The Issue Whether the certificate of need (CON) applications filed by New Port Richey Hospital, Inc., d/b/a Community Hospital of New Port Richey (Community Hospital) (CON No. 9539), and Morton Plant Hospital Association, Inc., d/b/a North Bay Hospital (North Bay) (CON No. 9538), each seeking to replace and relocate their respective general acute care hospital, satisfy, on balance, the applicable statutory and rule criteria.
Findings Of Fact The Parties AHCA AHCA is the single state agency responsible for the administration of the CON program in Florida pursuant to Chapter 408, Florida Statutes (2000). The agency separately reviewed and preliminarily approved both applications. Community Hospital Community Hospital is a 300,000 square feet, accredited hospital with 345 licensed acute care beds and 56 licensed adult psychiatric beds, located in southern New Port Richey, Florida, within Sub-District 5-1. Community Hospital is seeking to construct a replacement facility approximately five miles to the southeast within a rapidly developing suburb known as "Trinity." Community Hospital currently provides a wide array of comprehensive inpatient and outpatient services and is the only provider of obstetrical and adult psychiatric services in Sub-District 5-1. It is the largest provider of emergency services in Pasco County with approximately 35,000 visits annually. It is also the largest provider of Medicaid and indigent patient days in Sub-District 5-1. Community Hospital was originally built in 1969 and is an aging facility. Although it has been renovated over time, the hospital is in poor condition. Community Hospital's average daily census is below 50 percent. North Bay North Bay is a 122-bed facility containing 102 licensed acute care beds and 20 licensed comprehensive medical rehabilitation beds, located approximately one mile north of Community Hospital in Sub-District 5-1. It serves a large elderly population and does not provide pediatric or obstetrical care. North Bay is also an aging facility and proposes to construct a replacement facility in the Trinity area. Notably, however, North Bay has spent approximately 12 million dollars over the past three years for physical improvements and is in reasonable physical condition. Helen Ellis Helen Ellis is an accredited hospital with 150 licensed acute care beds and 18 licensed skilled nursing unit beds. It is located in northern Pinellas County, approximately eight miles south of Community Hospital and nine miles south of North Bay. Helen Ellis provides a full array of acute care services including obstetrics and cardiac catheterization. Its daily census average has fluctuated over the years but is approximately 45 percent. Mease Mease operates two acute care hospitals in Pinellas County including Mease Dunedin Hospital, located approximately 18 to 20 miles south of the applicants and Mease Countryside Hospital, located approximately 16 to 18 miles south of Community and North Bay. Each hospital operates 189 licensed beds. The Mease hospitals are located in the adjacent acute care sub-district but compete with the applicants. The Health Planning District AHCA's Health Planning District 5 consists of Pinellas and Pasco Counties. U.S. Highway 41 runs north and south through the District and splits Pasco County into Sub- District 5-1 and Sub-District 5-2. Sub-District 5-1, where Community Hospital and North Bay are located, extends from U.S. 41 west to the Gulf Coast. Sub-District 5-2 extends from U.S. 41 to the eastern edge of Pasco County. Pinellas County is the most densely populated county in Florida and steadily grows at 5.52 percent per year. On the other hand, its neighbor to the north, Pasco County, has been experiencing over 15 percent annual growth in population. The evidence demonstrates that the area known as Trinity, located four to five miles southeast of New Port Richey, is largely responsible for the growth. With its large, single- owner land tracts, Trinity has become the area's fuel for growth, while New Port Richey, the older coastal anchor which houses the applicants' facilities, remains static. In addition to the available land in Trinity, roadway development in the southwest section of Pasco County is further fueling growth. For example, the Suncoast Highway, a major highway, was recently extended north from Hillsborough County through Sub-District 5-1, west of U.S. 41. It intersects with several large east-west thoroughfares including State Road 54, providing easy highway access to the Tampa area. The General Proposals Community Hospital's Proposal Community Hospital's CON application proposes to replace its existing, 401-bed hospital with a 376-bed state- of-the-art facility and relocate it approximately five miles to the southeast in the Trinity area. Community Hospital intends to construct a large medical office adjacent to its new facility and provide all of its current services including obstetrical care. It does not intend to change its primary service area. North Bay's Proposal North Bay's CON application proposes to replace its existing hospital with a 122-bed state-of-the-art facility and also plans to relocate it approximately eight miles to the southeast in the Trinity area of southwestern Pasco County. North Bay intends to provide the same array of services it currently offers its patients and will not provide pediatric and obstetrical care in the proposed facility. The proposed relocation site is adjacent to the Trinity Outpatient Center which is owned by North Bay's parent company, Morton Plant. The Outpatient Center offers a full range of diagnostic imaging services including nuclear medicine, cardiac nuclear stress testing, bone density scanning, CAT scanning, mammography, ultrasound, as well as many others. It also offers general and specialty ambulatory surgical services including urology; ear, nose and throat; ophthalmology; gastroenterology; endoscopy; and pain management. Approximately 14 physician offices are currently located at the Trinity Outpatient Center. The Condition of Community Hospital Facility Community Hospital's core facilities were constructed between 1969 and 1971. Additions to the hospital were made in 1973, 1975, 1976, 1977, 1979, 1981, 1992, and 1999. With an area of approximately 294,000 square feet and 401 licensed beds, or 733 square feet per bed, Community Hospital's gross area-to-bed ratio is approximately half of current hospital planning standards of 1,600 square feet per bed. With the exception of the "E" wing which was completed in 1999, all of the clinical and support departments are undersized. Medical-Surgical Beds And Intensive Care Units Community Hospital's "D" wing, constructed in 1975, is made up of two general medical-surgical unit floors which are grossly undersized. Each floor operates 47 general medical-surgical beds, 24 of which are in three-bed wards and 23 in semi-private rooms. None of the patient rooms in the "D" wing have showers or tubs so the patients bathe in a single facility located at the center of the wing on each floor. Community Hospital's "A" wing, added in 1973, is situated at the west end of the second floor and is also undersized. It too has a combination of semi-private rooms and three-bed wards without showers or tubs. Community Hospital's "F" wing, added in 1979, includes a medical-surgical unit on the second and third floor, each with semi-private and private rooms. The second floor unit is centrally located between a 56-bed adult psychiatric unit and the Surgical Intensive Care Unit (SICU) which creates security and privacy issues. The third floor unit is adjacent to the Medical Intensive Care Unit (MICU) which must be accessed through the medical-surgical unit. Neither intensive care unit (ICU) possesses an isolation area. Although the three-bed wards are generally restricted to in-season use, and not always full, they pose significant privacy, security, safety, and health concerns. They fail to meet minimum space requirements and are a serious health risk. The evidence demonstrates that reconfiguring the wards would be extremely costly and impractical due to code compliance issues. The wards hinder the hospital's acute care utilization, and impair its ability to effectively compete with other hospitals. Surgical Department and Recovery Community Hospital's surgical department is separated into two locations including the main surgical suite on the second floor and the Endoscopy/Pain Management unit located on the first floor of "C" wing. Consequently, the department cannot share support staff and space such as preparation and recovery. The main surgical suite, adjacent recovery room, and central sterile processing are 25 years old. This unit's operating rooms, cystoscopy rooms, storage areas, work- stations, central sterile, and recovery rooms are undersized and antiquated. The 12-bay Recovery Room has no patient toilet and is lacking storage. The soiled utility room is deficient. In addition, the patient bays are extremely narrow and separated by curtains. There is no direct connection to the sterile corridor, and staff must break the sterile field to transport patients from surgery to recovery. Moreover, surgery outpatients must pass through a major public lobby going to and returning from surgery. The Emergency Department Community Hospital's existing emergency department was constructed in 1992 and is the largest provider of hospital emergency services in Pasco County, handling approximately 35,000 visits per year. The hospital is also designated a "Baker Act" receiving facility under Chapter 394, Florida Statutes, and utilizes two secure examination rooms for emergent psychiatric patients. At less than 8,000 total square feet, the emergency department is severely undersized to meet the needs of its patients. The emergency department is currently undergoing renovation which will connect the triage area to the main emergency department. The renovation will not enlarge the entrance, waiting area, storage, nursing station, nor add privacy to the patient care areas in the emergency department. The renovation will not increase the total size of the emergency department, but in fact, the department's total bed availability will decrease by five beds. Similar to other departments, a more meaningful renovation cannot occur within the emergency department without triggering costly building code compliance measures. In addition to its space limitations, the emergency department is awkwardly located. In 1992, the emergency department was relocated to the front of the hospital and is completely separated from the diagnostic imaging department which remained in the original 1971 building. Consequently, emergency patients are routinely transported across the hospital for imaging and CT scans. Issues Relating to Replacement of Community Hospital Although physically possible, renovating and expanding Community Hospital's existing facility is unreasonable. First, it is cost prohibitive. Any significant renovation to the 1971, 1975, 1977, and 1979 structures would require asbestos abatement prior to construction, at an estimated cost of $1,000,000. In addition, as previously noted, the hospital will be saddled with the major expense of complying with all current building code requirements in the 40-year-old facility. Merely installing showers in patient rooms would immediately trigger a host of expensive, albeit necessary, code requirements involving access, wiring, square footage, fireproofing columns and beams, as well as floor/ceiling and roof/ceiling assemblies. Concurrent with the significant demolition and construction costs, the hospital will experience the incalculable expense and loss of revenue related to closing major portions, if not all, of the hospital. Second, renovation and expansion to the existing facility is an unreasonable option due to its physical restrictions. The 12'4" height of the hospital's first floor limits its ability to accommodate HVAC ductwork large enough to meet current ventilation requirements. In addition, there is inadequate space to expand any department within the confines of the existing hospital without cannibalizing adjacent areas, and vertical expansion is not an option. Community Hospital's application includes a lengthy Facility Condition Assessment which factually details the architectural, mechanical, and electrical deficiencies of the hospital's existing physical plant. The assessment is accurate and reasonable. Community Hospital's Proposed Replacement Community Hospital proposes to construct a six- story, 320 licensed beds, acute care replacement facility. The hospital will consist of 548,995 gross square feet and include a 56-bed adult psychiatric unit connected by a hallway to the first floor of the main hospital building. The proposal also includes the construction of an adjacent medical office building to centralize the outpatient offices and staff physicians. The evidence establishes that the deficiencies inherent in Community Hospital's existing hospital will be cured by its replacement hospital. All patients will be provided large private rooms. The emergency department will double in size, and contain private examination rooms. All building code requirements will be met or exceeded. Patients and staff will have separate elevators from the public. In addition, the surgical department will have large operating rooms, and adequate storage. The MICU and SICU will be adjacent to each other on the second floor to avoid unnecessary traffic within the hospital. Surgical patients will be transported to the ICU via a private elevator dedicated to that purpose. Medical-surgical patient rooms will be efficiently located on the third through sixth floors, in "double-T" configuration. Community Hospital's Existing and Proposed Sites Community Hospital is currently located on a 23-acre site inside the southern boundary of New Port Richey. Single- family homes and offices occupy the two-lane residential streets that surround the site on all sides. The hospital buildings are situated on the northern half of the site, with the main parking lot located to the south, in front of the main entrance to the hospital. Marine Parkway cuts through the southern half of the site from the west, and enters the main parking lot. A private medical mall sits immediately to the west of the main parking lot and a one-acre storm-water retention pond sits to the west of the mall. A private medical office building occupies the south end of the main parking lot and a four-acre drainage easement is located in the southwest corner of the site. Community Hospital's administration has actively analyzed its existing site, aging facility, and adjacent areas. It has commissioned studies by civil engineers, health care consultants, and architects. The collective evidence demonstrates that, although on-site relocation is potentially an option, on balance, it is not a reasonable option. Replacing Community Hospital on its existing site is not practical for several reasons. First, the hospital will experience significant disruption and may be required to completely close down for a period of time. Second, the site's southwestern large four-acre parcel is necessary for storm-water retention and is unavailable for expansion. Third, a reliable cost differential is unknown given Community Hospital's inability to successfully negotiate with the city and owners of the adjacent medical office complexes to acquire additional parcels. Fourth, acquiring other adjacent properties is not a viable option since they consist of individually owned residential lots. In addition to the site's physical restrictions, the site is hindered by its location. The hospital is situated in a neighborhood between small streets and a local school. From the north and south, motorists utilize either U.S. 19, a congested corridor that accommodates approximately 50,000 vehicles per day, or Grand and Madison Streets, two-lane streets within a school zone. From the east and west, motorists utilize similar two-lane neighborhood streets including Marine Parkway, which often floods in heavy rains. Community Hospital's proposed site, on the other hand, is a 53-acre tract positioned five miles from its current facility, at the intersection of two major thoroughfares in southwestern Pasco County. The proposed site offers ample space for all facilities, parking, outpatient care, and future expansion. In addition, Community Hospital's proposed site provides reasonable access to all patients within its existing primary service area made up of zip codes 34652, 34653, 34668, 34655, 34690, and 34691. For example, the average drive times from the population centers of each zip code to the existing site of the hospital and the proposed site are as follows: Zip code Difference Existing site Proposed site 34652 3 minutes 14 minutes 11 minutes 34653 8 minutes 11 minutes 3 minutes 34668 15 minutes 21 minutes 6 minutes 34655 11 minutes 4 minutes -7 minutes 34690 11 minutes 13 minutes 2 minutes 34691 11 minutes 17 minutes 6 minutes While the average drive time from the population centroids of zip codes 34653, 34668, 34690, and 34691 to the proposed site slightly increases, it decreases from the Trinity area, where population growth has been most significant in southwestern Pasco County. In addition, a motorist's average drive time from Community Hospital's existing location to its proposed site is only 10 to 11 minutes, and patients utilizing public transportation will be able to access the new hospital via a bus stop located adjacent to the proposed site. The Condition of North Bay Facility North Bay Hospital is also an aging facility. Its original structure and portions of its physical plant are approximately 30 years old. Portions of its major mechanical systems will soon require replacement including its boilers, air handlers, and chillers. In addition, the hospital is undersized and awkwardly configured. Despite its shortcomings, however, North Bay is generally in good condition. The hospital has been consistently renovated and updated over time and is aesthetically pleasing. Moreover, its second and third floors were added in 1986, are in good shape, and structurally capable of vertical expansion. Medical Surgical Beds and ICU Units By-in-large, North Bay is comprised of undersized, semi-private rooms containing toilet and shower facilities. The hospital does not have any three-bed wards. North Bay's first floor houses all ancillary and support services including lab, radiology, pharmacy, surgery, pre-op, post-anesthesia recovery, central sterile processing and supply, kitchen and cafeteria, housekeeping and administration, as well as the mechanical, electrical, and facilities maintenance and engineering. The first floor also contains a 20-bed CMR unit and a 15-bed acute care unit. North Bay's second and third floors are mostly comprised of semi-private rooms and supporting nursing stations. Although the rooms and stations are not ideally sized, they are in relatively good shape. North Bay utilizes a single ICU with ten critical care beds. The ICU rooms and nursing stations are also undersized. A four-bed ICU ward and former nursery are routinely used to serve overflow patients. Surgery Department and Recovery North Bay utilizes a single pre-operative surgical room for all of its surgery patients. The room accommodates up to five patient beds, but has limited space for storage and pre-operative procedures. Its operating rooms are sufficiently sized. While carts and large equipment are routinely stored in hallways throughout the surgical suite, North Bay has converted the former obstetrics recovery room to surgical storage and has made efficient use of other available space. North Bay operates a small six-bed Post Anesthesia Care Unit. Nurses routinely prepare patient medications in the unit which is often crowded with staff and patients. The Emergency Department North Bay has recently expanded its emergency department. The evidence demonstrates that this department is sufficient and meets current and future expected patient volumes. Replacement Issues Relating to North Bay While it is clear that areas of North Bay's physical plant are aging, the facility is in relatively good condition. It is apparent that North Bay must soon replace significant equipment, including cast-iron sewer pipes, plumbing, boilers, and chillers which will cause some interruption to hospital operations. However, North Bay's four-page written assessment of the facility and its argument citing the need for total replacement is, on balance, not persuasive. North Bay's Proposed Replacement North Bay proposes to construct a new, state-of-the- art, hospital approximately eight miles southeast of its existing facility and intends to offer the identical array of services the hospital currently provides. North Bay's Existing and Proposed Sites North Bay's existing hospital is located on an eight-acre site with limited storm-water drainage capacity. Consequently, much of its parking area is covered by deep, porous, gravel instead of asphalt. North Bay's existing site is generally surrounded by residential properties. While the city has committed, in writing, it willingness to assist both applicants with on-site expansion, it is unknown whether North Bay can acquire additional adjacent property. North Bay's proposed site is located at the intersection of Trinity Oaks Boulevard and Mitchell Boulevard, south of Community Hospital's proposed site, and is quite spacious. It contains sufficient land for the facilities, parking, and future growth, and has all necessary infrastructure in place, including utility systems, storm- water structures, and roadways. Currently however, there is no public transportation service available to North Bay's proposed site. Projected Utilization by Applicants The evidence presented at hearing indicates that, statewide, replacement hospitals often increase a provider's acute care bed utilization. For example, Bartow Memorial Hospital, Heart of Florida Regional Medical Center, Lake City Medical Center, Florida Hospital Heartland Medical Center, South Lake Hospital, and Florida Hospital-Fish Memorial each experienced significant increases in utilization following the opening of their new hospital. The applicants in this case each project an increase in utilization following the construction of their new facility. Specifically, Community Hospital's application projects 82,685 total hospital patient days (64,427 acute care patient days) in year one (2006) of the operation of its proposed replacement facility, and 86,201 total hospital patient days (67,648 acute care patient days) in year two (2007). Using projected 2006 and 2007 population estimates, applying 2002 acute care hospital use rates which are below 50 percent, and keeping Community Hospital's acute care market share constant at its 2002 level, it is reasonably estimated that Community Hospital's existing hospital will experience 52,623 acute care patient days in 2006, and 53,451 acute care patient days in 2007. Consequently, Community Hospital's proposed facility must attain 11,804 additional acute care patient days in 2006, and 14,197 more acute care patient days in 2007, in order to achieve its projected acute care utilization. Although Community Hospital lost eight percent of the acute care market in its service area between 1995 and 2002, two-thirds of that loss was due to residents of Sub- District 5-1 acquiring services in another area. While Community Hospital experienced 78,444 acute care patient days in 1995, it projects only 64,427 acute care patient days in year one. Given the new facility and population factors, it is reasonable that the hospital will recapture half of its lost acute care market share and achieve its projections. With respect to its psychiatric unit, Community Hospital projects 16,615 adult psychiatric inpatient days in year one (2006) and 17,069 adult inpatient days in year two (2007) of the proposed replacement hospital. The evidence indicates that these projections are reasonable. Similarly, North Bay's acute care utilization rate has been consistently below 50 percent. Since 1999, the hospital has experienced declining utilization. In its application, North Bay states that it achieved total actual acute care patient days of 21,925 in 2000 and 19,824 in 2001 and the evidence at hearing indicates that North Bay experienced 17,693 total acute care patient days in 2002. North Bay projects 25,909 acute care patient days in the first year of operation of its proposed replacement hospital, and 27,334 acute care patient days in the second year of operation. Despite each applicant's current facility utilization rate, Community Hospital must increase its current acute care patient days by 20 percent to reach its projected utilization, and North Bay must increase its patient days by at least 50 percent. Given the population trends, service mix and existing competition, the evidence demonstrates that it is not possible for both applicants to simultaneously achieve their projections. In fact, it is strongly noted that the applicants' own projections are predicated upon only one applicant being approved and cannot be supported with the approval of two facilities. Local Health Plan Preferences In its local health plan for District 5, the Suncoast Health Council, Inc., adopted acute care preferences in October, 2000. The replacement of an existing hospital is not specifically addressed by any of the preferences. However, certain acute care preferences and specialty care preferences are applicable. The first applicable preference provides that preference "shall be given to an applicant who proposes to locate a new facility in an area that will improve access for Medicaid and indigent patients." It is clear that the majority of Medicaid and indigent patients live closer to the existing hospitals. However, Community Hospital proposes to move 5.5 miles from its current location, whereas North Bay proposes to move eight miles from its current location. While the short distances alone are less than significant, North Bay's proposed location is further removed from New Port Richey, is not located on a major highway or bus-route, and would therefore be less accessible to the medically indigent residents. Community Hospital's proposed site will be accessible using public transportation. Furthermore, Community Hospital has consistently provided excellent service to the medically indigent and its proposal would better serve that population. In 2000, Community Hospital provided 7.4 percent of its total patient days to Medicaid patients and 0.8 percent of its total patient days to charity patients. Community Hospital provided the highest percentage and greatest number of Medicaid patient days in Sub-District 5-1. By comparison, North Bay provided 5.8 percent of its total patient days to Medicaid patients and 0.9 percent of its total patient days to charity patients. In 2002, North Bay's Medicaid patients days declined to 3.56 percent. Finally, given the closeness and available bed space of the existing providers and the increasing population in the Trinity area, access will be improved by Community Hospital's relocation. The second local health plan preference provides that "[i]n cases where an applicant is a corporation with previously awarded certificates of need, preference shall be given to those which follow through in a timely manner to construct and operate the additional facilities or beds and do not use them for later negotiations with other organizations seeking to enter or expand the number of beds they own or control." Both applicants meet this preference. The third local health plan preference recognizes "Certificate of Need applications that provide AHCA with documentation that they provide, or propose to provide, the largest percentage of Medicaid and charity care patient days in relation to other hospitals in the sub-district." Community Hospital provides the largest percentage of Medicaid and charity care patient days in relation to other hospitals in Sub-District 5-1, and therefore meets this preference. The fourth local health plan preference applies to "Certificate of Need applications that demonstrate intent to serve HIV/AIDS infected persons." Both applicants accept and treat HIV/AIDS infected persons, and would continue to do so in their proposed replacement hospitals. The fifth local health plan preference recognizes "Certificate of Need applications that commit to provide a full array of acute care services including medical-surgical, intensive care, pediatric, and obstetrical services within the sub-district for which they are applying." Community Hospital qualifies since it will continue to provide its current services, including obstetrical care and psychiatric care, in its proposed replacement hospital. North Bay discontinued its pediatric and obstetrical programs in 2001, does not intend to provide them in its proposed replacement hospital, and will not provide psychiatric care. Agency Rule Preferences Florida Administrative Code Rule 59C-1.038(6) provides an applicable preference to a facility proposing "new acute care services and capital expenditures" that has "a documented history of providing services to medically indigent patients or a commitment to do so." As the largest Medicaid provider in Sub-District 5-1, Community Hospital meets this preference better than does North Bay. North Bay's history demonstrates a declining rate of service to the medically indigent. Statutory Review Criteria Section 408.035(1), Florida Statutes: The need for the health care facilities and health services being proposed in relation to the applicable district health plan District 5 includes Pasco and Pinellas County. Pasco County is rapidly developing, whereas Pinellas County is the most densely populated county in Florida. Given the population trends, service mix, and utilization rates of the existing providers, on balance, there is a need for a replacement hospital in the Trinity area. Section 408.035(2), Florida Statutes: The availability, quality of care, accessibility, and extent of utilization of existing health care facilities and health services in the service district of the applicant Community Hospital and North Bay are both located in Sub-District 5-1. Each proposes to relocate to an area of southwestern Pasco County which is experiencing explosive population growth. The other general acute care hospital located in Sub-District 5-1 is Regional Medical Center Bayonet Point, which is located further north, in the Hudson area of western Pasco County. The only other acute care hospitals in Pasco County are East Pasco Medical Center, in Zephyrhills, and Pasco Community Hospital, in Dade City. Those hospitals are located in Sub-District 5-2, east Pasco County, far from the area proposed to be served by either Community Hospital or North Bay. District 5 includes Pinellas County as well as Pasco County. Helen Ellis and Mease are existing hospital providers located in Pinellas County. Helen Ellis has 168 licensed beds, consisting of 150 acute care beds and an 18-bed skilled nursing unit, and is located 7.9 miles from Community Hospital's existing location and 10.8 miles from Community Hospital's proposed location. Access to Helen Ellis for patients originating from southwestern Pasco County requires those patients to travel congested U.S. 19 south to Tarpon Springs. As a result, the average drive time from Community Hospital's existing and proposed site to Helen Ellis is approximately 22 minutes. Helen Ellis is not a reasonable alternative to Community Hospital's proposal. The applicants' proposals are specifically designed for the current and future health care needs of southwestern Pasco County. Given its financial history, it is unknown whether Helen Ellis will be financially capable of providing the necessary care to the residents of southwestern Pasco. Mease Countryside Hospital has 189 licensed acute care beds. It is located 16.0 miles from Community Hospital's existing location and 13.8 miles from Community Hospital's proposed location. The average drive time to Mease Countryside is 32 minutes from Community Hospital's existing site and 24 minutes from its proposed site. In addition, Mease Countryside Hospital has experienced extremely high utilization over the past several years, in excess of 90 percent for calendar years 2000 and 2001. Utilization at Mease Countryside Hospital has remained over 80 percent despite the addition of 45 acute care beds in April 2002. Given the growth and demand, it is unknown whether Mease can accommodate the residents in southwest Pasco County. Mease Dunedin Hospital has 189 licensed beds, consisting of 149 acute care beds, a 30-bed skilled nursing unit, five Level 2 neonatal intensive care beds, and five Level 3 neonatal intensive care beds. Its former 15-bed adult psychiatric unit has been converted into acute care beds. It is transferring its entire obstetrics program at Mease Dunedin Hospital to Mease Countryside Hospital. Mease Dunedin Hospital is located approximately 18 to 20 miles from the applicants' existing and proposed locations with an average drive time of 35-38 minutes. With their remote location, and the exceedingly high utilization at Mease Countryside Hospital, neither of the two Mease hospitals is a viable alternative to the applicants' proposals. In addition, the construction of a replacement hospital would positively impact economic development and further attract medical professionals to Sub-District 5-1. On balance, given the proximity, utilization, service array, and accessibility of the existing providers, including the applicants, the relocation of Community Hospital will enhance access to health care to the residents. Section 408.035(3), Florida Statutes: The ability of the applicant to provide quality of care and the applicant's record of providing quality of care As stipulated, both applicants provide excellent quality of care. However, Community Hospital's proposal will better enhance its ability to provide quality care. Community is currently undersized, non-compliant with today's standards, and located on a site that does not allow for reasonable expansion. Its emergency department is inadequate for patient volume, and the configuration of the first floor leads to inefficiencies in the diagnosis and treatment of emergency patients. Again, most inpatients are placed in semi-private rooms and three-bed wards, with no showers or tubs, little privacy, and an increased risk of infection. The hospital's waiting areas for families of patients are antiquated and undersized, its nursing stations are small and cramped and the operating rooms and storage facilities are undersized. Community Hospital's deficiencies will be effectively eliminated by its proposed replacement hospital. As a result, patients will experience qualitatively better care by the staff who serve them. Conversely, North Bay is in better physical condition and not in need of replacement. It has more reasonable options to expand or relocate its facility on site. Quality of care at North Bay will not be markedly enhanced by the construction of a new hospital. Sections 408.035(4)and(5), Florida Statutes, have been stipulated as not applicable in this case. Section 408.035(6), Florida Statutes: The availability of resources, including health personnel, management personnel, and funds available for capital and operating expenditures, for project accomplishment and operation The parties stipulated that both Community Hospital and North Bay have available health personnel and management personnel for project accomplishment and operation. In addition, the evidence proves that both applicants have sufficient funds for capital and operating expenditures. Community Hospital proposes to rely on its parent company to finance the project. Keith Giger, Vice-President of Finance for HCA, Inc., Community Hospital's parent organization, provided credible deposition testimony that HCA, Inc., will finance 100 percent of the total project cost by an inter-company loan at eight percent interest. Moreover, it is noted that the amount to be financed is actually $20 million less than the $196,849,328 stated in the CON Application, since Community Hospital previously purchased the proposed site in June 2003 with existing funds and does not need to finance the land acquisition. Community Hospital has sufficient working capital for operating expenditures of the proposed replacement hospital. North Bay, on the other hand, proposes to acquire financing from BayCare Obligated Group which includes Morton Plant Hospital Association, Inc.; Mease; and several other hospital entities. Its proposal, while feasible, is less certain since member hospitals must approve the indebtedness, thereby providing Mease with the ability to derail North Bay's proposed bond financing. Section 408.035(7), Florida Statutes: The extent to which the proposed services will enhance access to health care for residents of the service district The evidence proves that either proposal will enhance geographical access to the growing population in the service district. However, with its provision of obstetrical services, Community Hospital is better suited to address the needs of the younger community. With respect to financial access, both proposed relocation sites are slightly farther away from the higher elderly and indigent population centers. Since the evidence demonstrates that it is unreasonable to relocate both facilities away from the down-town area, Community Hospital's proposal, on balance, provides better access to poor patients. First, public transportation will be available to Community Hospital's site. Second, Community Hospital has an excellent record of providing care to the poor and indigent and has accepted the agency's condition to provide ten percent of its total annual patient days to Medicaid recipients To the contrary, North Bay's site will not be accessible by public transportation. In addition, North Bay has a less impressive record of providing care to the poor and indigent. Although AHCA conditioned North Bay's approval upon it providing 9.7 percent of total annual patient days to Medicaid and charity patients, instead of the 9.7 percent of gross annual revenue proposed in its application, North Bay has consistently provided Medicaid and charity patients less than seven percent of its total annual patient days. Section 408.035(8), Florida Statutes: The immediate and long-term financial feasibility of the proposal Immediate financial feasibility refers to the availability of funds to capitalize and operate the proposal. See Memorial Healthcare Group, Ltd. d/b/a Memorial Hospital Jacksonville vs. AHCA et al., Case No. 02-0447 et seq. Community Hospital has acquired reliable financing for the project and has sufficiently demonstrated that its project is immediately financially feasible. North Bay's short-term financial proposal is less secure. As noted, North Bay intends to acquire financing from BayCare Obligated Group. As a member of the group, Mease, the parent company of two hospitals that oppose North Bay's application, must approve the plan. Long-term financial feasibility is the ability of the project to reach a break-even point within a reasonable period of time and at a reasonable achievable point in the future. Big Bend Hospice, Inc. vs. AHCA and Covenant Hospice, Inc., Case No. 02-0455. Although CON pro forma financial schedules typically show profitability within two to three years of operation, it is not a requirement. In fact, in some circumstances, such as the case of a replacement hospital, it may be unrealistic for the proposal to project profitability before the third or fourth year of operation. In this case, Community Hospital's utilization projections, gross and net revenues, and expense figures are reasonable. The evidence reliably demonstrates that its replacement hospital will be profitable by the fourth year of operation. The hospital's financial projections are further supported by credible evidence, including the fact that the hospital experienced financial improvement in 2002 despite its poor physical condition, declining utilization, and lost market share to providers outside of its district. In addition, the development and population trends in the Trinity area support the need for a replacement hospital in the area. Also, Community Hospital has benefited from increases in its Medicaid per diem and renegotiated managed care contracts. North Bay's long-term financial feasibility of its proposal is less certain. In calendar year 2001, North Bay incurred an operating loss of $306,000. In calendar year 2002, it incurred a loss of $1,160,000. In its CON application, however, North Bay projects operating income of $1,538,827 in 2007, yet omitted the ongoing expenses of interest ($1,600,000) and depreciation ($3,000,000) from its existing facility that North Bay intends to continue operating. Since North Bay's proposal does not project beyond year two, it is less certain whether it is financially feasible in the third or fourth year. In addition to the interest and depreciation issues, North Bay's utilization projections are less reasonable than Community Hospital's proposal. While possible, North Bay will have a difficult task achieving its projected 55 percent increase in acute care patient days in its second year of operation given its declining utilization, loss of obstetric/pediatric services and termination of two exclusive managed care contracts. Section 408.035(9), Florida Statutes: The extent to which the proposal will foster competition that promotes quality and cost-effectiveness Both applicants have substantial unused capacity. However, Community Hospital's existing facility is at a distinct competitive disadvantage in the market place. In fact, from 1994 to 1998, Community Hospital's overall market share in its service area declined from 40.3 percent to 35.3 percent. During that same period, Helen Ellis' overall market share in Community Hospital's service area increased from 7.2 percent to 9.2 percent. From 1995 to the 12-month period ending June 30, 2002, Community Hospital's acute care market share in its service area declined from 34.0 percent to 25.9 percent. During that same period, Helen Ellis' acute care market share in Community Hospital's service area increased from 11.7 percent to 12.0 percent. In addition, acute care average occupancy rates at Mease Dunedin Hospital increased each year from 1999 through 2002. Acute care average occupancy at Mease Countryside Hospital exceeded 90 percent in 2000 and 2001, and was approximately 85 percent for the period ending June 30, 2002. Some of the loss in Community Hospital's market share is due to an out-migration of patients from its service area to hospitals in northern Pinellas and Hillsborough Counties. Market share in Community's service area by out-of- market providers increased from 33 percent in 1995 to 40 percent in 2002. Community Hospital's outdated hospital has hampered its ability to compete for patients in its service area. Mease is increasing its efforts to attract patients and currently completing a $92 million expansion of Mease Countryside Hospital. The project includes the development of 1,134 parking spaces on 30 acres of raw land north of the Mease Countryside Hospital campus and the addition of two floors to the hospital. It also involves the relocation of 51 acute care beds, the obstetrics program and the Neonatal Intensive Care Units from Mease Dunedin Hosptial to Mease Countryside Hospital. Mease is also seeking to more than double the size of the Countryside emergency department to handle its 62,000 emergency visits. With the transfer of licensed beds from Mease Dunedin Hospital to Mease Countryside Hospital, Mease will also convert formerly semi-private patient rooms to private rooms at Mease Dunedin Hospital. The approval of Community Hospital's relocated facility will enable it to better compete with the hospitals in the area and promote quality and cost- effectiveness. North Bay, on the other hand, is not operating at a distinct disadvantage, yet is still experiencing declining utilization. North Bay is the only community-owned, not-for- profit provider in western Pasco County and is a valuable asset to the city. Section 408.035(10), Florida Statutes: The costs and methods of the proposed construction, including the costs and methods or energy provision and the availability of alternative, less costly, or more effective methods of construction The parties stipulated that the project costs in both applications are reasonable to construct the replacement hospitals. Community Hospital's proposed construction cost per square foot is $175, and slightly less than North Bay's $178 proposal. The costs and methods of proposed construction for each proposal is reasonable. Given Community Hospital's severe site and facility problems, the evidence demonstrates that there is no reasonable, less costly, or more effective methods of construction available for its proposed replacement hospital. Additional "band-aide" approaches are not financially reasonable and will not enable Community Hospital to effectively compete. The facility is currently licensed for 401 beds, operates approximately 311 beds and is still undersized. The proposed replacement hospital will meet the standards in Florida Administrative Code Rule 59A-3.081, and will meet current building codes, including the Americans with Disabilities Act and the Guidelines for Design and Construction of Hospitals and Health Care Facilities, developed by the American Institute of Architects. The opponents' argue that Community Hospital will not utilize the 320 acute care beds proposed in its CON application, and therefore, a smaller facility is a less- costly alternative. In addition, Helen Ellis' architectural expert witness provided schematic design alternatives for Community Hospital to be expanded and replaced on-site, without providing a detailed and credible cost accounting of the alternatives. Given the evidence and the law, their arguments are not persuasive. While North Bay's replacement cost figures are reasonable, given the aforementioned reasons, including the fact that the facility is in reasonably good condition and can expand vertically, on balance, it is unreasonable for North Bay to construct a replacement facility in the Trinity area. Section 408.035(11), Florida Statutes: The applicant's past and proposed provision of health care services to Medicaid patients and the medically indigent Community Hospital has consistently provided the most health care services to Medicaid patients and the medically indigent in Sub-District 5-1. Community Hospital agreed to provide at least ten percent of its patient days to Medicaid recipients. Similarly, North Bay agreed to provide 9.7 percent of its total annual patient days to Medicaid and charity patients combined. North Bay, by contrast, provided only 3.56 percent of its total patient days to Medicaid patients in 2002, and would have to significantly reverse a declining trend in its Medicaid provision to comply with the imposed condition. Community Hospital better satisfies the criterion. Section 408.035(12) has been stipulated as not applicable in this case. Adverse Impact on Existing Providers Historical figures demonstrate that hospital market shares are not static, but fluctuate with competition. No hospital is entitled to a specific or historic market share free from competition. While the applicants are located in health planning Sub-District 5-1 and Helen Ellis and the two Mease hospitals are located in health planning Sub-District 5- 2, they compete for business. None of the opponents is a disproportionate share, safety net, Medicaid provider. As a result, AHCA gives less consideration to any potential adverse financial impact upon them resulting from the approval of either application as a low priority. The opponents, however, argue that the approval of either replacement hospital would severely affect each of them. While the precise distance from the existing facilities to the relocation sites is relevant, it is clear that neither applicants' proposed site is unreasonably close to any of the existing providers. In fact, Community Hospital intends to locate its replacement facility three miles farther away from Helen Ellis and 1.5 miles farther away from Mease Dunedin Hospital. While Helen Ellis' primary service area is seemingly fluid, as noted by its chief operating officer's hearing and deposition testimony, and the Mease hospitals are located 15 to 20 miles south, they overlap parts of the applicants' primary service areas. Accordingly, each applicant concedes that the proposed increase in their patient volume would be derived from the growing population as well as existing providers. Although it is clear that the existing providers may be more affected by the approval of Community Hosptial's proposal, the exact degree to which they will be adversely impacted by either applicant is unknown. All parties agree, however, that the existing providers will experience less adverse affects by the approval of only one applicant, as opposed to two. Furthermore, Mease concedes that its hospitals will continue to aggressively compete and will remain profitable. In fact, Mease's adverse impact analysis does not show any credible reduction in loss of acute care admissions at Mease Countryside Hospital or Mease Dunedin Hospital until 2010. Even then, the reliable evidence demonstrates that the impact is negligible. Helen Ellis, on the other hand, will likely experience a greater loss of patient volume. To achieve its utilization projections, Community Hospital will aggressively compete for and increase market share in Pinellas County zip code 34689, which borders Pasco County. While that increase does not facially prove that Helen Ellis will be materially affected by Community Hospital's replacement hospital, Helen Ellis will confront targeted competition. To minimize the potential adverse affect, Helen Ellis will aggressively compete to expand its market share in the Pinellas County zip codes south of 34689, which is experiencing population growth. In addition, Helen Ellis is targeting broader service markets, and has filed an application to establish an open- heart surgery program. While Helen Ellis will experience greater competition and financial loss, there is insufficient evidence to conclude that it will experience material financial adverse impact as a result of Community Hospital's proposed relocation. In fact, Helen Ellis' impact analysis is less than reliable. In its contribution-margin analysis, Helen Ellis utilized its actual hospital financial data as filed with AHCA for the fiscal year October 1, 2001, to September 30, 2002. The analysis included total inpatient and total outpatient service revenues found in the filed financial data, including ambulatory services and ancillary services, yet it did not include the expenses incurred in generating ambulatory or ancillary services revenue. As a result, the overstated net revenue per patient day was applied to its speculative lost number of patient days which resulted in an inflated loss of net patient service revenue. Moreover, the evidence indicates that Helen Ellis' analysis incorrectly included operational revenue and excluded expenses related to its 18-bed skilled nursing unit since neither applicant intends to operate a skilled nursing unit. While including the skilled nursing unit revenues, the analysis failed to include the sub-acute inpatient days that produced those revenues, and thereby over inflated the projected total lost net patient service revenue by over one million dollars.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that: Community Hospital's CON Application No. 9539, to establish a 376-bed replacement hospital in Pasco County, Sub- District 5-1, be granted; and North Bay's CON Application No. 9538, to establish a 122-bed replacement hospital in Pasco County, Sub-District 5- 1, be denied. DONE AND ENTERED this 19th day of March, 2004, in Tallahassee, Leon County, Florida. S WILLIAM R. PFEIFFER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of March, 2004. COPIES FURNISHED: James C. Hauser, Esquire R. Terry Rigsby, Esquire Metz, Hauser & Husband, P.A. 215 South Monroe Street, Suite 505 Post Office Box 10909 Tallahassee, Florida 32302 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Richard M. Ellis, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551 Richard J. Saliba, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Station 3 2727 Mahan Drive Tallahassee, Florida 32308 Robert A. Weiss, Esquire Karen A. Putnal, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 Darrell White, Esquire William B. Wiley, Esquire McFarlain & Cassedy, P.A. 305 South Gadsden Street, Suite 600 Tallahassee, Florida 32301 Lealand McCharen, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308 Rhonda M. Medows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Station 3 Tallahassee, Florida 32308
The Issue The issue in this case is whether the Respondent, the Department of Health and Rehabilitative Services (HRS), should grant the application of the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds.
Findings Of Fact The Applicant and the Application. The applicant, the Petitioner, RHPC, Inc., d/b/a Riverside Hospital (Riverside), is a 102 bed acute care hospital 1/ located at 6600 Madison Street, New Port Richey, Florida, in the West Pasco County Subdistrict of HRS Service District 5, which also includes Pinellas County and East Pasco County. Included among its complement of beds are 14 obstetrical (OB) beds. There are no existing pediatric beds. Riverside's application is for a certificate of need to spend approximately $2,000,000 to renovate its existing OB unit, add 14 beds to the OB unit, add 11 medical/surgical beds and add six pediatric beds. The addition of the pediatric unit will be accomplished by relatively minor alterations to existing space and existing beds, and the cost attributable to this phase of the application is negligible. Similarly, the 11 additional med/surg beds will be accomplished by adding beds to existing private rooms, to create semi-private rooms, at a cost of only approximately $44,000. (Gas and electric lines for the additional beds already have been run to the headwall of these rooms and can be connected without difficulty or much expense.) Most of the $2 million total capital expenditure proposed in the application is attributable to the cost of modernizing the OB unit, with the addition of 14 beds in the process. The addition of 14 beds to the unit does not add significantly to what the modernization effort would cost without the addition of the 14 beds. The proposed new OB unit would include private rooms, to go along with the semi-private rooms that make up the existing 14-bed unit. In addition, the proposed modernized 28-bed OB unit would consist of the combined labor/delivery/recovery/post-partum (LDRP) rooms now preferred by most patients. Pertinent State Health Plan Provision. The 1989 State of Florida Health Plan states at the outset of a list of preferences to be utilized in comparing applications for additional acute care beds: No additional acute care beds should generally be approved unless the subdistrict occupancy rate is at or exceeds 75 percent, or, in the event of an existing facility, an applicant shall demonstrate that the occupancy rate for the most recent 12 months is at or exceeds 80 percent. The Need Methodology. Using the F.A.C. Rule 10-5.038 methodology, the district and subdistrict would show numeric need of approximately 201 and 230, respectively. See F.A.C. Rule 10-5.038(5). Regardless of the calculated bed need, HRS does not normally approve additional beds in a subdistrict unless the annual average acute care bed occupancy rate is 75 percent or higher during the 12-month base period of July, 1989, through June, 1990. See F.A.C. Rule 10-5.038(7)(d). The 670 licensed beds in the West Pasco Subdistrict reported only 68.92% occupancy during the 12- month base period, resulting in no projected need for additional acute care beds in the subdistrict for the applicable 1996 planning horizon. Even when a subdistricts's need for additional acute care beds projected by the methodology is zero, an application by an existing hospital still may be approved where that hospital's annual average occupancy rate exceeds 75 percent for the 12-month base period (again, in this case, from July, 1989, through June, 1990.) See F.A.C. Rule 10-5.038(7)(e). During the 12-month base period from July, 1989, through June, 1990, Riverside's occupancy averaged 72.40%, not high enough to be approved under F.A.C. Rule 10-5.038(7)(e). Observation Bed Days. Three types of beds days are included in a category of so-called "outpatient observation bed days." First, "twenty-three hour patients" are patients who are not eligible for inpatient services under the Health Care Finance Administration (HCFA) criteria for the Medicare program. Second, "observation patients" are similar non-Medicare patients. Third, some outpatients (or ambulatory surgery patients) also use beds for part of a day. With new cost containment and review/regulation developments in hospital care, more patients are spending up to 23 hours in the hospital before a decision is made that further hospitalization in not needed. As a result, "observation" bed use has increased. Outpatient observation services have been recognized and defined by HCFA. Blue Cross and Blue Shield of Florida (the Medicare intermediary) and the Health Care Cost Containment Board (HCCCB) have addressed issues such as reimbursement, billing and reporting of observation beds. Services are provided to "observation bed" patients under doctor's orders, including diagnostic services, observation and monitoring by nursing personnel and/or medical intervention or treatment. Calculation of occupancy rates under the HRS need methodology does not take into account the so-called "observation bed days." 2/ There was no evidence that any part of District V or the West Pasco Subdistrict are inaccessible geographically. Other Need Factors. The evidence showed that there is a seasonal peak utilization and occupancy of acute care beds in District V and in the West Pasco Subdistrict during approximately October or November through March or April each year. This seasonal peak is reflected by the statistics. As previously stated, Riverside's occupancy averaged 72.40% during the period from July, 1989, through June, 1990. During the first quarter of 1990, occupancy was 86.83%. Riverside's average occupancy for calendar year 1990 was 73.87%. For the period from March, 1990, through February, 1991, average occupancy for Riverside's acute care beds was 71.2%. 3/ For the period from March, 1990, through February, 1991, occupancy for Riverside's obstetrics beds was 92.9%. There is no acute care pediatric unit in the West Pasco subdistrict. Subdistrict residents (as well as others in Riverside's general service area) needing level II pediatric services generally go to a Pinellas County or East Pasco County hospital for them. Given the choice, some but not all of these patients likely would prefer to get these services at Riverside, depending primarily on the severity of the particular medical needs. But the evidence did not quantify the number predicted to switch to Riverside. Also, occupancy of pediatric beds in Pasco county was less than 15% during 1987 and 1988. Medical Care for the Poor. The State Health Plan also notes that the uncompensated care burden on hospitals has grown during the 1980s because of a growing number of low-income persons; simultaneously, the proportion of persons covered by Medicaid has dropped. Numerous statewide studies, moreover, have shown that hospitals' uncompensated care is increasing at the same time that their ability to absorb the cost of care is decreasing. Riverside's predecessor bought the hospital from Pasco County in 1982. As a condition to the purchase, Riverside's predecessor agreed to provide Medicaid and indigent care for Pasco County in perpetuity. When Riverside purchased the hospital on December 29, 1983, it assumed the contractual obligation to provide Medicaid and indigent care in perpetuity. Riverside is a disproportionate share provider within the meaning of the State and local health plans. Approximately, 13% of Riverside's total annual patient days are for Medicaid patients. In 1990, 2,647 of Riverside's obstetrical, and 4,272 of its non-obstetrical patient days, were Medicaid. Riverside's charity care deduction from gross patient revenue for fiscal year 1990 was 1.07% of gross patient revenue. Riverside's Medicaid deduction from gross patient revenue for fiscal year 1990 was 5.96% of gross patient revenue. Approximately, 14.8% of Riversides's services go to Medicaid and indigent patients. Although Riverside has only 14% of the beds in the West Pasco subdistrict, it does more than 90% of the non-emergency, non-OB Medicaid care. Approval of the Riverside application would enable Riverside to spread its administrative and overhead costs over a larger base, thereby reducing average charges. Approval of the Riverside application also would make Riverside more profitable and thereby better able to absorb the cost of the Medicaid and indigent care it provides. If Riverside converts existing acute care beds to pediatric or OB beds, it probably would have to squeeze out paying patients during seasonal occupancy peaks, thereby losing more revenue and profits. Competition. If the Riverside application is approved, Riverside's share of the market represented by the West Pasco subdistrict will rise from approximately 14% to approximately 18%. HCA controls the rest of the market. There are no existing OB beds in the West Pasco subdistrict other than at Riverside. The HCA hospital in New Port Richey had an OB unit which it recently abandoned. As a result of the grant of Bayonet Point's application, CON Action No. 6583, with which Riverside had been in direct competition in this application review cycle, Bayonet Point now is approved for a seven-bed OB unit as part of its bed complement. Upgrading its existing OB unit and adding 14 more OB beds will enable Riverside to capture more private paying patients, which will better enable it to compete with the HCA hospitals. At present, Riverside's OB unit is utilized almost exclusively by indigent and Medicaid patients because of the hospital's contract with Pasco County. This unit now is operating at close to absolute capacity. With the upgrades and additional beds, Riverside can work to capture some private pay patients; without them, Bayonet Point will capture the private pay patients. Financial Feasibility. Riverside operated at a deficit from 1983 essentially to the present. By the end of 1990, Riverside had accumulated a deficit of $8.8 million. Riverside's corporate parent, American Healthcare Management, Inc. (AHM), was funding the deficit. From 1985 through December, 1989, AHM was in Chapter 11 bankruptcy proceedings. During that time period, there was legitimate concern whether AHM would be able to continue to fund Riverside deficits. AHM emerged from bankruptcy in December, 1989, stronger financially. It has since become stronger still. AHM reduced its debt by approximately $88 million. Part of the debt reduction was achieved by the sale of $43 million of underperforming assets. In addition, $45 million of bond debt was exchanged for common stock on September 30, 1991. The interest savings on the bond-for-stock exchange is $6 million a year. As a result, AHM's current debt-to-equity ratio is approximately $160 million to $130 million. AHM's corporate staff has been reduced from about 102 to 65. Its corporate office were transferred from expensive quarters in Dallas, Texas, to less expensive quarters in King of Prussia, Pennsylvania. Corporate expenses have been greatly reduced as a result. Accounts receivable have been reduced by better collection methods, and the $43 million of assets sold to reduce corporate debt had been underperforming. AHM had $21 million cash and short-term investments as of December 31, 1989. As of the date of the final hearing, it had $18 million cash and short- term investments. Riverside's gross margin (profit) for the first nine months of 1991 was $4 million. After depreciation, amortization, and interest and home office costs, Riverside generated approximately $1.2 million for the first nine months of 1991. Internal cash flow generated by AHM and Riverside would be sufficient to finance Riverside's application project. Since the capital costs of Riverside's proposed project are relatively small, financial feasibility is relatively easy to achieve. Besides costing relatively little, the 31 new beds will not increase intercompany interest or management fees significantly. In addition, the 31 new beds would enable Riverside to better compete for private pay patients. Given the expected utilization of the new beds, the proposed project will be to the financial benefit of the applicant. The pro forma bears this out. It projects 75.11% occupancy for the 31 new beds in the second year of operation (July, 1994, to June, 1995). (This projection does not include expected "observation bed days.") A profit of $2,477,199 for the 31 beds is projected for the second year of operation (not counting any portion of the preexisting intercompany interest or management fees).
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that HRS enter a final order denying the Riverside application for a certificate of need, CON Action No. 6582, for the addition of 31 acute care beds. RECOMMENDED this 28th day of January, 1992, in Tallahassee, Florida. J. LAWRENCE JOHNSTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of January, 1992.
Findings Of Fact At all times relevant hereto Respondent was licensed as a physician in the State of Florida having been issued license number ME0040318. Respondent completed a residency in internal medicine and later was a nephrology fellow at Mayo Clinic. He was recruited to Florida in 1952 by Humana. In 1984 he became associated with a Health Maintenance Organization (HMO) in an administrative position but took over treating patients when the owner became ill. This HMO was affiliated with IMC who assimilated it when the HMO had financial difficulties. At all times relevant hereto Respondent was a salaried employee of IMC and served as Assistant Medical DIRECTOR in charge of the South Pasadena Clinic. On October 17, 1985, Alexander Stroganow, an 84 year old Russian immigrant and former cossack, who spoke and understood only what English he wanted to, suffered a fall and was taken to the emergency Room at a nearby hospital. He was examined and released without being admitted for inpatient treatment. Later that evening his landlady thought Stroganow needed medical attention and again called the Emergency Medical Service. When the ambulance with EMS personnel arrived they examined Stroganow, and concluded Stroganow was no worse than earlier when he was transported to the emergency Room, and refused to again take Stroganow to the emergency Room. The landlady then called the HRS hotline to report abuse of the elderly. The following morning, October 18, 1985, an HRS case worker was dispatched to check on Stroganow. Upon arrival, she was admitted by the landlady and found an 84 year old man who was incontinent, incoherent, and apparently paralyzed from the waist down, with whom she could not engage in conversation to determine his condition. She called for a Cares Unit team to come and evaluate Stroganow. An HRS Cares Unit is a two person team consisting of a social worker and nurse whose primary function is to screen clients for admission to nursing homes and adult congregate living facilities (ACLF). The nurse on the team carries no medical equipment such as stethoscope, blood pressure cuff, or thermometer, but makes her evaluation on visual examination. Upon arrival of the Cares Unit, and, after examining Stroganow, both members of the team agreed he needed to be placed where he could be attended. A review of his personal effects produced by his landlady revealed his income to be above that for which he could qualify for medicaid placement in a nursing home; that he was a member of IMC's Gold-Plus HMO; his social security card; and several medications, some of which had been prescribed by Dr. Dayton, Respondent, a physician employed by IMC at the South Pasadena Clinic. The Cares team ruled out ACLF placement because Stroganow was not ambulatory, but felt he needed to be placed in a hospital or nursing home and not left alone with the weekend approaching. To accomplish this, they proceeded to the South Pasadena HMO clinic of IMC to lay the problem on Dr. Dayton, who was in charge of the South Pasadena Clinic, and, they thought, was Stroganow's doctor. Stroganow had been a client of the South Pasadena HMO for some time and was well known at the clinic as well as by EMS personnel. There were always two, and occasionally three, doctors on duty at South Pasadena Clinic between 8:00 and 5:00 daily and, unless the patient requested a specific doctor he was treated by the first available doctor. Stroganow had not specifically requested to be treated by Respondent. When the Cares unit met with Respondent they advised him that Stroganow had been taken to Metropolitan General Hospital Emergency Room the previous evening but did not advise Respondent that the EMS squad had refused to return Stroganow to the emergency Room when they were recalled for Stroganow the same evening. Respondent telephoned the Metropolitan General Emergency Room and had the emergency Room medical report on Stroganow read to him. With the information provided by the Cares unit and the hospital report, Respondent concluded that Stroganow needed emergency medical treatment and the quickest way to obtain such treatment would be to call the EMS and have Stroganow taken to an emergency Room for evaluation. When the Cares unit arrived, Respondent was treating patients at the clinic. A clinic, or doctors office, is not a desirable or practical place to have an incontinent, incoherent, and non-ambulatory patient brought to wait with other patients until a doctor is free to see him. Nor is the clinic equipped to perform certain procedures that may be required for emergency evaluation of an ill patient. At a hospital emergency Room such equipment is available. EMS squads usually arrive within minutes of a call being placed to 911 for emergency medical treatment and it was necessary that someone be with Stroganow when the EMS squad arrived. Accordingly, Respondent suggested that the Cares team return to Stroganow and call 911 to transport Stroganow to an emergency Room for an evaluation. Upon leaving the South Pasadena clinic the Cares team returned to Stroganow. Enroute they stopped to call a supervisor at HRS to report that the HMO had not solved their problem with Stroganow. The supervisor then called the Administrator at IMC Tampa Office to tell them that one of their Gold-Plus HMO patients had an emergency situation which was not being property handled. Respondent left the South Pasadena Clinic around noon and went to IMC's Tampa Office where he was available for the balance of the afternoon. There he spoke with Dr. Sanchez, the INC Regional Medical Director, but Stroganow was not deemed to be a continuing problem. By 2:00 p.m. when no ambulance had arrived the Cares Unit called 911 for EMS to take Stroganow to an emergency Room. Upon arrival shortly thereafter the EMS squad again refused to transport Stroganow. The Cares team communicated this to their supervisor who contacted IMC Regional Office to so advise. At this time Dr. Sanchez authorized the transportation of Stroganow to Lake Seminole Hospital for admission. Although neither Respondent nor Sanchez had privileges at Lake Seminole Hospital, IMC had contracted with Lake Seminole Hospital to have IMC patients admitted by a staff doctor at Lake Seminole Hospital. Subsequent to his meeting with the Cares team Respondent received no further information regarding Stroganow until well after Stroganow was admitted to Lake Seminole Hospital. No entry was made on Stroganow's medical record at IMC of the meeting between Respondent and the Cares Unit. Respondent was a salaried employee whose compensation was not affected by whether or not he admitted an IMC Gold-Plus patient to a hospital.
The Issue Whether there is need for a new hospital in AHCA Acute Care Subdistrict 5-2 (eastern Pasco County)? If so, whether AHCA should approve either CON 9975 or CON 9977?
Findings Of Fact The Applicants and Background Pasco-Pinellas Pasco-Pinellas, the applicant for CON 9975, is a joint venture between two nonprofit healthcare organizations: University Community Hospital, Inc. (UCH) and Adventist Health System Sunbelt Healthcare Corporation (Adventist). A not-for-profit healthcare system, UCH has served the Tampa Bay area for the last 40 years. It owns and operates two hospitals in Hillsborough County and one in Pinellas County. UCH has approximately $100 million available for capital expenditures to fund the hospital proposed by CON 9975. One of its Hillsborough County facilities, University Community Hospital, is located on Fletcher Avenue in northern Hillsborough County, AHCA Health Planning District VI. Across the street from the main campus of the University of South Florida (USF) and its College of Medicine, University Community Hospital has an agreement with USF for GME. University Community Hospital at present serves the Wesley Chapel area in eastern Pasco County. The other member of the joint venture, Adventist, is a financially successful not-for-profit healthcare organization. It operates 17 hospitals in the state of Florida. As of December 31, 2007, Adventist's cash on hand, including investments, exceeded $3.6 billion and net revenue for 2007 was approximately $368 million. The joint venture between UCH and Adventist was formed to establish a hospital to serve the Wesley Chapel area of Pasco County and to provide other healthcare services in the county. At present, the two members of the joint venture compete to serve the Wesley Chapel area through University Community Hospital and Adventist's Florida Hospital Zephyrhills (FHZ), a 154-bed general acute care hospital in Pasco County. The collaboration of competing hospitals in seeking approval for a new hospital through Florida's CON process is unusual. But by bringing the similar missions, strength in community interests and capable leadership of UCH and Adventist together, the Pasco Pinellas joint venture poses potential healthcare benefits to eastern Pasco County. BayCare The Applicant for CON 9977, BayCare of Southeast Pasco, Inc., is a not-for-profit corporation formed to develop the hospital proposed in the application. The sole member of BayCare is BayCare Health System, Inc. ("BayCare System"). BayCare System is the largest full-service community- based health care system in the Tampa Bay area. It operates 9 nonprofit hospitals and 11 ambulatory/outpatient centers in Hillsborough, Pasco and Pinellas counties. Initially organized in 1997 under a joint operating agreement between several hospitals, BayCare System's purpose has been to compete effectively in managed care operations in order to reduce the expenses of the individual organizations that are its members. In the first 5 years of operation, BayCare System saved its members a total of $90 million because of the enhanced cost efficiencies it achieved through business function consolidations and group purchasing. Its members are all not-for-profit hospitals. BayCare System's focus is on the treatment of one patient at a time. Its mission is to improve the lives of people in the community it serves, to operate effectively as a group of not-for-profit hospitals, and to provide high quality, compassionate healthcare. BayCare's application, because it provides potential for its proposal with its teaching aspects, draws significant and considerable support from USF, a national research university. USF has a College of Medicine, a College of Nursing, and a College of Public Health, collectively "USF Health." USF Health will collaborate with BayCare in the development of the hospital BayCare proposes, should it be approved and should its teaching functions come to fruition. The Agency The Agency for Health Care Administration is the state agency that administers the CON program pursuant to Section 408.034, Florida Statutes. It will make the final decisions to approve or deny the two CON applications at issue in this proceeding. Community Community Hospital is a general acute care for profit hospital with 386 beds. It is located within the City of New Port Richey in western Pasco County, Acute Care Subdistrict 5-1. With the exception of neonatal intensive care, open heart surgery and organ transplantation, Community is a full- service community hospital. It provides OB services. It is licensed for 46 adult psychiatric beds. It offers a variety of outpatient services including outpatient surgery, endoscopy, and outpatient procedures and lab testing. Its medical staff consists of approximately 400 physicians. Community serves patients without regard to ability to pay, and does not discriminate in any manner. Accredited by the Joint Commission on Accreditation of Hospital Organizations, it has received numerous awards and recognition for the quality of its health care services. Community's hospital facility is over 30 years old. Access to the campus from US 19, the closest major thoroughfare approximately 1.5 miles away, is gained via a two-lane street through a residential area. Land-locked but for the two-lane street, the campus is sandwiched between the residences and a high school. There are no medical office buildings ("MOB") owned by Community on the campus; less than 20 acres in size, it is completely built out. Community's Replacement Hospital Community has a replacement hospital facility currently under construction in Acute Care Subdistrict 5-2. Approximately five miles southeast of Community's New Port Richey location, the replacement facility is located at the intersection of Little Road and State Road 54. Expected to open in late 2010 at a cost in excess of $200 million, it is to be known as Medical Center of Trinity ("Trinity"). All current Community services will be offered at Trinity. At the same time, the new hospital will offer many advantages over the old facility. Trinity will initially be five stories in height, with fewer licensed beds, but constructed with the ability to expand. It will offer new medical equipment with the latest technology. Situated on 52 acres, with a new three-story MOB adjacent to the hospital, Trinity has plans to add a second MOB at some time in the future. Unlike existing Community Hospital, Trinity will have all private rooms. Its more efficient layout among service areas will improve efficiencies and patient satisfaction. Trinity's location is more accessible than Community's current location in New Port Richey. It is on State Road 54 (SR 54), a six-lane highway that runs east/west through Pasco County. The road has recently undergone major construction and expansion which was nearly complete at the time of hearing. Suncoast Parkway (a/k/a Veterans Expressway), furthermore, is an expressway toll road system that runs north/south from Hernando County through Pasco County to Tampa airport. From the intersection of Suncoast Parkway and SR 54, it takes approximately seven minutes to reach Trinity. Little Road runs north/south along the Trinity site, and north through Pasco County to Regional Medical Center Bayonet Point ("Bayonet Point"). Community's poor financial performance in recent years is expected to improve after the opening of Trinity. The Proposals Although both applicants propose a new hospital in roughly the same location in Subdistrict 5-2, the two are different both in scope and approach. Pasco-Pinellas' Proposal Pasco-Pinellas proposes to build an 80-bed acute care hospital on Bruce B. Downs Boulevard in the area known as Wesley Chapel in eastern Pasco County. If approved and constructed, the hospital will include 36 medical/surgical beds, 8 labor/delivery/recovery/post partum beds, 12 critical care beds, and 24 progressive care beds. The project would involve 184,000 gross square feet of new construction, at a total estimated cost of $121 million. Pasco-Pinellas proposes a typical primary service area (PSA). Five and one-half zip codes comprise the PSA; Pinellas- Pasco reasonably projects 82% of its admissions will come from the PSA. Two and one-half zip codes comprise the secondary service area (SSA). The zip code that is shared by the PSA and the SSA (33559) is split roughly in half between Pasco County and Hillsborough County. The half that is in Pasco County is in Pasco-Pinellas' PSA. The five full zip codes in the PSA are 33541, 33543, 33544, 34639, and 33576. The two full zip codes in the SSA are 33549 and 33647. Pasco-Pinellas' in-migration from outside its proposed service area (the PSA and the SSA) is forecast by Pasco- Pinellas's health planner at 12%. For a community hospital in the Wesley Chapel area without tertiary services, the in- migration percentage projected by Pasco-Pinellas is reasonable. BayCare's Proposal BayCare proposes to establish a general acute care hospital with 130 beds. The application proposes that it be collaboratively developed by BayCare System and USF Health so as to provide teaching functions associated with the USF College of Medicine and other health-related university components of USF Health. Consisting of approximately 476,000 square feet of new construction at an estimated total project cost of approximately $308 million, the hospital will have 92 medical/surgical beds, 24 critical care beds, and 14 post-partum beds. Like Pasco-Pinellas' proposal, BayCare's proposed hospital will be located on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County. BayCare's proposed PSA is circular. The center point of the PSA is the proposed BayCare hospital site in the Wesley Chapel area. The circumference is along a series of seven-mile radii so that the diameter of the circular PSA is 14 miles. The seven-mile radius was chosen to approximate a fifteen-minute travel time by automobile from the outer edge of the circular PSA to the hospital site. BayCare's PSA includes some part of seven zip codes. Two are Wesley Chapel zip codes: 33543 and 33544. Two are Lutz area zip codes: 33549 and 33559. Two are Land O'Lakes zip codes: 34639 and 34638, and one is a zip code in Hillsborough County: 33647. Relative to typical PSAs for most proposed hospitals, the PSA proposed by BayCare's application was described at hearing by BayCare's health planner as "small." See Tr. 1855. For calendar years 2013 and 2014, BayCare projects that 19,0976 and 20,008 patient days, respectively, will be generated from within the PSA. These projections constitute a projection of 60% of all patient days projected for the two years, a percentage substantially lower than would be generated from a typical PSA. The remaining 40% of projected patient days is roughly double what would be expected from beyond a PSA under a more typical proposal. The high number of projected patient days for patients originating outside the PSA was explained at hearing by BayCare's health planner. The involvement of the USF Physician's Group and the "teaching" nature of the proposal "pumps up and provides an additive level of in-migration that would not be experienced without the USF combination with BayCare in [the] project." Tr. 1856-7. Pasco County Hospitals There are five hospitals in Pasco County. Two in western Pasco County will continue to remain in Subdistrict 5-1 in the near future: Regional Medical Center Bayonet Point, located in northwest Pasco County and Morton Plant North Bay Hospital, located in New Port Richey. Two are in eastern Pasco County, Subdistrict 5-2: Pasco Regional Medical Center in east central Pasco County, and FHZ, located in southeast Pasco. The fifth is Community/Trinity. No Need for Both Hospitals None of the parties contends there is need for both hospitals. Nor would such a contention be reasonable. Indeed, the record does not demonstrate need for both a new 80-bed community hospital as proposed by Pinellas-Pasco and a new 130- bed hospital that BayCare denominates a "teaching" hospital, each with an intended location on Bruce B. Downs Boulevard in the Wesley Chapel area of southeastern Pasco County in Subdistrict 5-2. The question remains: is there a need for one new hospital? If so, which of the two applications, if either, should be approved? Need for a New Hospital; Access Enhancement Among the counties in the Tampa Bay area, Pasco County has been the fastest growing in recent years. From 1990 to 2000, its population grew 22.6%. Three times higher than the state average, this represents tremendous growth for any locale. The Wesley Chapel area of south Pasco County roughly coincides with the PSAs of the two applicants. Dramatic growth over the last 20 years has marked the Wesley Chapel area's transformation from an agricultural area to a suburban community. North of Hillsborough County and its largest city, Tampa, improvements in the transportation network has made south Pasco County and in particular, the Wesley Chapel area, a bedroom community for workers commuting to Tampa. Claritas, a national demographic data service, is a generally accepted population projection source for CON applications. Claritas projects the growth in Pasco County to continue. For example, the projected population for Pasco- Pinellas' proposed PSA, which substantially overlaps with BayCare's proposed PSA, is 113,397 in 2011 and 118,505 in 2012. The Claritas projections are based on the most recent decennial U.S. Census, that is, 2000, and do not take into account data of impending population growth, such as new housing starts and new schools. Claritas, therefore, may understate projections in areas that have experienced more recent, rapid growth. The University of Florida Bureau of Economic and Business Research ("BEBR") also provides reliable population data by county. In the year 2000, the census for the Pasco County population was 344,765. By 2030, that population is projected by BEBR to grow to 526,100 based on low projections, 681,100 based on medium projections, and 876,900 based on high projections. For the high projection rate, this would constitute a 154% increase in population. Even assuming the low growth rate, the population would increase by 53%. According to BEBR data, the county can be expected to grow at a rate of 4.71% per year. Another source of population data relied upon by population experts is Demographics USA. The Demographics USA data shows a substantial growth in population for Pasco County. According to Demographics USA, the population for Pasco County can be expected to grow from 343,795 in the year 2000 to 440,527 in the year 2010 and then to 504,277 by the year 2015. Based on the Demographics USA data, the county can be expected to grow at a rate of 3.11% per year. The Wesley Chapel area is considered to be the area of Pasco County with the most development and development potential now and in the future. Of 175 major projects actively undergoing development in Pasco County, 76 are in the Wesley Chapel area. Between 2010 and 2012, the population in the area is projected to grow by 5,000 persons per year. With the increase in the general population in the area comes an expected increase in the need for schools. Of 37 schools identified by the Pasco County School Board to be built in the near future, 19 are to be located in the Wesley Chapel area. Whether the historic growth rate of the last few decades will continue for sure is an open question with the downturn in the economy and the housing market that commenced in Pasco County in mid-2007. Absent a major recession, however, it is reasonable to expect growth in the Wesley Chapel area to continue even if not at a rate as rapid as in the recent past. Whatever the future holds for Wesley Chapel's growth rate, there is clearly a demand for inpatient general acute care services in the Wesley Chapel area. The total non-tertiary discharges from the Pasco-Pinellas service area was 15,777, excluding newborns, for the 12-month period ending June 30, 2006. As a result, AHCA found the existing and growing population in the Wesley Chapel area warranted a new hospital. Along with significant growth in the Wesley Chapel area comes resulting traffic and healthcare and hospital access issues. Drive time analysis shows the average drive time from each of the Pasco-Pinellas PSA six area zip codes to the eight area hospitals in 2007 to be 46.11 minutes. The analysis shows that future drive time is expected to be lengthier, strengthening the need for a hospital in the Wesley Chapel area. In 2012, the average time increase is expected to 57.68 minutes. A Drive Time Study Report prepared by Diaz Pearson & Associates compared drive times to the proposed site for Pasco- Pinellas hospital to eight existing hospitals: UCH, Pasco Regional, FHZ, Tampa General, University Community Hospital on Dale Mabry in Tampa, St. Joseph's North, St. Joseph's in Tampa, and the site for Community's replacement hospital. The study concluded: The results of this travel study demonstrate that the vehicular travel times for access to the proposed PPHCHS Hospital [Pasco- Pinellas' Hospital] are consistently LESS for residents within the six Zip codes of the Primary Service Area for years 2007, 2011, and 2012 than for comparable trips to any of the eight area hospitals for alternate choice. Pasco-Pinellas 36, p. 27. Of particular note are the travel times from each of the six zip codes in Pasco-Pinellas' PSA to UCH, FHZ, and Tampa General. For example, a patient driving from the centroid point in zip code 33559 to UCH would take 24.28 minutes and to FHZ would take 37.97 minutes in 2007. This increases to 29.55 minutes and 50.94 minutes in 2012. Another example, the time it takes a patient to travel from zip code 33541 to Tampa General was 75.51 minutes in 2007. In 2012, the travel time is projected to increase approximately 20 minutes to 95.33 minutes. In contrast, a new hospital in the Wesley Chapel area would decrease travel times significantly for patients in the six zip code areas of the Pasco-Pinellas PSA. For example, in 2007, it would only take a zip code 33559 patient 11.41 minutes to reach the proposed site for Pasco-Pinellas. This represents a time savings of 12.87 minutes compared to the average driving time to UCH and 26.56 minutes compared to the average driving time to FHZ. In 2012, the reduction in time to drive to Pasco- Pinellas' proposed hospital site instead of UCH is 18.34 minutes and for FHZ, it is 39.53 minutes. The time savings for patients from the 33541 zip code traveling to Tampa General for non- tertiary services is even greater. Using Pasco-Pinellas' site in the Wesley Chapel area would save the patient 52.67 minutes in 2007 and is projected to save 63.88 minutes in 2012. Anecdotal evidence supports the need for a new hospital in the Wesley Chapel area. Dr. Niraj Patel practices obstetrics and gynecology in the Wesley Chapel area. A drive for him in good traffic is typically 20 minutes to UCH (the only hospital at which he practices because the distance between area hospitals is too great). In morning traffic during "rush" periods, the drive can exceed 40 minutes. Caught in such a drive in January of 2008, Dr. Patel missed the delivery of a patient's baby. He was required to appear before the UCH Medical Staff's credentials committee to "explain the situation . . . [because it] was the third or fourth [such] episode." Pasco-Pinellas 47, p. 11. As Dr. Patel explained in a pre- hearing deposition, "it doesn't fare well for me . . . credential and requirement wise but it doesn't fare well for the patient [who] had to be delivered by the nursing staff which [without a physician present] increases patient risk and [the chance] of complication[s]." Id. A new hospital in the Wesley Chapel area will provide residents of the Pasco-Pinellas PSA or the BayCare PSA with shorter travel time to a hospital compared to the time necessary to reach one of the eight existing hospitals in the region. In 2007, residents of the six zip codes in the Pasco-Pinellas' PSA could be expected to access Pasco-Pinellas' proposed hospital in a range of 10.9 to 21.8 minutes. For the year 2012, the time can be reasonably predicted to range from 17 to 31.4 minutes. In comparison the drive times to the eight hospitals in the region for residents of Pasco-Pinellas' PSA are significantly longer. In 2007, it took a resident in zip code 34639 approximately 55 minutes to get to UCH and 73 minutes to get to St. Joseph's Tampa. By 2012, those drive times are reasonably projected to increase to 64 minutes and 83 minutes, respectively. Simply put, travel times are expected to increase as the population increases in coming years. The site of Pasco-Pinellas' hospital is approximately one mile from the site of the proposed BayCare hospital. The travel times suggested for the residents of the Pasco-Pinellas PSA to the proposed Pasco-Pinellas hospital can be expected to be similar to travel times to the proposed BayCare hospital. Given the proximity of the two proposed sites, either will significantly reduce travel time to hospitals for patients in the Wesley Chapel area. The existence in the Wesley Chapel area of a community hospital with an emergency room and primary inpatient services will benefit doctors, patients and their families. Heightened driving concerns among elderly patients and traffic congestion and inadequate roadways that delay Emergency Medical services support the need for a Wesley Chapel area hospital. The support is based not only on 2007 travel times but also on the reasonable expectation that travel time will be greater in the future. Existing hospitals are capable of absorbing the increased need for acute care hospital services that result from the increased growth that is reasonably projected to occur in Subdistrict 5-2. If there is to be a new hospital in the subdistrict, the Wesley Chapel area is the best location for it. A new hospital in the Wesley Chapel area will enhance access to acute care services for residents of Subdistrict 5-2. Preliminary Agency Action; the SAAR The Agency determined that there is a need for a new hospital in the Wesley Chapel Area when it issued its State Agency Action Report on CONs 9975 and 9977. The Agency also determined that between the two applications, Pasco-Pinellas was superior and should therefore be approved over BayCare's. This determination was founded primarily on Pasco-Pinellas' application being more reasonable in terms of size and impacts on existing providers. The Agency maintained at hearing the position it took in it preliminary action memorialized by the SAAR. Jeffrey Gregg, Chief of AHCA's Bureau of Health Facility Regulation received in this proceeding as an expert in health planning and CON Review explained when called to the stand to testify: The proposal by [Pasco-Pinellas] was on the smaller side and gave us more comfort [than BayCare's] . . . [W]hile we . . . agree with these applicants that there is a hospital in the future of [the Wesley Chapel area], we are more comfortable with the conservative approach, the smaller approach [of Pasco- Pinellas], particularly given that should it be necessary in the future, any hospital can add beds, acute care beds, merely by notifying us. And we were more comfortable that [Pasco-Pinellas'] approach would be able to expand access and improve services for people in this area while at the same time minimally impacting all of the competitors. Tr. 1995. As detailed below, AHCA's determination that the Pasco-Pinellas application is superior to BayCare's is supported by the record even if the basis for the determination made on the state of the record is not quite the same as the basis advanced at hearing by AHCA. Size and Cost Pasco-Pinellas proposed hospital involves about 184,000 square feet of new construction at a cost of approximately $121 million dollars. It is much smaller and less costly than BayCare's proposed hospital of 476,000 square feet of new construction for about $308 million. The Pasco-Pinellas proposal is more reasonably sized to meet the needs of the Wesley Chapel area and, in turn, Subdistrict 5-2. The difference in size and cost of the two proposals, however, is a function of a major difference in approach in the applications. Pasco-Pinellas' proposal is for a typical community hospital that would start out with a bed size within a range that includes 80 beds. BayCare, on the other hand, proposes to serve not only the Wesley Chapel area and Subdistrict 5-2, but also a substantial population of patients to be drawn to the subdistrict particularly from Hillsborough County. Patients migrating to the hospital from outside the subdistrict will for the most part be the product of BayCare's affiliation with USF Health and its service to the USF College of Medicine in its proposal denominated in the application as a "teaching hospital." Need for a New Teaching Hospital "Teaching hospital" is a term defined in the Health Facility and Services Development Act, sections 408.031-408.045, Florida Statutes: "Teaching hospital" means any Florida hospital officially affiliated with an accredited Florida medical school which exhibits activity in the area of graduate medical education as reflected by at least seven different graduate medical education programs accredited by the Accreditation Council for Graduate Medical Education or the Council of Postdoctoral Training of the American Osteopathic Association and the presence of 100 or more full-time equivalent resident physicians. The Director of the Agency for Health Care Administration shall be responsible for determining which hospital meets this definition. § 408.07(45), Fla. Stat. The Agency has not determined that BayCare's proposal meets the statutory definition as directed by the statute for it to qualify as a "teaching hospital." The record indicates that the proposal is not a typical teaching hospital. For example, teaching hospitals in the United States are usually located near indigent populations to achieve the efficiency of training future practitioners with treating people who otherwise could not afford services. BayCare's proposal in a small county with a more affluent population does not serve that purpose. BayCare contends neither that it is a "statutory" teaching hospital nor that it should be determined by the Agency to meet the statutory definition of "teaching hospital." Instead it grounds its case for need in the teaching functions its proposal would fulfill for USF Health and in particular for the GME needs of the students of the USF College of Medicine and the results those teaching functions would produce. Considerable testimony was offered by BayCare at hearing with regard to GME and the needs and aspirations of the USF College of Medicine. The Dean of the College, Stephen K. Klasko, M.D., spiritedly and eloquently related a narrative of need which was supported and amplified by other witnesses including faculty members at the college. There were many elements to the narrative. Highlights include the hybrid nature of the USF College of Medicine, "acting like a research intensive medical school . . . in a community-based body" (tr. 1132)," its on-going successful striving towards becoming an academic center for world class physicians as evidenced by this year's receipt of a research grant from the National Institute for Health, "the largest . . . given to a medical school in the last four or five years," id., and the GME challenges the college faces in the Tampa Bay area such as the recent loss of its anesthesiology residency program. BayCare's opponents point out the many ways in which the proposal is not only not a statutory teaching hospital but does not fit a nationwide model for teaching hospitals. BayCare counters that its model is one of many different models for a teaching facility. Whatever the merits of the various assertions of the parties on the point, USF's need for a teaching facility will be filled at least in part by the BayCare proposal. It is not an exaggeration, moreover, to call USF's need in this regard compelling. USF's institution-specific need, however, does not fall under any of the CON review criteria. See paragraphs 167- 8, below, in the Conclusions of Law. Perhaps not unmindful of the limits of the criteria, BayCare's presented other evidence that flows from the teaching function of the BayCare proposal. Relevant to the general criterion of "need" in subsection (1) of the Statutory CON Review Criteria, the evidence relates to physician shortages. The Physician Shortage There is a shortage of physicians in the district as there is in Pasco County. The problem has statewide dimensions. The state is not doing enough to replace aging doctors in Florida with younger doctors. Nor are aging doctors providing sufficient emergency room call coverage. The physician shortage both in general and in emergency rooms in the state is likely to increase. Residents are more likely to remain and practice in the community in which they train. Residents in the Tampa Bay area, in particular, are more likely to remain in the Tampa Bay area to practice. Even 20 residents per year in training at BayCare's proposed hospital would make a difference in existing physician shortages. Should BayCare's proposed hospital be built and operated as contemplated, the teaching functions that BayCare's application proposes to offer at the hospital would serve as a step, however small, toward meeting Florida's physician shortage as well as the shortage in District V, Pasco County, Subdistrict 5-2 and the Tampa Bay area. Nonetheless, there is a feature of this case that undermines BayCare's claim that the proposal will aid the physician shortage and its denomination in the application of the proposal as a "teaching hospital." The feature is present in the agreement between USF and BayCare (the "BayCare and USF Agreement) to make the BayCare proposed hospital a University Hospital. The BayCare and USF Agreement The BayCare and USF Agreement contains a section devoted to implementation and termination. The following is excerpted from the section's six separately numbered paragraphs: The Parties [the University of South Florida Board of Trustees or USF and BayCare Health System, Inc.] shall negotiate in good faith all other terms and conditions relating to the execution and implementation of this Agreement, including, without limitation, any revisions to the provisions of the Articles of Incorporation and Bylaws of the Hospital Corporation, the terms and conditions of the Health Affiliation Agreement, the design and layout of the University Hospital . . . [etc.] and such other documents and instruments as the Parties may find necessary or desirable to implement the terms of this Agreement. In the event the Parties are unable to agree on all such terms and conditions and all such documents required to implement the terms and provisions of this Agreement despite their good faith efforts to do so, either Party shall have the option after a period of at least twenty four months from the Effective Date or six months after the final approval of the Certificate of Need for the University Hospital is received, whichever is longer, to terminate this Agreement on the terms described in this [s]ection . . . . BayCare 2, Appendix C, BayCare and USF Agreement, Section G, p. 8. (Emphasis supplied.) For USF to terminate, the terms include payment to BayCare of $500,000 and agreement that for five years after termination it will not enter into an affiliation or other agreement with any other provider for the establishment of a university hospital in Pasco County. See id. The ability of USF to terminate the agreement is not "at will." It requires good faith efforts to have been made at implementations that fail to work. Furthermore, termination is not without consequences. But the termination provision in the agreement is consistent with the lack of a condition in BayCare's application that the BayCare proposal be a teaching hospital, "one more detail that made [AHCA officials] scratch our heads about the characterization of this hospital as a teaching hospital." Tr. 2011. It is also consistent with USF's support for "legislation that would be statewide that would allow state medical schools at some point, if they chose to, to make it easier . . . to have a hospital or research hospital on campus . . . [of which] USF would be one . . . " Tr. 1190-91. Adverse Impact Providers Outside the District Evidence was produced at hearing about the adverse impact of approval of either of the two applications on providers outside the district. Objections to the evidence were taken under advisement pending consideration of post-hearing memoranda submitted by the parties. Upon consideration of the memoranda, the objections are sustained. See paragraphs 159-66, below, in the Conclusions of Law. Providers Within the District The Pasco-Pinellas proposal will have minimal impact on Community/Trinity Medical Center. Its impact on other hospitals will be minimal with the exception of its two partner hospitals--UCH and FHZ--and of those two, only FHZ is in the District. There will be no adverse impact on Community as a result of the BayCare proposal. There is little patient flow from eastern Pasco to the western Pasco hospitals. Only about 1% of the patients in eastern Pasco travel west for services at Community, Morton Plant or Bayonet Point. It is reasonable to project that there will be no material change in Community's patient draw as a result of the new Trinity Medical Center. The projections by Community's health care and financial experts of patient days that would be lost and adverse financial impact to Community/Trinity should the BayCare proposal be approved were based on faulty assumptions. The majority of the adverse impact from BayCare's proposal, as in the case of Pasco-Pinellas' proposal, will be on UCH and FHZ. Availability of Resources Nursing and Non-Nursing Staff Pasco-Pinellas should be able to recruit and retain nursing and other staff for its hospital based on the Adventist experience at FHZ. The nursing vacancy at FHZ is 1% lower than the vacancy rate reported by the Florida Hospital Association (7.5% and 8.5%, respectively.) The turn-over rate for nurses at FHZ is 12%, significantly lower than the national rate in the 18-19% range. Recruitment of nurses has been successful at FHZ particularly in the last few years. In 2007, FHZ hired 100 nurses and reduced its use of agency nursing staff by roughly 75%. Among its different recruitment tactics have been a foreign nursing program, education and training incentives, scholarships at local colleges and specialty pay programs. Pasco-Pinellas will use many of the same recruiting techniques that have been successful at FHZ. It is reasonably anticipated that the same recruitment practices employed by FHZ will work for Pasco-Pinellas. Many members of the current nursing staff at FHZ, moreover, live in the Wesley Chapel area and have expressed an interest in working at Pasco-Pinellas. Retention programs at FHZ have been aimed at retaining better nurses. These include the magnet concept and a self- governance program with "a unit based council and nursing council so nurses . . . practicing . . . at the bedside have the opportunity to help govern the practice of nursing." Tr. 225-6. Retention programs similar to those used at FHZ will be implemented at Pasco-Pinellas. Schedule 6 in Pasco-Pinellas application reflects anticipated staffing for its new hospital. The staffing model is consistent with staffing at other Adventist facilities, specifically FHZ. The average salaries and wages are based on actual salaries inflated forward to the projected date of opening. The FTEs per adjusted occupied bed are adequate and consistent with the staffing patterns at FHZ. All necessary staffing positions are accounted for and the number of FTEs and salaries are sufficient for the hospital to operate and provide high quality of care. The registered nurse FTEs, as opposed to LPNs and lower-level nursing care, in Schedule 6 offer optimal staffing to provide high quality care and positive patient safety. The nursing salaries are adequate for the time frame in which Pasco-Pinellas will open with a one-time 5% increase and a 4% increase per year from present until opening. Schedule 6 supports the reasonable expectation that Pasco-Pinellas will be able to recruit and hire nursing staff and retain an adequate staff. The proposed staffing pattern in Schedule 6 of the Pasco-Pinellas application, which includes nursing staff, moreover, is reasonable. BayCare has a comprehensive recruitment program for recruiting and retaining nursing personnel as well. The strategies include a partnership with the nursing programs at USF and St. Petersburg College. BayCare System provides additional training to its nurses and with regard to salaries has committed to remaining competitive in the market. BayCare's recruitment and retention initiatives have been successful. In the 2008 year to date at the time of hearing, BayCare System had been able to hire more experienced nurses that it did in 2007 for the same time period. Overall, the BayCare System has a turnover rate of about 15%. The RN vacancy is 10% with a 13% turnover rate. These figures are comparable to state and national figures; in some cases they are lower. With regard to non-nursing employees or team members, BayCare System also had developed recruitment initiatives that are targeted toward those individuals. BayCare System has a positive reputation in the community as a good place to work. As an example, the three St. Joseph's hospitals (St. Joseph', Women's and Children's) and South Florida Baptist received recognition among the "Best Work Places in Health Care" for the years 2005 and 2006. The award recognizes outstanding practices related to employees. BayCare has the ability to recruit and retain the staff necessary to staff the proposed BayCare SE Pasco hospital. The staffing projections in Schedule 6 of BayCare's application, which includes nursing staff, are reasonable. Physician Support Despite the physician shortage, both applicants should be able to adequately staff their hospitals with physicians as shown by the evidence with regard to physician support for the hospitals. Florida Medical Clinic (FMC), a multi-specialty physician group practice with 85 physicians, is the primary physician group that serves the Wesley Chapel area. Thirty percent of its members are family practitioners or specialists in internal medicine. The remainder of the members cover 20 or so specialties that include both secondary and tertiary specialties. FMC has determined that it will support the Pasco- Pinellas proposal through its physicians, admissions and outpatients activity. Ninety percent or more of the clinic's patients use the UCH and FHZ facilities. FMC has a long- standing relationship with the administrators, personnel, and strategic issues of FHZ and UCH and is comfortable developing future plans for a hospital facility in Wesley Chapel with the two organizations FMC is able to meet the needs of the Wesley Chapel community both today and in the future. In addition, there are numerous other individual physicians who practice in the Wesley Chapel area who "predominantly support University Community Medical Center and Florida Hospital in Zephyrhills." Tr. 63. Having relationships with physicians already in a market when a hospital is being developed is advantageous to the new hospital. Among other advantages, it minimizes resources used to recruit and move new physicians into the area. In contrast to support for the Pasco-Pinellas proposal, FMC has not made a commitment to BayCare as to its proposal because of lack of knowledge about the structure of the facility, its strategic plans and whether or not FMC's interests align with the BayCare proposal but it has not foreclosed such a commitment. The USF physicians group will be a source of many of the physicians who will staff the BayCare proposed hospital, a likely reason for FMC's lukewarm to non-existing support for BayCare's proposal. USF emergency physicians will staff the Emergency Department. The BayCare System has approximately 28 physicians with privileges at BayCare System facilities with offices in the Wesley Chapel area. The proposed BayCare hospital will be staffed by recruited physicians and USF faculty physicians. Other physicians from the Wesley Chapel area provided testimony of their support for the BayCare proposal. It is reasonable to anticipate that some local Wesley Chapel area physicians will join the medical staff of the proposed BayCare hospital. Despite the physician shortages in the subdistrict, District V and the Tampa Bay area, both Pasco-Pinellas and BayCare will be able to staff their hospitals adequately with physicians. Charity and Medicaid; Conditions Pasco-Pinellas committed to a number of conditions of its applications. These include a 12.6% commitment to charity and Medicaid; the establishment of funding for a clinic for the underserved, provision of educational programs for the community, and two neonatal transports and funding for local fire and rescue services. BayCare projects a 6.1% level of charity care, 2.4% higher than Pasco-Pinellas' charity care commitment. It projects 10.3% of its Medicaid and Medicaid HMO patients will be attributable to Medicaid and Medicaid HMO patients versus 8.9% at Pasco-Pinellas. BayCare System has a history of providing services to Medicaid and Charity Patients. In 2006, for example, as not- for-profit entities, BayCare System facilities and related entities provided a total community benefit of $135 million in uncompensated care. Approximately 50% was pure charity care. BayCare System facilities currently serve patients from the Wesley Chapel area, including, of course, Medicaid and charity patients. BayCare System facilities provide 57% of the charity care and 31% of the Medicaid in the market. St. Joseph's Children's Hospital and St. Joseph's Women's Hospital operate at approximately 50-to-60% Medicaid and un-reimbursed care. St. Joseph's Hospital currently serves approximately 20% of the patients from the Wesley Chapel area. St. Joseph's, however, provides 36% of the total charity, Medicaid, and Medicaid HMO care rendered to patients who reside in the Wesley Chapel area. Thus, the facilities within the BayCare System have a demonstrated track record of providing care without regard to a patient's resources. In light of the record, it is reasonable to expect BayCare to carry on in the same vein under the BayCare proposal. Utilization Schedule 5 relates to projected utilization after project completion. The projections in the schedule in Pasco- Pinellas' application were developed by looking at service area population, applying a use rate growth and taking a market share by individual zip code. They are based on the expectation that the hospital would be operating at approximately 70% occupancy in its third year of operation, which equates to an average census of approximately 56 patients. The assumptions contained in the schedule are reasonable. The utilization projections in Schedule 5 in Pasco- Pinellas' application are reasonable; they indicate that an 80- bed hospital is appropriate to meet the need for a new hospital in the Wesley Chapel area of the subdistrict. BayCare will able to achieve its projected utilization from its primary service area and from the 40% of its patients it expects to receive by way of in-migration. The population forecast and market share forecast for the primary service area are reasonable. While the support among local physicians is much stronger for the Pasco-Pinellas proposal, it is likely that they will admit patients to the BayCare proposed hospital since it will be in the Wesley Chapel area, the area of the subdistrict that is most suitable for a new hospital. The 40% projected in-migration from outside of the seven mile service area is a reasonable projection. It is reasonable to expect that the bulk of these admissions will come from USF physicians located at the USF north Hillsborough campus. Projected Revenues Schedule 7A governs projected revenues. The payor mix in Schedule 7A of Pasco-Pinellas' application is based on historic admission and patient days by payor class occurring in the proposed Pasco-Pinellas service area based on the most recent available AHCA data. Gross charges and net revenues were developed based on historical data from FHZ as reported to AHCA. These figures were inflated forward using a net increase over all in revenue payments of approximately 3%. The projected revenues including net revenues in Schedule 7A of Pasco- Pinellas' application are reasonable and consistent with the marketplace. The payor mix in BayCare's Schedule 7A was based on an analysis of patient discharge data from the proposed primary service area plus an analysis of the experience of other BayCare System facilities in the same market. It is a reasonable payor mix. It allows for consideration of the experience of BayCare System, including the high level of charity care and Medicaid and Medicaid HMO services and at the same time reflects that the Wesley Chapel area is more affluent and younger than other areas of Pasco and Hillsborough Counties. BayCare's revenue assumptions were based on an analysis of gross and net revenue per patient day from another BayCare System facility, South Florida Baptist. Financial class specific projected patient days were applied to derive a gross and net revenue number for each of the three pro forma years for the proposed project denominated by Schedule 7A as "Projected Operating Year 1, 2 and 3" and ending "12/31/11, 12/31/12 and 12/31/13" respectively as indicated by BayCare in the application. See BayCare 2, pp. 133-135. The 2006 South Florida Baptist gross and net revenue per patient day were trended forward for each of the three projected operating years to reach the projected revenue figures in Schedule 7A. The projected revenues in Schedule 7A of the BayCare application are reasonable. Projected Income and Expenses Schedule 8A in a CON application contains projected income and expenses for the proposal. Pasco-Pinellas' application used a methodology in Schedule 8 that its expert had used in other CON cases. The methodology is consistent with methodologies of other health care experts and has been accepted in recommended and final orders in CON cases. The projections in Schedule 8 of Pasco-Pinellas' application are appropriate and reasonable. BayCare's methodology used to project income and expenses in Schedule 8A is also appropriate and reasonable. BayCare's healthcare finance expert asked BayCare financial analysts to look at his initial projections. They recommended that expenses be increased in physical therapy, radiology lab and pharmacy and that expense be reduced in plant operations. The recommendations were accepted; the projections were adjusted. Medicare GME reimbursement in year 3 of operations was assumed to be $1.7 million. If no addition Medicare GME reimbursement were received, BayCare's proposal would still show a profit of $2.8 million by year 3. It is virtually certain, moreover, that some portion of the $1.7 million included in calculation of BayCare's income projections will be realized. However valid criticism of the inclusion of the $1.7 million, BayCare's proposal remains financially feasible in the long- term. Financial Feasibility Pasco-Pinellas proved the immediate and long-term financial feasibility of its proposal. The schedules in its application related to financial feasibility used reasonable methodologies that yielded reasonable projections. Analysis of capital costs and funding is contained in Schedules 1 through 3. Schedule 1 presents an accurate summation of total project cost. That figure, $121 million, is a reasonable and typical cost for a new 80-bed community hospital. The $149 million on Schedule 2 reflects an accurate summation of anticipated capital costs, including the hospital project and necessary capital expenditures for the first tow or three years of operation. Schedule 3 set forth the sources of funding, a combination of equity and debt financing, discussed below. Both UCH and Adventist are financially successful systems. They will have not difficulty funding the Pasco- Pinellas proposal. As of December 31, 2007, Adventist's net revenue was approximately $368 million. About $100 million in funds were available to UCH at the time of hearing to contribute to development of the project. Due to the financial strength of its members, Pasco- Pinellas will easily be able to fund the project through a combination of equity and debt. The equity, $45 million, will be provided equally by Adventist and UCH, $22.5 million each. The remaining $76 million will be financed through tax-free bonds issued by Ziegler Securities. The project is immediately financially feasible. The Pasco-Pinellas project is also financially feasible in the long-term. Schedule 8 in the application, year 3, shows the project will generate a return of approximately $5.3 million in revenue over expenses, an amount that "more than meet[s] the test for financial feasibility in the long-term." Id. Based on the sources of BayCare System, BayCare has access to the financial resources to implement its proposed hospital. Funding for the hospital will come from BayCare System on the basis of 50% debt and 50% equity investment. As of early 2008, BayCare System had approximately $1.2 billion in unrestricted cash on hand. BayCare System's financial strength will allow BayCare to obtain the financing it needs for the project. Schedule 3 of the BayCare application sets forth an accurate and reasonable statement of the sources of funds necessary to develop the project. The immediate financial feasibility of BayCare's proposal is demonstrated by the evidence presented by BayCare. By year three of the pro forma, the BayCare proposal is reasonably projected to generate a net income over expenses in the amount of $4,498,637. BayCare demonstrated that the proposal's long-term financial feasibility. Costs and Construction Methods The costs and methods of the proposed construction of the Pasco-Pinellas project are reasonable. The facility is adequately sized and programmed for the services included in the Pasco-Pinellas application. All of the departments, including central storage, fall within an appropriate benchmark range for community hospitals. The 2,300 square feet per bed is reasonable as are the construction costs when compared to similar community hospitals. The proposed Pasco-Pinellas facility meets the codes for all of the services included in the application. The design of the Pasco-Pinellas facility enable expansion. The designed expansion capabilities are reasonable, logical and appropriate to meet the needs of the Wesley Chapel community. The drawings contained in the CON application show an efficient community hospital. The departments allow for efficient intra-department circulation and department-to- department circulation. There are adequate separation of public and staff flow corridors. All of the areas and departments as shown in the Pasco-Pinellas plans are code compliant. The layout of the patient rooms is consistent with industry standards for the design of single patient rooms. The number and size of the operating rooms are adequate and appropriate for an 80-bed community hospital not offering tertiary services. The emergency department, including the trauma room, complies with code and its layout is adequate and appropriate for an 80-bed hospital. The ambulance entrance in relation to the trauma bay allows for efficient location of patients based on acuity level. The number of treatment beds, treatment bays, including observation areas, provide adequate emergency department capacity. The Schedule 1 costs set forth in the BayCare application are reasonable. These costs include projected costs associated with necessary medical equipment. The medical equipment costs set forth in Schedule 1 are reasonable and BayCare has properly accounted for the items and costs of equipment necessary to operate the hospital. The Schedule 9 construction costs of approximately $180 million are reasonable as are the construction costs per square foot ($347 versus $325 for Pasco-Pinellas). Contingencies and escalation factors have been built into the projected costs. Facilities, Sites, Related Costs At the time the UCH and Adventist joint venture was formed, UCH had a parcel of land under contract located on State Road 54 across from the Saddlebrook Resort (the "UCH Parcel"). When it filed its application, Pasco-Pinellas hoped the UCH Parcel would serve as the site of its hospital. In fact, Pasco- Pinellas touted the location of the parcel for meeting the need of the growing population in Pasco County when it represented in the application that the UCH Parcel is the center point of the Wesley Chapel area. Close to Interstate 75, the UCH Parcel is a good location for a hospital. Pasco-Pinellas' aspiration for the use of the parcel was defeated, however, when the Pasco County denied a request to re-zone the UCH Parcel for use as a hospital. After the inability to have the UCH Parcel re-zoned, Pasco-Pinellas changed the site for the hospital to a parcel owned by FHZ (the "Pasco-Pinellas Site"). Located on Bruce B. Downs Boulevard, a major north-south corridor in the Wesley Chapel area, the site is 51.5 acres. The Pasco-Pinellas Site had been purchased by FHZ in 2001 with the intention of using it for a hospital. Subject to a height variance to allow a seven-story building, the site is zoned for special use as a hospital and related medical uses. The site has good visibility and access from Bruce B. Downs Boulevard as evidenced by its compliance with the State Road 581 (Bruce B. Downs Boulevard) access management plan. It meets other regulatory requirements such as the minimum spacing criteria for Pasco County. The Pasco-Pinellas Site is governed by a development order associated with the Wiregrass Ranch Development of Regional Impact (the "Wiregrass DRI DO"). The Wiregrass DRI DO "indicates that the phasing schedule assumed 100 hospital beds would be developed within the building phase." Tr. 597. As explained at hearing by Lara Daly, Pasco-Pinellas' expert in civil engineering and property site development, there are other aspects of the Wiregrass DRI DO, "like trade-off matrices" and "entitlement advancements" that indicate "entitlements are not limited on a parcel-by-parcel basis." Tr. 598. The assumption, therefore, does not necessarily restrict the number of hospital beds on the Pasco-Pinellas Site; rather it allows impacts associated with 100 hospital beds. The number of allowable beds may be increased following action taken under other provisions of the Wiregrass DRI DO. A significant portion of the Pasco-Pinellas Site is wetlands: some of low quality, some of high quality. The higher quality wetlands, referred to in the record as "a high quality category 1 wetland as defined by Pasco County," tr. 552, (the "Category 1 Wetland") are on the north and east perimeter of the site. The project is designed so as to have no impacts on the Category 1 Wetland. The only potential impact to these high quality wetlands is if there were a county-mandated road to be built in their vicinity. The lesser quality wetlands located in the interior of the site are herbaceous in nature or an open water feature that is "an older borrow pit that naturalized over time." Tr. 552-53. These lower quality wetlands constitute roughly 11.5 acres of the site. They will be impacted by the project but it is reasonable to expect that the impacts will be permitted. As Ms. Daly put it at hearing, "[a]fter reviewing, running stormwater models, looking at the proposed wetland impacts, coming up with appropriate mitigation ratios based on our experience elsewhere on the Wiregrass site, the site will accommodate all the necessary wetland and floodplain historic basin compensation . . . ." Tr. 550. The costs contained in Schedule 1 of the application were arrived assuming the use of the UCH Parcel as the site for the Pasco-Pinellas project. The Pasco-Pinellas Site requires expenditures for site preparation and other expenditures, such as wetland mitigation, related to the site that were not required had the UCH Parcel been used. For example, three potential foundation systems have been suggested for the hospital because of the wetland and subsurface conditions on the Pasco-Pinellas Site had the UCH Parcel been the site. Using the most expensive of the three, however, would not cause Pasco- Pinellas to exceed the construction costs contained in Schedule 1 of the CON Application. The land acquisition costs were reasonably projected to be less for the Pinellas-Pasco Site than for the UCH Parcel as reflected in the application. All told, the estimated project cost using the Pasco-Pinellas site was not materially different from the cost projected in the application and presented the possibility of being less than the $121 million reflected in the application. Likewise, the equipment cost figure shown in Schedule 1 of the Pasco-Pinellas application is reasonable and achievable. The total of the costs for the project sited at the Pasco-Pinellas Site, despite the change of site that occurred after the filing of the application, should not exceed the total of the costs listed in the Pasco-Pinellas application. The preponderance of the evidence is that the Pasco- Pinellas Site should ultimately qualify as an appropriate, developable site for the Pasco-Pinellas project. The BayCare site, north of Highway 56 and bordering I-75, (the "BayCare Site") includes two parcels of 54 and 17 acres. The 54 contiguous acres will be used for the hospital, outpatient services, and a planned medical office building. The 17 acres will be used for research space, physician office space, and academic training space necessary for the research and education function at the project. BayCare has the appropriate zoning and approvals necessary to develop the hospital. The hospital will have all private beds. It will be fully digital and will rely on electronic medical records. The BayCare Site is well suited for construction of the hospital and related buildings. The available footprint and design of the hospital, which includes shelled-in space, will readily allow for future expansion of the hospital up to 300 beds. Design of the BayCare facility is based on principles of family-centered care, flexibility to allow for change and future growth, efficiency, a quality of environment for teaching, a sustainable, green building, and patient safety. A "health building" with improved environmental quality and energy efficiency, the facility will seek LEED certification given to facilities constructed to have minimal adverse environmental impact. In keeping with the teaching function intended by the application, the facility's design includes additional work space, reading areas, sleep areas and conference rooms to facilitate teaching. Overall, the BayCare facility is twice as large as the Pasco-Pinellas facility. Size has its advantages. For example, it allows for larger treatment patient areas. But the facility is much more expensive to build. It is reasonably projected to cost more than $180 million above the costs associated with the Pasco-Pinellas facility which is more than twice as much. The high expense associated with the BayCare facility is shown by its cost per bed: in excess of $2 million-- much more than the cost per bed of the Pasco-Pinellas facility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Agency for Health Care Administration approve CON 9975, Pasco-Pinellas' application for a new hospital in AHCA Subdistrict 5-2, and deny CON 9977, BayCare's application for a new hospital in the same subdistrict. DONE AND ENTERED this 28th day of October, 2008, in Tallahassee, Leon County, Florida. S DAVID M. MALONEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 28th day of October, 2008. COPIES FURNISHED: Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Craig H. Smith, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Karin M. Byrne, Esquire Agency for Health Care Administration 2727 Mahan Drive, Building 3 Mail Station 3 Tallahassee, Florida 32308 Stephen K. Boone, Esquire Boone, Boone, Boone, Koda & Frook, P.A. 1001 Avenida Del Circo Post Office Box 1596 Venice, Florida 34284 Jonathan L. Rue, Esquire Parker, Hudson, Rainer & Dobbs, LLP 1500 Marquis Two Tower 285 Peachtree Center Avenue Northeast Atlanta, Georgia 30303 Robert A. Weiss, Esquire Parker, Hudson, Rainer & Dobbs, LLP The Perkins House, Suite 200 118 North Gadsden Street Tallahassee, Florida 32301 R. David Prescott, Esquire Rutledge, Ecenia, Purnell & Hoffman, P.A. 215 South Monroe Street, Suite 420 Post Office Box 551 Tallahassee, Florida 32302-0551
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, under Section 381.494-381.499, Florida Statutes, Humana, Inc., d/b/a Kendall Community Hospital, is entitled to a Certificate of Need to construct a 150-bed acute care hospital in the west Kendall area of south Dade County, Florida.
Findings Of Fact HUMANA is an investor-owned, multi-institutional hospital system which owns and operates more than 90 hospitals, most of which are medical/surgical facilities. (DHRS Ex.1, p.10). HUMANA applied for a Certificate of Need from DHRS to construct a 150- bed acute care community hospital in the west Kendall area of south Dade County, Florida. The specific area to be served is bounded on Miller Drive to the north, southwest 177th Avenue to the west, Coral Reef Drive to the south, and Calloway Road to the east. The proposed 150-bed hospital includes 100 medical/surgical beds, 20 pediatric beds, 20 Level II obstetric beds, 10 intensive care/critical beds, and a Level II nursery in conjunction with the obstetric unit. (TR 277). The proposal includes a 24-hour, physician-staffed emergency room and a "dedicated" outpatient surgery department, with separate recovery room. Surgery suites are specifically designed and reserved only for outpatient surgery, thereby facilitating outpatient scheduling and efficient operations. (TR 279). The outpatient surgery unit is intended to reduce the costs of health care by providing a cost-effective alternative modality of health care delivery. (TR 278). Finally, the proposal contemplates a full-body CT Scanner, digital radiography and general state-of-the-art ancillary equipment. (TR 278). If built, it would be the westernmost hospital in south Dade County. It is a "community" hospital, designed to provide hospital care to the rapidly growing population of the west Kendall area, but not serve as a major referral center for patients living elsewhere. (DHRS Ex. 1, pp. 32-34; TR 250, 280). The local health planning agency, then the Health Systems Agency ("HSA") of South Florida, Inc., 1/ reviewed HUMANA's application for a Certificate of Need, along with four other similar applications, and recommended that all five be denied because of asserted inconsistency with the HSA's Health System Plan. ("HSP") 2/ (DHRS Ex. 1, TR 77). The applications were then submitted to DHRS, the single state agency empowered to issue or deny Certificates of Need. 381.493(3)(a) and 381.494(8), Fla.Stat. (Supp. 1982). DHRS reviewed the HSA recommendation, conducted its own evaluation, and then denied all five applications, including HUMANA's. DHRS concluded: None of the five proposed projects are in compliance with the adopted Goals, Criteria, Standards and Policies of the Health Systems Agency of South Florida, as stated in the Health Systems Plan (HSP) and Annual Implementation Plan (AIP). A need to add acute care hospital beds to Dade County does not exist at the present time. The proposed projects would add to excess capacity and underutilization of hospital beds that now exist in Dade County. There are only five hospitals in Dade County that are at the recommended occupancy level of 80 percent based on licensed beds (none of which are located in South Dade), and the number of beds per 1000 population. The primary alternative would be not to construct any of the proposed projects. While all of the proposed projects represent some degree of financial feasibility, none are felt to be cost effective because increased bed capacity would result in costs and revenue higher than those projected for existing "High Cost" hospitals in 1984 as determined by the Hospital Cost Containment Board. (DHRS Ex. 1, p. 404) Thereafter, HUMANA timely instituted Section 120.57(1) proceedings challenging DHRS's denial; HUMANA's standing to do so is uncontested. HUMANA's position, maintained throughout, is that its proposed 150-bed hospital satisfies every legal criterion for the issuance of the applied-for Certificate of Need. Intervenor Baptist Hospital Intervenor BAPTIST HOSPITAL will be substantially affected if HUMANA is granted a Certificate of Need. BAPTIST is a fully licensed and accredited 513- bed, general acute care hospital located within HUMANA's proposed service area, at 8900 North Kendall Drive, Miami, Florida. (STIP-para. 8). If the proposed hospital is built, it would significantly and adversely affect the patient census and revenues of BAPTIST HOSPITAL. (TR 16, VOL 4). In 1982, BAPTIST drew 36.7 percent of its patients from HUMANA's proposed service area. (TR 15, 16, VOL 4). Fifty percent of the residents of the proposed service area (who were admitted to hospitals in Dade County) were admitted to BAPTIST HOSPITAL. (TR-440). It is estimated that BAPTIST would lose 15,047 patient days to the new HUMANA hospital and would experience significant adverse economic impacts. (TR 88-89, VOL 5). The proposed hospital would also adversely impact BAPTIST's ability to hire and retain nursing and technical personnel. BAPTIST has experienced difficulty in hiring and retaining these personnel. (TR 18, 60-73, VOL 4). Historically, the opening of a new hospital has adversely affected the hiring and retention of such personnel in nearby hospitals. (TR 72-73, VOL 4). Here, approximately 84 percent of BAPTIST's nurses live near HUMANA's proposed cite, thus increasing the likelihood that BAPTIST will be adversely affected in this manner. (TR 135, VOL 5). BAPTIST opposes the issuance of a Certificate of Need for HUMANA's proposed hospital, and supports DHRS's initial denial. Intervenor American Hospital Similarly, intervenor AMERICAN HOSPITAL would be significantly affected if the proposed HUMANA hospital is built. AMERICAN is a fully licensed and accredited 513-bed, general acute care hospital located and operated within HUMANA's proposed service area, at 11750 Bird Road, Miami, Florida, (STIP-para 8). AMERICAN currently draws 41 percent of its patients from HUMANA's proposed service area. The proposed hospital will cause AMERICAN to lose an estimated 5,300 patient days. (TR 76, VOL 5). This translates into an approximate loss of $4.1 million in potential revenues, based upon HUMANA's achieving a 75 percent occupancy rate and 41,000 patient days. (TR 75-76, VOL 5). Such a revenue loss may result in higher costs, which in the health care system, are normally translated into higher patient charges. (TR 86, VOL 5) HUMANA's proposed hospital would also aggravate AMERICAN's continuing shortage in nursing personnel. (Currently AMERICAN has approximately 50 full- time registered nurse vacancies.) (TR 134, VOL 5). It is reasonable to expect that HUMANA will hire a significant number of its nurses away from nearby hospitals. Over a six-month period, HUMANA's four existing hospitals in south Florida hired 112 registered nurses, 32.1 percent of whom were hired away from other hospitals in the area. (TR 783). AMERICAN, likewise, opposes the issuance of a Certificate of Need to HUMANA, and supports DHRS's initial denial. II. STATUTORY CRITERIA FOR CERTIFICATES OF NEED Section 381.494(6)(c) and (d), Florida Statutes (Supp. 1982), prescribes standards for evaluating applications for Certificates of Need. Those standards pertinent to HUMANA's application include: The need for the health care facilities and services . . . being proposed in relation to the applicable district plan, annual implementation plan, and state health plan adopted pursuant to Title XV of the Public Health Service Act, except in emergency circumstances which pose a threat to the public health. The availability, quality of care, efficiency, appropriateness, accessibility, extent of utilization, and adequacy of like and existing health care services . . . in the applicant's health service area. 7. The availability of resources, including health manpower, management personnel, and funds for capital and operating expenditures, for project accomplishment and operation; the effects the project will have on clinical needs of health professional training programs in the service area; the extent to which the services will be accessible to schools for health professions in the service area for training purposes if such services are available in a limited number of facilities; the availability of alternative uses of such resources for the provision of other health services; and the extent to which the proposed services will be accessible to all residents of the service area. 11. The probable impact of the proposed project on the costs of providing health services proposed by the applicant, upon consideration of factors including, but not limited to, the effects of competition on the supply of health services being proposed and the improvements or innovations in the financing and delivery of health services which foster competition and service to promote quality assurance and cost-effectiveness. In considering HUMANA's application, specific consideration must also be given to whether: . . .less costly, more efficient, or more appropriate alternatives to such inpatient services are . . . available and the development of such alternatives has been studied and found not practicable. . . . existing inpatient facilities providing inpatient services similar to those proposed are being used in an appropriate and efficient manner. . . . alternatives to new construction, for example, modernization or sharing arrangements, have been considered and have been implemented to the maximum extent practicable. . . . patients will experience serious problems in obtaining inpatient care of the type proposed, in the absence of the proposed new service. 381.494(6)(d) Fla.Stat. (Supp. 1982). The controversy here is whether in 1988 (using a five-year planning horizon) there will be a need for HUMANA's proposed 150-bed hospital in the west Kendall area of south Dade County. DHRS, BAPTIST, and AMERICAN say that there will be no need: that existing hospitals serving the area have excess capacity and are underutilized--and that this condition will persist through 1988. HUMANA contends otherwise. As the applicant for a license, the burden of proving entitlement rests squarely upon HUMANA. 3/ The most accurate and reliable method for determining bed-need in this case, the historical demand-based method, requires the following: (1) identify planning area boundaries; (2) from historical population data, project population for the planning area using the five-year horizon for hospital services; (3) calculate a hospital use rate or the rate at which patients in the service area have used hospitals in terms of patient days per thousand; (4) project patient days by multiplying the use rate times the area population, and divide by 365 to yield a projected bed need; (5) compare projected bed-need with the licensed bed capacity of area hospitals and, using an appropriate occupancy standard, determine whether there will be an excess or shortage of hospital beds in the proposed planning area. (TR 55, VOL 5). Selecting a Health Planning Area The first step in determining whether a new hospital will be needed is selection of the appropriate health planning area. In 1982, the now-defunct HSA of South Florida adopted a Regionalization Plan for south Florida dividing HSA IX, a region, into five districts. (AM Ex. 4). Although not specifically mentioning hospitals, this plan implies that hospital bed-need determinations should be made on a district basis. The Kendall area, extending east and west, generally is denominated as "District D," and is, in turn, subdivided into three subdistricts. "D-1" encompasses Coral Gables and South Miami; "D-2" and "D-3" include Weschester, Kendall, Killian, and the west central Dade areas, the boundaries of which are U.S. 1 and the Palmetto Expressway on the east, Coral Reef Drive and Eureka Drive on the south, conservation area on the west, and the East-West Expressway, and Tamiami Trail on the north. (HU Ex. 4). HUMANA chose "D-2" and "D-3" as the appropriate health care planning area for determining need for its proposed hospital. District "D," however, is a more appropriate and reasonable area to use in determining need for the proposed HUMANA hospital. (TR 203, 258; 145-146, VOL 4; 56-57, VOL 5). The entire area of District "D" may be traversed, by car, in approximately 30 minutes, the roads are adequate, and there are numerous hospitals in the district which are easily accessible to its residents. (TR 57-58, 66, 77-78, VOL 5). Hospitals located in one part of District "D" are readily accessible to patients who reside in other areas of the District. HUMANA's bed-need analysis fails to adequately take into account hospitals within "D-1" or which are outside the District but are readily accessible (within 30-minutes driving time) to the majority of residents in "D- 2" and "D-3." (TR 145-146, VOL 4). Existing hospitals which are readily accessible to residents of a proposed service area cannot be reasonably excluded merely because they are located outside a theoretical boundary line. (TR 145- 146, VOL 4). A health planning area should be the area where most of the residents seek health care. (TR 615; 78-79, VOL. 5). Hence, a proposed health planning area should be tested against the actual hospital use of its residents and the accessibility of existing hospitals to those residents. The residents of District "D" travel freely within District "D" in seeking hospital care. South Florida Hospital Association Utilization and Patient Origin Program ("HUPOP") data show that approximately 60 percent of the patients residing in subdistricts "D-2" and "D-3" seek inpatient hospital care elsewhere. (TR 72, VOL 5; 616; AM Ex. 7 p. 19). 4/ There is a corresponding inflow of residents from outside "D- 2" and "D-3" who seek hospital care within "D-2" and "D-3". (TR 72, VOL 5). In comparison, approximately 70 percent of the residents of District "D" seek hospital care within the boundaries of the District and--of all the districts within the region-- District "D" has the highest percentage of residents who seek in-district hospital care. (TR 72-73, 79, VOL 5; AM Ex. 7, p. 19). In actual practice, then, the residents of District "D" heed the District boundaries but largely disregard subdistrict "D-2" and "D-3" boundaries. The residents of "D-2" and "D-3" have ready access to numerous hospitals providing a broad range of medical services. (TR 78, VOL 5). BAPTIST is a large general hospital with tertiary, secondary, and primary care services. With the exceptions of a burn center and a Level III neotology unit, virtually all health care services are provided. BAPTIST, AMERICAN, Coral Reef, South Miami, and Larkin hospitals provide health care services to residents of "D-2" and "D-3," within a 20-minute travel time. (BH Ex. 10, p. 1-13-19; BH Ex. 5 and 7). The few specialized services not available at these hospitals are provided at Jackson Memorial Hospital, within a 30-minute travel time. (BH Ex. 10, p. 1- 13). Accessibility of Existing Acute Care Hospitals Section 381.494(6)(c)(2), Florida Statutes (Supp. 1982), requires examination of the accessibility of existing health care facilities providing similar services to the same health service. The generally accepted standard for determining accessibility, found appropriate here, is whether general hospital beds are available to the service area's population within 30-minutes travel time by automobile, under average traffic conditions and for non- emergency purposes. This standard is used by HSAs and DHRS is used by federal health care planners, and is widely used by professional health care planners. (DHRS Ex. 1; BH Ex. 10, p. 1-10-13; TR 90, 123, 144, 166, 193; 85, 133-134, VOL 4; 58, 77, VOL 5). Applying this standard, seven hospitals are reasonably accessible to residents of HUMANA's proposed service area: AMERICAN, BAPTIST, Coral Reef Hospital, South Miami Hospital, Larkin Hospital, Doctors' Hospital, and Jackson Memorial Hospital. District "D" contains eleven hospitals, with a total of 2,882 licensed beds. (AM 3, p. 41; 4, p. D-3). Moreover, five of these, AMERICAN, BAPTIST, Coral Reef, Larkin, and South Miami, are even closer, within 20-minutes average travel time. (BH 5, p. 11). There is no evidence that the residents of "D-2/D-3", or District "D," as a whole, have any difficulty using or gaining access to these hospitals. Beds are available. The five hospitals closest to HUMANA's proposed service area, AMERICAN, BAPTIST, Coral Reef, South Miami, and Larkin, have a total of 1,825 licensed beds, 326 of which are not in service; of the 1,499 beds in service, 109 are not used. So there are 435 licensed beds, within 20-minutes of "D-2/D-3," not in service or not in use due to lack of demand. (BH Ex.10, p. I- 26, 5, 7, 10, p. I-26-28). Occupancy Standard for Determining Need The generally accepted occupancy standard for hospitals, used in deciding if additional beds are needed, is the 80 percent average annual occupancy rate. This standard is included in the 1981 Florida State Health Plan, is used by DHRS and HSAs, and is widely used by professional health care planners. Its use is appropriate here. (AM 135, VOL 2; TR 90-91; 95-97, 118, 132, 140, 165, 172, 313, 469; 141, VOL 4). In application, it means that additional hospitals should not be built until existing hospitals providing acceptable care to the proposed service area are operating at or above an 80 percent occupancy rate--the level at which hospitals, generally, operate most efficiently. In 1982, none of the eleven hospitals in District "D" met the 80 percent occupancy standard. (DHRS Ex. 1, AM Ex. 3, p. 7). In 1981, the five hospitals closest to HUMANA's proposed site had an average annual occupancy rate of 60.9 percent. (BH Ex. 10, p. I-24). Moreover, this excess is sufficient to meet the future health care needs of residents of "D-2/D-3" and District "D," as a whole. BAPTIST and AMERICAN will not achieve 80 percent occupancy until after 1988; AMERICAN is projected to have an occupancy of only 63.61 percent in 1990. (AM Ex. 3, p. 8; BH Ex. 10, p. 10, I-24). Availability of Resources to Build and Support Proposed Hospital Section 381.494(6)(c)(7) also requires consideration of whether there will be available adequate resources to support a new hospital, including manpower and financial resources. The evidence establishes, without contradiction, that HUMANA has sufficient funds to construct and operate its proposed hospital. The projected cost of the hospital, including equipment, is $29,175,500--70 percent to be funded by debt, the remainder by equity funds. HUMANA has, on hand, approximately $225 million in cash and cash equivalents. (TR 709, HU Ex. 2). The design of the proposed hospital will be based on HUMANA's "prototype" 150-bed facility, developed from years of experience in hospital design construction, and operation. The design is efficient and economical, and will permit a 50-bed expansion without further construction. (TR 714-716, 720, 719, HU Ex. 9). The parties agree that HUMANA has the ability to enlist or employ sufficient physicians and management personnel to staff the proposed hospital. (STIP, para. 3). HUMANA also has the ability to hire and retain an adequate nursing and technical staff. It recruits such personnel, routinely, on a national basis and transfers employees within its hospital system. Moreover, it has a mobile nurse corps, a group of nurses which are available on an as-needed basis, to help staff its south Florida hospitals during peak winter months. Historically, HUMANA has successfully recruited and retained nurses in its south Florida hospitals. (TR 772, 776-777, 781-782, 801-802, VOL 4). Projected Population of Service Area As already mentioned, under the preferred demand-based bed-need methodology, population is projected over a five-year planning horizon, for hospital facilities. This is because an increase in a service area's population will generate a need for more beds. The population of the Kendall area of south Dade County has been growing rapidly, and is expected to continue to do so through 1990. This population is younger than the population of Dade County or HSA IX, as a whole. The population projections for District "D" (the appropriate health planning area for the proposed hospital) by age groups are: District D 1987 1990 Under 15 92,301 96,506 15 to 64 357,567 327,652 65 and over 52,188 55,822 TOTAL (AM 3; TR 59-61, VOL 5; 488 VOL 3) 502,056 529,980 I. Hospital Use Rate Under the demand-based methodology, found acceptable here, once the planning area is designated and the population projected over a five-year planning horizon, a hospital "use rate" is calculated. The "use rate" is the rate at which people use hospitals, expressed in terms of the number of patient days per thousand residents residing in the health service area. This rate can be derived using various factors. Those factors most appropriate for use in this case are "age" and "service-specific" uses. (TR 66 VOL 5; 497-498 VOL 3). "Age-specific" use rates, reflecting historic hospital use rates by age group, are applied to the projected population to determine total patient days. This factor takes into account the fact that people 65 or older utilize hospitals at a rate three to four times that of people under 65. This is particularly significant here since the Kendall area population is younger than the population of Dade County, HSA IX, or the state, as a whole. (TR 58-59, VOL 5; AM 3, p. 12). In 1981, the age-specific use rate for HSA IX reflects a use rate of 1,524.6 patient days per thousand population. (AM 3, p. 63). "Service-specific" use rates are derived from historical use of particular hospital services, such as psychiatry, obstetrics, pediatrics, and medical-surgical. (AM 3, pp. 14-15, 70-72). The 1981 service-specific use rate, covering all services, for HSA IX was 1,524.6 patient days per thousand--a figure equal to the age-specific use rate. (AM 3, p. 14-15, 71). J. Calculation of Future Bed Need for District "D" In 1982, there were 2,882 licensed non-federal beds in District "D." Taking into account an 80 percent occupancy rate, and applying the HSA age- specific use rate to the projected population of District "D" yields a need for only 2,282 beds per day in 1987, and 2,419 beds per day in 1990. Hence, there will be an excess of 600 beds in District "D" in 1987; 554 in 1988; and 463 in 1990. (AM 3, p. 41, 69; TR 63, VOL 5). Similarly, applying the HSA IX service- specific use rate to the projected District "D" population results in a bed excess of 232 beds in 1987 and 87 in 1990. (AM 3, p. 74). Significantly, these projected bed excesses are, if anything, understated. This is because the HSA IX hospital use rate was utilized. Hospital use is greater in HSA IX, with its older population, than in District "D," where the population is younger and less likely to be hospitalized. (TR 61-62, VOL 5). HUMANA, in its analysis, applied age and service-specific use rates to the projected population of "D-2/D-3," concluding that there would be a need for 238 additional beds in 1988. This conclusion, however, is unconvincing since "D-2/D-3" is unduly restrictive and the 235 unused beds of South Miami and Larkin Hospitals, both located in "D-1," are not fully considered. (DHRS 1, p. 370; AM 3, p. 18). (Both hospitals are within a 20-minute average travel time from selected points in "D-2/D-3.") (TR 544, VOL 3; 612, VOL 4). By failing to properly account for empty beds at nearby hospitals, and by unreasonably limiting its planning area, HUMANA overstates the need for additional hospital beds in District "D." Moreover, even assuming the propriety of "D-2/ D-3," HUMANA failed to properly take into account the 260 beds of Coral Reef Hospital, a "D-2" hospital. If Coral Reef Hospital beds are correctly included within "D-2/D-3," HUMANA's projected bed-need decreases from 238 to 129 beds in 1988. (TR 80, VOL 5). Finally, Thomas W. Schultz, HUMANA's health care planning expert, admitted that a figure of 1,038 patient days per thousand patients would be "useful" in establishing bed-need for "D-2/D-3." (TR 501, VOL 3). Applying that use rate, and correctly including Coral Reef Hospital, results in a projected "D-2/D-3" need of 36 additional beds in 1988. (TR 83-84, VOL 5). HUMANA does not propose to construct a 36-bed hospital and such a hospital has not been shown to be feasible.
Recommendation Based on the foregoing, it is RECOMMENDED: That HUMANA's application for a Certificate of Need to construct a hospital in the west Kendall area of Dade County, Florida, be denied. DONE and ENTERED this 25th day of May, 1983, in Tallahassee, Florida. R. L. CALEEN, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of May 1983.
Findings Of Fact Upon consideration of the oral and documentary evidenceadduced at the hearing, the following relevant facts are found: On or about September 20, 1976, petitioner submittedits application for a certificate of need to construct an acutecare general hospital in Delray Beach, Florida. Additional information was requested by respondent. On November 3, 1976, petitioner forwarded to respondent its "First Supplement to the Application for Certificate of Need." By letter dated November 16, 1976, respondent acknowledged receipt of petitioner's capital expenditure proposal effective November 8, 1976, referred the proposal to the Health Planning Council for Indian River, Martin, Okeechobee, Palm Beach and St. Lucie Counties, and informed petitioner that a decision on the proposal would be rendered by respondent not later than February 6, 1977. Petitioner is seeking a certificate of need to construct a new 300 bed hospital at an estimated cost of $10,695,000.00.The facility is to be a non-tax supported, investor-owned acute care medical/surgical hospital. Petitioner proposes to locate this hospital on chimerically zoned land on the southwest corner of Lake Ida Road and Congress Avenue in Delary Beach, Florida. The general service area is identified as Area 3, as defined in planning documents of the Health Planning Council, and comprises that portion of Palm Beach County within the boundaries of the Florida Turnpike to the West, Hypoluxo Road to the North, the Atlantic Ocean to the East and the Palm Beach/Broward County line to the South. Two other hospitals are currently in operation in this Area 3. The intervenor in this proceeding, Bethesda Memorial, a tax-supported acute care short-term hospital, is located within four miles to the northeast of petitioner's proposed hospital. The driving time between petitioner'sproposed location and Bethesda is five to eight minutes, or twenty minutes during heavy traffic. Boca Community Hospital is located approximately 9 1/2 miles from petitioner's location, with a driving time of between fifteen to thirty-five minutes. The existing two hospitals are accessible to residents within Area 3. Petitioner's location, being on an east-west artery, would be more accessible to those within the area defined by petitioner as its primary service area. This area excludes the area immediately surrounding the two existing hospitals (Exhibits A and C). Petitioner's application was reviewed and analyzed by a review committee of the Health Planning Council (HPC). Thiscommittee listed two factors supporting approval of petitioner'sapplication -- reasonable patient costs and patient charges andwider choices to physicians as to where they hospitalize theirpatients. It was noted that the by-laws of Boca Community Hospital do not allow staffing privileges to physicians practicing north of Atlantic Boulevard in Delray Beach. The five factors supporting disapproval of petitioner's application were as follows: Based on the HPC document entitled Acute Care General Hospital Bed Needs, 1980, March 1975, there will exist the appropriate number of beds to meet the needs of the 1980 population of Palm Beach County (including area 3). Thus, development of this proposed facility would result in an extensive, unnecessary, and costly excess of hospital beds in Palm Beach County (especially in area 3). In determining bed needs for Palm Beach County in 1980, the State of Florida's Medical Facilities Plan 1975 shows that the county currently has more than enough beds to meet the 1980 demand. Such need determination does not consider those hospital/hospital expansion projects which were approved by the HPC and are currently under construction or recently completed. Although development and subsequent population centers are anticipated in the area, the extent and completion dates for such developments are unknown. Regardless of such growth, however, the geographical proximity between Bethesda Memorial Hospital and the proposed facility would indicate that both these hospitals would be serving approximately the same population. This would result in costly competition between the two hospitals ultimately resulting in increased patient charges with no foreseeable benefits to the patient in terms of appropriateness, effectiveness, or availability of health care. Westerly population growth will necessitate the development of medical services and facilities; however, because this growth is expected to develop over a period of years and is dependent on economic factors, medical services must keep pace with population increases. In meeting the health needs of this population in the most effective and efficient manner, the HPC, in its document entitled Acute Care General Hospitals Long Range Growth, Position Statement and Recommendations, August 1975, states that: "Satellite facilities, both outpatient and inpatient, should be developed by the existing hospital system to provide necessary and appropriate health care in areas where the population does not justify a full service acute care general hospital." These centers and facilities will compliment the existing full service hospitals and not duplicate them. The proposed hospital will not provide such services and, at the same time, will foster duplication. If the proposed facility is unable to effectively implement its staff recruitment plan, costly salary competition and related recruitment factors will result among area hospitals, especially between Bethesda Memorial Hospital and the proposed new facility. By a vote of 13 to 7, the Board of Directors of the HPC recommended disapproval of petitioner's certificate of needrequest. The Board's decision was based on the reasons set forthin paragraphs 1, 2 and 3 quoted above. (Exhibit 2). By letter dated January 21, 1977, respondent'sadministrator, Mr. Art Forehand, notified petitioner that itscapital expenditure proposal was not favorably considered becauseit was not consistent with the standards, criteria or plans developed pursuant to the Public Health Service Act. (Exhibit 1). Specifically, it was noted that "The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities, which is the current HEW approved plan, indicates a need for 191 additional hospital beds to be constructed in Palm Beach County by 1981. Subsequent to publication of this plan, a 94-bed addition to Boca Raton Community hospital and a 135-bed addition to the Palm Beach Gardens Hospital were placed under construction, and the 162-bed Community Hospital of the Palm Beaches was placed in operation. Considering these 391-bed additions against the 191 beds to be added by 1981 results in a projected overbedding of Palm Beach County by 200 beds by 1981." At the hearing, petitioner attempted to illustrate that the 1976 Florida State Plan was erroneous, and that a correctapplication of the Hill- Burton formula and the State Plan wouldresult in a showing of greater bed needs for the area in question. Based upon interpretation by the undersigned of the applicable federal and state rules and regulations, objections to this line of testimony were sustained. Thereafter, the petitioner rested and neither the respondent nor the Intervenor presented any witnesses. The 1976 Florida State Plan for Construction of Hospitals and Related Medical Facilities indicates a need for 191 additional hospital beds in Palm Beach County by the year 1981 (Exhibit 3). The Regional Health Administrator of the Department of Health Education and Welfare notified respondent by letter dated November 3, 1976, that said Plan had been approved (Exhibit 3).
Recommendation Based upon the findings of fact and conclusions of lawrecited above, it is recommended that the determination of theOffice of Community Medical Facilities to deny petitioner's application for a certificate of need to construct a 300- bed hospital in Delray Beach be upheld and affirmed. Respectfully submitted and entered this 27th day of May, 1977, in Tallahassee, Florida. DIANE D. TREMOR, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Donald H. Reed, Jr., Esquire Deschler and Reed Boca Raton Federal Building 555 South Federal Highway Boca Raton, Florida 33432 Eric J. Haugdahl, Esquire Department of HRS 1323 Winewood Boulevard Tallahassee, Florida 32301 Fred W. Baggett, Esquire LaFace and Baggett, P.A. Post Office Box 1752 Tallahassee, Florida 32304 Mr. Art Forehand, Administrator Office of Community Medical Facilities 1323 Winewood Boulevard Tallahassee, Florida 32301
The Issue Whether the certificate of need application to convert 30 acute care beds to 30 adult psychiatric beds at Broward General Medical Center meets the statutory and rule criteria for approval.
Findings Of Fact The North Broward Hospital District (NBHD) is a special taxing district established by the Florida Legislature in 1951 to provide health care services to residents of the northern two-thirds of Broward County. NBHD owns and operates four acute care hospitals: Coral Springs Medical Center, North Broward Medical Center, Imperial Point Medical Center (Imperial Point), and Broward General Medical Center (Broward General). NBHD also owns and/or operates primary care clinics, school clinics, urgent care centers, and a home health agency. FMC Hospital, Ltd., d/b/a Florida Medical Center (FMC) is a 459-bed hospital with 74 inpatient psychiatric beds, 51 for adults separated into a 25-bed adult unit and a 26-bed geriatric psychiatric unit, and 23 child/adolescent psychiatric beds. FMC is a public Baker Act receiving facility for children and adolescents and operates a mental health crisis stabilization unit (CSU) for children and adolescents. FMC also operates separately located facilities which include a partial hospitalization program, an adult day treatment program, and a community mental health center. At Florida Medical Center South, FMC operates another day treatment program and partial hospitalization program. The Agency for Health Care Administration (AHCA) is the state agency which administers the certificate of need (CON) program for health care services and facilities in Florida. The NBHD applied for CON Number 8425 to convert 30 acute care beds to 30 adult psychiatric beds at Broward General. Broward General operates approximately 550 of its total 744 licensed beds. It is a state Level II adult and pediatric trauma center and the tertiary referral center for the NBHD, offering Level II and III neonatal intensive care, pediatric intensive care, cardiac catheterization and open heart surgery services. Broward General has 68 adult psychiatric beds and is a public Baker Act receiving facility for adults. Public Baker Act receiving facilities have state contracts and receive state funds to hold involuntarily committed mental patients, regardless of their ability to pay, for psychiatric evaluation and short-term treatment. See Subsections 394.455(25) and (26), Florida Statutes. Although they serve different age groups, both FMC and Broward General are, by virtue of contracts with the state, public Baker Act facilities. When a Baker Act patient who is an indigent child or adolescent arrives at Broward General, the patient is transferred to FMC. FMC also typically transfers indigent Baker Act adults to Broward General. At Broward General, psychiatric patients are screened in a separate section of the emergency room by a staff which has significant experience with indigent mental health patients. If hospitalization is appropriate, depending on the patient's physical and mental condition, inpatient psychiatric services are provided in either a 38-bed unit on the sixth floor or a 30- bed unit on the fourth floor of Broward General. In July 1995, Broward General also started operating a 20-bed mental health CSU located on Northwest 19th Street in Fort Lauderdale. Prior to 1995, the County operated the 19th Street CSU and 60 CSU beds on the grounds of the South Florida State Hospital (SFSH), a state mental hospital. Following an investigation of mental health services in the County, a grand jury recommended closing the 60 CSU beds at SFSH because of "deplorable conditions." In addition, the grand jury recommended that the County transfer CSU operations to the NBHD and the South Broward Hospital District (SBHD). As a result, the SBHD assumed the responsibility for up to 20 CSU inpatients a day within its existing 100 adult psychiatric beds at Memorial Regional Hospital. The NBHD assumed the responsibility for up to 40 CSU inpatients a day, including 20 at the 19th Street location. The additional 20 were to be redirected to either the 68 adult psychiatric beds at Broward General or the 47 adult psychiatric beds at Imperial Point. CSU services for adult Medicaid and indigent patients in the NBHD service area were transferred pursuant to contracts between the NBHD and Broward County, and the NBHD and the State of Florida, Department of Children and Family Services (formerly, the Department of Health and Rehabilitative Services). Based on the agreements, the County leases the 19th Street building in which Broward General operates the CSU. The County also pays a flat rate of $1.6 million a year in monthly installments for the salaries of the staff which was transferred from the County mental health division to the NBHD. The County's contract with the NBHD lasts for five years, from December 1995 to September 2000. Either party may terminate the contract, without cause, upon 30 days notice. The State contract, unlike that of Broward County, does not provide a flat rate, but sets a per diem reimbursement rate of approximately $260 per patient per day offset by projected Medicaid revenues. The State contract is renewable annually, but last expired on June 30, 1997. The contract was being re-negotiated at the time of the hearing in November 1997. Based on actual experience with declining average lengths of stay for psychiatric inpatients, the contract was being re-negotiated to fund an average of 30, not a maximum of 40 patients a day. If CON 8425 is approved, NBHD intends to use the additional 30 adult psychiatric beds at Broward General to meet the requirements of the State and County contracts, while closing the 19th Street CSU and consolidating mental health screening and stabilization services at Broward General. NBHD proposes to condition the CON on the provision of 70 percent charity and 30 percent Medicaid patient days in the 30 new beds. By comparison, the condition applicable to the existing 68 beds requires the provision of 3 percent charity and 25 percent Medicaid. When averaged for a total of 98 beds, the overall condition would be 23.5 percent charity and 26.5 percent Medicaid, or a total of 51 or 52 percent. The proposed project will require the renovation of 10,297 gross square feet on the fourth floor of Broward General at a cost of approximately $450,000. The space is currently an unused section of Broward General which contains 42 medical/surgical beds. Twelve beds will be relocated to other areas of the hospital. The renovated space will include seclusion, group therapy, and social rooms, as well as 15 semi- private rooms. Twelve of the rooms will not have separate bathing/showering facilities, and seven of those will also not have toilets within the patients' rooms. Need in Relation to State and District Health Plans - Subsection 408.035(1)(a), Florida Statutes The District 10 allocation factors include a requirement that a CON applicant demonstrate continuously high levels of utilization. The applicant is given the following evidentiary guidelines: patients are routinely waiting for admissions to inpatient units; the facility provides significant services to indigent and Medicaid individuals; the facility arranges transfer for patients to other appropriate facilities; and the facility provides other medical services, if needed. Broward General does not demonstrate continuously high utilization by having patients routinely waiting for admission. Broward General does meet the other criteria required by allocation factor one. The second District 10 allocation factor, like criterion (b) of the first, favors an applicant who commits to serving State funded and indigent patients. Broward General is a disproportionate share Medicaid provider with a history of providing, and commitment to continue providing, significant services to Medicaid and indigent patients. In fact, the NBHD provides over 50 percent of both indigent and Medicaid services in District 10. See also Subsection 408.035(1)(n), Florida Statutes. Allocation factor three for substance abuse facilities is inapplicable to Broward General which does not have substance abuse inpatient services. Allocation factor 4 for an applicant with a full continuum of acute medical services is met by Broward General. See also Rule 59C-1.040(3)(h), Florida Administrative Code. Broward General complies with allocation factor 5 by participating in data collection activities of the regional health planning council. The state health plan includes preferences for (1) converting excess acute care beds; (2) serving the most seriously mentally ill patients; (3) serving indigent and Baker Act patients; (4) proposing to establish a continuum of mental health care; (5) serving Medicaid-eligible patients; and (6) providing a disproportionate share of Medicaid and charity care. Broward General meets the six state health plan preferences. See also Rule 59C-1.040(4)(e)2., Florida Administrative Code, and Subsection 408.035(1)(n), Florida Statutes. Broward General does not meet the preference for acute care hospitals if fewer than .15 psychiatric beds per 1000 people in the District are located in acute care hospitals. The current ratio in the District is .19 beds per 1,000 people. Rule 59C-1.040(4)(3)3, Florida Administrative Code, also requires that 40 percent of the psychiatric beds needed in a district should be allocated to general hospitals. Currently, approximately 51 percent, 266 of 517 licensed District 10 adult inpatient psychiatric beds are located in general acute care hospitals. On balance, the NBHD and Broward General meet the factors and preferences of the health plans which support the approval of the CON application. See also Rule 59C- 1.040(4)(e)1. and Rule 59C-1.030, Florida Administrative Code. Numeric Need The parties stipulated that the published fixed need pool indicated no numeric need for additional adult inpatient psychiatric hospital beds. In fact, the numeric need calculation shows a need for 434 beds in District 10, which has 517 beds, or 83 more than the projected numeric need. In 1994- 1995, the District utilization rate was approximately 58 percent. The NBHD asserts that the need arises from "not normal" circumstances, specifically certain benefits from closing the 19th Street CSU, especially the provision of better consolidated care in hospital-based psychiatric beds, and the establishment of a County mental health court. The NBHD acknowledges that AHCA does not regulate CSU beds through the CON program and that CSU beds are not intended to be included in the calculation of numeric need for adult psychiatric beds. However, due to the substantial similarity of services provided, NBHD contends that CSU beds are de facto inpatient psychiatric beds which affect the need for CON- regulated psychiatric beds. Therefore, according to the NBHD, the elimination of beds at SFSH and at the 19th Street CSU require an increase in the supply of adult psychiatric beds. The NBHD also notes that approval of its CON application will increase the total number of adult psychiatric hospital beds in Broward County, but will not affect the total number of adult mental health beds when CSU and adult psychiatric beds are combined. After the CSU beds at SFSH closed, the total number of adult mental health beds in the County has, in fact, been reduced. NBHD projected a need to add 30 adult psychiatric beds at Broward General by combining the 1995 average daily census (ADC) of 48 patients with its assumption that it can add up to 10, increasing the ADC to 58 patients a day in the existing 68 beds. Based on its contractual obligation to care for up to 40 CSU inpatients a day, the NBHD projects a need for an additional 30 beds. The projection assumed that the level of utilization of adult inpatient psychiatric services at Broward General would remain relatively constant. With 40 occupied beds added to the 48 ADC, NBHD predicted an ADC of 88 in the new total of 98 beds, or 90 percent occupancy. The assumption that the ADC would remain fairly constant is generally supported by the actual experience with ADCs of 48.1, 51.5, and 45.8 patients, respectively, in 1995, 1996, and the first seven months of 1997. NBHD's second assumption, that an ADC of 40 CSU patients will be added is not supported by the actual experience. Based on the terms of the State and County contracts, up to 20 CSU patients have already been absorbed into the existing beds at the Imperial Point or Broward General, which is one explanation for the temporary increase in ADC in 1996, while up to 20 more may receive services at the 19th Street location. In 1996 and 1997, the ADC in the 19th Street CSU beds was 15.3 and 14.2, respectively, with monthly ranges in 1997 from a high of 17 in April to a low of 12 in June. The relatively constant annual ADCs in psychiatric and CSU beds are a reflection of increasing admissions but declining average lengths of stay for psychiatric services. The NBHD also projects that it will receive referrals from the Broward County Mental Health Court, established in June 1997. The Court is intended to divert mentally ill defendants with minor criminal charges from the criminal justice system to the mental health system. Actual experience for only three months of operations showed 7 or 8 admissions a month with widely varying average lengths of stay, from 6 to 95 days. The effect of court referrals on the ADC at Broward General was statistically insignificant into the fall of 1997. Newspaper reports of the number of inmates with serious mental illnesses do not provide a reliable basis for projecting the effect of the mental health court on psychiatric admissions to Broward General, since it is not equipped to handle violent felons. One of Broward General's experts also compared national hospital discharge data to that of Broward County. The results indicate a lower use rate in Broward County in 1995 and a higher one in 1996. That finding was consistent with the expert's finding of a growth in admissions and bed turnover rate which measures the demand for each bed. The expert also considered the prevalence of mental illness and hospitalization rates. The data reflecting expected increases in admissions, however, was not compared to available capacity in the County nor correlated with declining lengths of stay. The District X: Comprehensive Health Plan 1994 includes an estimate of the need for 10 CSU beds per 100,000 people, or a total of 133 CSU beds needed for the District. FMC argues that the calculation is incorrect because only the adult population should be included. Using only adults, FMC determined that 116 CSU beds are needed which, when added to 434 adult psychiatric beds needed in the February 1996 projection, gives a bed need for all mental health beds of 550. That total is less than the actual combined total number of 567 mental health beds, 517 adult psychiatric beds plus 50 CSU beds in 1995. Whatever population group is appropriate, the projection of the need for CSU beds is not reliable based on the evidence that, since the end of 1995, CSU services have been and, according to NBHD, should continue to be absorbed into hospital- based adult psychiatric units. For the same reason, the increase in adult psychiatric bed admissions from 1995 to 1996 does not establish a trend towards increasing psychiatric utilization, but is more likely attributable to the closing of CSU beds at SFSH. FMC's expert's comparison of data from three selected months in two successive years is also not sufficient to establish a downward trend in utilization at the 19th Street CSU, neither is the evidence of a decline in ADC by one patient in one year. Utilization is relatively static based on ADCs in existing Broward County adult psychiatric beds and in CSU beds. FMC established Broward General's potential to decrease average lengths of stay by developing alternative non-inpatient services as FMC has done and Broward General proposes to do. See Finding of Fact 37. Based on local health council reports, FMC's data reflects a rise in the ADC at Broward General to 52.7 in 1996, and a return to 46 in the first seven months of 1997. Using a 14.2 ADC for the 19th Street CSU, FMC projects that Broward General will reach an ADC of approximately 60 in the first year of operations if the CON is approved, not 88 as projected. Broward General acknowledged its capacity to add 10 more patients to the ADC without stress on the system. Having already absorbed 20 of up to 40 CSU patients at Imperial Point and Broward General in 1996 and 1997 resulting in an ADC of 48, and given the capacity to absorb 10 more, the NBHD has demonstrated a need to accommodate an ADC of 10 more adult psychiatric patients at Broward General, or a total ADC of 68 patients. The need to add capacity to accommodate an additional 10 patient ADC was not shown to equate to a need for 30 additional beds, which would result in an ADC of 68 patients in 98 beds, or 69 or 70 percent occupancy. Special Circumstances - Rule 59C-1.040(4)(d) The psychiatric bed rule provides for approval of additional beds in the absence of fixed numeric need. The "special circumstance" provision applies to a facility with an existing unit with 85 percent or greater occupancy. During the applicable period, the occupancy at Broward General was 74.15 percent. However, occupancy rates have exceeded 95 percent in the CSU beds on 19th Street. If up to 20 patients on 19th Street are added to the 48 ADC at Broward General, the result is that the existing 68 beds will be full. A full unit is operationally not efficient or desirable and allows no response to fluctuations in demand. Therefore, the state has established a desirable standard of 75 percent occupancy for psychiatric units, a range which supports the addition of 10 to 15 psychiatric beds at Broward General. Available Alternatives - Subsection 408.035(1)(b) and (d), Florida Statutes, and Rule 59C-1.040(4)(e)4., Florida Administrative Code The psychiatric bed rule provides that additional beds will "not normally" be added if the district occupancy rate is below 75 percent. For the twelve months preceding the application filing, the occupancy rate in 517 adult psychiatric beds in District 10 was approximately 58 percent. FMC's expert noted that each day an average of 200 adult psychiatric beds were available in District 10. Broward General argues that the occupancy rate is misleading. Five of the nine facilities with psychiatric beds are freestanding, private facilities, which are ineligible for Medicaid participation. Historically, the freestanding hospitals have also provided little charity care. One facility, University Pavilion, is full. Of the four acute care hospitals with adult psychiatric beds, Memorial Hospital in the SBHD, is not available to patients in the NBHD service area. Imperial Point, the only other NBHD facility with adult psychiatric beds, is not available based on its occupancy rate for the first seven months of 1997 of approximately 81 percent, which left an average of 9 available beds in a relatively small 47-bed unit. That leaves only Broward General and FMC to care for Medicaid and indigent adult psychiatric patients. FMC is the only possible alternative provider of services, but Broward General was recommended by the grand jury and was the only contract applicant. The occupancy rate in FMC's 51 adult beds was approximately 80 percent in 1995, 73 percent in 1996, and 77 percent for the first seven months in 1997. FMC has reduced average lengths of stay by having patients "step down" to partial hospitalization, day treatment and other outpatient services of varying intensities. The same decline in average lengths of stay is reasonably expected when Broward General implements these alternatives. Adult psychiatric services are also accessible in District 10 applying the psychiatric bed rule access standard. That is, ninety percent of the population of District 10 has access to the service within a maximum driving time of forty- five minutes. The CSU license cannot be transferred to Broward General. Broward County holds the license for CSU beds which, by rule, must be located on the first floor of a building. Although Broward General may not legally hold the CSU license and provide CSU services on the fourth floor of the hospital, there is no apparent legal impediment to providing CSU services in psychiatric beds. Quality of Care - Subsection 408.035(1)(c), Florida Statutes and Rule 1.040(7), Florida Administrative Code Broward General is accredited by the Joint Commission on Accreditation of Health Care Organizations. The parties stipulated that Broward General has a history of providing quality care. Broward General provides the services required by Rule 59C-1.040(3)(h), Florida Administrative Code. Services Not Accessible in Adjoining Areas; Research and Educational Facilities; Needs of HMOs; Services Provided to Individuals Beyond the District; Subsections 408.035(1)(f),(g),(j), and (k), Florida Statutes Broward General does not propose to provide services which are inaccessible in adjoining areas nor will it provide services to non-residents of the district. Broward General is not one of the six statutory teaching hospitals nor a health maintenance organization (HMO). Therefore, those criteria are of no value in determining whether this application should be approved. Economics and Improvements in Service from Joint Operation - Subsection 408.035(1)(e), Florida Statutes The consolidation of the psychiatric services at Broward General is reasonably expected to result in economies and improvements in the provision of coordinated services to the mentally ill indigent and Medicaid population. Broward General will eliminate the cost of meal deliveries and the transfer of medically ill patients, but that potential cost-saving was not quantified by Broward General. Staff and Other Resources - Subsection 408.035(1)(h), Florida Statutes The parties stipulated that NBHD has available the necessary resources, including health manpower, management personnel, and funds to implement the project. Financially Feasibility - Subsection 408.035(1)(h) and (i), Florida Statutes The parties stipulated that the proposed project is financially feasible in the immediate term. The estimated total project cost is $451,791, but NBHD has $500,000 in funds for capital improvements available from the County and $700,000 from the Florida Legislature. As stipulated by the parties, NBHD has sufficient cash on hand to fund the project. Regardless of the census, the County's contractual obligation to the NBHD remains fixed at $1.6 million. The State contract requires the prospective payment of costs offset by expected Medicaid dollars. If the number of Medicaid eligible patients decreases, then state funding increases proportionately. The state assumed that 20 percent of the patients would qualify for Medicaid, therefore it reimburses the per diem cost of care for 80 percent of the patients. One audit indicated that 30 percent of the patients qualified for Medicaid, so that State payments for that year were higher than needed. The State contract apparently makes no provision to recover excess payments. The application projects a net profit of $740,789 for the first year of operations, and a net profit of $664,489 for the second year. If the State contract with NBHD is renewed to contemplate an average of 30 patients per day as opposed to up to 40 patients per day, then annual revenue could be reduced up to $400,000. Projected net profit will, nevertheless, exceed expenses when variable expenses are reduced correspondingly. If 20 state funded patients are already in psychiatric beds, and 20 more could be transferred from 19th Street, the result is an ADC of 68. Based on the funding arrangements, there is no evidence that the operation of a total of 98 beds could not be profitable, even with an ADC of 68, although it would be wasteful to have 30 extra beds. Impact on Competition, Quality Assurance and Cost-Effectiveness - Subsection 408.035(1)(l), Florida Statutes With a maximum of 68 inpatients or more realistically, under the expected terms of a renegotiated State contract, 58 to 60 inpatients in 98 beds, Broward General will reasonably attempt to expand the demand for its inpatient psychiatric services. Within the NBHD's legal service area, one-third of adult psychiatric patients not admitted to Broward General are admitted to FMC. Assuming a proportionate impact on competitors, FMC's expert projected that one-third of approximately 30 unfilled beds at Broward General will be filled by patients who would otherwise have gone to FMC. The projection of a loss of 9 patients from the ADC of FMC is reasonably based on an analysis showing comparable patient severity in the most prevalent diagnostic category. Given the blended payor commitment of approximately 51 or 52 percent total for Medicaid and charity in 98 beds, Broward General will be able to take patients from every payor category accepted at FMC. The loss of 9 patients from its ADC can reduce revenues by $568,967 at FMC. The impact analysis is reasonably based on lost patient days since most payers use a per diem basis for compensating FMC. For example, although Medicare reimbursement is usually based on diagnosis regardless of length of stay, it is cost-based for the geriatric psychiatric unit. Net profit at FMC, for the year 1996-1997, was expected to be approximately $4.5 million. FMC will also experience increased costs in transporting indigent patients from FMC to Broward General for admission and treatment. Because of the additional distance, the cost to transfer indigent patients is $20 more per patient from FMC to Broward General than it is from FMC to the 19th Street CSU. FMC typically stabilizes indigent adult psychiatric inpatients, then transfers them to either the 19th Street CSU or Broward General. From March through September of 1997, FMC transported approximately 256 indigent patients from FMC to the 19th Street CSU. In terms of quality assurance, the consolidation of psychiatric services at Broward General will allow all patients better access to the full range of medical services available at Broward General. The NBHD's operation of the 19th Street CSU is profitable. Approval of the CON application should reasonably eliminate all costs associated with operation of the 19th Street facility, and shift more revenues from the State and County contracts to Broward General. Some savings are reasonably expected from not having meal deliveries to 19th Street or patient transfers for medical care. The NBHD did not quantify any expected savings. Costs and Methods of Construction - Subsection 408.035(1)(m), Florida Statutes Broward General will relocate 12 of 42 medical/surgical beds and convert 30 medical/surgical beds to 30 adult psychiatric beds on one wing of the fourth floor, which is currently unused. Fifteen semi-private medical/surgical patient rooms will be converted into semi-private adult psychiatric rooms. Existing wards will be converted to two social rooms, one noisy and one quiet. With the removal of the walls of some offices, the architect designed a group therapy room. An existing semi-private room will be used as a seclusion room. Of the fifteen semi-private rooms, twelve will not have bathing or showering facilities and seven will not have toilets within the patients' rooms. At the time the hospital was constructed, the state required only a lavatory/sink in each patient room. AHCA's architect agreed to allow Broward General to plan to use central bathing and toilet facilities to avoid additional costs and diminished patient room sizes. Because the plan intentionally avoids construction in the toilets, except to enlarge one to include a shower, there is no requirement to upgrade to Americans With Disabilities Act (ADA) standards. Therefore, the $23,280 construction cost contingency for code compliance is adequate. Although the projected construction costs are reasonable and the applicable architectural code requirements are met, the design is not the most desirable in terms of current standards. Patient privacy is compromised by the lack of toilets for each patient room. Past and Proposed Provision of Services to Promote a Continuum of Care in a Multi-level System - Subsection 408.035(1)(o), Florida Statutes Broward General is a tertiary acute care facility which provides a broad continuum of care. Because it already operates the CSU and provides CSU services in adult psychiatric beds, the proposal to relocate patients maintains but does not further promote that continuum of care. Broward General's plan to establish more alternatives to inpatient psychiatric care does promote and enhance its continuum of care. Capital Expenditures for New Inpatient Services - Subsection 408.035(2), Florida Statutes Broward General is not proposing to establish a new health service for inpatients, rather it is seeking to relocate an existing service without new construction. The criteria in this Subsection are inapplicable. Factual Conclusions Broward General did not establish a "not normal" circumstance based on the grand jury's findings and recommendations. The grand jury did not recommend closing 19th Street facility. Broward General did generally establish not normal circumstances based on the desirability of consolidating mental health services at Broward General to provide a single point of entry and to improve the quality of care for the 19th Street facility patients. Broward General failed to establish the need to add 30 beds to accomplish the objective of closing the 19th Street facility. Although the existing beds at Broward General may reasonably be expected to be full as a result of the transfer of 19th Street patients, the addition of 30 beds without sufficient demand results in an occupancy rate of 69 or 70 percent, from an ADC of 68 patients in 98 beds. Broward General has requested approximately twice as many beds as it demonstrated it needs. Broward General's CON application on balance satisfies the local and state health plan preferences. In general, FMC is the only alternative facility in terms of available beds, but is not the tax-supported public facility which the grand jury favored to coordinate mental health services. Broward General meets the statutory criteria for quality of care, improvements from joint operations, financial feasibility, quality assurance, cost-effectiveness, and services to Medicaid and indigent patients. The proposal is not the most desirable architecturally considering current standards. More importantly, Broward General did not demonstrate that it can achieve its projected occupancy without an adverse impact on FMC. The NBHD proposal will add too many beds to meet the targeted state occupancy levels in relatively a static market. Broward General's application does not include a partial request for fewer additional beds which would have allowed the closing of 19th Street, while maintaining some empty beds for demand fluctuations and avoiding an adverse impact on FMC.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration deny the application of the North Broward Hospital District for Certificate of Need Number 8425 to convert 30 medical/surgical beds to 30 adult psychiatric beds at Broward General Medical Center. DONE AND ENTERED this 21st day of April, 1998, in Tallahassee, Leon County, Florida. ELEANOR M. HUNTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 21st day of April, 1998. COPIES FURNISHED: Sam Power, Agency Clerk Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul J. Martin, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Paul Vazquez, Esquire Agency For Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Stephen A. Ecenia, Esquire R. David Prescott, Esquire Rutledge, Ecenia, Underwood, Purnell & Hoffman, P.A. Post Office Box 551 Tallahassee, Florida 32302-0551 David C. Ashburn, Esquire Gunster, Yoakley, Valdes-Fauli & Stewart, P.A. 215 South Monroe Street, Suite 830 Tallahassee, Florida 32301
