The Issue The issues in this case are (1) whether the methodology for grouping hospitals adopted by the HCCB pursuant to Sections 4D-1.03, 4D-1.12(1) and 4D-1.12(2), F.A.C., constitutes an invalid exercise of delegated legislative authority as being arbitrary or capricious and whether the gross revenue per adjusted admission screen should be adjusted by the geographic price level index adjustment factor? Mercy has also raised an issue as to whether the grouping methodology is violative of constitutional guarantees of administrative equal protection and due process. This issue, however, is beyond the jurisdiction of the Division of Administrative Hearings.
Findings Of Fact As a part of its responsibilities, the HCCB is required to specify a uniform system of financial reporting for Florida hospitals. Section 395.507(1), Florida Statutes (1984 Suppl.). So that meaningful comparisons of data reported can be made, the HCCB is required by Section 395.507(2), Florida Statutes (1984 Suppl.), to provide a method of grouping hospitals. Pursuant to Section 395.509(1), Florida Statutes (1984 Suppl.), every Florida hospital is required to file a budget with the HCCB for approval. Section 395.509(2), Florida Statutes (1984 Suppl.), requires that the budgets of certain hospitals be automatically approved based upon a comparison of the gross revenue per adjusted admission of hospitals within groups established pursuant to Section 395.509(4)(a), Florida Statutes (1984 Suppl.). The language of Section 395.509(4)(a), Florida Statutes (1984 Suppl.), which requires the HCCB to establish a method of grouping hospitals, is identical to the language of Section 395.507(2), Florida Statutes (1984 Suppl.). The grouping methodology required by Sections 395.507(2) and 395.509(4)(a), Florida Statutes (1984 Suppl.), is included in Chapter V, Section B of the Hospital Uniform Reporting System Manual (hereinafter referred to as the "Manual"). This methodology has been incorporated by reference in Sections 4D-1.03 and 4D- 1.12(1) and (2), F.A.C., as the method of grouping hospitals for purposes of the uniform system of financial reporting under Section 395.507, Florida Statutes (1984 Suppl.), and the comparison of gross revenue per adjusted admission for purposes of budget review under Section 395.509, Florida Statutes (1984 Suppl.). After hospitals are grouped, Chapter V, Section C of the Manual provides that the screens used to identify hospitals subject to further review are to be adjusted by adjustment factors. Two adjustment factors are provided; one is a geographic price level index adjustment factor. Mercy is a not-for-profit corporation which operates a general acute care hospital with 550 licensed beds located in Dade County, Florida. Based upon the application of the HCCB's grouping methodology as contained in Chapter V, Section B of the Manual, Mercy was assigned to group 9. Mercy was notified of its assignment by a memorandum dated October 10, 1984. Mercy challenged its group assignment by letter dated November 13, 1984. In its letter, Mercy challenged the grouping methodology used by the HCCB and requested a "more relevant and objective method of establishing the weights utilized in the grouping methodology . . . be developed." Further, Mercy requested that "new weights be applied and that the groups be reformulated," and that "the screening value, Gross Revenue per Adjusted Admission, be adjusted for geographic influences prior to ranking, as has been done in previous budget reviews." Mercy presented its reassignment request before the HCCB on December 13-14, 1984. The HCCB orally rejected Mercy's request. By memorandum dated December 19, 1984, the HCCB denied in writing mercy's request for reassignment. Whether Mercy should be reassigned to a reformulated group depends upon whether Mercy's challenge to Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C. is successful. If that challenge is not successful, the grouping methodology was properly applied to Mercy. The Final Order issued simultaneously with this Recommended Order holds that the grouping methodology is not arbitrary and capricious and therefore, the HCCB's adoption of Sections 4D-1.03 and 4D-1.12(1) and (2), F.A.C., does not constitute an invalid exercise of delegated legislature authority. Mercy's assignment to group 9 was therefore proper. Based upon the evidence presented at the hearing, it does not appear that the point at which the geographic price level index adjustment factor is to be applied to Mercy has been reached. Despite the fact that the evidence shows that the HCCB has decided not to apply this adjustment factor, even though it is specifically provided for in the HCCB's own Manual, the HCCB has not yet failed to do so in Mercy's case. Therefore, the question of whether the geographic price level index adjustment factor should be applied to Mercy's 1985 budget is premature.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the request for reassignment to a reformulated hospital group and the request to adjust the gross revenue per adjusted admission screen for the geographic price level index adjustment factor be denied. DONE and ENTERED this, 28th day of June, 1985, in Tallahassee, Florida. LARRY J. SARTIN Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of June, 1985. COPIES FURNISHED: John H. Parker, Jr., Esquire PARKER, HUDSON, PAINER DOBBS & KELLY 1200 Carnegie Bldg. 133 Carnegie Way Atlanta, Georgia 30303 James J. Bracher Executive Director Hospital Cost Containment Board Woodcrest Office Park 325 John Knox Road, Building L, Suite 101 Tallahassee, Florida 32303 Douglas A. Mang, Esquire Charles T. Collette, Esquire MANG & STOWELL, P.A. P.O. Box 1019 Tallahassee, Florida 32302 Robert A. Weiss, Esquire PARKER, HUDSON, RAINER, DOBBS & KELLY The Perkins House, Suite 101 118 N. Gadsden Street Tallahassee. Florida 32301
Findings Of Fact Surgicare III is a Florida general partnership comprised of Surgicare Corporation, a wholly owned subsidiary of Medical International, Inc. (MCI) and Surgicare III of Jacksonville, Inc., a Florida corporation. MCI is the nation's largest provider of ambulatory surgical centers operating 34 such centers throughout the United States. MCI will manage the proposed facility under a management contract. The proposed facility will be financed 25 percent equity and 75 percent debt. Petitioner is financially capable of constructing and operating the proposed facility. While Surgicare had not finalized its site selection at the time of the hearing, it proposes to construct the facility in or near Brandon, with the primary service area to comprise Hillsborough County east of U.S. 301. Exhibit 15 is a unilateral prehearing stipulation by Surgicare to construct the facility in the above-described service area if the requested certificate is granted. There are many advantages of outpatient surgery in a freestanding facility over inpatient surgery and over outpatient surgery in an inpatient environment such as an acute-care hospital, of which cost is significant. Without belaboring the issue, it is accepted as a fact that many surgical procedures requiring general anesthesia and taking from a few minutes up to six hours can be performed in an outpatient setting where the patient goes home following the surgery and does not remain in the hospital overnight. Most, if not all, of these outpatient surgeries are elective and freestanding outpatient surgical centers are less costly to the patient, more convenient to the patient and to the surgeon, and provide a better environment for the patient than do most hospital outpatient facilities. Furthermore, the advent of freestanding outpatient surgical facilities has provided competition to hospitals which has resulted in lowering of hospital charges for outpatient surgery. Hillsborough County comprises one service area which includes 13 hospitals and one existing ambulatory surgery center, and a certificate of need has been issued to Surgical Services of Tampa to provide additional outpatient surgical facilities. DHRS has no rule methodology to determine need for additional ambulatory surgical facilities; however, a methodology has been established as a policy under which need for ambulatory surgery centers is determined. This policy has been in effect for an extended period of time; and, with two exceptions, is accepted by Petitioner as the proper method from a health planner's view to determine the need for additional outpatient surgical facilities. These exceptions are the percentage of surgeries expected to be performed in an outpatient setting during the second year of operation of the proposed facility and calculations of need based on a subdivided county. This methodology takes the latest available information for hospitals in the service area as to the number of surgeries, both inpatient and outpatient, performed in each hospital during this latest available period which, in this case, was calendar year 1984. The number of surgeries performed in Hillsborough County divided by the population of Hillsborough County will result in a surgical rate. Since the year in which Petitioner is expected to pass through the break-even point and show a profit is 1989, the population is projected to 1989 and multiplied by the surgical rate to determine the number of surgeries projected for 1989. Those 13 hospitals in 1984 performed 52,482 inpatient surgical procedures and 20,152 outpatient surgical procedures (a total of 72,834) when the Hillsborough County population was 715,435. Using these figures, the surgical rate of Hillsborough County in 1984 is 72,634/715,315 x 1,000 = 101.5 procedures per 1,000 population; the outpatient surgical rate is 24.5 per 1,000; and the Ambulatory Surgery Center is 3.7 per 1,000 (Exhibit 12). With a 1989 population projection of 757,309 in Hillsborough County, the outpatient surgeries performed in hospitals in 1989 will be 24.5 x 787,309/1,000 = 19,289 and Tampa Ambulatory Surgery Center surgeries will be 2,913 (3.7 x 787,309/1,000) or a total of 22,202 outpatient surgeries performed at existing facilities plus an additional 2,222 outpatient procedures to be performed at Surgical Services of Tampa, which will be fully operational at that time. The disputed percentage is the expected percentage of total surgeries which will be performed on an outpatient basis in 1989. Petitioner contends this figure should be 34, while Respondent contends 30 to be the correct percentage. Both parties attempt to extrapolate outpatient surgery percentage provided by the American Hospital Association. In certificate of need hearings involving freestanding ambulatory centers in 1984, DHRS used a figure of 29 percent, which was the mean of 18 percent and 40 percent, the former being the number of outpatient surgical procedures performed in 1981 and the high figure the AMA's estimate of the ultimate percentage of surgical procedures that could be performed in an outpatient setting. Since 1981 the percentage of surgeries performed in an outpatient setting has increased. In 1984 the percentage of total surgeries in Hillsborough County that were performed in an outpatient setting was 27.74 percent. Freestanding outpatient surgical facilities are a recent innovation in the health care provider field. Due to the lower costs associated with outpatient surgical procedures over inpatient surgical procedures, the advent of freestanding outpatient surgical centers has brought much needed competition to the health care provider field and has induced hospitals to provide for outpatient surgery and lower their charges for the use of these facilities. As a result the percentage of surgeries performed in an outpatient setting has grown rapidly in recent years, perhaps at an exponential rate. However, this growth is not unlimited and, as the percentage curves of outpatient surgeries versus total surgeries approaches this limit, the curve flattens. Today nearly all ophthalmic procedures are performed in an outpatient setting; there will be little further percentage growth in that field. Petitioner's contention that outpatient surgeries will increase percentage-wise at the same rapid pace they have increased during the past few years and be at 34 percent in Hillsborough County in 1989 is less credible than is the figure of 30 percent used by Respondent. A proliferation of freestanding outpatient surgical facilities will have the effect of increasing the costs to those patients whose surgery, now done in a doctor's or dentist's office, is shifted to a freestanding outpatient facility. As noted by one of Petitioner's witnesses in these proceedings, his malpractice insurance could be reduced if he performed in an outpatient surgical facility those operations he is currently performing in his office. Obviously, the patient so affected would be charged for the services of an anesthesiologist and other outpatient surgical facility services for which he is not charged when the office surgery is performed. Petitioner further supports the need for this facility by proposing to serve the eastern half of Hillsborough County, which will comprise its service area. Of the 13 hospitals in Hillsborough County, only three are located east of U.S. 301 and none of these has dedicated outpatient operating rooms. There are no official census figures or projections therefrom showing the population of the eastern portion of Hillsborough County in 1984 and DHRS does not so divide Hillsborough County for health care planning purposes. The county is one service area and Petitioner's attempt to subdivide the eastern portion into a sub-area is inconsistent with statewide procedures. Multiplying the surgical rate in Hillsborough County of 101.5 per 1,000 population by the 1989 projected population of 787,309 equals 79,912 surgeries to be performed in 1989. If 30 percent of these are performed in an outpatient setting, the outpatient surgeries will be 23,974. The Hillsborough County hospital outpatient surgeries projected to 1989 are 19,289 and those outpatient surgeries to be performed at Tampa Ambulatory Surgery Center are 2,913. Adding these latter figures results in 22,202 outpatient surgical procedures to be performed in existing facilities. Altogether 2,222 outpatient surgical procedures are projected to be performed at Surgical Services of Tampa. Thus, by 1989 existing and approved facilities will perform 24,424 outpatient procedures and the projected need is 23,974. This results in an excess capacity or negative need of 450 outpatient surgical procedures in Hillsborough County for 1989.
The Issue The central issue in this proceeding is whether Petitioners' applications for Certificates of Need for comprehensive medical rehabilitation beds in HRS District VI should be approved. Facts stipulated by the parties are reflected in the findings of fact. Ancillary issues include whether Manatee Springs Nursing Center, Inc.'s letter of intent complied with the requirements of Section 381.709(2), F.S.; and whether Manatee Springs Nursing Center, Inc.'s and University Community Hospital's applications are incomplete for failure to include a "complete listing of all capital projects", as required by Section 381.707(2), F.S.
Findings Of Fact Stipulated Facts In their prehearing stipulation filed on 1/17/92, the parties admitted the following: The calculation of the mathematical formula contained in Rule 10-5.039(2)(a), F.A.C., re- sults in no numeric need for rehabilitation beds in District VI in the applicable planning horizon; Tampa General is an existing provider of rehabilitation services in District VI; Manatee is a superior rated licensed 120 bed nursing home facility located in Bradenton, Florida; There is no dispute regarding the existing quality of care at either Manatee or Tampa General; Manatee is not a teaching hospital; The primary purpose of Manatee's proposal is neither research nor physician education; Manatee is not proposing a joint venture; and Manatee's proposal is not related to a health maintenance organization or the needs and circumstances of a health maintenance organization. During the hearing the parties stipulated that Manatee, through its parent, the Mediplex Group, Inc. (Mediplex), has the ability to finance the project costs, and the estimated project costs reflected in its application, Table 25, sub-paragraphs (a) and (f)3., are reasonable. The Parties The applicant, UCH, is an existing acute care hospital in Hillsborough County, Florida, in HRS District VI. Its primary service area is North Hillsborough County and East Pasco County. Previously during the 1980's, UCH operated an 18-bed rehabilitation unit on its sixth floor, south wing. After renovation, the unit satisfied Commission on Accreditation of Rehabilitation Facilities (CARF) standards, and was certified by the Joint Commission on Accreditation of Health Organizations (JCAHO). The unit was abandoned after an HRS Final Order held that the unit could not be "grandfathered" as a CMR unit and that there was no need for additional beds in District VI (University Community Hospital v. Department of Health and Rehabilitative Services, 11 FALR 1150 (HRS final order entered 2/13/89). Manatee is a wholly-owned subsidiary of Mediplex, a for-profit corporation. Located in Bradenton, Manatee County, Manatee holds the License for a superior rated 120-bed skilled nursing home facility (SNF). Although licensed as a SNF, Manatee has specialized in providing rehabilitation and medical services to traumatically brain injured (TBI) and neurologically impaired patients since its opening in 1985. Manatee has never had more than 70 of its 120 licensed beds in operation and, at the time of hearing, was operating only 65 beds, because of the spatial requirements of its very intensive and extensive rehabilitation program. Manatee is currently accredited by JCAHO and by CARF. Tampa General is a 971-bed hospital located in Hillsborough County, HRS District VI. It is owned and operated by the Hillsborough County Hospital Authority, a public agency. Tampa General provides the normal range of services found in acute care hospitals, but also provides such tertiary level services as organ transplantation and CMR. It is the teaching hospital of the University of South Florida. HRS is designated by statute as the single state agency to administer the CON program. The Applications The Proposals UCH proposes to convert 20 medical/surgical beds to 20 CMR beds at a proposed cost of approximately $617,674.00, a sum which is the converted book value of its space on the 6th floor of the facility plus legal and consulting fees. The space intended for the program now includes 30 medical/surgical beds and it is unclear what will happen to the excess 10 beds. The UCH proposal is directed to stroke and orthopedic patients in its existing limited service area. Manatee's CON application is for 70 CMR beds. It proposes to delicense its 120 SNF beds. Its project cost is estimated at $859,235.00, including facility modifications and related fees. Manatee's application agrees to have its approval conditioned on limiting the CMR services to TBI and neurologically disabled patients. Capital Projects UCH prepared a capital equipment budget for 1990-91, which was finally approved by the Executive Committee of the Board of Trustees at UCH prior to August 1990. The UCH capital budget itemized planned capital equipment expenditures for the fiscal year beginning October 1, 1990 and ending September 30, 1991, so that the capital budget items were pending capital projects at the time that UCH filed its application in September 1990. Once the Executive Committee approved the 1990-91 capital budget, the hospital was authorized to purchase any capital budget item costing $25,000 or less without any additional review or approval by the Executive Committee. While the Executive Committee required an additional review of individual budget items costing more than $25,000 prior to actually being purchased, these purchases were nonetheless planned, and thus pending, at the time that UCH filed its application by virtue of being included in final UCH budget, the hospital's planning document. The fact that a budget item might ultimately be abandoned after additional review merely emphasizes that the expenditure is planned, rather than actual, and is characteristic of any pending project. UCH's capital equipment budget for fiscal year 1990-91 totalled $6.2 million, with budget items costing $25,000 or less totaling $1,936,350. UCH did not disclose in its application the capital budget items reflected in its 1990-91 capital equipment budget. UCH also failed to disclose in its application its proposed expansion of the hospital's child care center. This project was finally approved by UCH on April 25, 1990, with an estimated cost of $330,000, and was still pending when the application was filed. UCH erroneously distinguished "projects" from its capital "budget", and included in an omissions response to HRS only the $40,994,689 it determined were "projects". In 1988 Manatee began planning for additional therapy and administrative space. The approximately $2 million expansion plan was approved by HRS prior to filing the application at issue here. In neither its original application nor its response to an omissions letter did Manatee include the $2 million expansion project, even though other parent corporation expenditures were included, for example, the cost of the conversion project at issue here. The Letter of Intent Manatee filed three Letters of Intent: one letter requested a conversion of 60 nursing home beds to 60 CMR beds, and the delicensure of 30 nursing home beds with a proposed bed complement of 60 CMR beds and 30 nursing home beds; another requested a conversion of 90 nursing home beds to 60 CMR beds, with a proposed bed complement of 60 CMR beds and 30 nursing home beds; and one requested the conversion of 120 nursing home beds to 90 CMR beds. These letters were dated August 23, 1990, and were authorized by three separate resolutions enacted on August 24, 1990. The resolutions were attested to on August 24, 1990 by Jeffrey Bernfeld as Secretary of Manatee Springs Nursing Center, Inc. On August 22, 1990, Mr. Bernfeld had resigned all his positions with Mediplex Group, Inc., and its subsidiaries, including Manatee Springs Nursing Center, Inc. This resignation did not have an effective date; however, the entire Board of Directors of Manatee Springs Nursing Center, Inc. was removed on August 24, 1990 when Avon, the owner of Mediplex, closed its sale of Mediplex, including Manatee. A new Board of Directors consisting of Steven W. Garfinkle, Jaye Winkler and David Hines was appointed. Mr. Robert Eustis was appointed the Secretary of Manatee Springs Nursing Center, Inc. on August 24, 1990. One Board of directors resigned on August 24, 1990 and a new Board of Directors was appointed. The new Board of Directors enacted the resolutions authorizing the CON application; however, those resolutions were attested to by the Secretary for the resigned Board. The Board that was appointed on August 24, 1990 did not know which project Manatee Springs was going to pursue when it enacted the resolutions. The third Board of Directors that came in after August 24, 1990 decided which of the three alternatives would be submitted. The third Board enacted a resolution on September 21, 1990 which authorized the filing of the CON application which is the subject of this proceeding. Statutory Review Criteria the Health Plans (Section 381.705(1)(a), F.S.) The 1989 Florida State Health Plan is the state plan applicable to this proceeding. This plan contains five preferences applicable to CMR programs. The first State Health Plan relates to applicants proposing the conversion of excess acute care hospital beds to establish a distinct rehabilitation unit within a hospital. Only the UCH application is consistent with this preference. The second preference favors applicants proposing specialty inpatient or outpatient rehabilitation services not currently offered in the district. Neither the Manatee nor the UCH application is consistent with this preference. Manatee will offer the same services it now provides. UCH will focus on the elderly, a population already served in the district. The third preference indicates a preference for teaching hospitals. Neither UCH nor Manatee is a teaching hospital. The fourth preference states a preference for Medicaid and charity care disproportionate share providers. Neither application meets this preference. The fifth State Health Plan preference confers preference on an applicant with an existing comprehensive outpatient rehabilitation facility which proposes to provide outpatient follow-up rehabilitation services. Although both applicants provide some outpatient services, neither proved that it provides comprehensive outpatient rehabilitation, and therefore did not show compliance with this preference. The 1990 District Health Plan of the Health Council of West Central Florida, Inc., CON Allocation Factors Report (local plan) is the District Health Plan applicable to this proceeding, and also includes preferences. The local plan does not propose health service areas for CMR below the district level because of the highly specialized and nonemergency nature of the service. UCH's application violates this principle. The first preference, as in the state plan, favors disproportionate share providers, and neither applicant is entitled to this preference. Applicants who propose to convert existing medical/surgical beds is entitled to the second preference. UCH meets this; Manatee cannot, as it is not a hospital. Neither applicant has documented that existing providers who concentrate in the treatment of rehabilitation patients are not currently meeting the needs of the community, in order to be entitled to the third preference. The fourth preference targets applicants who are existing providers if the net bed need is 20 beds or less. There is no net bed need; since neither applicant currently provides CMR services under a CMR certificate of need, and neither is an "existing provider". Like and Existing Services in the Service District (section 381.705(1)(b)), F.S. and Availability of Alternatives (section 381.705(1)(d), F.S. CMR is a tertiary health service which should be offered on a regional, not community, basis. There is no credible evidence that individuals who seek CMR services are unable to access care in District VI. There are empty CMR beds at existing District CMR facilities. In calendar year 1989, Tampa General experienced 83.58 percent occupancy, and L. W. Blake Memorial Hospital experienced 70.80 percent occupancy. Even Manatee admits that it is becoming more difficult to maintain its census because of the proliferation of rehabilitation providers throughout the state. There are twelve other CARF accredited brain injury inpatient facilities in the State of Florida, two of which are in District VI, at Tampa General and Blake Memorial Hospital. All acute care hospitals provide some level of rehabilitation care. Most communities of any size have an outpatient rehabilitation center, and CMR can be found in freestanding units and in designated units of acute care hospitals, as well as in skilled nursing settings. The rehabilitation services currently offered at Manatee are different from such services provided in a hospital, but are not atypical of post acute SNF levels of care. Intensive or comprehensive rehabilitation in a hospital setting is generally brief. When patient progress is no longer served by intense and comprehensive rehabilitation in a hospital, patients are frequently referred to a provider of less intense and normally longer services. This is frequently the level found in a SNF, which facility would have fewer doctors and nurses than a CMR facility. Subacute medical rehabilitation tends to be of two types: short stay, serving patients in need of less intense level of care than CMR -- typically, patients with minimal disability following orthopedic surgery; and long stay for those patients no longer in need of a hospital level of care but requiring various levels of therapeutic intervention. Head injuries generally fall in the latter category. Payment sources are generally commercial because there is minimal funding for Medicare and Medicaid patients in these programs. Manatee provides subacute medical rehabilitation. Manatee serves patients on all levels of the Rancho Los Amigos Scale, which describes specific levels of functioning by patients recovering from head injury. Hospital based head injury programs usually admit patients at the Rancho Level III when the patient is out of coma enough to respond to the environment, and they discharge patients when they are at the Level VI designation, when there is no additional medical reason for continued stay. At level VI, the patient is usually ready for a less intense, more supervisory level of institutional care with therapeutic intervention aimed at daily living and vocational skills. Manatee is now serving patients who would not be served in a hospital CMR unit. Manatee is currently serving patients effectively and at a lower cost than a hospital. The audited financial statements filed by Manatee in its certificate of need application demonstrate a profitable operation with a very healthy operating margin and strong cash flow to assets. The care it is providing, which Manatee does not propose to change, is appropriate for its nursing home license. Manatee is staffed and equipped to provide long-term care to the patients they serve. The average length of stay experienced by Manatee is consistent with, and appropriate for a nursing home, but not for a tertiary hospital such as a CMR facility. If its CON application for CMR is denied, Manatee will continue to offer the services it presently offers. The best alternative to Manatee's proposal is its own 65 bed program operated at its existing SNF, which currently provides, at nursing home prices, the same superior care it proposes to provide. Manatee is providing a needed service which would no longer be available should the application be granted. While there may be a need to delicense the beds not in use, there is no need shown to delicense the 65 nursing home beds presently operating. Applicant's Record and Ability to Provide Quality Care (Section 381.705.(1)(c), F.S.) Both applicants have a record of good quality care and this factor is not in serious contention. Probable economies and improvements derived from operation of joint cooperative or shared health care resources (Section 381.705(1)(e), F.S.) Manatee is not proposing a joint venture. Neither project offers economies and improvements in service derived from the operation of joint ventures, cooperative or shared health care resources. Need in District VI for special services not reasonably and economically accessible in adjoining areas (Section 381.705(1)(f), F.S.) Manatee argues that approval of its application will facilitate the provision of services to children, but it already provides some pediatric services, and other programs are available. The Rehabilitation Institute of Sarasota, which is located about 25-35 minutes away from Manatee, has a specialty rehabilitation pediatric program. The need for research and educational facilities (Section 381.705(1)(g), F.S.) Neither Manatee nor UCH are teaching hospitals. Neither proposal has as its primary purpose research or physician education, although Manatee proposes a condition requiring it to plan, organize and promote an annual symposium on rehabilitation services for the neurologically impaired patient. Availability of Resources for Project Accomplishment and Operation; Effect and Extent of Accessibility of the Project on Clinical Needs of Health Professional Training Programs; and the Extent to which the Proposed Services will be Available to all Residents of the Service District (Section 381.705(1)(h), F.S.) Neither projects' need is predicated upon meeting the clinical needs of health professional training programs in the service area. Financial feasibility, availability of staffing resources and accessibility to district residents are discussed below. Financial Feasibility (Section 381.705(1)(i), F.S.) The financial feasibility of any health care facility is predicated upon utilization of the facility. In its application, Manatee projected an average length of stay (ALOS) of 160 days, based upon its historical ALOS of 180 days. Its pro forma is predicated upon the ALOS Manatee has historically experienced for brain injury patients, 160 days. However, Manatee's ALOS has decreased dramatically, and even its own planner does not believe it is reasonable to project a 160 day ALOS now. The pro forma is predicated on unreasonable utilization, ALOS and staffing projections and therefore does not evidence the feasibility of the project. The sole Manatee witness supporting financial feasibility had nothing to do with the pro forma analysis in the application, and specifically tied his opinion as to project feasibility to Manatee's continuing its historical ALOS, to retaining its present patients, and to getting more referrals from the same referral sources. These assumptions are unreliable. UCH demonstrated that it has $617,674 available to pay the costs of establishing its proposed CMR program, which sum is its estimate of the costs involved. The projected costs, however, are predicated on an unproven assumption that the space intended to house the CMR unit has already been renovated for rehabilitation services and that no additional dollars are required to be spent. Because UCH did not demonstrate that the space, as currently designed, is adequate to accommodate a 20-bed CMR unit, UCH has not shown that its projected costs are reasonable. UCH may have to redesign its CMR unit to comply with CARF standards, thereby incurring additional, unanticipated costs. UCH's projected costs are also unreasonable because UCH failed to account for the costs it will incur to relocate the 10 medical/surgical beds from the space intended to house the new unit. Having failed to demonstrate that its projected costs are reasonable, UCH has not proven that it will have the funds available to accomplish the proposed project. Impact on the cost of providing CMR services, considering the effects of competition and improvements or innovations in financing and delivery which foster competition and promote quality assurance and cost- effectiveness. (Section 381.705(1)(1), F.S.) Neither of the proposed projects will enhance competition beneficial to patients. The additional capital necessary to convert Manatee from a nursing home to a comprehensive medical rehabilitation hospital will have an impact on its cost of providing CMR services. Medicare reimbursement for the same service is greater in a hospital setting than in a nursing home setting. A hospital's cost structure is higher than that of a nursing home. Manatee's present Medicaid cap is around $94 per day. This cap would be much higher if Manatee were a licensed CMR hospital. Manatee is presently operating a very profitable facility. By its own admission, Manatee is presently a cost effective provider primarily because of the fact that it is licensed as a nursing home and not as a CMR hospital. Manatee could be an even more cost effective provider. Cost effectiveness is a goal of the CON legislation. According to Health Care Cost Containment Board (HCCCB) data, 31 percent of Manatee's total expenses go to administration and owner's compensation, compared to the district average of approximately 12 percent which is consistent with statewide experience of 8 to 12 percent administrative and owners' compensation expenses. These elevated administrative costs are not primarily attributable to the unique program at Manatee. There is no justification for changing Manatee's licensure status and reversing a practice which is endorsed by the health care system: placing patients requiring highly skilled care in the least expensive setting in which they can receive appropriate care. Tampa General is a tertiary hospital, having many speciality programs, including organ transplantation, speciality burn units, neonatal intensive care units, CMR and sophisticated heart laboratories and programs. Tampa General provides not only tertiary services, but also a full spectrum of normal hospital services. Those services are provided to a disproportionate number of indigent patients and thus a significant financial aspect of Tampa General is a payor mix with more indigent patients and fewer insured and paying patients. Tampa General does more indigent care than any other hospital in the district. Tampa General generates revenue from its tertiary services to cross-subsidize the costs of services provided to those who do not and cannot pay. The Tampa General Rehabilitation Center contributes income to the rest of the hospital and helps Tampa General carry the financial consequences of its services to indigent patients. Tampa General presented credible evidence that a CMR program at UCH would take 107 patients from Tampa General in its first year of operation alone, assuming UCH attains its projected occupancy, resulting in a loss to Tampa General of nearly $1.8 million. Once Manatee converts to a CMR hospital, it is reasonable to expect that Tampa General will lose at least 50 patients to Manatee in the first year, especially if Manatee must somehow double its projected admissions to overcome its declining ALOS and shrinking service area. The result would be a loss of more than $800,000 to Tampa General. Manatee maintains that the impact on existing providers of approving its application will be minimal because it will be serving the same patients in a hospital that it is serving now. However, if Manatee were to become a hospital it would be restricted in its ability to receive from hospital CMR programs referrals of patients in need of low intensity programs. Manatee will have to compete directly with Tampa General for patients that have not yet been admitted to a hospital program in order to compensate for the loss of this patient base. The testimony by Manatee's consultant that there would be no impact on Tampa General because Manatee would only treat brain injury patients is contrary to the weight of the evidence. About 50 percent of Manatee's patient population is brain injured. Tampa General has a brain injury program which currently refers patients to Manatee, as a SNF. These referrals will no longer be possible if Manatee is a hospital, with the result being that Manatee will direct its vigorous marketing efforts to getting such patients prior to admission to Tampa General's brain injury program. CMR specialized staff are in short supply. The proposed CMR programs, if granted, would increase demand and drive up costs for such personnel while making it more difficult for existing providers like Tampa General to efficiently use and retain specialized staff. Costs and Methods of Proposed Construction, and the availability of alternative, less costly, or more effective methods of construction (Section 381.705(1)(m), F.S.) The proposed costs and methods of construction contained in Manatee's application are reasonable; however, Manatee is currently undertaking a $2 million expansion which was approved by HRS prior to the filing of the instant CON application, but was not included in the application for evaluation. Neither were the original facility construction costs, plus improvements minus depreciation, included so that an objective cost evaluation of conversion could be made. The space proposed by Manatee is not appropriate. Currently operating as a nursing home, Manatee has the physical capacity to operate only 65 beds. Less than 1,000 square feet per bed is inadequate to meet patient needs. UCH has failed to show that the space proposed for its CMR unit is sufficient and in compliance with CARF. UCH maintains that its space was already designed to house a rehabilitation unit, so that no significant changes were required. However, UCH presented no evidence that the space proposed for the new unit, as it now exists, meets specific CARF standards. The applicant's Past and Proposed Provision of Health Care Services to Medicaid patients and the Medically indigent (Section 381.705(1)(n), F.S.) By its own admission, Manatee has a very low charity care and Medicaid level. It runs, according to HCCCB data, around 9 percent for each. If approved, its Medicaid and Medicare levels would be even lower than it is now, as it projects about 5-6 percent for each, according to Table 7 in its application (Manatee Ex. #1). Availability of Less Costly, More Efficient, or More Appropriate Alternatives (Section 381.705(2)(a), F.S.) A less costly, more efficient and more appropriate alternative is the existing health care system, including the services and programs presently offered by the applicants. There is no lack of access or availability to existing beds, which are presently underutilized. Appropriateness and Efficiency of existing facilities providing similar services (Section 381.705(2)(b), F.S.) Existing facilities providing similar services, including the 65 beds utilized at Manatee, are being appropriately utilized; however, none are operating yet at 85% occupancy which is the desired occupancy set forth in the relevant HRS rule. Probability of Serious Access Problems in the Absence of Proposed Services (Section 381.705(2)(d), F.S.) Manatee states in its application that access is being denied to prospective patients because of its licensure as a nursing home and therefore there is a need to approve its application. Even if this is true, need cannot be established when a tertiary health service is involved merely by showing that patients cannot access the facility of their choice, when other appropriate alternatives are available. The question is whether, looking at the spectrum of health care delivery, patients can obtain somewhere the services they need. Manatee cannot reasonably expect to serve all patients; just as nursing home patients are not properly served at hospitals, so also are hospital patients not served in nursing homes. This has nothing to do with need for CMR beds in District VI. Manatee did not show that patients are not able to obtain appropriate services elsewhere. Manatee is currently well utilized, and even those patients who considered using Manatee, but allegedly could not because of licensing issues were, as shown by Manatee, placed at other facilities, some of which were hospitals, and others not. UCH argues that Tampa General's rehabilitation facility is not accessible to those who cannot pay, but UCH does not specify how its application approval would remedy any accessibility problems for Medicaid or indigent patients, as it proposes to serve each type at only 2% of its total patient days. Geographical accessibility by elderly stroke patients, the population UCH seeks to serve, was not proven to be a substantial problem, even though the elderly may prefer a briefer drive time. CMR Rule Methodology Rule 10-5.039(2)(a), F.A.C. establishes the numeric formula for calculating need for CMR beds in the applicable HRS service district. As stipulated by all parties, this formula shows zero need. Subparagraph (2)(b), Incidence and Prevalence of Disabling conditions and chronic illness in the District Neither applicant addressed unique incidence and prevalence in the district as required by Subparagraph (2)(b) 1 of the rule. Instead, UCH used national incidence rates and applied them to the population of District VI. Given the tertiary nature of CMR, it would be inappropriate to approve UCH based upon an institution specific analysis. UCH's methodology is effectively impeached by the fact that it provides that 122 additional beds were needed in District VI for 1989, when the existing 112 CMR beds in the district experienced only an 72% occupancy in 1989. In its case presentation, Manatee used statewide incidence rates to project need, along with methodologies utilized by other states. Manatee used these same rates and methodologies, along with its own historical ALOS, to project a need for brain injury/neurological beds in District VI. Manatee's District VI CMR bed methodology is problematic and unacceptable. First, the base year population estimate relied on to project the district population is approximately 35,000 more than was actually counted under the recent U.S. Census for District VI. Second, the ALOS used to project patient days is different from the recent actual experience in the district. And third, the result of this need methodology, showing a need for 112 additional beds, more than double the current inventory, is counterintuitive given current utilization rates for CMR. The ALOS used by Manatee in its need projections was longer than the statewide ALOS for head injury. There is no CMR hospital in the State of Florida with an average length of stay higher than 75 days. The average length of stay for the last three months of 1991 at Manatee was 57.2 days. Manatee will not increase access to patients with commercial insurance nor will admissions increase if approved. Manatee fully expects that it will continue to negotiate with various payor sources even if it becomes a licensed CMR hospital. Blue Cross/Blue Shield of Florida defines a rehabilitation hospital as any facility accredited by the CARF. Most commercial insurers precertify admissions and are extremely stringent with regard to both admission and continuation of stay at the hospital level of care. Many of the patients denied hospital level of care are those most appropriate for the level of care currently provided by Manatee. Additionally, insurance companies are generally flexible in providing coverage at the least intense appropriate level of care. Converting Manatee from a nursing home to a hospital will actually decrease, rather than increase the number of patients able to access an appropriate level of rehabilitation. The Medicare criteria for admission to a CMR hospital are much more stringent than those to a skilled nursing home facility. Medicare patients who might otherwise qualify for admission to a skilled nursing facility would find it much harder to qualify for a CMR hospital. Approval of the Manatee Springs application will not increase access to either Medicaid or Medicare patients, including children, who, by Manatee's own admission, are paid for by the Medicaid program. As found above, if awarded a CON for CMR, Manatee will provide fewer, not more, Medicaid patient days as a percent of total patient days. Additional Rule Criteria There is a shortage in central Florida of specialized personnel needed for rehabilitation both in skilled nursing and in a hospital. There is competition between Tampa General and Manatee Springs for staff. If granted, the proposals would increase demand for specialized staff and increase the cost for staff, while making it more difficult for existing providers to efficiently use and retain their current staff. New rehabilitation facilities must be able to project a minimum of 65 percent occupancy during the first year of operation based upon the formula in the rule. Although Manatee projected utilization levels exceeding the rule requirements, Manatee did not prove that it will be able to attain its projected occupancies. It is also unlikely that UCH will attain the occupancy levels required by the rule. UCH itself projects an occupancy rate below the 65% minimum standard for the first year of operation. For the second year UCH projects that patient days will increase by 1,460, a 30% increase from the first year. Such a dramatic increase is doubtful when the population is expected to grow at a rate well below 30%, and the increase is inconsistent with actual districtwide experience in which CMR patient days increased by only 947 from 1989 to 1990. A proposal to establish a new rehabilitation unit will not normally be approved unless the average annual occupancy rate for all existing CMR units within the service district exceeds 85 percent occupancy for the most recent 12 month period available to the Department three weeks prior to the publication of the fixed need pool. The average occupancy rate in the district for this period was 72.49 percent. According to subparagraph (c) of the rule, applicants for comprehensive rehabilitation services should demonstrate that at least 90% of the target population resides within two hours driving time under average traffic conditions of the location of the proposed facility. Manatee's primary service area includes HRS District V, VI and VIII. Its secondary service area includes all of Florida, and parts of Georgia and Louisiana. This target population cannot drive to the Manatee facility in two hours under average traffic conditions. UCH's proposed localized service area is well within the two hour limit. Each applicant proposes to participate in the Medicare and Medicaid programs. Each applicant proposes to provide the minimum scope of rehabilitation services required by Subparagraph (c) 4. of the rule. Each applicant proposes to meet CARF standards for hospital based rehabilitation services as required by subparagraph (c) 5. of the rule; however, neither demonstrated its proposal meets CARF standards. Each applicant proposes to make the services contained in Subparagraph (d) of the rule available through affiliation or contractual agreement. In summary, the applicants meet very few of the factors, standards and criteria of Rule 10-5.039, F.A.C. Those few factors do not demonstrate a need for additional CMR beds in District VI.
Recommendation Based on the foregoing, it is hereby, recommended that the Department of Health and Rehabilitative Services enter its Final Order denying the University Community Hospital and Manatee Springs Nursing Center, Inc., certificates of need for comprehensive medical rehabilitation beds in District VI. RECOMMENDED this 19th day of March, 1992, in Tallahassee, Leon County, Florida. MARY CLARK 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 19th day of March, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 91-1510 AND 91-1511 The following constitute disposition of the findings of fact proposed by the Petitioners. University Community Hospital These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1 (except for the statement that the unit currently satisfies CARF, which was unproven), 2-8, 9a. and b., 10a., 11, 21, 27 (except for the conclusion that the projects list was complete), 29-32, 34-41, and 43. These findings are rejected as contrary to or unsupported by the weight of evidence: 1 (as to CARF accreditation now), 9.c., 10.b., 13, 14, 18, 20 (as to no additional money needed), 22, 26, 27 (as to the conclusion regarding completeness), 28, 44 and 45. These findings are rejected as cumulative, unnecessary or irrelevant: 12, 15-17, 19, 23-25, 33, and 42. Manatee Springs Nursing Center, Inc. These findings have been adopted in full or in substantial part in the recommended order submitted herewith: 1, 2, 3a., 3b., 3j., 3l., 3n., 3o., 3p., 3q., 3s., 3u., 3x.3, 4a., 4b., 8a., 10, 11, 15, 19, 22d., 23b., 27, 30, 35, 37, 40, 41, 47 and 48. These findings are rejected as contrary to or unsupported by the weight of evidence: 3w., 8c.3, 8c.4, 13, 14, 16, 17, 18, 20, 21, 22 (as to conclusion regarding the preference), 23 (as to the conclusion regarding meeting the preference), 24 (as to the conclusion), 31, 32, 34, 36, 42, and 43. These findings are rejected as cumulative, unnecessary or irrelevant: 3c., 3d., 3e., 3f., 3g., 3h., 3i., 3k., 3m., 3r., 3t., 3v., 3x1, 3x2, 3x4, 3x5, 3x6, 3x7, 4c., 4d., 4e., 4f., 4g., 4h., 4i., 5, 6, 7a.-d., 8a. 1-3, 8b.1, and 8c.1 & 2, 9, 11, 12, 15, 23a & c, 25, 26, 28, 29, 33, 38, 39, 44, 45, 46, and 47. COPIES FURNISHED: Cynthia S. Tunnicliff, Esquire Martha Harrell Hall, Esquire W. Douglas Hall, Esquire P. O. Drawer 190 Tallahassee, FL 32302 John Radey, Esquire Elizabeth McArthur, Esquire Jeffrey L. Frehn, Esquire 101 N. Monroe St., #1000 Tallahassee, FL 32308 Alfred W. Clark, Esquire P.O. Box 623 Tallahassee, FL 32308 Charles D. Hood, Jr., Esquire P.O. Box 15200 Daytona Beach, FL 32115 Lesley Mendelson, Esquire Dept. of Health and Rehabilitative Services 2727 Mahan Drive Tallahassee, FL 32308 R. S. Power, Agency Clerk Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700 John Slye, General Counsel Dept. of Health and Rehabilitative Services 1323 Winewood Blvd. Tallahassee, FL 32399-0700
The Issue BAMI and VENICE filed competing applications for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. The sole issue is which application should be granted, and which should be denied.
Findings Of Fact DHRS is the state agency empowered to review, issue, deny, and revoke certificates of need for health care projects. 381.494(8), Fla. Stat. (1981). In January, 1982, VENICE and BAMI separately applied to DHRS for a certificate of need to construct a 100-bed acute care hospital in Englewood, Florida. When the applications were filed, Florida law required the appropriate health systems agency to initially review applications for certificates of need. On March 10, 1982, the Project Review Committee of the South Central Florida Health Systems Council, Inc.--the appropriate health systems agency--considered the competing applications, then voted to approve the proposal submitted by VENICE, and deny the proposals submitted by BAMI and a third applicant (not involved in this proceeding). On March 27, 1982, the Board of Directors of the South Central Florida Health Systems Council, Inc. disagreed with the Project Review Committee's recommendation and voted to recommend (to DHRS) approval of the BAMI proposal and disapproval of the VENICE proposal. DHRS then independently reviewed the two competing applications. On April 30, 1982, it issued a (free-form) certificate of need to BAMI to construct a 75,000 square foot, 100-bed acute care hospital in Englewood. Conversely, it denied VENICE's application, asserting: (1) that the interest and depreciation expense per projected patient day for the first two years of operation of the BAMI proposal was less than that projected for the VENICE proposal; (2) that the estimated labor and materials cost per square foot for the BAMI proposal was lower than the amount estimated for the VENICE proposal; (3) and that the provision for 30 semiprivate rooms in the BAMI proposal offered patients an alternative unavailable in the all-private room hospital proposed by VENICE. VENICE thereafter requested a formal hearing to contest DHRS's action, which request resulted in this proceeding. Bami BAMI seeks a certificate of need to construct a new 100-bed acute care hospital in Englewood, Florida, to be known as Englewood Community Hospital. BAMI proposes to relocate and merge its existing Englewood Emergency Clinic and Primary Care Center into the proposed Englewood Community Hospital. The service area for the BAMI proposal includes the following communities in Sarasota, Charlotte, and Lee counties: Englewood, North Port, Warm Mineral Springs, El Jobean, Grove City, Rotunda West, Placida, Cape Haze, and Boca Grande. The proposed hospital contains 92 medical/surgical beds and 8 intensive care unit (ICU) beds. The 92 medical/surgical beds contain a mix of 32 private be and 60 semiprivate beds. The hospital will provide ambulatory surgical services, diagnostic and special procedures, radiology services, nuclear medicine, ultrasonography, cardio-pulmonary, emergency room, and clinical laboratory services. The following services would be shared with its affiliate, Fawcett memorial Hospital in Port St. Charlotte, Florida: business office, medical records, data processing, materials management, personnel, education, public relations, administration, dietary, bio-medical engineering, laboratory, sterile processing, vascular laboratory, and occupational therapy. The proposed hospital will be a wholly-owned subsidiary of BAMI, and will have its own board of directors, board of trustees, and medical staff. BAMI is an experienced health care provider. Its principals have been in the health care business since 1964, and have built and operated 25 health care facilities in the mid-western United States. BAMI owns and operates several health care facilities in Florida: the 400-bed Fort Myers Community Hospital in Fort Myers, Florida; the 254-bed Fawcett Memorial Hospital in Port Charlotte, Florida; the 120-bed Kissimmee Memorial Hospital in Kissimmee, Florida; the Englewood Emergency Clinic and Primary Care Center in Englewood, Florida; the Ambulatory Surgical Center in Tampa, Florida; and the Emergency Clinic and Primary Care Center in Bonita Springs, Florida. BAMI also owns two smaller hospitals, one in Georgia and the other in Alabama. It is experienced in building and opening new hospitals, having built both the Fort Myers Community Hospital and the Kissimmee Memorial Hospital. It also expanded Fawcett Memorial Hospital from 96 beds to 254 beds. BAMI has financial assets of approximately $63,842,400 and a net worth exceeding $13.5 million. Venice VENICE seeks a certificate of need to construct a 100-bed satellite acute care hospital in Englewood, to be known as the Englewood-North Port Hospital. The service area for this proposed hospital consists of Englewood, North Port, Rotunda West, Placida, Warm Mineral Springs, Boca Grande, and Cape Haze. VENICE's proposed hospital contains 96 medical/surgical beds and four ICU beds. No semiprivate rooms will be available. All of the 96 medical/surgical beds will be placed in private rooms. The proposed satellite hospital will share the following services with VENICE's existing 300-bed "mother" hospital in Venice, Florida: specialized laboratory services, physical therapy, nuclear medicine, pulmonary functions, and specialized radiology services. For specialized and more sophisticated services, patients will be transported from the Englewood hospital to the larger hospital in Venice. The following support services will also be shared with the "mother" hospital: purchasing, bulk storage, laundry, dietary management, data processing, financial management, personnel recruitment, and educational services. In order to share these services, the existing Venice Hospital will be required to operate a transportation system. For many years, VENICE has owned and operated Venice Hospital, a fully licensed and accredited 300-bed general acute care hospital at 540 The Rialto, Venice, Florida. Venice neither owns nor operates any other hospital, although it has applied for a certificate of need to construct a 50-bed psychiatric hospital. The present management of Venice Hospital is inexperienced in the construction and opening of new hospitals. II. COSTS AND METHODS OF CONSTRUCTION Construction costs for the competing BAMI and VENICE proposals are broken down into categories and depicted in the following table: COMPARATIVE CONSTRUCTION COSTS CATEGORY BAMI VENICE Total Project Cost $13,355,000 $18,170,000 Total Project Per Bed Cost 135,500 181,700 Total Direct Construction Equipment Cost for and Fixed 11,670,190 13,874,516 Gross Square Feet 75,327 75,000 Construction Costs 155 173 Per Square Foot Number of Stories One Two Expansion Potential 100 additional 200 additional EQUIPMENT Movable 3,500,000 2,272,444 Bami Construction of the BAMI hospital can begin by September 1, 1983, and be completed by December 31, 1984. The new hospital can be opened by January 1, 1985. The BAMI hospital will be a one-story building, a design which is efficient for a hospital of this size. It will consist of a steel structure with curtain walls. The building is functional and economical, and can be expanded horizontally to 200 beds with minimum disruption to existing services and staff. The design of this hospital is similar to the 120-bed Kissimmee Memorial Hospital built by BAMI in 1979. BAMI's cost estimates are based on the actual costs of constructing the Kissimmee Memorial Hospital. BAMI proposes to construct the hospital by using an affiliate, F & E Community Developers of Florida, Inc. The use of an in-house contractor will allow BAMI to build the hospital in a short time period, at less cost and with higher quality. BAMI's proposal contains both active and passive energy conservation elements. The passive elements include overhangs, shaded glass, and movable windows. Active elements include the selection of quality equipment and a computerized control system for the electric reheat heating/ventilation/air conditioning ("HVAC") system. The architectural and construction plans for BAMI's proposed hospital are virtually complete. Schematic drawings were submitted and approved by DHRS in August, 1981. Preliminary plans have also been approved by DHRS. DHRS approval entailed a review of architectural, electrical, and mechanical preliminary drawings. Venice If the VENICE proposal is approved, construction could begin between April and July, 1984. The hospital could open for occupancy on January 1, 1986, a year later than BAMI's proposal. VENICE's architectural and construction plans are at an early stage, consisting only of a program summary and block design. Architectural, electrical, and mechanical preliminary drawings have not yet been submitted to DHRS and approved. The construction cost estimates submitted by VENICE are less reliable than those submitted by BAMI, since they were derived from less developed plans and were based on assumptions presented by persons who did not testify at hearing. VENICE's proposed hospital consists of a reinforced concrete structure with a modular precast concrete exterior. Although it will consist of two stories, the building will be stressed for the subsequent addition of two stories. When and if it is expanded to four stories, it would be a 300-bed hospital. The planned vertical expansion increases the initial cost of the building by approximately ten percent. Because of the extensive sharing of medical and support services between the proposed satellite hospital and the "mother" hospital in Venice, the ancillary medical and support facilities of the satellite have been down-sized. The VENICE proposal will also require horizontal expansion in the future. Areas such as radiology, laboratory, and emergency rooms will require immediate expansion as beds are added to the facility. It has not been shown at what point, in the planned expansion, VENICE's proposed hospital would become a free-standing hospital--when it would no longer be required to rely on its "mother" hospital in Venice. VENICE proposes an energy efficient facility. The multiple-story design minimizes site use and roof coverage. The relatively narrow wings provide for optimum use of daylight. VENICE contends that its HVAC system is more cost effective than the system proposed by BAMI. This contention is not substantiated by convincing evidence. The VENICE witness who testified on this question was an architect, not a mechanical engineer. He was unfamiliar with the computerized energy control system proposed by BAMI and used assumptions made by others who did not testify at the hearing. Bami III. HOSPITAL EQUIPMENT BAMI's proposed movable hospital equipment will cost approximately $3,500,000. Included are three radiology rooms: one general radiographic room, one standard R and F room, and one R and F room with angiographic capability. Also included are 8 ICU beds, four operating "rooms--two major and two minor-- nuclear medicine, and ultrasound capability. Venice The equipment cost for the VENICE proposal is $2,272,444. Included are 3 operating rooms, one with cystographic capability; four ICU beds and two radiology rooms--one R and F, and one general radiographic. More sophisticated diagnostic procedures, such as nuclear medicine and specialized radiology, will be provided at the "mother" hospital in Venice, not at the proposed Englewood satellite. To utilize these procedures, patients will be transported from Englewood to Venice. VENICE acknowledges that its proposed hospital will utilize less sophisticated diagnostic equipment than BAMI's. VENICE's equipment cost would have to be increased approximately $700,000 if it were to provide eight ICU beds and specialized radiology and nuclear-medicine to match BAMI's proposal. The equipment cost differential indicates the different levels of care proposed by the two hospitals. The VENICE proposal requires the development of a transportation "shuttle" system between the "mother" hospital in Venice and the satellite in Englewood. The system would consist of two trucks in addition to vans or ambulances. The plans for this essential transportation system are, however, not fully developed. The need for van or ambulance transportation between the two facilities has not been fully considered. Further, the transportation plan estimates a 25-minute one-way driving time between Englewood and Venice year- round. During the busy winter months, it is likely that the driving time will increase. Although VENICE proposes to lease the necessary trucks, neither the leasing costs nor associated costs have been fully taken into account. IV. FUNDS FOR OPERATING AND CAPITAL EXPENDITURES Bami BAMI will finance the $13,555,000 required to open its proposed hospital with bond proceeds, an equipment lease, and an equity contribution. It will obtain $7,905,000 from taxable bonds with a maturity of 25 years, and an interest rate of 12.5 percent. There will be a 2-year holiday on principal payments. BAMI will finance the $3,500,000 equipment cost pursuant to a lease agreement with Financial and Insurance Services, Inc., with an eight-year term and an interest rate of 15 percent. BAMI will make an equity contribution of $2,150,000. This will be in the nature of a contribution of capital from a parent corporation to a subsidiary corporation. As of September 30, 1982, BAMI had a net worth exceeding $13,500,000. BAMI will provide up to $1,000,000 in operating capital to cover initial start-up costs of the proposed hospital. In addition, BAMI has obtained a $5,000,000 line of credit which will be available to cover any potential cash shortages occurring during the start-up phase of the hospital. Venice VENICE will obtain the $18,170,000 required for its proposal from tax- free bond financing and an equity contribution. The bonds, which will have a maturity of 30 years and an interest rate of 10.52 percent, will be an obligation of the Venice Hospital. A debt service reserve fund of $1,900,750 will be required in order for the bonds to obtain an "A" rating. In unrelated applications, VENICE has proposed a major renovation of its existing hospital and the construction of a new free-standing 50-bed psychiatric hospital. These projects, if undertaken, will require additional equity contributions of $1,221,000 and additional bond financing in the amount of $10,370,000. To obtain the bond financing, VENICE will be required to maintain a one-to-one historical debt coverage ratio. VENICE has not convincingly established that it will be able to carry out all three projects and still maintain the required one-to-one debt coverage ratio. VENICE proposes to locate its proposed hospital on 15 acres of land costing $135,000. But the land sales contract provides only for the sale of 250 acres at a cost of $2,250,000. (The present owners wish to sell the entire 250- acre parcel and not lesser amounts.) The source of the $2,250,000 needed to acquire the property has not been identified. The bond proceeds could not be used. To purchase the 250 acres and fund the equity for its three proposed health care projects, VENICE will require $4,311,000. The source of these funds has not been identified. VENICE contends that one possible source would be Board Designated Funds. However, VENICE's audited financial statements for the period ending September 30, 1982, suggest otherwise. PROPOSED SITES Bami BAMI, through a subsidiary, has contracted to purchase approximately 12 acres as a site for its proposed Englewood hospital. The 12-acre site is part of a 60-acre parcel of land that is zoned OPI, a zoning classification which will permit the construction of a hospital. The 12-acre site is located on Morningside Drive, an access road to Pine Street. Although Morningside Drive is a dirt road, it will be paved. Under the contract, the current owner will pay all paving costs in excess of $65,000. The initial $65,000 in paving costs will be borne by BAMI and has been included in BAMI's estimated construction costs. Pine Street, a major north- south transportation artery in the Englewood area, is currently being resurfaced in both Sarasota and Charlotte counties. A second access to Pine Street has been acquired by the current owner. A watermain is available at the BAMI site. The current owner of the property will construct a sewage treatment plant and provide sewer service to the proposed hospital at prevailing rates. The sewage treatment plant will be located on a 7.5-acre portion of the 48 contiguous acres retained by the current owner. The BAMI site is located in an A-11 flood zone with an elevation of ten feet. Fill dirt will be used to raise it to an acceptable elevation of twelve feet. A current owner of the BAMI site envisions the entire 60 acres as an Englewood medical center. If necessary he will allow BAMI to purchase an additional 12 acres contiguous to the site. BAMI has not yet, however, obtained a legally enforceable right to purchase additional property adjoining its 12- acre site. Although the 12-ace site will permit the planned 100-bed future expansion, the site would be crowded with little space remaining for future improvements. Venice The VENICE site is an undesignated 15-acre portion of a 250-acre parcel of land located off State Road 777, also known as South River Road. It is uncertain whether the hospital will have one or two access roads to State Road 777. A watermain is available at the VENICE site. Sewage treatment will be provided by a nearby privately owned sewage treatment plant until the hospital, eventually, constructs its own. The zoning classification of the VENICE site will not permit construction of a hospital. Before the hospital could be built, Sarasota County would be required to rezone the property to OPI. Use of the property for a hospital is also inconsistent with Sarasota County's comprehensive land use plan, adopted October 31, 1981. Such a rezoning process would take a minimum of three or four months, and perhaps longer. Approximately 100 individual steps are involved. Hearings would be held by the Sarasota Planning Commission and the Sarasota County Commission. VENICE has not yet filed an application to rezone either the 15 acres or the entire 250-acre parcel. Neither has it shown that it is likely to succeed in having the property rezoned to a classification permitting hospital use. Bami VI. EFFICIENT AND ALTERNATIVE USES OF HEALTH CARE RESOURCES As part of its application, BAMI proposes to merge its existing Englewood Emergency Clinic and Primary Care Center into its proposed Englewood hospital. If the BAMI application is denied and VENICE's granted, BAMI will continue to operate the Emergency Clinic and Primary Care Center. As a result, the Emergency Clinic and VENICE's Englewood hospital would be providing duplicative emergency services. The costs resulting from this duplication would be approximately $894,800 in 1985; $975,300 in 1986; and $1,063,100 in 1987. For cost effectiveness, BAMI's proposed hospital will share some ancillary and support services with Fawcett Memorial Hospital in nearby Port Charlotte. Fawcett Memorial will also provide tertiary level services, such as renal dialysis and CAT scans to patients of the proposed Englewood hospital. BAMI operates a multi-hospital system, with subsidiaries which provide ancillary and specialized support services. These services include physical therapy, inhalation therapy, cardiopulmonary function, speech therapy, data processing, and collection services. Corporate level expertise in accounting, property management, pharmacy management, personnel, and marketing, is also available. The multi-hospital system allows BAMI to obtain favorable purchasing contracts and capital for future expansion. Venice Venice Hospital, the only hospital in south Sarasota County, has a high rate of occupancy. Although presently a 300-bed facility, it has an ultimate capacity of 400 beds. It recently applied for a certificate of need to add 24 ICU/PCU beds and additional beds, beyond that, are needed. It has a shelled-in fourth floor that will accommodate an additional 45-bed nursing unit. Completing the fourth floor at Venice Hospital would be a more cost-effective alternative way to add beds than constructing a new hospital in Englewood. As already mentioned, the "mother" hospital in Venice will share numerous ancillary and support services with the proposed satellite hospital in Englewood. VENICE proposes to share, among other things, its present laboratory with the proposed Englewood satellite. As a result, the laboratory in the satellite hospital has been reduced to a minimal size. It has not been convincingly established that the Venice Hospital laboratory, even if expanded as proposed, can process the additional laboratory work-load arising from an Englewood satellite. The laboratory at the existing Venice Hospital presently operates 24-hours per day, seven days a week. Even if its application to expand its laboratory is granted, the total area of the laboratory would be less than the accepted space guidelines required for a 324-bed hospital. VII. AVAILABILITY, APPROPRIATENESS, AND ACCESSIBILITY OF PROPOSED HEALTH CARE SERVICES Scope of Services Although both proposed hospitals would share services with affiliated hospitals, BAMI proposes more of an autonomous, full-service and free-standing hospital than that proposed by VENICE. BAMI will equip its hospital with a more complete and sophisticated range of diagnostic services and, unlike VENICE, has not down-sized its ancillary and support services. For the VENICE proposal to become a free-standing facility comparable to BAMI's, the space devoted to ancillary medical services and support services would have to be expanded by 30 percent and 50 percent, respectively. The costs of such an expansion have not been determined. Economic Access Both parties will enter Medicaid contracts covering their proposed hospitals. BAMI projects that .1 percent of its patients will be Medicaid; VENICE projects .2 percent. BAMI hospitals treat all emergency patients, regardless of ability to pay. Third party payment is accepted. On elective admissions, self-pay patients are requested to make reasonable deposits and sign promissory notes. In specific instances, patients can be admitted without making financial arrangements in advance. Patients are not referred to other hospitals because of inability to pay. If an indigent is defined as "one who cannot pay," Fawcett Memorial Hospital provided between $600,000 and $700,000 in indigent care during 1982. This figure represents approximately 3.9 percent of gross revenue. Similarly, Venice Hospital treats emergency patients regardless of their ability to pay. Promissory notes are obtained from self-pay patients if necessary. The credit policies of Venice Hospital are similar to BAMI's. Venice Hospital had a bad debt or charity to gross receipts ratio of between 2.5 percent and 3.0 percent in 1982. Venice Hospital also has a Hill-Burton requirement to provide indigent care in the amount of approximately $125,000 per year. This requirement stems from a federal grant awarded in 1970. Access to Osteopathic Physicians BAMI's proposed hospital will have an open medical staff, including licensed medical doctors and osteopathic physicians. BAMI has a practice of allowing osteopathic physicians on its medical staff. For several years, osteopathic physicians have been included on the staff of all BAMI hospitals. Fort Myers Community Hospital, a BAMI hospital, is one of two hospitals in the Fort Myers area with osteopathic physicians on its staff. Kissimmee Memorial Hospital, also owned by BAMI, has the only two osteopathic physicians in Kissimmee on its staff. Fawcett Memorial Hospital has the only osteopathic physician in Port Charlotte on its staff. In contrast, VENICE has not added osteopathic physicians to its staff with similar enthusiasm. It granted staff privileges to its first osteopathic physician six to nine months prior to hearing. Two months before the hearing, staff privileges were granted to a second. Venice Hospital has, however, changed its bylaws to comply with the law prohibiting discrimination against osteopathic physicians. Geographic Access The geographic locations of the sites for the two proposed hospitals, as described above, provide equal access to the service area. The BAMI site is closest to the existing population concentrations of the Englewood area, while the VENICE site is closer to Interstate 75. Both sites will require the paving of an access road to major traffic arteries. No significant advantage in access is afforded to either. VIII. COMPETITION The existing Venice Hospital currently serves the hospital needs of approximately 64 percent of the people in the greater Englewood area. These patients comprise approximately 26.8 percent of Venice Hospital's total patient days. BAMI's existing Fawcett Memorial Hospital in Port Charlotte currently serves between ten and twelve percent of the hospital needs of the people in the greater Englewood area. These patients account for approximately 11.3 percent of Fawcett Memorial's total patient load. In addition, BAMI's Englewood Emergency Clinic and Primary Care Center has treated over 20,000 patients since it opened in February, 1980. The existing Venice Hospital holds a dominant market share in the greater Englewood area. It is only twelve miles north of Englewood and is the only hospital in south Sarasota County. The closest competitor in Sarasota County is Sarasota Memorial Hospital, approximately 20 miles north of the Venice Hospital. Venice Hospital has been in operation for approximately 30 years. In contrast, Fawcett Memorial Hospital is approximately 21 miles east of Englewood. In the mid-1970s, it was converted from a nursing home to a 96-bed hospital, and in 1976, it was expanded to 254 beds. Approval of BAMI's proposal will enhance competition among hospitals serving the greater Englewood area. The competition will not, however, adversely affect Venice Hospital's long-term viability. The construction of either hospital in the Englewood area will change existing hospital utilization and physician referral patterns. New referral patterns will form and an increasingly autonomous group of physicians will develop. Local physicians will utilize the Englewood hospital, whether it is owned by BAMI or VENICE. Bami IX. PROJECTED COSTS OF PROVIDING HEALTH CARE SERVICES BAMI forecasts an occupancy rate of 60 percent at its proposed Englewood hospital in 1985; 75 percent in 1986; and 80 percent in 1987, with an average length of stay of 8.5 days. These figures are credible in view of the population growth in the Englewood area, the undisputed need for a new hospital, and the elderly population. To project total cost and gross revenue per patient day, various calculations are made. BAMI's employee salary expenses are based on its experience at nearby Fawcett Memorial Hospital, adjusted by an inflation factor. Non-salary expenses are derived from its experience at Kissimmee Memorial Hospital, a hospital of similar size with a utilization rate similar to that projected for the Englewood hospital. Depreciation of plant and equipment is calculated using the straight-line method. Revenue projections are derived using the American Hospital Association's Monitrend median inpatient revenue, inflated at 9 percent per year. An indigent/bad debt deduction of four percent of total patient revenue is used. These assumptions provide a credible basis from which total cost and gross revenue per patient day can be calculated. Using these assumptions, total costs per patient day is forecast to be $482.00 in 1975; $479.60 in 1986, and $510.32 in 1987. Gross revenue per patient day is forecast to be $552.00 in 1985; $601.68 in 1986; and $655.83 in 1987. These forecasts are credible and accepted as reasonably reliable. Venice VENICE's primary contention is that its proposed hospital, although costing more to build, will--in the long run--result in lower costs to patients and increased savings to the community. This contention was not substantiated by convincing evidence. In forecasting its costs and revenues, VENICE projected an occupancy rate of 65 percent in 1986; 80 percent in 1987; and 80 percent in 1988. The 1986 projection is unreasonably high; it envisions a 70.4 percent utilization rate during the opening month. VENICE's projected salary expenses are derived from its current experience at Venice Hospital, adjusted for inflation. Although this figure is reliable, the projected non-salary expense per patient day is not. The nonsalary expense is not based on Venice Hospital's most recent 1982 expenses, and is not adjusted by the requisite inflation factor. The depreciation schedule and assumptions used by VENICE in forecasting its revenues and costs are also questionable. Discrepancies went unexplained. The testimony of Deborah Kolb, Ph.D., an expert in health care financial and need analysis, is considered more credible. She concluded that VENICE understated 1986 depreciation expense for its proposed hospital by approximately $300,000, an error which would have increased its projected patient costs per day by $13.70. VENICE also projects room charges at its proposed hospital which are significantly lower than those projected for its "mother" hospital in Venice. This difference in room charges was not adequately explained or justified. Although VENICE's controller attributed the difference to cost savings resulting from the satellite hospital concept, these savings were not meaningfully itemized or identified in VENICE's revenue and cost projections. VENICE also failed to identify, and reflect in its projections, increased costs resulting from use of its satellite concept. For example, in 1986, 532 Englewood patient are projected as requiring sophisticated nuclear medicine tests at the "mother" hospital in Venice; 141 Englewood patient are projected as requiring special radiology tests at Venice Hospital. When asked who would absorb the costs of transporting patients between the satellite hospital in Englewood and the "mother" hospital in Venice, VENICE's controller responded that Venice Hospital would. However, those costs have not been quantified. Moreover Venice Hospital does not currently pay for ambulance transportation of its patients and does not have vans which transport patients on 24-mile round trips. This amounts to a significant and additional cost of operation, which has not been fully considered in the financial forecasts. Moreover, VENICE utilized cost per patient day based on Venice Hospital's 1981 costs rather than the higher 1982 costs. (Revenue per patient day increased 23.8 percent, in 1982.) In addition, projected revenues at VENICE's proposed Englewood satellite were not adjusted downward to take into account the less-sophisticated medical services which would be provided. As a result, VENICE's projected revenues per patient day are questionable and lack credibility. Venice Hospital received funds from three philanthropic organizations: Venice Hospital Blood Bank, Venice Hospital Auxiliary Volunteers, and Venice Health Facilities Foundation. Without the infusion of these funds, charges to Venice Hospital's patients would be higher. Venice Hospital's own fund raising literature states that patient charges, alone, do not cover the full costs of providing medical services. These community-raised funds, then, pay part of the costs of providing medical care. But in calculating cost savings to the community from its proposed Englewood hospital, VENICE has not identified or taken into account these additional funds raised from the community. VENICE's comparison of its projected patient charges with those of BAMI's is, accorded little weight. The two proposed hospitals are significantly different, one providing more extensive and sophisticated medical care than the other. This difference was not adequately taken into account in the financial comparison. Additional costs to Venice Hospital resulting from the Englewood satellite hospital were not fully considered. Comparisons based on historical charges by Venice Hospital and Fawcett Memorial Hospital are also misleading since these hospitals are different in size and occupancy rate--and the proposed Englewood hospital will duplicate neither. Moreover, Venice Hospital historical room rates used for the comparison were selectively chosen. VENICE also relies on projected HVAC life cycle savings, which, as already mentioned, were not convincingly established. Finally, the costs of acquiring VENICE's site-- necessitating a 250-acre purchase--were not fully reflected in the comparison. X QUALITY OF CARE The parties stipulated that both proposals will provide high quality medical care. The only question is whether bed-configuration will affect the quality of care provided. BAMI proposes a mix of 32 private and 60 semiprivate medical/surgical beds, with an additional 8 ICU beds. In contrast, VENICE proposes 96 private medical/surgical beds and 4 ICU beds. BAMI's mix of private and semiprivate rooms will allow consumers a choice and is preferable to VENICE's all private-room proposal. Private and semiprivate rooms confer various benefits. BAMI's proposed 32 private rooms will be adequate to serve those patients requiring private rooms while, at the same time, affording patients a choice between private and semiprivate. The VENICE proposal will not allow such a choice. It has not been shown, however, that bed configuration will affect the quality of medical care rendered patients. XI. COMPARISON: BAMI'S PROPOSED HOSPITAL IS PREFERABLE TO VENICE'S Both proposed hospitals would provide necessary and quality medical care to people in the Englewood area. On balance, however, BAMI's proposal is preferable. BAMI's free-standing hospital will provide more complete and sophisticated medical care, with less need to transport patients between "mother" and satellite hospitals. VENICE's satellite hospital will require extensive transporting of patients, food, linens, equipment, lab samples, and medications between the "mother" hospital in Venice and the satellite hospital in Englewood. BAMI, a multi-hospital system, is more experienced in constructing and operating new hospitals. The BAMI proposal will cost approximately $2,000,000 less to build, yet be of comparable quality and equipped with more sophisticated diagnostic equipment. While VENICE's construction plans are preliminary, BAMI's are detailed and virtually complete. VENICE's site requires rezoning, BAMI's does not. If BAMI's application is approved, its hospital could be opened by January 1, 1985,a year earlier than VENICE's. BAMI is financially able to begin construction immediately while VENICE--because of other projects simultaneously undertaken--may not be. Apart from zoning, both hospital sites are equally acceptable, although BAMI's 12-acre site is minimally sufficient for the anticipated future expansion to 200 beds. BAMI's financial ability to purchase is assured, while VENICE's is not. BAMI's proposal would avoid a duplication of emergency medical services in Englewood, while VENICE's would cause it. For patients preferring osteopathic physicians, BAMI's hospital would, most likely, be preferable. For patients preferring semiprivate rooms, BAMI's proposal would be preferable. Competition between hospitals serving the Englewood area would be enhanced with the BAMI proposal and decreased with VENICE's. Although VENICE argued that the costs to its patients would, over the long run, be less than BAMI's, this proposition was not convincingly proved.
The Issue This proceeding initially involved certificate of need (CON) application number 10168 filed by Rockledge HMA, LLC, d/b/a Wuesthoff Medical Center -- Rockledge (Wuesthoff), wherein Wuesthoff sought to add a 14-bed Comprehensive Medical Rehabilitation (CMR) unit to its existing acute care hospital in Brevard County (District 7); and CON number 10169 filed by Osceola Regional Hospital, d/b/a Osceola Regional Medical Center (Osceola) wherein Osceola sought to add a 28-bed CMR unit to its existing acute care hospital in Osceola County (District 7). The CON Applications submitted by Wuesthoff and Osceola were comparatively reviewed with the application of Nemours Children’s Hospital (CON 10167) wherein Nemours sought to establish a new inpatient CMR unit in District 7. On December 7, 2012, the Agency for Health Care Administration (“AHCA”) preliminarily approved the CON application submitted by Nemours and denied all other co-batched applications. Each of the denied applicants filed a Petition for Formal Administrative Hearing to contest the denial of its application. The matters were consolidated into a single proceeding at DOAH. The denied applicants did not challenge the initial approval by AHCA of Nemours’ application, allowing the approval to stand without further proceedings. Wuesthoff and Osceola’s administrative proceedings were consolidated into a single case. At the final hearing, Wuesthoff and Osceola presented evidence and testimony to support the approval of their respective CON applications. An intervenor, HealthSouth of Sea Pines Limited Partnership, d/b/a HealthSouth of Sea Pines Rehabilitation Hospital (HealthSouth), presented evidence in opposition to the Wuesthoff CON application. HealthSouth did not oppose Osceola’s application. Subsequent to the final hearing, Wuesthoff filed a notice of voluntary dismissal of its petition for formal administrative hearing. The voluntary dismissal rendered HealthSouth’s intervention moot. Wuesthoff’s proceeding was then severed from this previously consolidated matter. The issue remaining in this matter is whether the CON application filed by Osceola in AHCA District 7 satisfies, on balance, the applicable statutory and rule review criteria sufficiently to warrant approval and, if so, whether the application should be approved.
Findings Of Fact Stipulated Facts (As set forth in Prehearing Stipulation) On July 20, 2012, AHCA published a fixed need pool of zero for CMR beds in District 7. Osceola timely submitted a Letter of Intent for its CON proposal. Osceola timely submitted its initial CON application and Omissions Response. AHCA reviewed the [co-batched] applications and issued a State Agency Action Report (SAAR) preliminarily approving the CON application filed by Nemours Children’s Hospital and preliminarily denying the application filed by Osceola. Osceola filed a Petition for Formal Administrative Hearing to challenge the denial of its application. The parties stipulated to the final approval of Nemours Children’s Hospital’s application which was severed from this case for final approval. Osceola is a general acute care hospital located in Osceola County, Florida, AHCA Health Planning District 7. Osceola has a history of providing health care services to Medicaid patients and the medically indigent, and has proposed the amounts of Medicaid and indigent care as stated in its application. AHCA stipulates that Osceola’s proposal meets the statutory review criteria set forth in section 408.035(1)(c), (d), (f), (h), and (i), Florida Statutes. The Program at Issue AHCA is the state agency responsible for, inter alia, managing the certificate of need program whereby health care providers may seek approval for certain regulated health care services. One such health care service is comprehensive medical rehabilitation (CMR), a level of comprehensive in-patient rehabilitation for persons with certain designated diagnoses and treatments. In furtherance of its duties, AHCA develops and publishes a need calculation for new CMR beds in each of the 11 service districts around the State twice a year. Interested applicants for new CMR beds may apply by filing a CON application in response to the published need. In the event there is no need found by AHCA, an applicant may seek approval for new CMR beds by way of “not normal” circumstances. AHCA has seen an unusually large number of applications for CMR beds in the recent past which allege special circumstances or a not normal situation. This fact has greatly concerned the regulators as they wonder whether citizens are having difficulty accessing services they need. The Agency has not found any evidence to justify such a concern. As set forth in Florida Administrative Code Rule 59C- 1.002(41), “Tertiary health service” means: health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. . . . CMR beds are, by rule, deemed a tertiary health service. As such, CMR beds are regulated by AHCA so that the service remains “limited to, and concentrated in, a limited number of hospitals . . . .” Id. The reason for establishing services as tertiary is to focus more attention, money, staff and resources to that particular service so that the service retains a higher quality. Persons who need CMR services are generally patients who are discharged from an acute care hospital after treatment for a specified ailment or event. In order to qualify for placement in a CMR bed, a patient must require substantial rehabilitation. At least 60 percent of all patients in a CMR unit must have a primary diagnosis within one of 13 medical conditions, often referred to as CMS-13 categories, established by the Center for Medicare and Medicaid Services. Those conditions include active polyarticular rheumatoid arthritis, amputation, brain surgery, burns, congenital deformity, fracture of femur, hip or knee joint disease, spinal cord injury, stroke, and systematic vasculidities with joint inflammation. Patients with those conditions very often need extensive rehabilitation before resuming normal activities of daily living. Osceola argues that inasmuch as some data show that CMR services are used more locally than regionally, CMR service is not actually a tertiary service. However, absent a challenge to the rule identifying CMR as a tertiary service, Osceola’s arguments are not compelling. CMR services may be less “tertiary” than some other services, but they are still by rule a tertiary service for regulatory purposes. AHCA health planning District 7 comprises Brevard County, Orange County, Osceola County, and Seminole County. There are four existing and two approved providers of CMR services in District 7. One of them, HealthSouth, is in Brevard County. Florida Hospital, Orlando Regional Medical Center, and Winter Park Memorial Hospital have CMR beds located in Orange County. The two approved programs, totaling 63 CMR beds at Central Florida Regional Hospital and HealthSouth Seminole, will be located in Seminole County. There are no existing or approved CMR beds in Osceola County. There are 67 counties in Florida; only 29 of them have a CMR program. Of the 219 acute care hospitals in Florida, only 36 have a CMR unit. The average annual occupancy of the 173 CMR beds in District 7 for calendar year 2011 was deemed by AHCA to be 62.17 percent. Part of AHCA’s occupancy calculation included a 53.35 percent occupancy rate in Orlando Regional Hospital’s CMR unit. However, only 34 of Orlando Regional’s 53 licensed CMR beds were operational during that period of time. AHCA’s calculation is therefore somewhat skewed. However, with two CMR facilities currently being under-utilized and two new programs having been approved in District 7, AHCA’s determination of no need appears justified. In this proceeding, there was no published need for new CMR beds in District 7 for the September 2012 batching cycle. The bed need calculation by AHCA resulted in a finding of a net need of minus 94 beds, rounded up to zero. AHCA’s occupancy calculation error would not have changed the finding of zero need. Faced with a finding of no need, Osceola attempted to prove a need for its proposed project by way of “not normal” circumstances. Osceola Osceola is a JCAHO-accredited general acute care hospital located in Kissimmee, Osceola County, Florida. It has 257 licensed beds, consisting of 247 acute care beds and 10 Level II neonatal care beds. Osceola provides comprehensive inpatient and outpatient services, including adult open-heart surgery, interventional cardiology, neurosurgery, and orthopedic surgery. It is accredited as a chest pain center and is certified as a primary stroke center. The hospital is a subsidiary of Hospital Corporation of America (HCA), the second largest provider of inpatient rehabilitation services in the nation. HCA has over 1,200 Medicare certified inpatient rehabilitation beds located in over 50 hospitals from Alaska to Florida. There are seven HCA comprehensive inpatient rehabilitation programs in Florida. Osceola proposes to establish a 28-bed CMR unit at its hospital plant in Kissimmee. Osceola would locate its CMR unit in a “multi-purpose patient tower” that is currently under construction. If its application is approved, Osceola would add a fourth floor on the tower to house the CMR unit. Osceola’s geographic service area is primarily Osceola County; its secondary service area includes two zip codes in southern Orange County and one zip code in Polk County. Its patient population is elderly: of the hospital’s 18,000 total annual acute care discharges, approximately 7,200 are patients age 65 and older; of those, roughly 5,200 reside in Osceola County. Osceola sets forth eight bases which it believes justify the approval of its proposed project. Each of those will be discussed in detail below. Number 1 -- Osceola County is the most populous county in Florida without any existing or approved CMR beds. -- That information does not establish a need for CMR beds in Osceola County; it merely establishes a geographical fact. Notwithstanding its geographic location, there are CMR services available in the general service area. Number 2 -- The population of Osceola’s primary service area is larger than several other Florida counties which already have licensed and approved CMR programs. Of 29 counties in Florida with licensed or approved CMR beds, 10 of those have fewer residents than Osceola’s service area. -- Again, this is a statement of information that in no way establishes need for a new program, in and of itself. It merely establishes that Osceola is located in a highly populated area vis-à-vis other locations in Florida. Number 3 -- There has not been a published need for new CMR beds in several years. CMR providers can add beds by way of the CON exemption process, so it is unlikely a need will arise under the existing formula. CMR service delivery is becoming more localized. -- These facts do not establish a need for additional CMR services in Osceola County. They merely describe some aspects of CMR services. AHCA contends that some CMR services are provided by hospitals to essentially their own patients and no one else. Other CMR providers are not so limited as to their patients. Number 4 -- The CMR CON rule has not been amended since 1995. -- This fact does not establish need for new CMR services in Osceola County. Number 5 -- Osceola believes that data show that CMR units primarily serve their own acute care discharges and other residents of their home county. -- This is another tertiary services argument that, absent a challenge to the existing rule, is irrelevant in this CON proceeding. Number 6 -- There are gaps between the age-adjusted rates of acute care discharges to CMR in District 7 hospitals and the State as a whole. -- Inasmuch as there are no established criteria for “age-adjusted rates of acute care discharges in CMR” facilities, this statement does not establish a need for new CMR beds in Osceola County. Each area of the State may be different, so there could be many reasons for this alleged gap. Number 7 -- There is a difference between the expected and actual discharges to CMR beds from District 7 hospitals and primary service area/secondary service area residents. -- There was no persuasive testimony at final hearing to explain this difference in expected versus actual discharges, nor why such an unexpected difference creates a need for new CMR beds in Osceola County. Number 8 -- The purported shortfall in CMR utilization (as evidenced by the difference between expected versus actual discharges) represents a “suppressed demand that will drive utilization of the 28-bed unit” proposed by Osceola. Thus, concludes Osceola, its proposal will not have a significant adverse impact on any existing provider. That is, Osceola believes its patients who are not currently utilizing CMR services will use the service once it is provided by Osceola. -- Osceola’s contention that it will meet the needs of only its own patient base does not establish a need for new CMR beds in the District. None of the “not normal” allegations made by Osceola in its application establish a condition which would warrant approval of a new CMR program in the Osceola County area of District 7. Osceola demonstrated that provision of rehabilitative services in settings other than CMR beds, e.g., nursing homes, is “lesser in every sense” than what a patient could expect in a CMR setting. In nursing homes, there may be fewer hours of rehabilitative care, rendered by less qualified individuals, using equipment and a physical plant less suited to rehabilitation. That is, care could potentially be better at a CMR unit for Osceola’s patients. These facts, however, fall far short of establishing a need for services; certainly a CMR might provide better services, but the necessary services do exist in the District. Osceola also established facts showing that its patients have to travel further than some other patients in Florida to access comprehensive medical rehabilitation in a CMR unit. Osceola’s physicians expressed frustration that their patients might receive better care in a CMR unit, but none testified that their patients were not now receiving adequate care. Osceola established a strong desire for its own CMR unit and showed that the unit would be financially lucrative. None of those facts is a basis for approving new CMR beds in Osceola County absent a bed need under the existing rule. Osceola also contends that its “not normal” arguments are essentially the same arguments set forth by Central Florida Regional Hospital in CON application No. 10128. That CON application was approved by AHCA, allowing a 13-bed CMR unit at the hospital in Seminole County, which is also part of AHCA District 7. However, the facts surrounding the approval of that CON application are not before the Administrative Law Judge in the present action. Whether or not that application was similar or not is not dispositive of the decision in the present case. As AHCA’s counsel so aptly put it, citing an old Native American adage, “You never step in the same river twice.” Just because the facts in the prior case constituted a not normal situation, the same is not necessarily true in the instant matter. Osceola has the ability to provide quality care and has a record of providing quality care to its patients. Osceola has the resources necessary to accomplish the creation of a CMR unit at its hospital. The CMR unit proposed by Osceola could be financially feasible in the short term and long term. The cost and methods of construction are reasonable. Osceola has a history of providing services to Medicaid and medically indigent patients and its proposal for provision of services to those groups in the CMR is reasonable. Osceola has previously provided and is expected to continue providing services to Medicare and Medicaid-eligible patients. Despite satisfying many of the review criteria which govern whether an application should be approved, Osceola did not demonstrate the need for a 28-bed CMR unit at its hospital in District 7.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Agency for Health Care Administration denying CON application No. 10169 filed by Osceola Regional Hospital, Inc., d/b/a Osceola Regional Medical Center. DONE AND ENTERED this 10th day of December, 2013, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 10th day of December, 2013. COPIES FURNISHED: Richard M. Ellis, Esquire Stephen A. Ecenia, Esquire Rutledge, Ecenia and Purnell, P.A. 119 South Monroe Street, Suite 202 Tallahassee, Florida 32302 Richard J. Saliba, Esquire Lorraine Novak, Esquire Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Elizabeth Dudek, Secretary Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Stuart Williams, General Counsel Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308 Richard J. Shoop, Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop 3 Tallahassee, Florida 32308
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 This proceeding concerns Heart of Florida’s Certificate of Need (CON) Application No. 10163 in which it seeks to add up to 14 Comprehensive Medical Rehabilitation (CMR) beds to its existing acute care hospital in Polk County (District 6), and Highlands Regional’s CON Application No. 10165 seeking to add up to seven CMR beds to its existing acute care hospital located in Highlands County (District 6). The CON Applications submitted by Heart of Florida and Highlands Regional were comparatively reviewed with the following co-batched applications to establish new inpatient CMR units in District 6: HealthSouth Rehabilitation Hospital of Polk County, LLC (CON #10162), and Lakeland Regional Medical Center, Inc. (CON #10164). On December 7, 2012, the Agency for Health Care Administration (“AHCA”) preliminarily approved CON Application No. 10164, submitted by Lakeland Regional Medical Center, Inc., and denied all other co-batched applications. Each of the denied applicants filed a Petition for Formal Administrative Hearing to contest the denial of its application. The matters were consolidated into a single proceeding at DOAH. However, the files on Lakeland Regional and HealthSouth Rehabilitation were closed as of April 8, 2013, when the present Petitioners withdrew their opposition to approval of CON 10164 and HealthSouth voluntarily dismissed its petition for formal hearing. The issues remaining in this matter are whether the CON applications filed by Heart of Florida and Highlands Regional in Agency for Health Care Administration (AHCA or the Agency) District 6, satisfy, on balance, the applicable statutory and rule review criteria sufficiently to warrant approval and, if so, whether either or both of the applications should be approved.
Findings Of Fact Stipulated Facts as set forth in PreHearing Stipulation Both Heart of Florida and Highlands Regional have the ability to provide quality of care and have a record of providing quality of care to their patients. Section 408.035(l)(c), Florida Statutes, is not in dispute and not an issue in this proceeding. (Unless specifically stated otherwise herein, all references to Florida Statutes will be to the 2013 version.) Both Heart of Florida and Highlands Regional have the resources and funds for capital and operating expenditures, for project accomplishment and operation; therefore, section 408.035(1)(d) is not in dispute and not an issue in this proceeding. While Heart of Florida and Highlands Regional's proposed salaries on schedule 6 of their respective CON Applications are appropriate and reasonable, the level of staffing necessary and required for a small unit, while still remaining financially feasible remains at issue in this proceeding. Heart of Florida and Highlands Regional's proposed facility costs and design are reasonable and not at issue in this proceeding. Both Heart of Florida and Highlands Regional are financially feasible in the short term to operate the CMR beds proposed in their respective CON Applications; therefore, section 408.035(l)(f) is not at issue with respect to short term financial feasibility. The issue of short-term financial feasibility is not in dispute and not an issue in this proceeding. Both Heart of Florida and Highlands Regional are financially feasible in the long term to operate the CMR beds proposed in their respective CON Applications in accordance with section 408.035(l)(f); however, AHCA has concerns over the appropriate staffing level for small CMR units and thus the issue of how Heart of Florida and/or Highlands Regional's long-term financial feasibility could be impacted if additional staff are required remains at issue in this proceeding. Both Heart of Florida and Highlands Regional propose appropriate costs and methods of proposed construction for their respective CMR projects, including the costs and methods of energy provision and the availability of alternative, less costly, or more effective methods of construction; therefore, section 408.035(l)(h) is not in dispute and not an issue in this proceeding. The past and proposed provision of health care services to Medicaid patients and the medically indigent by both Heart of Florida and Highlands Regional is appropriate; therefore, section 408.035(1)(o) is not in dispute and is not an issue in this proceeding. The CON Applications of both Heart of Florida and Highlands Regional contained the required application content under section 408.037. In the CMR project proposals of both Heart of Florida and Highlands Regional, CMR services will be provided in separately organized units within their respective facilities, which are both Class 1 acute care hospitals; therefore, Florida Administrative Code Rule 59C-1.039(3)(a) and (b) is not in dispute and not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to participate in the Medicare and Medicaid programs and, therefore, rule 59C-1.039(3)(e) is not in dispute and is not an issue in this proceeding. Both project proposals of Heart of Florida and Highlands Regional provide that CMR services will be provided under a medical director of rehabilitation who is a board- certified or board-eligible physiatrist and has had at least two years of experience in the medical management of inpatients requiring rehabilitation services; therefore, rule 59C- 1.039(4)(a) is not in dispute and is not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to provide the following services provided by qualified personnel: rehabilitation nursing, physical therapy, occupational therapy, speech therapy, social services, psychological services, or orthotic and prosthetic services. As such, rule 59C-1.039(4)(b) is not in dispute and is not an issue in this proceeding. Both Heart of Florida and Highlands Regional propose to serve Medicaid-eligible patients in their respective CMR programs. The proposed CMR programs of both Heart of Florida and Highlands Regional provided program descriptions for: Age groups to be served; Specialty inpatient rehabilitation services to be provided, if any; Proposed staffing, including qualifications of the medical director, a description of staffing appropriate for any specialty program, and a discussion of the training and experience requirements for all staff who will provide comprehensive medical rehabilitation inpatient services; A plan for recruiting staff, showing expected sources of staff; Expected sources of patient referrals; Projected number of CMR inpatient services patient days by payer type, including Medicare, Medicaid, private insurance, self-pay and charity care patient days for the first 2 years of operation after completion of the proposed project; Admission policies of the facility with regard to charity care patients. The Health Care Services at Issue AHCA is the state agency responsible for, inter alia, managing the certificate of need program whereby health care providers may seek approval for certain regulated health care services. One such service is comprehensive medical rehabilitation, a level of comprehensive in-patient rehabilitation for persons with certain designated diagnoses and treatments. In furtherance of its duties, AHCA develops and publishes a need for new CMR beds in each of the 11 service districts around the State. Interested applicants for new CMR beds may apply by filing a CON application in response to the published need. In the event there is no need, an applicant may seek approval for new CMR beds by way of “not normal” circumstances. As set forth in Florida Administrative Code Rule 59C- 1.002(41), “Tertiary health service” means: [A] health service which, due to its high level of intensity, complexity, specialized or limited applicability, and cost, should be limited to, and concentrated in, a limited number of hospitals to ensure the quality, availability, and cost effectiveness of such service. Examples of such service include, but are not limited to, organ transplantation, specialty burn units, neonatal intensive care units, comprehensive rehabilitation, and medical or surgical services which are experimental or developmental in nature to the extent that the provision of such services is not yet contemplated within the commonly accepted course of diagnosis or treatment for the condition addressed by a given service. . . . CMR programs are a tertiary health service. As such, CMR beds are regulated by AHCA. In order to qualify for placement in a CMR bed, a patient must require substantial rehabilitation. To ensure that CMR providers do not inappropriately admit patients that could be treated in a less acute setting, the Center for Medicare and Medicaid Services (CMS) has established eligibility criteria for CMR patients. At least 60% of all patients in a CMR unit must have a primary diagnosis within one of 13 medical conditions, often referred to as CMS-13 categories. Those conditions include active polyarticular rheumatoid arthritis, amputation, brain surgery, burns, congenital deformity, fracture of femur, hip or knee-joint disease, spinal cord injury, stroke, and systematic vasculidities with joint inflammation. Patients with those conditions very often need extensive rehabilitation before resuming normal activities of life. Patients without a CMS-13 diagnosis but having other comorbidities such as age, obesity, and/or high blood pressure may also qualify for CMR services. To be admitted to a CMR program, the patient must be sick enough to need an acute care setting, but well enough to endure three hours a day of rehabilitative therapy, including at least two types of therapy, e.g., speech, occupational, or physical. In this proceeding, there was no published need for new CMR beds in District 6 for the September 2012 batching cycle. The bed need calculation by AHCA resulted in a finding of a net need of minus 48 CMR beds, rounded up to zero. Each of the applicants attempted to prove a need for its proposed project by way of not normal circumstances. District 6 includes five counties: Hillsborough, Polk, Manatee, Highlands, and Hardee. There are almost 2.3 million residents, half of them residing in Hillsborough County. There are over 600,000 residents of Polk County, 330,000 in Manatee County, 100,000 in Highlands County, and 25,000 in Hardee County. Of those counties, Highlands, Manatee and Polk have the highest percentage of elderly. There are four existing CMR providers in District 6, accounting for 173 licensed CMR beds. Two of the providers are in Hillsborough County: Tampa General Hospital with 59 beds, and Florida Hospital Tampa with 30 beds. Blake Hospital in Manatee County has 28 beds. In Polk County there are two approved providers: Winter Haven Hospital has 24 beds currently licensed and Lakeland Regional Hospital is approved to license 32 beds. Heart of Florida Heart of Florida is a 193-bed acute care hospital located in Davenport, Polk County, Florida. It is a joint venture and is owned by Health Management Associates, Inc. and a number of physicians. The doctors own only 2.14% of the property. The hospital offers a full spectrum of healthcare services and is supported by nearly 200 specialists and subspecialists. Heart of Florida is a designated stroke center, has an accredited chest pain center, an orthopedic center, and a joint replacement program. The hospital currently provides skilled outpatient and inpatient therapy services. Heart of Florida is proposing the establishment of a 14-bed CMR unit within the hospital plant. It is the intent of the hospital to convert 14 of its existing acute care beds into CMR beds. The beds will be located on the third floor of the facility in an area which until recently housed an obstetrics unit. The project would include renovation of the unit, including: conversion of existing semiprivate rooms into private rooms; renovation of existing space into a recreation/day room and occupational therapy space; modification of patient showers to provide side approach to the water closets; and creation of a training kitchen, bathroom and bedroom. Heart of Florida set forth nine enumerated bases to establish the need for the CMR beds absent a fixed need pool. Each will be addressed below. Number 1 -- There are only 24 licensed CMR beds in the entire county of 467,045 adults, a ratio of one bed per 19,460 adult residents. No credible evidence was presented that a certain ratio of CMR beds to adult population is necessary. Rather, Heart of Florida maintains that the ratio in its county is somehow pertinent. But not all adults need CMR services, nor does the ratio alone establish a “need” which cannot be addressed by existing programs. Rehabilitation services can be met by sub- acute facilities in many instances. Where such services are provided is often a matter of patient choice and does not always involve CMR services. Number 2 -- There are no beds in Heart of Florida’s service area, i.e., the area from which most of its residents come. There are four existing and one approved provider of CMR services in District 6: Winter Haven Hospital (17 miles from Heart of Florida); Bake Medical Center (96 miles); Tampa General Hospital (62 miles); and Florida Hospital Tampa (60 miles). An approved but not yet operational CMR program at Lakeland Regional is 29 miles from Heart of Florida. Lakeland Regional is the only one of the CMR programs that will be located in Polk County. However, the need for such services is determined on a district- wide, not county, basis. The average annual occupancy rate at Winter Haven Hospital, the closest facility, is 66%. Number 3 -- Continuity of care is important. Heart of Florida would like for its physicians to be able to follow CMR patients by having them receive treatment at a unit located within the hospital. It is unlikely that physicians would travel to see their patients who go to Winter Haven or another CMR provider in the district. This desire for more continuous care, however, does not establish a need for services in the district. Number 4 -- District 6 has one of the highest CMR occupancy rates of any district in the State, and it has the single lowest CMR discharge use rate per 1,000 population age 65 and older. This naked statistic or factoid does not, in and of itself, establish a need for CMR beds at Heart of Florida. There will always be one district with the highest CMR occupancy rate. There will always be one district with the lowest CMR discharge rate per 1,000 population. Absent a clinical correlation between those two facts, they fail to establish need for the CMR program at Heart of Florida. Number 5 -- Heart of Florida is committed to fulfilling a continuum of care for its stroke patients. A CMR program on campus would help the hospital effectuate this commitment by adding CMR services to its treatment of stroke victims. However, this desire on Heart of Florida’s part does not establish a “need” for the program. Number 6 -- There is a large percentage of elderly persons in Heart of Florida’s primary service area as compared to the State average. While this may be a fact, it is not an indicator of need for new CMR beds in the district. Number 7 -- Heart of Florida would like a CMR program to complete its wide array of services available to its patients. Heart of Florida maintains that, “In light of the Affordable Care Act, the Applicant must position itself for the future where it will be able to offer a full array of services to compete effectively in providing quality services.” The hospital’s desire to be more competitive in the market does not establish need for a CMR unit. Number 8 -- Heart of Florida can support a CMR program from its own patient base. In fact, Heart of Florida fully expects that its CMR unit would be occupied by its own patients, not patients from other hospitals. That fact does not establish need in the district for a new program. In fact, its intention to serve only its own patients militates against a district-wide need for such services. Number 9 -- There are no existing CMR beds in Heart of Florida’s primary service area, i.e., in the geographic area from whence most of its patients come. This fact does not address or support the need for CMR beds in the district. The above-stated facts alleging need fall far short of establishing circumstances that warrant approval of Heart of Florida’s proposal. The facts distinguish Heart of Florida’s service area from other service areas around the State. The facts establish that Heart of Florida would enjoy having a CMR unit and that it would likely be profitable. But the facts do not establish need for a new program in the district. Heart of Florida is experiencing an average of 16% to 20% patient readmissions to the hospital. That is, that percentage of patients who are discharged after treatment are having to be readmitted for further care related to the prior treatment. The benchmark for readmissions is about 10%. Under the Affordable Care Act, hospitals which do not meet the benchmark will be assessed a penalty. The hospital’s CEO and its chief nursing officer opined that an in-house CMR unit could help to reduce the readmission rate for some CMS-13 patients. The testimony was not adequately supported and was not persuasive. Based on the total number of discharges from the hospital versus the number of rehabilitative patient discharges, it is not certain the CMR beds would have much impact on the readmission rate. And, even if the CMR unit did help Heart of Florida’s readmission experience, that does not constitute an additional need for the service in the district. Highlands Regional Highlands Regional is a 126-bed acute care hospital in Sebring, Highlands County, Florida. The hospital is owned by Health Management Associates, Inc. (HMA), which is also the primary owner of Heart of Florida. HMA is a Florida-based national operator of community hospitals and health services. It owns and operates 70 hospitals and health systems in 15 states around the country. Highlands Regional proposes the development of a 7-bed CMR unit within its existing infrastructure in Sebring. The unit would be located on the second floor of the hospital in space that was formerly utilized as a hospice. Each of the beds would be located in a private room with a private bath. Highlands Regional sets forth seven bases which it believes justifies the approval of its project by establishing a need despite no fixed need pool. Each of those will be discussed herein. Number 1 -- District 6 has one of the highest CMR occupancy rates of any district in the State, and it has the single lowest CMR discharge use rate per 1,000 population age 65 and older. As stated above in the discussion of Heart of Florida’s proposal, this statistic or factoid does not, in and of itself, establish a need for CMR beds. There will always be one district with the highest CMR occupancy rate. There will always be one district with the lowest CMR discharge rate per 1,000 population. Absent a clinical correlation between those two facts, they fail to establish need for the CMR program at Heart of Florida. Number 2 -- Existing CMR beds are from 50 to 92 miles from Highlands Regional. The hospital is located in a relatively rural area, so longer travel is to be expected for its patients as compared to urban areas. Thus, patients discharged from Highlands County would have to travel farther than patients discharged from other hospitals around the State. However, this fact only establishes that it is more inconvenient for some of Highlands Regional’s patients to get comprehensive medical rehabilitation services. Inconvenience does not establish a need for new beds. Number 3 -- A seamless, uninterrupted continuity of care from the acute care setting to the post-acute CMR setting is not available to some residents in Highlands Regional’s primary service area. While it is clear that there is not a CMR unit near the hospital, there was no evidence provided that patients were not receiving the care they need. If an “uninterrupted continuity of care” standard was applied, then essentially every hospital in the state would “need” a CMR unit. Number 4 -- There is a large percentage of elderly population in Highlands County compared to the State average. This fact does not warrant approval of a CMR unit. Number 5 -- There is a gap in Highlands Regional’s continuum of care. Highlands Regional states that, “In light of the Affordable Care Act, the Applicant must position itself for the future where it will be able to offer a full array of services to compete effectively in providing quality services.” As stated above, the hospital’s desire to be more competitive in the market does not establish need for a CMR unit. Number 6 -- Highlands Regional is able to fully support a CMR program based on its own internal volume of rehabilitation- appropriate patients. This fact does not establish the need for a new CMR unit in the district. The HealthSouth application (10162) was approved despite its contention that patients from Highlands County are in a different medical market and that it would not likely serve patients from other counties. However, CMR proposals are currently approved by AHCA on a district-wide basis despite applicants’ remonstrations to the contrary. Number 7 -- There are no existing CMR beds in Highlands County. There was no competent evidence presented to establish that every county in Florida must have a CMR program. The above-stated facts alleging need fall far short of establishing circumstances that warrant approval of Highlands Regional’s proposal. Highlands Regional is experiencing an average of 16% readmissions to the hospital. The benchmark for readmissions is about 10%. Under the Affordable Healthcare Act, hospitals which do not meet the benchmark will be assessed a penalty. The hospital has about 9,000 discharges a year. Of those, about 277 were CMS-13 discharges. It is not clear that a CMR unit, even if it allowed for fewer readmissions to CMS-13 patients, would resolve Highlands Regional’s readmission problem. Each of the applicants in this case sets forth facts showing that their patients have to travel farther than some other patients in Florida to access comprehensive medical rehabilitation in a CMR unit. Each applicant’s physicians expressed frustration that their patients could receive better care in a CMR unit, but none testified that their patients were not now receiving adequate care. Each applicant established a strong desire for its own CMR unit and showed that the unit would be financially lucrative, but that is not a basis for approving a new unit. Each applicant presented testimony from its physicians containing anecdotal hearsay from their patients concerning unwillingness to travel. There was no competent evidence that CMR services were not available, just that such services were farther away than patients were willing to travel. That inconvenience for patients does not establish a need for CMR services in the district.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Agency for Health Care Administration denying the CON applications of Haines City HMA, LLOC, d/b/a Heart of Florida Regional Medical Center (No. 10163), and Sebring Hospital Management Associates, LLC, d/b/a Highlands Regional Medical Center (No. 10165). DONE AND ENTERED this 29th day of October, 2013, in Tallahassee, Leon County, Florida. S R. BRUCE MCKIBBEN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 29th day of October, 2013. COPIES FURNISHED: Lorraine M. Novak, Esquire Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Geoffrey D. Smith, Esquire Susan C. Smith, Esquire Smith and Associates Suite 201 2834 Remington Green Circle Tallahassee, Florida 32308 Richard J. Shoop, Agency Clerk Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Elizabeth Dudek, Secretary Agency for Health Care Administration Fort Knox Building III, Mail Stop 1 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308 Stuart Williams, General Counsel Agency for Health Care Administration Fort Knox Building III, Mail Stop 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308
Findings Of Fact The parties further stipulated at the hearing that the billing for which Shands seeks payment does not include charges for services rendered during the months Linda Sue Austin was being treated as an out-patient at Shands. All other facts, as stipulated to by the parties and as set forth above, are hereby adopted.
