. Balsano and who has been qualified as an expert in health planning and health care financial feasibility approximately 20 times over the last decade, as the most detailed model he had ever seen. Dr. Finarelli's analysis accounted for the current and projected population as well as the current and projected hospital discharge rate per 1000 population within the PSA. Multiplying the population (in thousands) by the discharge rate yields the total number of current and projected hospital discharges by PSA residents for the planning horizon. The total number of hospital discharges was then multiplied by an appropriate average length of stay ("ALOS") to determine the total number of current and projected patient days by PSA residents. The total patient days were divided by 365 (days in the year) to arrive at the current and projected hospital average daily census ("ADC"). Finally, the ADC was divided by the desired 75% occupancy rate to arrive at a gross bed need for the PSA. The calculations result in a projected need in the 2006 planning horizon for a total of 457 acute care beds; including 386 adult medical surgical, 25 pediatric, and 46 obstetric beds. Based only on projected population growth within the PSA, there will be an incremental gross bed need for 75 acute care beds; 67 medical/surgical, 3 pediatric and 5 obstetric. Existing Inventory and Bed Supply The three hospitals located within the 10 zip code PSA have a total of 667 licensed acute care beds, existing or approved. Including the 36 approved and 16 conditionally approved beds at West, Memorial West has 216 beds. Memorial Pembroke has 301 and there are 150 licensed beds at Cleveland Clinic. This total, however, is "simply not a reasonable or realistic measure of how many beds in those three hospitals are truly available to the residents of Southwest Broward County . . . ." (Tr. 837-8.) Patient origin statistics and representations made by Cleveland Clinic in its certificate of need applications bear out that it is not a typical community hospital. Appropriate to its mix of tertiary services and its focus on education and research, it has a broad service area reaching far beyond Broward County. Consistent with the nature of the hospital, in its first three months of operation at Weston, 35% of its patients came from outside Broward County and only 16% have come from southwest Broward County or the 10 zip code PSA used by SBHD in its application for the Miramar hospital. Based on available data and information, it is reasonable to project that Cleveland Clinic will draw approximately 26% of its patients from within Memorial Miramar's PSA. It is reasonable, therefore, to allocate 26% of Cleveland Clinic's 150 beds to meet the population based demand for adult medical surgical beds in the PSA, for a net contribution of approximately 40 beds. With its functional capacity of 149 beds, it is not reasonable to consider all of the 301 beds at Memorial Pembroke. Fifty-four percent of its patients come from within the Memorial Pembroke PSA. The product of 149 beds multiplied by 54% is approximately 80 beds available to meet the population-based demand of the residents of southwest Broward County. There is, moreover, some doubt about whether any beds will be available at Memorial Pembroke after the expiration of SBHD's lease with HCA. Given the stigma Memorial Pembroke suffers and its uncertain future, an estimate of 80 beds is a reasonable projection for the number of beds at the hospital available to meet the needs of the residents of southwest Broward County. With 65% of its patients coming from within the proposed PSA for the Miramar Hospital, Memorial West is the hospital of choice for the residents of the proposed PSA. With 186 adult medical surgical beds, 120 meet the needs of patients coming from Miramar's PSA. Thus, there are approximately 240 adult medical surgical beds (120 at West, 80 at Pembroke and 40 at Cleveland Clinic) available to meet the projected need of 386 adult medical surgical beds in the 2006 planning horizon. Subtracting the 240 beds from the 386 needed yields a net need of 146 beds to serve residents of the Miramar PSA. Although some patients will continue to seek services outside the PSA, Dr. Finarelli's projection that there is a sufficient net need to support the 80 adult medical surgical beds proposed at Memorial Miramar is reasonable. Building Memorial Miramar will help reduce the percentage of people who leave the area for acute inpatient adult medical surgical services from its current level of about 50% to approximately 25%. This will improve access to health care for the residents of southwest Broward County. Memorial West is the only provider of obstetrical services in southwest Broward County, and only one of two in all of south Broward (the other being Memorial Regional). Both Memorial West and Memorial Regional are operating above capacity in their obstetrical units. In calendar year 2000, Memorial West's 24-bed obstetric unit operated at 130% occupancy. Hollywood Medical Center recently closed its obstetric unit thereby increasing the pressure on Memorial Regional and Memorial West to provide services to area patients. With a projected gross need for 46 obstetric beds in the planning horizon, there is a net need for at least 22 more obstetric beds. The proposed 12-bed unit at Memorial Miramar will help to meet that need. Memorial Hospital West's 6-bed pediatric unit is the only unit of its kind in southwest Broward County. The only other provider of pediatric services in all of south Broward is Memorial Regional's Joe DiMaggio Children's Hospital. Dr. Finarelli reasonably projects that one-half of the pediatric patient beds needed in southwest Broward would continue to be filled by Joe DiMaggio's Children Hospital. This leaves a net need for at least 7 pediatric beds in southwest Broward; the proposed 8-bed unit at Memorial Miramar will fill that need. Patient Days, Utilization and Market Share Projections To project utilization and market shares for the proposed hospital, Dr. Finarelli used a geographic area comprised of 28 zip codes that represent the primary and secondary service areas of the proposed hospital. The areas are expected to account for 90% of the hospital's admissions. The 28 zip codes were divided by Dr. Finarelli into four geographic clusters: the 10 zip code PSA or "Southwest Broward", 9 zip codes in "Other South Broward", 3 zip codes in "North Broward" and 6 zip codes in north Dade County or "Select North Dade." Based on historical and current data and market trends, Dr. Finarelli assigned current and projected inpatient market shares in each zip code cluster to each hospital in south Broward County and to select hospitals in north Broward County and north Dade County, with and without the existence of Memorial Hospital Miramar. He also assigned market shares and projected patient days separately by service category for adult medical/surgical, obstetric and pediatric services. Dr. Finarelli's market share assumptions for the proposed hospital were as follows: for Southwest Broward County in the Adult Service Category, 6% and 18%, in OB, 7% and 20%, in Pediatrics, 7% and 20%, all for the years 2005 and 2010, respectively; for Other South Broward County, in the Adult Service Category, 0.3% and 1%, for OB, 0.3% and 1%, for pediatrics, 0% and 0%, all for the years 2005 and 2010, respectively; for North Broward in the Adult Service Category, 0.6% and 2%, for OB, 0.8% and 3% and for pediatrics, 0.8% and 3%, all for the years 2005 and 2010, respectively; and for Select North Dade, in the Adult Service Category, 0.8% and 2.5%, for OB, 1% and 3%, and for pediatrics, 0.8% and 2.5%, all for the years 2005 and 2010, respectively. Taking into account available data and projected trends in each of the zip code clusters, these market share projections are reasonable. Dr. Finarelli applied his market share assumptions to overall projections of hospital discharges for each zip code cluster to arrive at the projected number of discharges for the proposed hospital in its first and second year of operation. He included an additional 9% to 10% in projected discharges to account for patients admitted from outside the 28 zip codes, such as patients from areas elsewhere in Broward, Dade, other parts of Florida and out of state. It is typical for hospitals in Broward County to receive approximately 10% of patients from outside of their primary and secondary service areas. By multiplying the projected number of hospital discharges by a reasonable length of stay for each category of service, Dr. Finarelli arrived at his projections of patient days. His "average length of stay" assumption was less than the District average. These calculations demonstrate that Memorial Miramar will have total acute care utilization of 19,958 patient days in its first full year of operation, and 25,503 patient days in its second full year of operation. Dr. Finarelli's projections of market shares, admissions and patient days for the new hospital appear to be reasonable. The Statutory Criteria Section 408.035, Florida Statutes, provides the review criteria for CON applications. The parties agree that subsections (3) and (4) are not in dispute. Section 408.035(1) concerns whether the proposed project is supported by and consistent with the applicable district health plan (the "Plan"). The Plan contains recommendations, preferences and priorities. The majority of the preferences and priorities contained in the Plan are not applicable to this application. The Plan recommends that there should be a reduction of licensed beds in Broward County until a ratio of 4.0 beds per 1,000 population is less than 4.0 beds per thousand and/or an overall occupancy rate of 85% is achieved. Although the bed population ratio is less than 4.0 beds per thousand, the annual occupancy rate is below 50%. This criterion, quite obviously, is not met by SBHD. But its importance diminishes in light of the "not normal" circumstances in support of the application, particularly the overcrowding at Memorial West and Regional. The Plan states that "priority consideration for initiation of new acute care services or capital expenditures shall be given to applicants with a documented history of providing services to medically indigent patients or a commitment to do so." SBHD promises to provide 3.21% of gross revenue for charity care and 4.14% of its patient days for Medicaid patients at Memorial Pembroke. These figures are not unattainable. Memorial West provided 3.2% of its revenues toward charity care in the most recent year. The effect of the expiration of SBHD' lease without renewal at Memorial Pembroke may increase pressure on Memorial Miramar's charity care services. On the other hand, in light of Memorial West's history in meeting its charity care commitment and the relative affluence of the Miramar's PSA, there is some question as to whether Memorial Miramar can meet the commitment contained in the application. West has fallen far short of its 7.0% commitment. Less than 1% of its admissions were charity care admissions between 1997 and 2000 and only 2.6% of its gross revenues were for charity care in 1999, for example. Whatever West's experience bodes for Miramar's future, it is clear that SBHD has a documented history of providing services to the medically indigent. It is committed, moreover, to do so throughout the hospital district whether it achieves its commitment at Memorial Miramar or not. The preferences of the Plan related to the provision of care for the indigent is clearly met by SBHD. Section 408.035(2) addresses 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. There is no problem with quality of care in the district. The extent of utilization of all the facilities in the district is not high. Nonetheless, there is an access problem that constitutes not normal circumstances. Memorial West, in particular, is overcrowded. A new hospital in Miramar will enhance access for the residents of the hospital district who want to access one of the District's hospitals and so directly meets the criterion in Section 408.035(7), the "extent to which the proposed services will enhance access to health care for residents of the service district." Section 408.035(5) addresses the needs of research and educational facilities including facilities with institutional training programs and community training programs for health care practitioners at the student, internship and residency training levels. The District's affiliation with medical schools provides some satisfaction with this criterion but on balance, SBHD receives little credit under this criterion. Section 408.035(6), Florida Statutes is "[t]he availability, of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation." The parties stipulated that SBHD has the ability to recruit and retain the staff needed for the proposed hospital. Cleveland Clinic and Westside argue that SBHD's recruitment of staff will have a detrimental impact on existing providers. A shortage of skilled nurses and other allied professionals exists nationally, in Florida and in Dade and Broward Counties. The nursing shortage has intensified in recent years due to the decline in the number of licensed nurses further compounded by a drop in the number of nurses enrolled in nursing schools. As a result it has become increasingly difficult for hospitals to fill nursing vacancies. In order to ensure adequate staffing in the midst of the nursing shortage, especially during the peak season of late fall and the winter months, Westside and Cleveland Clinic are forced to utilize "agency" or "pool" nursing personnel. These nurses command higher wages than non-agency nursing personnel. The District's application projects a need for 128 registered nurses who will be full-time employees ("FTE"s). This need increases to 167. New hospitals are usually able to attract staff from other facilities who prefer to work with new equipment in a new setting. Recruitment of personnel to staff the Miramar Hospital will come at the expense of existing providers such as Cleveland Clinic and Westside. Subsection (8) of the Review Criteria is "[t]he immediate and long-term financial feasibility of the proposal." The District has the financial resources to construct the hospital and meet start-up costs. There was no challenge to SBHD's demonstration of short-term financial feasibility. Projections of revenues and expenses were based on SBHD experience at Memorial West and its other hospitals. These projections are reasonable. Based on Dr. Finarelli's patient day projections, showing a net profit of $1.6 million in year 2, the project is feasible in the long-term. Subsection (9) of the Review Criteria is "[t]he extent to which the proposal will foster competition that promotes quality and cost-effectiveness." Aside from the impact the new facility will have on Cleveland Clinic and Westside's ability to recruit and retain staff, the evidence failed to show that either Cleveland Clinic or Westside would suffer significant impact if SBHD's application is approved. No matter which experts projections of lost case volume are accepted, both Cleveland Clinic and Westside should generate substantial net profits. The future of Memorial Pembroke, after the expiration of the current lease, is too speculative to factor into the impact to HCA. Subsection (10) of the Review Criteria relates to the costs and methods of the proposed construction. The District satisfies this criterion. (See paragraph 34, above). Subsection (11) addresses the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent. As stated above, while there is legitimate doubt whether or not SBHD can meet the conditions it proposes in its application, there is no question about its past provisions of services to Medicaid patients and the medically indigent. Rule Criteria There are two rule criteria that relate to the application. Rule 59C-1.038, acute care bed priority considerations and Rule 59C-1030, additional review criteria. Under the Rule 59C-1.038 there are two priorities, only the first of which (documented history of providing services to medically indigent patients or a commitment to do so) is applicable. Stated in the disjunctive, just as its corollary statutory criterion, SBHD clearly meets the criterion based on its documented history regardless of the case Cleveland Clinic and Westside present relative to doubts based on the history of condition compliance at Memorial West. The criteria in Rule 59C-1.030 generally address the extent to which there is a need for a particular service and the extent to which the service will be accessible to underserved members of the population. The application did not identify an underserved segment of the population that is in need of the services proposed for Memorial Miramar. As for the remainder of the criteria under the rule, there is a need for the proposed project as concluded below in this order's conclusions of law.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration grant South Broward Hospital District's CON Application 9459 to establish a 100-bed acute care hospital in southwest Broward County. DONE AND ENTERED this 3rd day of July, 2002, in Tallahassee, Leon County, Florida. DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 2002. COPIES FURNISHED: C. Gary Williams, Esquire Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 F. Philip Blank, Esquire Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Post Office Box 11068 Tallahassee, Florida 32302-3068 George N. Meros, Jr., Esquire Michael E. Riley, Esquire Gray, Harris & Robinson, P.A. Post Office Box 11189 Tallahassee, Florida 32302 Gerald L. Pickett, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 William Roberts, Acting General Counsel Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403 Virginia A. Daire, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive Building Three, Suite 3431 Tallahassee, Florida 32308-5403
The Issue The issue is whether BayCare Long Term Acute Care Hospital, Inc.'s Certificate of Need Application No. 9753 and University Community Hospital's Certificate of Need Application No. 9754, both submitted to the Agency for Health Care Administration, should be approved.
Findings Of Fact LTCHs defined An LTCH is a medical facility which provides extended medical and rehabilitation care to patients with multiple, chronic, or clinically complex acute medical conditions. These conditions include, but are not limited to, ventilator dependency, tracheotomy care, total parenteral nutrition, long- term intravenous anti-biotic treatment, complex wound care, dialysis at bedside, and multiple systems failure. LTCHs provide an interdisciplinary team approach to the complex medical needs of the patient. LTCHs provide a continuum of care between short-term acute care hospitals and nursing homes, skilled nursing facilities (SNFs), or comprehensive medical rehabilitation facilities. Patients who have been treated in an intensive acute care unit at a short-term acute care hospital and who continue to require intensive care once stabilized, are excellent candidates for care at an LTCH. Included in the interdisciplinary approach is the desired involvement of the patient's family. A substantial number of the patients suitable for treatment in an LTCH are in excess of 65 years of age, and are eligible for Medicare. Licensure and Medicare requirements dictate that an LTCH have an average length of stay (ALOS) of 25 days. The Center for Medicare and Medicaid Services (CMS) reimburses for care received through the prospective payment system (PPS). Through this system, CMS reimburses the services of LTCHs separately from short-term acute care providers and other post acute care providers. The reimbursement rate for an LTCH under PPS exceeds that of other providers. The reimbursement rate for an LTCH is about twice that of a rehabilitation facility. The increased reimbursement rate indicates the increased cost due to the more intensive care required in an LTCH. The Agency The Agency is a state agency created pursuant to Section 20.42. It is the chief health policy and planning entity for the State of Florida. The Agency administers the Health Facility and Services Development Act found at Sections 408.031-408.045. Pursuant to Section 408.034, the Agency is designated as the single state Agency to issue, revoke, or deny certificates of need. The Agency has established 11 health service planning districts. The applications in this case are for facilities in District 5, which comprises Pinellas and Pasco counties. UCH UCH is a not-for-profit organization that owns and operates a 431-bed tertiary level general acute care hospital and a 120-bed acute care general hospital. Both are located in Hillsborough County. UCH also has management responsibilities and affiliations to operate Helen Ellis Hospital, a 300-bed hospital located in Tarpon Springs, and manages the 300-bed Suncoast Hospital. Both of these facilities are in Pinellas County. UCH also has an affiliation to manage the open heart surgery program at East Pasco Medical Center, a general acute care hospital located in Pasco County. As a not-for-profit organization, the mission of UCH is to provide quality health care services to meet the needs of the communities where it operates regardless of their patients' ability to pay. Baycare BayCare is a wholly-owned subsidiary of BayCare Healthsystems, Inc. (BayCare Systems). BayCare Systems is a not-for-profit entity comprising three members that operate Catholic Health East, Morton Plant Mease Healthcare, and South Florida Baptist. The facilities owned by these organizations are operated pursuant to a Joint Operating Agreement (JOA) entered into by each of the participants. BayCare Systems hospitals include Morton Plant Hospital, a 687-bed tertiary level facility located in Clearwater, Pinellas County; St. Joseph's Hospital, an 887-bed tertiary level general acute care hospital located in Tampa, Hillsborough County; St. Anthony's Hospital, a 407-bed general acute care hospital located in St. Petersburg, Pinellas County; and Morton Plant North Bay, a 120-bed hospital located in New Port Richey, Pasco County. Morton Plant Mease Health Care is a partnership between Morton Plant Hospital and Mease Hospital. Although Morton Plant Mease Healthcare is a part of the BayCare System, the hospitals that are owned by the Trustees of Mease Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside, are not directly members of the BayCare System and are not signatories to the JOA. HealthSouth HealthSouth is a national company with the largest market share in inpatient rehabilitation. It is also a large provider of ambulatory services. HealthSouth has about 1,380 facilities across the nation. HealthSouth operates nine LTCHs. The facility that is the Intervenor in this case is a CMR located in Largo, Pinellas County. Kindred Kindred, through its parent company, operates LTCH facilities throughout Florida and is the predominant provider of LTCH services in the state. In the Tampa Bay area, Kindred operates three LTCHs. Two are located in Tampa and one is located in St. Petersburg, Pinellas County. The currently operating LTCH in District 5 that may be affected by the CON applications at issue is Kindred-St. Petersburg. Kindred-St. Petersburg is a licensed 82-bed LTCH with 52 private beds, 22 semi-private beds, and an 8-bed intensive care unit. It operates the array of services normally offered by an LTCH. It is important to note that Kindred-St. Petersburg is located in the far south of heavily populated District 5. The Applications UCH proposes a new freestanding LTCH which will consist of 50 private rooms and which will be located in Connerton, a new town being developed in Pasco County. UCH's proposal will cost approximately $16,982,715. By agreement of the parties, this cost is deemed reasonable. BayCare proposes a "hospital within a hospital" LTCH that will be located within Mease Hospital-Dunedin. The LTCH will be located in an area of the hospital currently used for obstetrics and women's services. The services currently provided in this area will be relocated to Mease Hospital- Countryside. BayCare proposes the establishment of 48 beds in private and semi-private rooms. Review criteria which was stipulated as satisfied by all parties Section 408.035(1)-(9) sets forth the standards for granting certificates of need. The parties stipulated to satisfying the requirements of subsections (3) through (9) as follows. With regard to subsection (3), 'The ability of the applicant to provide quality of care and the applicant's record of providing quality of care,' all parties stipulated that this statutory criterion is not in dispute and that both applicants may be deemed to have satisfied such criteria. With regard to subsection (4), 'The availability of resources, including health personnel, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation,' it was stipulated that both applicants have all resources necessary in terms of both capital and staff to accomplish the proposed projects, and therefore, both applicants satisfy this requirement. With regard to subsection (5), 'The extent to which the proposed services will enhance access to health care for residents of the service district,' it was stipulated that both proposals will increase access. Currently there are geographic, financial and programmatic barriers to access in District 5. The only extant LTCH is located in the southernmost part of District 5. With regard to subsection (6), 'The immediate and long-term financial feasibility of the proposal,' the parties stipulated that UCH satisfied the criterion. With regard to BayCare, it was stipulated that its proposal satisfied the criterion so long as BayCare can achieve its utilization projections and obtain Medicare certification as an LTCH and thus demonstrate short-term and long-term feasibility. This issue will be addressed below. With regard to subsection (7), 'The extent to which the proposal will foster competition that promotes quality and cost- effectiveness,' the parties stipulated that approval of both applications will foster competition that will promote quality and cost effectiveness. The only currently available LTCH in District 5, unlike BayCare and UCH, is a for-profit establishment. With regard to subsection (8), 'The costs and methods of the proposed construction, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction,' the parties stipulated that the costs and methods of construction for both proposals are reasonable. With regard to subsection (9), 'the applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent,' it was stipulated that both UCH and BayCare have a demonstrated history and a commitment to providing services to Medicaid, Medicaid HMO, self-pay, and underinsured payments. Technically, of course, BayCare has no history at all. However, its sponsors do, and it is they that will shape the mission for BayCare. BayCare's Medicare certification as an LTCH The evidence of record demonstrates that BayCare can comply with Medicare reimbursement regulations and therefore can achieve its utilization projections and obtain Medicare certification as an LTCH. Thus short-term and long-term feasibility is proven. Because BayCare will be situated as a hospital within a hospital, in Mease Hospital Dunedin, and because there is a relationship between that hospital and BayCare Systems, Medicare reimbursement regulations limit to 25 percent the number of patients that may be acquired from Mease Hospital Dunedin or from an organization that controls directly or indirectly the Mease Hospital Dunedin. Because of this limitation, it is, therefore, theoretically possible that the regulator of Medicare payments, CMS, would not allow payment where more than 25 percent of admissions were from the entire BayCare System. Should that occur it would present a serious but not insurmountable problem to BayCare. BayCare projects that 21 percent of its admissions will come from Mease Hospital Dunedin and the rest will come from other sources. BayCare is structured as an independent entity with an independent board of directors and has its own chief executive officer. The medical director and the medical staff will be employed by the independent board of directors. Upon the greater weight of the evidence, under this structure, BayCare is a separate corporate entity that neither controls, nor is controlled by, BayCare Systems or any of its entities or affiliates. One must bear in mind that because of the shifting paradigms of federal medical regulation, predictability in this regard is less than perfect. However, the evidence indicates that CMS will apply the 25 percent rule only in the case of patients transferring to BayCare from Mease Hospital Dunedin. Most of the Medicare-certified LTCHs in the United States operate as hospitals within hospitals. It is apparent, therefore, that adjusting to the CMS limitations is something that is typically accomplished. BayCare will lease space in Mease Hospital Dunedin which will be vacated by it current program. BayCare will contract with Mease Hospital Dunedin for services such as laboratory analysis and radiology. This arrangement will result in lower costs, both in the short term and in the long term, than would be experienced in a free-standing facility, and contributes to the likelihood that BayCare is feasible in the short term and long term. Criteria related to need The contested subsections of Section 408.035 not heretofore addressed, are (1) and (2). These subsections are illuminated by Florida Administrative Code Rule 59C- 1.008(2)(e)2., which provides standards when, as in this case, there is no fixed-need pool. Florida Administrative Code Rule 59C-1.008(2)(e)2., provides as follows: 2. If no agency policy exists, the applicant will be responsible for demonstrating need through a needs assessment methodology which must include, at a minimum, consideration of the following topics, except where they are inconsistent with the applicable statutory or rule criteria: Population demographics and dynamics; Availability, utilization and quality of like services in the district, sub district or both; Medical treatment trends; and Market conditions. Population Demographics and Dynamics The applicants presented an analysis of the population demographics and dynamics in support of their applications in District 5. The evidence demonstrated that the population of District 5 was 1,335,021 in 2004. It is anticipated that it will grow to 1,406,990 by 2009. The projected growth rate is 5.4 percent. The elderly population in the district, which is defined as persons over the age of 65, is expected to grow from 314,623 in 2004, to 340,676, in 2009, which represents an 8.3 percent increase. BayCare BayCare's service area is defined generally by the geographic locations of Morton Plant Hospital, Morton Plant North Bay Hospital, St. Anthony's Hospital, Mease Hospital Dunedin, and Mease Hospital Countryside. These hospitals are geographically distributed throughout Pinellas County and southwest Pasco County and are expected to provide a base for referrals to BayCare. There is only one extant LTCH in Pinellas County, Kindred, and it is located in the very southernmost part of this densely populated county. Persons who become patients in an LTCH are almost always moved to the LTCH by ambulance, so their movement over a long distance through heavy traffic generates little or no problem for the patient. Accordingly, if patient transportation were the only consideration, movement from the north end of the county to Kindred in the far south, would present no problem. However, family involvement is a substantial factor in an interdisciplinary approach to addressing the needs of LTCH patients. The requirement of frequent movement of family members from northern Pinellas to Kindred through congested traffic will often result in the denial of LTCH services to patients residing in northern Pinellas County or, in the alternative, deny family involvement in the interdisciplinary treatment of LTCH patients. Approximately 70 letters requesting the establishment of an LTCH in northern Pinellas County were provided in BayCare's application. These letters were written by medical personnel, case managers and social workers, business persons, and government officials. The thread common to these letters was, with regard to LTCH services, that the population in northern Pinellas County is underserved. UCH Pasco County has experienced a rapid population growth. It is anticipated that the population will swell to 426,273, in 2009, which represents a 10.1 percent increase over the population in 2004. The elderly population accounts for 28 percent of the population. This is about 50 percent higher than Florida as a whole. Rapid population growth in Pasco County, and expected future growth, has resulted in numerous new housing developments including Developments of Regional Impact (DRI). Among the approved DRI's is the planned community of Connerton, which has been designated a "new town" in Pasco County's Comprehensive Plan. Connerton is a planned community of 8,600 residential units. The plan includes space for a hospital and UCH has negotiated for the purchase of a parcel for that purpose within Connerton. The rate of growth, and the elderly population percentages, will support the proposed UCH LTCH and this is so even if BayCare establishes an LTCH in northern Pinellas County. Availability, utilization, and quality of like services in the district, sub-district, or both The Agency has not established sub-districts for LTCHs. As previously noted, Kindred is the only LTCH extant in District 5. It is a for-profit facility. Kindred was well utilized when it had its pediatric unit and added 22 additional beds. Subsequently, in October 2002, some changes in Medicare reimbursement rules resulted in a reduction of the reimbursement rate. This affected Kindred's income because over 70 percent of its patients are Medicare recipients. Kindred now uses admission criteria that have resulted in a decline in patient admissions. From 1998, the year after Kindred was established, until 2002, annual utilization was in excess of 90 percent. Thereafter, utilization has declined, the 22-bed addition has been shut down, and Kindred projects an occupancy of 55 percent in 2005. Kindred must make a profit. Therefore, it denies access to a significant number of patients in District 5. It denies the admission of patients who have too few "Medicare- reimbursable days" or "Medicaid-reimbursable days" remaining. The record indicates that Kindred only incurs charity care or Medicaid patient days when a patient admitted to Kindred with seemingly adequate funding unexpectedly exhausts his or her funding prior to discharge. Because of the constraints of PPS, Kindred has established admission criteria that excludes certain patients with conditions whose prognosis is so uncertain that it cannot adequately predict how long they will require treatment. Kindred's availability to potential patients is thus constrained. HealthSouth, a licensed CMR, is not a substitute for an LTCH. Although it is clear that there is some overlap between a CMR and an LTCH, HealthSouth, for instance, does not provide inpatient dialysis, will not accept ventilator patients, and does not treat complex wound patients. The nurse staffing level at HealthSouth is inadequate to provide for the type of patient that is eligible for treatment in an LTCH. The fact that LTCHs are reimbursed by Medicare at approximately twice the rate that a CMR is reimbursed, demonstrates the higher acuity level of LTCH services when compared to a CMR. HealthSouth is a facility which consistently operates at high occupancy levels and even if it were capable of providing the services typical of an LTCH, it would not have sufficient capacity to provide for the need. A CMR is a facility to which persons who make progress in an LTCH might repair so that they can return to the activities of daily living. SNFs are not substitutes for LTCHs although there could be some limited overlap. SNFs are generally not appropriate for patients otherwise eligible for the type of care provided by an LTCH. They do not provide the range of services typically provided by an LTCH and do not maintain the registered nurse staffing levels required for delivering the types of services needed for patients appropriate for an LTCH. LTCHs are a stage in the continuum of care. Short- term acute care hospitals take in very sick or injured patients and treat them. Thereafter, the survivors are discharged to home, or to a CMR, or to a SNF, or, if the patients are still acutely ill but stable, and if an LTCH is available, to an LTCH. As noted above, currently in northern Pinellas County and in Pasco County, there is no reasonable access to an LTCH. An intensive care unit (ICU) is, ideally, a treatment phase that is short. If treatment has been provided in an ICU and the patient remains acutely ill but stable, and is required to remain in the ICU because there is no alternative, greater than necessary costs are incurred. Staff in an ICU are not trained or disposed to provide the extensive therapy and nursing required by patients suitable for an LTCH and are not trained to provide support and training to members of the patient's family in preparation for the patient's return home. The majority of patients suitable for an LTCH have some potential for recovery. This potential is not realized in an ICU, which is often counterproductive for patients who are stabilized but who require specialized long-term acute care. Patients who remain in an ICU beyond five to seven days have an increased morbidity/mortality rate. Maintaining patients suitable for an LTCH in an ICU also results in over-utilization of ICU services and can cause congestion when ICU beds are fully occupied. UCH in Pasco County, and to a lesser extent BayCare in northern Pinellas County, will bring to the northern part of District 5 services which heretofore have not been available in the district, or, at least, have not been readily available. Persons in Pasco County and northern Pinellas County, who would benefit from a stay in an LTCH, have often had to settle for some less appropriate care situation. Medical Treatment Trends LTCHs are relatively new cogs in the continuum of care and the evidence indicates that they will play an important role in that continuum in the future. The evidence of record demonstrates that the current trend in medical treatment is to find appropriate post acute placements in an LTCH setting for those patients in need of long-term acute care beyond the stay normally experienced in a short-term acute care hospital. Market conditions The federal government's development of the distinctive PPS for LTCHs has created a market condition which is favorable for the development of LTCH facilities. Although the Agency has not formally adopted by rule a need methodology specifically for LTCHs, by final order it has recently relied upon the "geometric mean length of stay + 7" (GMLOS +7) need methodology. The GMLOS +7 is a statistical calculation used by CMS in administering the PPS reimbursement system in determining an appropriate reimbursement for a particular "diagnostic related group" (DRG). Other need methodologies have been found to be unsatisfactory because they do not accurately reflect the need for LTCH services in areas where LTCH services are not available, or where the market for LTCH services is not competitive. GMLOS +7 is the best analysis the Agency has at this point. Because the population for whom an LTCH might be appropriate is unique, and because it overlaps with other populations, finding an algebraic need expression is difficult. An acuity measure would be the best marker of patient appropriateness, but insufficient data are available to calculate that. BayCare's proposal will provide beneficial competition for LTCH services in District 5 for the first time and will promote geographic, financial, and programmatic access to LTCH services. BayCare, in conducting its need calculations used a data pool from Morton Plant Hospital, Mease Dunedin Hospital, Mease Countryside Hospital, Morton Plant North Bay Hospital, and St. Anthony's Hospital for the 12 months ending September 2003. The hospitals included in the establishment of the pool are hospitals that would be important referral sources for BayCare. BayCare then identified 160 specific DRGs historically served by existing Florida LTCHs, or which could have been served by Florida LTCHs, and lengths of stay greater than the GMLOS for acute care patients, and compared them to the data pool. This resulted in a pool of 871 potential patients. The calculation did not factor in the certain growth in the population of the geographic area, and therefore the growth of potential LTCH patients. BayCare then applied assumptions based on the proximity of the referring hospitals to the proposed LTCH to project how many of the patients eligible for LTCH services would actually be referred and admitted to the proposed LTCH. That exercise resulted in a projected potential volume of 20,265 LTCH patient days originating just from the three District 5 BayCare hospitals and the two Mease hospitals. BayCare assumes, and the assumption is found to be reasonable, that 25 percent of their LTCH volume will originate from facilities other than BayCare or Mease hospitals. Adding this factor resulted in a total of 27,020 patient days for a total net need of 82 beds at 90 percent occupancy. BayCare's GMLOS +7 bed need methodology reasonably projects a bed need of 82 beds based on BayCare's analysis of the demand arising from the three District 5 BayCare hospitals and the two Mease hospitals. UCH provided both a GMLOS +7 and a use rate analysis. The use rate analysis is suspect in a noncompetitive environment and, obviously, in an environment where LTCHs do not exist. UCH's GMLOS +7 analyses resulted in the identification of a need for 159 additional LTCH beds in District 5. This was broken down into a need of 60 beds in Pasco County and 99 additional beds in Pinellas County. There is no not-for-profit LTCH provider in District The addition of BayCare and UCH LTCHs to the district will meet a need in the case of Medicaid, indigent, and underinsured patients. Both BayCare and UCH have agreed in their applications to address the needs of patients who depend on Medicaid, or who are indigent, or who have private insurance that is inadequate to cover the cost of their treatment. The statistical analyses provided by both applicants support the proposed projects of both applicants. Testimony from doctors who treat patients of the type who might benefit from an LTCH testified that those types of facilities would be utilized. Numerous letters from physicians, nurses, and case managers support the need for these facilities. Adverse impacts HealthSouth and Kindred failed to persuade that BayCare's proposal will adversely impact them. HealthSouth provides little of the type of care normally provided at an LTCH. Moreover, HealthSouth is currently operating near capacity. Kindred is geographically remote from BayCare's proposed facility, and, more importantly, remote in terms of travel time, which is a major consideration for the families of patients. Kindred did not demonstrate that it was currently receiving a large number of patients from the geographic vicinity of the proposed BayCare facility, although it did receive some patients from BayCare Systems facilities and would likely lose some admissions if BayCare's application is approved. The evidence did not establish that Kindred would suffer a material adverse impact should BayCare establish an LTCH in Mease Dunedin Hospital. HealthSouth and Kindred conceded that UCH's program would not adversely impact them. The Agency's Position The Agency denied the applications of BayCare and UCH in the SAARs. At the time of the hearing the Agency continued to maintain that granting the proposals was inappropriate. The Agency's basic concern with these proposals, and in fact, the establishments of LTCHs throughout the state, according to the Agency's representative Jeffrey N. Gregg, is the oversupply of beds. The Agency believes it will be a long time before it can see any measure of clinical efficiency and whether the LTCH route is the appropriate way to go. The Agency has approved a number of LTCHs in recent years and is studying them in order to get a better understanding of what the future might hold. The Agency noted that the establishment of an LTCH by ongoing providers, BayCare Systems and UCH, where there are extant built-in referring facilities, were more likely to be successful than an out-of-state provider having no prior relationships with short-term acute care hospitals in the geographic vicinity of the LTCH. The Agency noted that both a referring hospital and an LTCH could benefit financially by decompressing its intensive care unit, and thus maximizing their efficiency. The Agency did not explain how, if these LTCHs are established, a subsequent failure would negatively affect the delivery of health services in District 5. The Agency, when it issued its SAAR, did not have the additional information which became available during the hearing process.
Recommendation Based upon the Findings of Fact and Conclusions of Law, it is RECOMMENDED that UCH Certificate of Need Application No. 9754 and BayCare Certificate of Need Application No. 9753 satisfy the applicable criteria and both applications should be approved. DONE AND ENTERED this 29th day of November, 2005, in Tallahassee, Leon County, Florida. S HARRY L. HOOPER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of November, 2005. COPIES FURNISHED: Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 J. Robert Griffin, Esquire J. Robert Griffin, P.A. 1342 Timberlane Road, Suite 102-A Tallahassee, Florida 32312-1762 Patricia A. Renovitch, Esquire Oertel, Hoffman, Fernandez, Cole, & Bryant P.A. Post Office Box 1110 Tallahassee, Florida 32302-1110 Geoffrey D. Smith, Esquire Blank, Meenan & Smith, P.A. 204 South Monroe Street Tallahassee, Florida 32301 Timothy Elliott, Esquire Agency for Health Care Administration 2727 Mahan Drive Building Three, Mail Station 3 Tallahassee, Florida 32308 Alan Levine, Secretary Agency for Health Care Administration Fort Knox Building, Suite 3116 2727 Mahan Drive Tallahassee, Florida 32308 Christa Calamas, General Counsel Agency for Health Care Administration Fort Knox Building, Suite 3431 2727 Mahan Drive Tallahassee, Florida 32308 Richard Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: Based upon an agreement between the petitioner and the respondent, and a later addendum, petitioner received Certificate of Need Number 1460 in February of 1981 granting the petitioner the authority to construct 126 additional general medical/surgical beds but to only license and operate 72 of such beds. The instant proceeding involves petitioner's application for a Certificate of Need to license and operate the remaining 54 beds which have been previously constructed under Certificate of Need Number 1460. St. Joseph's Hospital is a 649-bed full service major referral hospital in Hillsborough County owned and operated by the Franciscan Sisters of Allegheny. Its services include a comprehensive community mental health center, a comprehensive pediatric unit with 88 beds, a radiation therapy center, a 60- bed community cancer center, cardiac catheterization, cardiac surgery and a large and active emergency room. It serves a considerable number of indigent patients and participates in the Medicaid and Medicare programs. Petitioner is now requesting permission to license the regaining 54 beds which were authorized to be constructed pursuant to Certificate of Need Number 1460. The project involves no additional construction or renovation inasmuch as all 126 beds previously authorized have been completed. No capital expenditure will be required in order to place the 54 beds into operation. If the Certificate of Need is granted, petitioner intends to create two specialty medical/surgical units: a 32-bed cardiac surgical unit to accommodate patients from the open heart surgical program and a 22-bed medical unit for psychiatric patients requiring medical treatment. There currently are no other beds available in the hospital to convert for use for the psychiatric patient or for the cardiac surgical unit. Petitioner has been operating, on occasion, at occupancy levels in excess of 90 percent. At times, it has been necessary to place non-emergency patients in the emergency room and have them remain there until beds become available. There are sometimes up to 40 patients on the waiting list for elective surgery. Due to the shortage of empty beds, petitioner cannot now admit new members to its medical staff. Steady operation of the hospital at occupancy levels exceeding 90 percent can have an adverse effect upon the efficiency of the nursing staff and the quality of care offered to patients. Because the bulk of projected growth in Hillsborough County is expected to occur in the center and northwestern area of the county, it is anticipated that the pattern of utilization of petitioner's facility will continue. While the licensing of the 54 additional beds involves no capital expenditure on petitioner's part, it is estimated that, if petitioner is not permitted to license these beds, a total yearly loss of over $3.8 million will be experienced. This figure is the sum of lost net revenues from the beds in the amount of $87,339 and lost net ancillary revenues in the amount of $2.36 million, as well as the absorption of $232,750 in yearly depreciation costs and $1.14 million in committed indirect costs. Petitioner anticipates a loss per patient day, calculated at 100 percent occupancy, of $16.82 if the licensing of the beds is not approved. This would result in an increase of current patient charges by 9.1 percent in order to maintain petitioner's budgeted profit margin. Petitioner is located in HRS District VI which, at the time of the hearing, was composed of Hillsborough and Manatee Counties. Some 81 percent of all beds in the District are located in Hillsborough County. As of the time of the hearing, the District had 3,899 licensed acute care beds, with 606 additional beds having been approved but not yet operational. The generally accepted optimum utilization rate for acute care beds is 80 to 85 percent. For District VI, the overall utilization rate is below the optimum level. In Manatee County, utilization of acute care beds is at 78.3 percent. In Hillsborough County, the utilization level is at 77.4 percent, with the major referral hospitals experiencing a higher level of utilization than the smaller community hospitals. Rule 10-5.11(23), Florida Administrative Code, contains the governing methodology for determining acute care bed needs of the various Districts. Applications for new or additional acute care hospital beds in a District will not normally be approved if approval would cause the number of beds in that District to exceed the number of beds calculated to be needed. Application of the Rule's formula to District VI results in a total acute care bed need of 3,622 projected for the year 1988. Given the 4,505 existing and approved beds in the District, there are 883 excess beds in District VI under the Rule's formula methodology for projecting need. The 1982 Health Systems Plan adopted by the Florida Gulf Health Systems Agency makes no bed need projections for other specialty medical/surgical beds," but shows no need for medical/surgical beds. Rule 10-5.11(23), Florida Administrative Code, provides that other criteria may result in a demonstration of bed need even when the formula approach illustrates no need for beds. When additional beds are approved pursuant to other criteria, those beds are counted in the inventory of existing and approved beds in the area when applying the bed need formula to review future projects. The formula methodology does account for the inflow and outflow of patients in a specific area. While Rule 10-5.11(23) permits the Local Health Councils to adopt subdistrict bed allocations by type of service, the Council for District VI had not adopted its local health plan as of the date of the hearing in this matter. The Rule itself simply addresses the need for general acute care bed needs in the future.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED that the application of St. Joseph's Hospital, Inc. for a Certificate of Need to license 54 acute care medical/surgical beds be DENIED. Respectfully submitted and entered this 10th day of November, 1983, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of November, 1983. COPIES FURNISHED: Ivan Wood, Esquire David Pingree Wood, Lucksinger & Epstein Secretary One Houston Center Department of Health and Suite 1600 Rehabilitative Services Houston, Texas 77010 1323 Winewood Boulevard Tallahassee, Florida 32301 Steven W. Huss, Esquire 1323 Winewood Boulevard, Suite 406 Tallahassee, Florida 32301
The Issue Whether CON 8241, Palm Beach Regional's application to convert its 200 bed acute care hospital to a 60 bed long-term care hospital should be granted or denied?
Findings Of Fact The Parties The applicant in this case is The Hospital Corporation of Lake Worth d/b/a Palm Beach Regional Hospital. A subsidiary of Columbia Hospital Corporation, ("Columbia,") Palm Beach Regional is a licensed general acute care hospital with 200 beds located in Palm Beach County, AHCA District 9. Palm Beach Regional's license is issued pursuant to Chapter 395, Florida Statutes, the chapter of the Florida Statutes entitled, "Hospital Licensing and Regulation." The agency is "designated as the single state agency to issue ... or deny certificates of need ... in accordance with the district plans, the statewide health plan, and present and future federal and state statutes." Section 408.034(1), F. S. Integrated is a licensed 120-bed skilled nursing facility, also known as a long-term care facility, located in Palm Beach County, AHCA District 9. Its license is issued pursuant to Chapter 400, Florida Statutes, the statute entitled "Nursing Homes and Related Health Care Facilities." Columbia Hospital Corporation The parent company of petitioner, Columbia has a stock market capitalization of between $15 and $20 billion and enjoys a profitability of over $1 billion per year. It owns approximately 340 hospitals, well over 100 ambulatory surgical centers, and an extensive number of home health agencies. As to be expected of a Fortune 500 company, Columbia generates substantial annual revenues. In 1994, for example, the annual revenues generated by Columbia exceeded $17 billion. Columbia also lays claim to being the largest hospital system in the state. It has five divisions with approximately 60 hospitals in its "Florida Group," the organizational title for its Florida operations. The net revenues of the Columbia Florida Group is approximately $4.5 billion. One of five divisions of Columbia's Florida Group, the South Florida Division is a $1.2 billion operation. The division encompasses Dade, Broward and Palm Beach Counties and consists of 15 hospitals, six surgery centers, and one dozen home health agencies. The South Florida Division, of course, includes Palm Beach Regional. Background to the Application Palm Beach Regional was purchased by Columbia shortly after Columbia had purchased JFK Hospital, a 300-bed tertiary hospital approximately three miles from Palm Beach Regional. In August of 1995, as a business decision, Columbia consolidated the operations of the two facilities. The consolidation resulted in a patient census drop at Palm Beach Regional. Shortly thereafter, with the permission of the agency, Palm Beach Regional ceased operations at its emergency room. The result of the consolidation and limitation of the services offered was that it cost only about $100,000 a month to keep Palm Beach Regional running with its small census. Even with the small census, and the relatively low monthly operational expense, the operational expense was more than $1 million per year. In June of 1996, Palm Beach Regional and the agency entered a stipulation which authorized the hospital to suspend the acute care operations in contemplation of this proceeding. Palm Beach Regional's hospital-based skilled nursing unit has since been transferred. Palm Beach Regional is now closed and empty. The reason Palm Beach Regional had been kept operating at all after the consolidation with JFK was to preserve the opportunity to convert the license as proposed in the application. The Application Certified for accuracy on September 18, 1995, under the signature of its authorized representative, Robert L. Newman, CEO of Columbia/HCA, South Florida Division, the application was submitted to the agency bearing a date of September 20, 1995. The application describes what it seeks in the section titled "Project Summary" as follows: Hospital Corporation of Lake Worth (Palm Beach Regional) proposes in this Certificate of Need Application to convert 60 acute care hospital beds to 60 long-term acute care hospital beds and to delicense 128 existing acute care beds. (At a later date the existing 12 skilled nursing beds will be located to another Columbia/HCA hospital in District IX.) Palm Beach Regional Exhibit No. 1, AHCA Form 1455A, Oct 92, AHCA 4600-0005 Aug 93. The transfer of the 12 skilled nursing beds has already occurred and therefore is not at issue in this proceeding. Nor is the delicensure of the 128 beds really at the heart of the agency's denial and Integrated's opposition. In contrast, what is contested is the conversion of the 60 acute care hospital beds to 60 long- term acute care hospital beds. Such a conversion would make Palm Beach Regional a long-term acute care hospital. Long-term Acute Care Hospitals Referring to a hospital as both "long-term" and "acute," is confusing. The two terms have divergent meanings both in terms of average length of stay and the traits of the illness suffered by the acute and the long-term patient. In the context of hospitals, "long-term" refers to a patient with an average length of stay of greater than 25 days. By comparison, the acute patient's stay is typically much less than 25 days, with the average length of stay being between 5 and 6 days. As is the patient in need of acute care, the typical long-term hospital patient is very ill. The difference in the type of illness suffered by the acute care patient as opposed to the long-term patient, however, lies in other characteristics. Unlike the acute care patient, the long-term patient is not in the urgent, emergent or desperately critical state of patients in the acute care setting. The two terms, "long-term" and "acute" have been used together with reference to the type of hospital to which Palm Beach Regional proposes to convert because of the history of the long- term care hospital’s development. Originally in Florida, long-term hospitals were licensed as acute care hospitals and were referred to, therefore, as "long-term acute," hence the combination of terms with disparate meanings. In the context of a study conducted by the Hospital Cost Containment Board, however, the agency examined the issue of whether long-term hospitals should be subject to CON review as long-term hospitals apart from other acute hospitals. As a result, long-term hospitals came to be reviewed in their own separate category under certificate of need review, subject to the same licensure requirements as a specialty acute care hospital. Because they had been licensed earlier as acute care hospitals, the term "acute" was carried over into the new category. At present, there is a recommendation to refer to long-term acute care hospitals simply as "long-term hospitals" to clear up any confusion caused by the terminology. This recommendation will be followed for the most part in the remainder of this order when reference is made to acute and long-term facilities and acute and long-term care. Long-term Care Hospital-based long-term care is a distinction established in federal Medicare regulations that describes a hospital with patients having an average length of stay of greater than 25 days. The distinction allows an exclusion from the Medicare prospective payment system so that reimbursement is received by the long-term hospital on the basis of cost. The distinction is of great import financially because of the distinction between "cost-based" Medicaid and Medicare reimbursement systems and another payment system used by Medicaid and Medicare: the prospective payment system. Before the prospective payment system was instituted, hospitals generally were well utilized, in fact, “filled to the brim.” The high utilization was due to the "cost-based" reimbursement system which contained a financial incentive for the hospital to keep patients in the hospital. Under the cost-based system, the more a hospital spent, the more reimbursement it would receive from Medicare and Medicaid. The prospective payment system was instituted to save taxpayers the high cost of the cost-based reimbursement system. Under the prospective payment system, the hospital receives a flat fee for Medicare and Medicaid patients depending on the diagnostic category, or diagnostic-related group, ("DRG,") into which falls the illness treated. The flat fee is figured on the basis of average length of stay for that diagnostic category. Under this system, unlike the cost-reimbursed system, the hospital receives the same reimbursement for Medicare and Medicaid patients who stay for less than the average length of stay assigned to the patient's DRG as for those who stay longer. With regard to a patient who stays in the hospital longer than the average length of stay for the patient's DRG, the hospital, in many cases, not only profits less the longer the patient stays but begins to lose money at some point in the stay. If the average length of stay for an appendicitis patient is four days, for example, then the hospital profits more in the case of an appendicitis patient who stays only two days because it has incurred only two days of costs instead of the expected four days of costs. In the case of another appendicitis patient, who stays longer than the average length of stay, the hospital makes less money and reaches the point eventually in some cases where the hospital actually loses money for treating the patient if the patient stays long enough. Medicare provides additional payments for both "day-outliers" and "cost-outliers," but not enough to prevent financial pressure on hospitals to discharge acute patients as soon as possible. The prospective payment system has succeeded in forcing hospitals to operate more efficiently; the average utilization of hospitals has declined dramatically. Today, about half of the hospital beds in Florida on any given day go unused. The system does not have the same effect on long-term hospitals; they are exempt from the prospective payment system. Instead, long-term care hospitals are reimbursed under a cost-based system. A long-term hospital well located geographically is particularly attractive to a large hospital system, such as Columbia. Not only will it likely be a financial success in its own right but it will assist Columbia’s sister acute care hospitals in relieving them of patients too sick to be discharged to a subacute setting yet finished with the acute episode which required the acute care hospital’s service in the first place. Development of Long-term Care Hospitals in Florida The first long-term care hospital was instituted in Florida in the 1980's. Fairly soon thereafter there were three long-term care hospitals in Florida, but then there was a lull in the attempt to establish long-term care hospitals. With the advent of the prospective payment system, however, there eventually came the closing of a number of small hospitals in Florida because of their inability to continue to operate in sound financial condition. At the same time, four or five applications for the conversion of small hospitals to long- term care hospitals were filed with the agency. In the early part of the present decade the agency conducted a study of long-term hospital care. The study took place within a larger study by the Hospital Cost Containment Board. Ultimately, it was recommended that long-term care hospitals be regulated separately from acute care hospitals and that they be subject to separate certificate of need review. The recommendation was made for a number of reasons. First, long-term hospitals were viewed by the agency as very different from acute care hospitals because of the patients' average lengths of stay. Second, long-term care hospitals were found to be expensive for the type of care given in them which was of great concern to the state since cost control is an objective of the certificate of need program. Third, long-term hospitals were found to experience high mortality rates. As the result of the study and recommendation, the agency made the creation or conversion of hospitals into long-term hospitals subject to certificate of need review. Admission Criteria In the study, the agency also found that there are no clear admission criteria for long-term hospitals. To date, neither the Health Care Finance Administration (“HCFA”), nor the Joint Commission on Accreditation of Hospital Organizations ("JCAHO,") or any of its sub-organizations have developed any criteria to define a long-term care hospital. It is not clear, therefore, exactly what type of patients are suitable for care in a long-term hospital. Sub-acute Care The parties are in agreement that sub-acute care is a level of care that is below acute care. Palm Beach Regional claims, however, that the care provided by long-term care hospitals is not subacute but rather falls into a category of care between acute and sub-acute. An understanding of this claim requires some discussion. Unlike other classes of hospitals which are exempt from the prospective payment system, like cancer, children's or psychiatric hospitals, patients in long-term care hospitals do not have a specific type of illness nor are they limited to serving a specific age group. Generally, however, they are patients who have had an acute episode, whose program of care has been identified and who need a longer term of care to recover or to be rehabilitated because of an acute illness or surgical procedure. And, although they are not limited to a specific age group, the experience of long-term care hospitals is that a major part of their patient population is elderly, virtually all of whom are covered by Medicare. In these respects, long-term care hospital patients are not much different from patients in other "subacute" settings: comprehensive rehabilitation hospitals, acute care hospital skilled nursing units, skilled nursing facilities in free-standing nursing homes, and, even, in some cases, home health care, assisted living and outpatient services for the elderly. If there is a difference between the long-term hospital patient and patients in other subacute settings, it is that the long-term hospital patient has more at-risk types of physical problems, is more likely to be medically unstable or is, in fact, medically unstable. But this difference is not strictly observed because of the financial pressure on hospitals to discharge patients from the acute setting into a subacute setting. Medically unstable patients, therefore, are found in subacute settings such as skilled nursing facilities whether hospital-based or in free- standing nursing homes. In contrast to what has become commonplace practice, Dr. Kathleen Griffin, an expert in health care planning with a specialty in long-term acute care and subacute care, testified that it would not be appropriate for a medically unstable patient to be transferred to a skilled nursing bed. In her opinion it would be best for a medically unstable patient about to be discharged from acute care to be admitted instead to a long-term care hospital. Despite the reality that there are no admission criteria for long-term care hospitals, Dr. Griffin maintains that if a hospital discharge planner believes through information gathered from the medical and nursing staffs that the patient "is highly acute and at risk, and there is a long-term care acute hospital available, then that would be the placement of choice." (Tr. 523.) If a long-term care hospital is not available, however, the alternative is to keep the at-risk, medically unstable patient in the acute care hospital rather than discharge the patient into a nursing facility. Dr. Griffin's opinion is shared by the physician practicing in long-term hospitals. Representative of such a physician is Dr. Wendell Williams, presently the Medical Director of a long-term care hospital, Specialty Hospital of Jacksonville. Dr. Williams sees a distinction between long-term acute care and subacute care. Long-term hospital care is acute care without the need for "highly technical diagnostic capabilities," and "high surgical capabilities," but still care in the "medically complex case that requires frequent physician direction [and] high skill level of caregivers." (Petitioner's Ex. No. 16, pg. 13.) In Dr. Williams view, long-term hospital care occupies a level of care between acute and subacute care. The views of Dr. Griffin and Dr. Williams find support in analyses of nursing hours per patient. In a typical nursing home, the number of hours per patient is about 4.5 hours per day, while in a long-term care hospital, the number is around 6.5 hours per patient day. At Specialty Hospital of Jacksonville, the nursing hours per patient day for non-ventilator patients is 6.75 hours, and for ventilator patients is 10 hours. In contrast, Integrated, a nursing home, provided nursing hours per patient day in its "med-surg unit" at 4.34 hours in March of 1996, 4.60 hours in April and 4.52 hours in May although at times Integrated's nursing hours per patient day have reached as high as 6 hours. The opinions of Dr. Griffin and Dr. Williams have not yet been generally accepted. Following the agency's study in the earlier part of the 1990's, the federal government, under the auspices of HCFA, launched a major study that addresses what AHCA viewed as the "whole gamut of what is marketed as subacute care," (Tr. 272). The study included long-term care hospitals, as well as those settings which the parties all agree are clearly in the category of "subacute": hospital-based skilled nursing facilities, free-standing nursing homes, comprehensive rehab hospitals and home health care. The report was issued in November of 1995. It confirmed that there was a great deal of overlap among the settings studied including between the long-term care hospital and other settings unquestionably subacute. Moreover, it confirmed that many of the services are "primarily driven by reimbursement," (Tr. 275), and not by which provides the best or most cost-effective health care for the very ill, elderly patient no longer in need of acute care. In other words, the financial pressure on hospitals to discharge patients from the acute care setting was what accounted for the tremendous growth of subacute services and the move toward more long-term care hospitals rather than what is actually best for the patient or the health care system. The study concluded that there is insufficient data to determine the cost effectiveness of subacute care as defined in the study. As for overlap in the various settings, the extent of overlap was not precisely determined. But just as long-term care hospitals provide ventilator treatment, skilled nursing units specialize in ventilator patients. Nursing home subacute units specialize in wound care, infectious disease programs and IV antibiotic therapy programs, as well, just as would Palm Beach Regional if approved. The HCFA study also confirmed that the cost of care and mortality rates at long-term care hospitals are high, $2,000 per day and 40 percent, respectively. The average cost per discharge at a long-term care facility was between $150,000 and $250,000. Despite the long-term hospital's recognition by the federal government, the presence in Florida for more than eight years, and separate CON regulation for the last several years, it remain unsettled which patients should be treated and cared for in long-term hospitals. While for some, such as Dr. Griffin and Dr. Williams, the question is one which discharge planners, after consultation with nursing and medical staff, ably make, it is not generally accepted that it is clear which patients should be cared for in long-term care hospitals. It is not generally accepted as evidenced by the wont of admission criteria for long-term hospitals. Furthermore, it is not clear whether long-term hospitals represent the best means or the most cost-effective way of treating patients ready for discharge from an acute care setting. Specialty Hospital of Jacksonville: the Model The Palm Beach Regional proposal to convert to a long- term care hospital is modeled after another Columbia long-term care hospital, Specialty Hospital of Jacksonville, the hospital of which Dr. Williams is the medical director. Opened in 1992, Specialty offers four major program areas: ventilator and other respiratory complications, infectious diseases, wound management and complex medical and rehabilitative services. The typical ventilator patient is quite ill; often with other attendant system breakdown such as cardiac or renal failure. The goal is to free the patient from ventilator dependence. If the patient is judged to be a lifetime custodial ventilator patient, the patient would not be appropriate for Specialty. A variety of infections are treated in the infectious disease program. Often the primary antibiotic treatment has failed and there may be other conditions attendant. The typical wound care patient admitted to Specialty has severe wounds that may derive from circulatory problems. Often admission is from a hospital or nursing home. The patient may be diabetic, paraplegic or quadriplegic. The patient may have experienced a surgical intervention which has not healed. Or the patient may have a distressed digestive system which inhibits the body's ability to absorb the proper nutrients to support the healing process. The typical complex medical and rehab patient includes the spinal cord injured patient and the multiple system failure patient. The patients at Specialty are under the management of an attending physician but typically four or five different specialties are involved in each patient's care. Specialty Hospital has experienced approximately five percent Medicaid and one percent charity care. A representative patient at Specialty Hospital has an average length of stay of 23 days. The representative patient in the infectious diseases program would experience an average length of 18, 20 days in the pulmonary program, 29 days in the ventilator program, 36 days in the wound program, 18 days in the physical medicine and rehabilitation program and 26 days in the medicine program. These lengths of stay resemble acute or Medicare certified skilled nursing bed lengths of stay more than the historical 90 day lengths of stay experienced in Florida at long- term care hospitals. A representative patient at Specialty Hospital will experience an average daily charge of $1,122 and an average charge per case of $25,810, the highest averages incurred by the ventilator program at $1,848 per day and $52,781 per case. From a medical standpoint, all of the patients treated at Specialty Hospital could be treated in an acute care hospital. There is one difference between Specialty's patient profile and the one expected at Palm Beach Regional. The approach proposed by the applicant will include patients with greater levels of instability. Whereas Specialty has taken the approach that patients at the intensive care level should be in a general acute care hospital, Palm Beach Regional expects to treat patients in need of services from an intensive care unit. Palm Beach Regional, therefore, has planned for an intensive care unit at the facility should its CON application be approved. Integrated's Existing Programs Sixty of Integrated 120 beds are dedicated to meet the needs of patients requiring subacute care. Although they may differ slightly in intensity of application because of slightly lower acuity levels of the patients, the programs offered in this sixty-bed skilled nursing unit encompass the four programs proposed for Palm Beach Regional's long-term care hospital: ventilator and respiratory complications; infectious disease; wound management; and complex medical and rehabilitation service program. Integrated uses its own method to measure the acuity of its patients. Within this method, two of the levels require active treatment of co-morbidities, multiple diseases which complicate the primary diagnoses. By whatever means acuity is measured, it is reasonable to expect that the average level of acuity would be somewhat higher among patients treated at a Palm Beach Regional long-term care facility. (Although without criteria to measure acuity for admission or to know for sure what patients are actually being treated at long-term hospitals, this is not certain.) Nonetheless, considering both diagnosis and treatment, Integrated's patients at Integrated's two highest levels of acuity, even if not at quite as high an acuity level on average, would be similar to the patients Palm Beach Regional might serve if its application were granted. Patients at a Palm Beach Regional's long-term care facility who would exceed the highest level of acuity of those patients at Integrated are patients appropriate for treatment in an acute care hospital. Ventilator Care at Integrated Ventilator patients are treated in skilled nursing facilities both in hospitals and in free-standing nursing homes like Integrated. Some skilled nursing units even specialize in ventilator care. There is clearly overlap between ventilator services in skilled nursing facilities and long-term care hospitals. The precise extent of the overlap is not clear. While the overlap may not be 100%, it is certainly significant. Twenty of Integrated's 60 subacute beds are capable of assisting ventilator patients. Within this 20 bed unit, Integrated provides oxygen, air, and wall suctioning just like in a hospital setting. Additionally, Integrated can provide respiratory services outside of its specific unit by using portable suction machines and oxygen concentrators. The ventilator patients treated at Integrated are similar to the ventilator patient treated in intensive care units in hospitals. Some of Integrated ventilator patients are in need of acute care. All are hemodynamically stable but some are medically unstable. Nonetheless, there are patients who would be too unstable to allow them to be suitable for admission into Integrated's respiratory unit. Patients who would need to remain in acute care in the hospital would be patients who, for example, were bleeding or having trouble with a post-surgical trach placement. The medical director at Integrated is a pulmonologist. Integrated has a 24-hour respiratory staff. The ventilator program at Integrated meets the description in the application of the proposed ventilator program at Palm Beach Regional. Comparison of the respiratory services offered at Integrated to the services proposed to be offered in Palm Beach Regional's ventilator program reveals significant overlap between the two. Integrated primarily uses a Bear 3 Ventilator. Other equipment used by Integrated includes pulse oximeters and pneumatic blood pressure cuffs to provide hemodynamic monitoring. The respiratory unit is able to obtain an assessment of the patient's arterial blood gases within two hours through an arrangement with a courier service and nearby JFK Hospital. On average the blood work results are received within an hour of the blood being drawn from the patient. An interdisciplinary team of therapists, including respiratory therapists, physical therapists, occupational therapists and speech therapists, work together on the plan of care and recovery of the ventilator patient including weaning the patient from the ventilator. Of those ventilator patients determined to be weanable, 75% are actually weaned from the machines. Ninety-two percent of the tracheotomy patients achieve decannulation. The average length of stay in the respiratory unit for Integrated's ventilator patients is 37 days, an average length of stay that meets that which defines the long-term care hospital patient, that is, in excess of 25 days. Infectious Disease Treatment at Integrated Just as long-term care hospitals, nursing homes offer infectious disease programs employing IV anti-biotic therapies. Integrated provides its patients with multiple antibiotic therapies. Among the IV anti-biotic therapies used at Integrated are cepo, fortaz and vancomycin. Integrated treats patients with pulmonary edema, pleural affusion, pulmonary embolus and pulmonary infarcts and patients with bi-lobar and multi-lobar pneumonia. Patients are treated with intravenous cortico steroids, intravenous bronchodilators, intraveous diuretics and intramuscular antimedics. Wound Care at Integrated Nursing homes offer wound management programs. There is significant overlap between patients treated for wounds at nursing homes and at long-term care hospitals. Limitations in care of the wound patient are similar as well. Just as a patient in need of surgical intervention for wound care, for example, would be discharged to an acute care hospital from a nursing home so would that patient be discharged to an acute care hospital from Specialty Hospital of Jacksonville, the model hospital for Palm Beach Regional's long-term care facility. Integrated offers wound and skin management treatment of the type described by Palm Beach Regional's proposal. Many of Integrated's patients recieve wound care upon admission. For instance, respiratory patients who have tracheotomies receive care for their wounds throughout the day. Integrated treats all levels of decubitous ulcers, including the most severe, Stage III and IV ulcers, as required by law in order to qualify for Medicare Certification. Complex Medical and Rehabilitative Care Integrated offers radiology and other imaging services on campus: mobile chest x-rays, normal x-rays, and video flouroscopy as well as an in-house staff of rehabilitation professionals: physical and registered occupational therapists and registered speech therapists. The rehabilitation programs proposed by Palm Beach Regional and those programs of other long-term care hospitals overlap significantly with those programs already offered at Integrated. The difference between the complex medical and rehabilitative care offered at Integrated and that proposed for Palm Beach Regional lies in the expected acuity of the patients. One would reasonably expect the patients to be slightly higher in acuity at Palm Beach Regional if approved than as are presently at Integrated. Nonetheless, the patients at Integrated are similar to those Palm Beach Regional would care for, in that Integrated treats patients with co-morbidities, including combinations of congestive heart failure, post-open heart surgery, arteriosclerotic heart disease and renal failure. Integrated's Services in General On an average month, Integrated offered 7.28 hours per day of nursing and respiratory, physical and occupational therapy care per day to the patients within its subacute unit. Forty percent of Integrated's subacute nursing hours are provided by registered nurses, 20% by licensed practical nurses, and the remaining 40% by certified nurse aides. A sample of Integrated's admissions noted numerous patients admitted with cardiopulmonary vent and ventilator needs. Integrated also maintains a large number of orthopedic patients in need of complex rehabilitation. Integrated treats patients with congestive heart failures, patients recovering from recent open- heart surgery, patients requiring specialized wound care, patients with post-operative cranial head injuries, and patients requiring tube feedings, IVS, ventilator and tracheostomy care. Integrated offers the equipment that is listed in the application as equipment to be purchased by Palm Beach Regional if approved. Integrated accepts patients who are medically unstable. These include patients admitted to Integrated's cardiopulmonary unit, patients with recent tracheostomies, patients on ventilators, patients with hemodialysis and peritoneal dialysis who have co- morbidities. Palm Beach Regional's application lists diagnoses of patients to be treated through long-term care which it claims are not appropriate for skilled nursing facilities. The application alludes to various types of comprehensive therapies, care and resources available for these patients. Yet, despite the application's claim that care of these patients is not appropriate for the skilled nursing facility, present at Integrated for the benefit of patients with the same diagnoses are very nearly all, if not all, of these therapies, care and resources. These include: IV antibiotic therapy, IV drips, plasma pheresis, management of severe decubitus ulcers, tracheotomy care with hourly suction, treatment with chest tubes and PCA pumps, cardiac monitoring, dialysis and an on-site pharmacy. Moreover, Integrated's roster of consulting physicians credentialed at the facility included the range of specialists listed in Palm Beach Regional's application. Integrated's roster of physician ranges from family practitioners to practitioners specializing in internal medicine, dermatology, neurology, and infectious disease control, to orthopedic specialists, physiatrists and psychiatrists, nearly the "full gamut" of specialties in medicine. Adverse Impact There will be adverse impact on Integrated if Palm Beach Regional's proposal is approved. The impact occurs as the result of a combination of significant overlap of services offered by Integrated and proposed for Palm Beach Regional and the likely loss of admissions to Integrated's subacute unit generated by patients discharged from JFK Hospital. JFK Hospital and Palm Beach Regional are each approximately 2 miles from Integrated. Approximately 85% of Integrated's subacute admissions come from JFK. A good estimate of how many patients JFK refers to Integrated's subacute unit on an annual basis is 460. It is reasonable to assume that many of these patients would be referred to Palm Beach Regional by its sister Columbia Hospital, JFK, if the application were approved. If only two-thirds of these patients were lost to Palm Beach Regional, using a conservative figure for contribution margin of $100 per patient day, the loss to Integrated would be about $1 million in contribution margin per year. Furthermore, if the application is approved, Integrated will also have to either raise salaries to keep qualified staff for ancillary staff or risk losing them because Palm Beach Regional proposes to offer ancillary staff salaries higher than those paid by Integrated. Certificate of Need Criteria The criteria to be used in evaluating the application are found in statutes, and in rules of the agency which implement these statutes. Section 408.035(1)Health Plans Neither the District 9 Treasure Coast Health Plan nor the State Health Plan contain any mention of long-term acute care beds. Both plans were written before there were any CON requirements for this type of bed. (b) Availability, Quality of Care, Efficiency,Appropriateness, Accessibility, Extent of Utilization and Adequacy of Like and Existing Services There is no agency rule regarding need determination for long-term acute care beds. Neither is long-term hospital care defined by agency rule as a referral service, one dependent upon other hospitals to refer patients. The service area for a referral hospital is larger than just one district. Patients are referred from districts 9 and 11 to the long-term care hospitals in District 10. This is certainly not surprising for patients in district 9 since there is no long- term hospital in the district and referrals are the common way for long-term hospitals to gain patients. Patients are referred from Districts 3, 5, 6 and 8 to the long-term care facility in Tampa. With the exception of the long-term care hospital in District 11 where the largest proportion of patients came from within the District 11, all of the long-term hospitals in the state, "had referrals from all over the place." (Tr. 288.) Palm Beach Regional itself proposes to serve patients from Districts 7 and 10. The reality is that long-term care hospitals are primarily referral hospitals. Nonetheless, since there is no agency rule defining long-term care hospitals as referral hospitals and since there is no agency rule defining the service area of a long-term care hospital, District 9 may be the appropriate service area for the health planning purposes of Palm Beach Regional's application. In order for the district to be the appropriate service area, however, the application must demonstrate that there is a need for a certain number of beds based on the data collected from District 9. Since there is no need methodology applicable to long- term care acute beds, Palm Beach Regional developed three different methodologies for the agency's consideration. The agency found the "components," (Tr. 910,) of the methodologies to be reasonable. Indeed, the agency never offered any other need methodology which it claimed was superior to those offered by the agency. Instead the agency criticizes the methodologies for failing to take into consideration the availability of like and existing services and alternative to the proposed services. Patients who will be served in the proposed facility are currently being served in either the short-term acute hospitals or skilled nursing facilities in nursing homes such as Integrated, both of which are less costly alternatives to this proposal. Palm Beach Regional anticipates referrals from other Columbia Hospitals in the districts; however, six of the eight Columbia Hospitals have skilled nursing units which propose to treat the same patients and conditions the applicant proposes to treat. Furthermore, at the time of hearing, five Columbia hospitals in the districts had 56 approved skilled nursing beds not then operational. Included among the 56 were the 12 skilled nursing unit beds transferred from Palm Beach Regional. Palm Beach Regional's presents arguments in favor of improved quality of care to the patient in need of care following stabilization of an acute episode. There is, however, no data to support a conclusion that outcomes are better in long-term care hospitals. As for the applicant’s ability and record to provide quality of care, there is little doubt. The testimony of Dr. Ron Luke as to the high quality of care to be provided by Palm Beach Regional was not challenged. The patients proposed to be served by the applicant are currently being served in hospitals, subacute units at nursing homes or hospitals, or in rehabilitation facilities. Some may even be in home health with high technology equipment. Transferring these patients to a long-term care facility has significant financial implications costly to the health care system. The 60 beds proposed in the application will, in all likelihood, be adequately utilized. In the case of long-term care hospitals, demand follows the supply because of the strong financial incentive to fill the beds. There is nothing to indicate, however, that acute care beds are not an alternative to long-term hospital beds. There are plenty of empty beds in acute care hospitals to be filled by patients who would be treated by the applicant. That these patients proposed to be treated by Palm Beach Regional might receive treatment, if the application is denied, in hospital-based skilled beds or, perhaps inappropriately at times, in nursing home skilled nursing units is not due to lack of alternatives. Rather, it is the product of financial pressure on the acute care hospitals to discharge patients from the acute setting. Effective utilization of at least 85 percent of cost- based services such as long-term services is an important consideration because fixed costs can be spread over more patient days, thereby decreasing the costs per patient day. The average utilization rate in Florida for long-term care beds is 66 percent. The most recent occupancy rate for Specialty Hospital is only 41 percent. The record of long-term care hospitals would indicate that the utilization projections by Palm Beach Regional are unreasonable. But, there was nothing established that indicated the three methodologies used by Dr. Luke were unreasonable in any way. Given that Palm Beach Regional will be able to draw patients from its sister Columbia acute care hospitals, all of whom will be anxious to provide patients to this long-term hospital, and given that long-term hospital care is a kind of care for which demand follows the supply, it is likely that utilization at Palm Beach Regional, if approved, will be strong. Despite the record of other long-term care hospitals, Palm Beach Regional’s utilization projections are reasonable. Need for Research and Educational Facilities There are no plans to provide research or education at this facility. Availability of Manpower, Management Personnel and Funds for Capital and Operating Expenditures The State Agency Action Report shows that the agency believes that there will be adequate levels of staffing available. The adequacy of the staffing levels was confirmed by the administrator of Specialty Hospital of Jacksonville. Palm Beach Regional will be able to adequately staff the hospital at the salary levels proposed in the application. Long-term acute care hospitals treat the very old. Since almost all of these people have Medicare coverage, economic access is not a problem for the individuals the applicant proposes to serve. The applicant has a 1% indigent commitment and a 5% projected Medicaid utilization. Geographic access is also served well by this facility. The facility is located where the population base of the elderly population is in District 9. Financial Feasibility The immediate financial feasibility of Palm Beach Regional is evident from its ability to open and operate for the first two years with a positive cash flow with a financing letter in the amount of $407,000 from Columbia. Palm Beach Regional, in its pro formas and the analysis underlying its pro formas concluded that it would be under the prospective payment system for six months before it could transer to a facility exempt from the prospective payment system. This conclusion is reasonable. Palm Beach Regional has two months to get the necessary certification changed prior to the end of its fiscal year. Palm Beach Regional will be able to institute the necessary six month evaluation, within CON constraints, when it chooses. Furthermore, Palm Beach Regional could change the end of its fiscal year so that the six-month time period could be accommodated. Finally, short-term financial feasibility was demonstrated by the pro forma which properly shows reimbursement levels for patients who were treated in the first six months, and who were discharged after the first six months. Under Medicare regulations, the hospital would be reimbursed on a cost basis for these patients. Palm Beach Regional projected an occupancy level of 85% in the first year of operation and 87% in the second year of operation. Neither Specialty Hospital of Jacksonville, the model for Palm Beach Regional, nor the other long-term care hospitals in Florida have occupancy levels that high. Comparison, however, is not valid. The long-term care hospitals that converted from acute care facilities converted their entire complement of beds which resulted in overbedding. In contrast, Palm Beach Regional seeks to convert only 60 of its 200 beds. The situation of Specialty is very different. It is a converted 105 bed facility which was in bankruptcy when it first started, limiting its ability to attract patients. Within its district, Specialty competes with Vencor of North Florida, a 60 bed facility. Not only does Palm Beach Regional not have any in-district competition, but it will benefit greatly from being a member of the Columbia system. Palm Beach Regional's application demonstrates financial feasibility, both immediate and long-term. Special Needs and Circumstances of HMOs Whether the facility provides an additional level in the continuum of care available to HMO patients is uncertain. It is not generally accepted that the level of care Palm Beach Regional argues it will provide, that is, a level between acute care and subacute care, even exists let alone whether such a level of care is necessary, cost-effective or the best means of treating patients. Needs and Circumstances of Entities Providing Substantial Portion of Services to Individuals Residing Outside the District There are no facilities in the district which provide a substantial portion of its service to individuals residing outside the district. Probable Impact on Costs of Providing Health Services Total property costs for Palm Beach Regional amount to $3.572 million per year, or approximately $250,000 per month. This includes depreciation, interest, insurance and all other property costs. Because Palm Beach Regional would enjoy cost- reimbursement from Medicare instead of being paid on the basis of the prospective payment system, Medicare would pay as much as $190 per patient day for simple property costs and not for patient care, if Palm Beach Regional's utilization projections prove true. Were Palm Beach Regional's utilization projections to turn out to be incorrect and Palm Beach Regional's occupancies were more in the range of other long-term care facilities, (50% the first year and 60% the second), the cost would be "into the $3-400 a day cost range for the cost of [the] ... property allocated per patient day, which would be picked up in their entirety or close to their entirety [by Medicare.]" (Tr. 782.) Either way, the high property costs of Palm Beach Regional would result, should the application be approved, in shifting a huge financial burden to Medicare. The result would be to "wind up costing the Federal government, the Medicare program, multiples of what it now cost[s] ... to treat those same patients in acute care hospitals." (Tr. 792). The Applicant's Past and Proposed Provision of Services to Medicaid and the Medically Indigent Palm Beach Regional projected a 5% Medicaid utilization but its commitment is to indigent care only and that being a mere 1%. The commitment to indigent care (as opposed to the projection for Medicaid care) is meager. Furthermore, Palm Beach Regional has little established pattern accepting patients in these payor classes. Given the savings to Columbia acute care hospitals which would feed patients to Palm Beach Regional, and ultimately, the profit to be enjoyed by the applicant, a commitment of 1% is lacking. That recognized, it must be said that the modesty of the commitment is consistent with the advantage Medicare's cost- reimbursement system provides long-term care hospitals. It is not to be expected that there will be many Medicaid or indigent patients utilizing long-term care hospitals. "The vast majority of the population utilizing the facility will be the elderly, virtually all of whom are covered by Medicare." (Palm Beach Regional's Proposed Recommended Order, p. 23, Tr. 339.) Still, a greater commitment, more along the lines of the commitment provided by St. Petersburg Health Care Management, Inc., with which Palm Beach Regional has drawn comparison, (See Findings of Fact, 123- 128, below,) would lend this criterion to favor the application rather than disfavor it. The Applicant's Past and Proposed Provision of Services Which Promotes a Continuum of Care There is no long-term hospital available in District 9. But whether that means Palm Beach Regional is adding a level to the continuum of care available for patients in the district is uncertain. There is no data to support the conclusion that long- term care hospitals provide a level of care between that of acute and subacute. Despite the earnestness with which Dr. Griffin and Dr. Williams hold their opinions to the contrary, their opinions are simply not yet accepted widely enough at this point to support such a conclusion. That Less Costly, More Efficient, or More Appropriate Alternatives to Such Inpatient Services are not Available Long-term care hospitals have existed for years by Act of Congress. "[W]hile there has been an active discussion of alternatives, so far they have not come up with one which has been moved into rule or legislation." (Tr. 421). Certainly keeping long-term care hospital patients covered by Medicare in acute care hospitals would be a less costly alternative. Whether caring for these patients in one facility or another is more cost-efficient, however, is unknown. At bottom, there is no determinative data on the issue of cost-efficiency. As for more appropriate alternatives, there is a group of long-term care hospital patients for whom it is less appropriate to be in a free-standing skilled nursing unit. But, the size of this group is uncertain. Certainly, from the point of view of care to the patient, it is at least equally appropriate for all long- term care patients to remain in acute care hospitals rather than be discharged to long-term care. Alternatives to New Construction As the result of renovations, the facility requires little capital to convert it to a 60 bed long-term care hospital. The capital outlay of $500,000 is an indication of how little actual construction is necessary to complete the project. Problems in Obtaining the Proposed Inpatient Care in the Absence of the Proposed New Service With the exception of inappropriately premature discharges of patients from the acute care hospital's acute care setting, there are beds available for appropriate care in the absence of approval of the application. There is an abundance of beds in acute care hospitals available to patients who might otherwise be discharged to the long-term care hospital. As for the patient for whom discharge from the acute care setting is appropriate who might be admitted to a long-term care hospital, there are available for inpatient care skilled nursing beds in one type of facility or another. Administrative Due Process Palm Beach Regional contends that it has been treated differently by the agency, without reasonable explanation, from St. Petersburg Health Care Management, Inc., a successful applicant for the conversion of a general acute care hospital to a long-term care hospital in another district. Initially approved by the agency, the "St. Petersburg" application, CON 8213, was not subjected to the scrutiny of a formal administrative hearing at the Division of Administrative Hearings. Nonetheless, in support of its claim of unfair treatment, portions of the St. Petersburg application and omissions response for Certificate of Need number 8213 were introduced into evidence by petitioner as well as the State Agency Action Report. There are similarities between the two applications. For example, both proposed conversion of underutilized facilities to long-term acute care beds, as well as reduction of the hospitals' complements of 200 acute care beds to 60 long-term care beds. But there are differences as well. The St. Petersburg commitment to indigent and Medicaid care is 500% of the commitment by Palm Beach Regional. St. Petersburg's commitment is a combined 5%: 2% to indigent and 3% to Medicaid. In contrast, Palm Beach Regional's commitment is 1%, to indigent care only. Palm Beach Regional stated in its application that "[p]atients classified as Medicaid payers are projected to equal 5.0% of total patient days in 1999, 2000, and 2001." Petitioner's Ex. No. 1, p. 79. As reasonable as this projection may be, it is just that: a projection, nothing more and a projection is a far cry from a commitment. There is another difference between the two applications. While the facilities from which Palm Beach Regional's application received letters of support were limited to Columbia's affiliated facilities, St. Petersburg received letters of support from three disproportionate share providers as well as numerous unaffiliated hospitals and nursing homes in the Pinellas and Pasco County areas. The difference is critical to an understanding of the likelihood that the facility will, in fact, meet its commitment to the historically underserved. As Ms. Elizabeth Dudek, Chief of the Certificate of Need and Budget Review Office at the Agency for Health Care Administration testified, "You have, in the case of having the support of all the disproportionate share providers ... more of an assurance that the historically underserved, the Medicaid and the indigent patients, will be served and get access to the service." (Tr. 902). Such an assurance is omitted unfortunately from Palm Regional’s application.
Recommendation ACCORDINGLY, it is recommended that the application of Palm Beach Regional to establish a long-term acute care hospital by delicensing 128 beds and converting 60 acute care beds to 60 long- term acute care beds be denied.DONE AND ORDERED this 24th day of March, 1997, in Tallahassee, Florida. DAVID MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 COPIES FURNISHED: Eric Tilton, Esquire Filed with the Clerk of the Division of Administrative Hearings this 24th day of March, 1997. Gustafson, Tilton & Henning, P.A. 204 South Monroe Street, Suite 200 Tallahassee, Florida 32301 Lesley Mendelson, Senior Attorney Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Thomas F. Panza, Esquire Seann M. Frazier, Esquire Panza, Maurer, Maynard & Neel, P.A. 3600 North Federal Highway Fort Lauderdale, Florida 33308 Sam Power, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403 Jerome W. Hoffman, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox, Building III Tallahassee, Florida 32308-5403
